March 10, 2011

FHA’s Short Refinance Option – Helping American Families

Written by:

Julie Shaffer, Program Manager, FHA’s Short Refinance Option, HUD’s Office of Housing

For the last year, I have been working to help implement FHA’s Short Refinance Option. The program gives borrowers who are current on their loans but owe more on their home than it is worth due to falling house prices an opportunity to refinance into an FHA insured mortgage at 97.75% of the home’s value. The goal is to help struggling homeowners sustain long term homeownership. It is estimated that 25 percent of all homeowners with mortgages are currently underwater, so this program is critical to helping some of these homeowners regain stable ground.

Recently, I spoke with Beverly Matteson. She and her husband had fallen on some bad times and were trying to lower their monthly mortgage payments but couldn’t since they were underwater. Her husband was unemployed, had no health insurance and had suffered a heart attack. In addition to all their outstanding medical bills, they had $400 in monthly expenses for his medication. They were struggling to keep up on only one income. Luckily, they were able to take advantage of FHA’s Short Refinance Option. Their lender agreed to write off $56,500 of principal on their existing loan. With this principal write-down, which was borne completely by the lender at no costs to the taxpayer, the Mattesons were able to lower their monthly mortgage payment from $1,977 to $1,244 a month.

I also spoke with the Wymans, who had an adjustable rate mortgage and their property had dropped significantly in value. When their interest rate adjusted, their monthly mortgage payment increased $1,800 a month. The Wymans were having difficulty staying current on their mortgage and had trouble refinancing since they were underwater. Mr. Wyman’s mother and two brothers moved into his home to assist with the expenses. Fortunately, they were able to take advantage of FHA’s Short Refinance Option. The lender agreed to write off $68,129 of principal on their existing loan, also at no cost to the taxpayer. Their payment dropped $1,000 a month. The Wymans are relieved to have a fixed rate affordable mortgage that is government insured.

That is why the Obama Administration has opposed this effort in Congress to eliminate this program so vigorously, to help keep homeowners like the Mattesons and Wymans in their homes. If the House of Representatives bill to eliminate this program should move forward, we lose the opportunity to continue helping others like the Mattesons and Wymans. For them, this program was a life saver that helped keep them afloat through difficult times. They told me that it is their hope that other borrowers, in similar tough circumstances, would be able to take advantage of this program because the FHA Short Refinance Option helped to prevent them from going into foreclosure and it is certain to help others.

32 Responses to FHA’s Short Refinance Option – Helping American Families

  1. The key words are “an opportunity” but for many it’s just false hope. More than likely if you are under water in your mortgage you are also facing the fact that your house will not appraise for the amount needed to qualify. I wasted $450 for an appraisal only to have it come in too low for me to qualify. Fix that problem and many more Americans will be helped!

    • The fact that the home is underwater means the house will definetly appraise lower than what the homeowner owes. The new FHA “replacement” loan is at the new current appraised value. The homeowner now will have a new FHA low rate mortgage, at what the property is worth, to 97.5% of apprasied value. The current lender will “short” the amount owed to the new lower current value. The current lender then will tap into TARP funds to recoup their written off shorted amount to allow the refi to close

      Short Refi Specialists

  2. Thats all great, but how come freddie mac and fannie mae dont participate in this program? That is why this program has been so bad. 85% of all mortgages in this country are owned by fannie and freddie and without their participation it isnt much help to people like me who are 200k underwater. There was no second taken out on our loan, just tons of foreclosures in our area. Its disgusting to read how republicans stick up for banks and say that underwater homeowners were not affected by the robosiging, forclosure fraud and shooddy lending standards of on unregulated market, when in fact that is the ONLY reason Iam underwater!

    • PRECISELY! The HAMP and HARP with the PRA plans are the programs designed for people who’s mortgages are backed by Freddie Mac and Fannie Mae…..but the ONLY outlet for the 20% of people who DON’T have Freddie Mac or Fannie Mae backed loans IS this FHA Short Refi….I’ve been denied for every thing else, I hope I can get this going. Its my last resort.

  3. Another key fact is convincing a profit making institution such as any of the big 5 banks to just write down your balance by 10%…I am a Loan Officer and we have had many people ask about it and request that type of program, but we cannot get the banks to write down the debt…why would they?

    • Hi,
      I work for a Real Estate Attorney, we are working on the Short Refi program, part of the issue is local Realtors who are not honest with home owners. they send out advertisements that ONLY talk about short sales. All of the “talk” is about how loan mods dont work and short refi’s dont work. they do, our firm has an excellent success rate. Most of the reason they dont work is home owners try to do them on thier own and end up not filling out the paper work correctly or not signing the second page of your taxes. seems like that wouldnt cause a denial but it does.
      Also you would think a realtor has a fiduciary duty to not only tell a home owner if they qualify for a short sale but they should also be required to tell them if they also qualify for a loan mod!!! It is actually a realtors duty to know the requiremments but they make more money short selling the home then we do on a loan modification even when we stop a foreclosure and obtian a loan modificaiton.

      any way, these programs do work, the new principal reduciton loan mod program does work we do the net present value has to be ran twice and if the home owner is positive with a reduction the pooling and servicing agreement says they will get a principal reducitons.
      work with a local attorney who runs a net present value as well as a securitization audit.

      additionally work with an attorney who has excellent results with principal reductions and stopping foreclosures.

  4. The FHA Short Refi program has come under fire by critics recently with claims that it does more harm than good and is both costly to the taxpayer and ineffective. In reality, the program is an important tool that lenders can use to keep borrowers in their homes. Many studies have shown that significant debt reduction (like the Short Refi program) is far more effective than HAMP style modification at preventing re-defaults. In fact, any program that does not incorporate some meaningful level of debt forgiveness will fail to reduce foreclosures.

    The Short Refi program is not a silver bullet, and won’t solve the crisis by itself. But, it is the best alternative by far for about 10%-20% of the loans in any given distressed portfolio. As a lender, I can see that this program works best for borrowers who are “at high risk” of a foreclosure – in other words, those who can barely afford their existing payment, and are significantly underwater on the property value. These are the borrowers who are most likely to become delinquent and who have no solid financial incentive to bring themselves current once they slip behind a few payments.

    So, who benefits the most?

    Borrowers- The benefits are clear. At risk borrowers avoid foreclosure, stay in the home, and receive a loan with an affordable monthly payment.

    Neighbors- Empty properties are an eyesore and accelerate the decline in area property values. Since foreclosure sales and short sales are always at a discount, they drag all nearby properties down with them. The Short Refi program keeps borrowers in homes, and homes off the market.

    New Lenders- Private capital will play a major role in the mortgage markets, but only once they believe that the bottom in housing has been reached. Investors want certainty, and won’t bring serious capital to the table (ie. re-open the private mortgage securitization markets) until property values have stabilized. This short refi program will help establish that bottom, and will encourage private capital to re-enter the market.

    Who Pays?

    Existing Lenders- Somebody has to pay, and in this case, most of the cost is paid by the existing lender. In order to refinance a loan under the program, the existing lender must write down a portion of the balance, essentially forcing the lender to recognize a loss. From the perspective of a participating lender, a quick 30% loss on a short refinance beats a 45% loss on foreclosure every time. Further, with the additional challenges involved in foreclosures – higher volume, inexperienced workers, missing paperwork, improperly signed documents, and a host of legal delays to the process, foreclosure becomes a much more costly alternative.

    US Taxpayers- Taxpayers subsidize the program since the costs will be shared by HUD and Treasury. But the taxpayers benefit greatly in terms of market stability. Quick recognition of bank losses will bring certainty to balance sheets and stability to credit markets. Eliminating the specter of the shadow foreclosure inventory will help stabilize property values. Without a doubt, a segment of these Short Refi borrowers will ultimately wind up in foreclosure, and those losses will be borne by HUD and Treasury. The key here is ensuring that the insurance premiums paid to HUD, plus the benefits of market stability exceed the losses HUD expects to incur. Get this right, and the taxpayers win too.

  5. I’m just a taxpayer (or I used to be). The housing boom busted. I got that. But I feel compelled to find out what fueled the housing boom. I try to look at mostly .GOV documents that our Congress and Financial Agencies might have also seen. I find myself looking at complex computations and formulas to measure Counterparty Risk. But I think I got enough out of it to understand that our policymakers played a part in it for sure. It’s been coming on for a lot longer than we think.

    After a while I get so lost, my eyes glaze over, and I give up. But it makes perfect sense to me that the housing market has to stabilize or reach the bottom before things can get any better. It almost seems like common sense. Could it be that simple? We certainly understand that we have assets that we cannot sell because there are just too many properties on the market.

    I wonder if our policymakers really understand enough to make the right decisions when making policy. And even if they do are they more worried about blaming each other and trying to save face that they loose site of the citizens?

    We have always worked since we were in high-school. For over a year we have been trying to get into one of the ‘save your home’ programs. We started even before we missed a payment. But we are not eligible for anything.

    • self-employed unemployed
    • No income or not enough income
    • lost our information technology jobs either because we were older and highly compensated (out with the expensive old and in with the cheaper new) or as a result of those IT jobs heading offshore that were happening in the shadows of the manufacturing jobs.
    • Now in the group of older folks close to retirement but not close enough
    • Have assets that you cannot sell because the market is oversaturated.
    • Experienced some sort of personal event (auto accident injured my husband—other driver fell asleep) for which you thought insurance would help only to find out 4.5 years later that it would not.
    • Family members experienced some sort of personal event and we helped them out with something as frivolous as funerals.
    • Live in a State that solely survives on Property Taxes. These taxes have to be paid whether you have income or not.
    • Live in a State that is considered a donor state. We pay more to the feds than we get back per capita. Don’t think our municipal level property taxes are even considered in this equation.

    Even if good policies started today, we’re pretty sure we will loose everything. Already had our first Foreclosure Sale. And we are now behind on our Personal Home. Behind on the property taxes, too and that has tripled our monthly mortgage payment.

    So, the biggest regret I may have might just be that I sold our tent and camping equipment two years ago at a yard sale. Spring and summer are coming so we may have a few months to get prepared for winter as we move onto one of our raw property assets and attempt to live off the land. And maybe when winter comes, we might be eligible to sign our last little piece of dirt over to the State and maybe get into one of the entitlement programs. Maybe. . Oh well, we fought the fight.

  6. why not try the commercial refinancing solutions to solve your investment problems. Our site can also help you. You can visit our sight at :

  7. ( I am not sure what topic to use )

    To: All Who,That Stand To Lose
    This letter is my idea for helping solve some

    of this mortgage and job downfall-as a pilot

    job program created to assist people whom

    face losing their homes. I am sure that many

    of the letters that are sent out each day to

    home owners in distress are not even

    opened. They may not understand what the

    letters are trying to tell them. If and , When

    the letters are opened and read, there is still

    no communication between the homeowners

    and the lenders. Due possibly to one or

    more of the following reasons.
    Depression, helplessness, confusion , A

    Large feeling of Failure, LOSS of PHONE

    SERVICE , No Electric . , I have experienced

    Some of these conditions first hand.
    Census? Yes, create a network of

    informed, trained people from the state of

    North Carolina; citizens, face to face. Wells

    Fargo Mortgage, PMI insurance

    departments. Borrowers in Need of Jobs. An

    effort by all lenders concerned and invested

    in “Home of People” mortgage.
    The government, lenders and the

    homeowners all stand to lose if something

    besides lots of letter-sending is not done.
    I propose an effort by all whom stand to

    lose, from government to lenders, create a

    “Census” type of network; created to make

    household, face to face contact with

    homeowners; help someone personally!

    Most Homes Were / Are Sold Using This

    type of Attention; As a community, we

    preach helping those in need and at the

    moment are obliged to to do something

    directly and specifically about this issue. Let

    North Carolina lead the way in creating jobs

    from saving everybody money; the

    government, lenders, tax payers.
    Recruiting a pre-knowledgeable staff and

    offing jobs to homeowners in distress could

    be a huge step in helping everyone that is

    going through a financial crisis. Use people

    from behind desks to train each new

    employee With The tools to help educate the

    homeowner face to face, personal help to aid

    in the understanding of what the printed

    letters that are sent to their foreclosed homes

    actually mean.
    Explain the options openly and let

    misunderstanding, letters be a thing of the

    past. Let us Personalnize the way that we

    help people going through These Difficult !!

    Times. if someone is paid to take pictures

    of properties, also send them with

    :information on how they can be helped.

    FACE 2 FACE, a picture may be worth a

    thousand words, but a literal helping hand is

    worth much more. Possibly Saving a

    Family’s Home, The Lenders, The State

    Government, & Federal Government. More

    LOSSES Ie= TAX Payers.
    AS did Census workers were equipped

    with Computers, phones , This Should also

    be the same in this case. Able to access the

    necessary information and options ,for each

    Home-Owner-Borrower . Possibly having a

    data-bank at hand ,of the area’s local Job

    Market to give each Home-Owner. The

    Census workforce program has already been

    used to find each home, person, bedroom,

    bathroom, for statistics sake. This

    employment also would probably, be

    temporary, ? Allowing the people to take

    advantage of the many Education &

    retraining That are currently Offered. There

    is also some incentives for ,The Prospective

    Business person to build new Business &

    employ = People..
    Most all people experiencing, this ,

    depression/ression , Never Would have

    thought to remotely prepare for This Event

    of a HORRIFIC , Economic proportion. That

    has Plagued us for too long. This is the

    reason I am So Much in Favor of using this

    Face 2 Face, = Neighbor helping Neighbor ,

    type of Assistance . Planting some seeds For

    The future . If anyone else think this idea

    will work ,could you PLEASE , help & show

    it to People That Can & Will Make it

    happen. I have read nor have I seen

    Anything like this . It is Quote,, (WIN-

    WIN} Forward Move for the , Economy!!
    Rember: Most Homes Were & Are Sold

    Using This type of { Personal } Attention.
    Wade Brookover,

    Indian Trail,Nc. 28079.

    { Currently Facing

    foreclosure } 04/2011

  8. For the first time, responsible homeowners have the opportunity to refinance the existing mortgage and “lower their principal balance”.I personally called the HUD office to inquire about the participant lender/servicers in the program . Their response was everybody should participate – “it’s just an FHA Refi”. The truth is, while it is a great conceptual idea, the infrastructure of the lenders has taken a long time to get in place and begin to function within the guidelines of this program. Actually, over 1 year.

    The good news is that the FHA Short Refi Program is finally starting to get traction and the expectation of 500,000 to 1,500,000 homeowners being able to take advantage of this program is very exciting to me as a Mortgage Banker.

    I have personally engaged in this program,and can help with your loan process and approval. Unlike the “Making Home Affordable” Loan Modification Process which has descresionary decisions and no consistancy.
    This program is simply a refinance based on current appraised value, and at todays low rates. You end up with a lower principal balance, and in most cases a lower payment as well. It’s a win – win for everybody but the taxpayers that have funded the program. An unbelievable opportunity. I have answers, and documentation for anybody who is interested.

    Contact Me Direct:
    Rusty – Mortgage Banker
    Stearns Lending, Inc.
    909 895-6905

  9. I have been working on trying to refi our 200 % LTV home since the inception of this program in Sept. 2010. Initally I spoke with a high ranking official at the FHA/HUD Single Housing Family department who tried to lecture me for over an hour about how the \little guy\ needs to bear the burden for this housing crisis and how he is so proud of the fact that the billions of taxpaper dollars doled out to bail out the big banks, AIG, Wall Street firms was money well spent b/c the government was paid back and made interest. His position was that it was \the little man\ moral imperative to pull his self up by the bootstraps because big business should not share in the burden of helping to stabilize the housing marketplace. He also stated that they had mechanism in place for FHA borrowers and people in this program were not worthy b/c they were morally obligated to stick with their hopeless situations. When questioned about whether my lender (BOA) was taking part in the program he related that why would lenders take part b/c of the principal reduction aspect and that they had no info on who was taking part in the program b/c they had no upfront way of tracking the apps. I then questioned how in the world they could of built the business case with billions of dollars that they said would benefit the economy if in fact this program was implemented successfully he had no answer. This is the guy that should be championing the program mind you.
    Armed with this discouraging info after writing the CEO of BOA and the SVP of mortgages at BOA I got a call from a customer service agent at BOA Office of the Presidency who had no idea what the short refi program was. After I emailed her the position paper and announcement from HUD she got in contact with BOA’s people who specialize in FHA who related that BOA had no plans to participate as they attended workshops with the HUD/FHA folks on this program and came away feeling like the government folks weren’t even on board with their own program (which confirmed my earlier thoughts about my discussion with the powers that be) and that they had NO plans to participate whatsoever.
    More recently David Stevens (who had been fired by the way) got up in front of Congress and testified that 24 major lenders (BOA rumored to be included) were now on board in mid March when the House was threatening to shut down the program (which they did) b/c of its ineffectiveness (only 44 apps nationwide at that time). Contacted BOA again resulted in my transfered around like a hot potato to no less than 6 different departments who either had never heard of the program or stated that BOA was not participating. Follow up calls and emails to the office of the presidency have not been returned. Good luck trying to get assistance from your lender regarding this program.

  10. Does anyone have any suggestions on how to get your lender to participate in this program? I called Chase (my mortgage servicer) and they told me that they are not participating in this program, nor do they have any indication that they ever would.

    I also have another question: Why would the government establish this program but not mandate that all lenders/servicers participate in it? Of course most lenders would chose not to participate; after all, I would imagine most would rather risk a few foreclosures than have virtually every loan experience a writedown.

  11. Same question here, I believe the FHA Short Refi is just a tease.
    Give them some hope, keep them paying , waiting for nothing . I am ready to walk , have been waiting too long. I would love to know what think tank came up with this lame idea, and thought the banks would go along with it. One can only assume it was known all along the banks would not, and watching the responsible homeowners jump through hoops would be entertainment.Check out all the programs out there for first time homebuyers, they are still handing out mortgages with little or no down, and low scores. So in a year from now those new homeowners can adjust into loan mods when their already low income drops a few grand! This government does not want responsible homeowners,we need to quit paying for “others ” to get homes at normal prices and great interest rates. Enough for me , I give, they win! It won’t take long to be “subprime” a perfect candidate for some help.

    • Short Refi is working only for specific lenders.

      the program is voluntary.

      Our Law Firm is doing a Securitization Audit to find out if there are violations in the securitization process. This may or may not work in negotiating with the lender to reduce the loan to 97% of current market value.

      There is also the traditional loan modificaiton that if your first loan payment is more than 31% of your gross income you may qualify for a modification.

      You may want to submit a modification application.

      If your low income you may qualify for assistance.

  12. I think banks are determined to make the rich richer and the poor poorer. The gov should step in on these banks.

  13. As a responsible homeowner that has gone from buying a home in 2006, watching the value plummet, gone from 2 incomes to 1 after my husband was laid off, we always make our mortgage payments (b/c we pay our bills and save before we go spending). & I have found zero help from the government programs. We should qualify for HARP, but like most lenders, GreenTree disqualifies applicants who have PMI. (which basically disqualifies everyone who needs it– if we had better than 80% LTV and no PMI, we wouldn’t need HARP!) We put 10% down but now that we’re underwater, getting rid of PMI is nowhere in sight.

    FHA Short Re-fi is exactly what I need. Sounds great! Except that there is no way on Earth my god awful lender will do anything in my interest. Why would they ever agree to a short re-fi on a voluntary basis — when I’m making my payments as-is???

    I may be paying into TARP but I’m not seeing anything look better for me until the market bounces back..

  14. Hi Discouraged,

    I’m in the exact same boat as you. I have Green Tree as my loan servicer and they’re giving me the same runaround about our PMI preventing us from qualifying for HARP. I threatened to walk away but they don’t even seem to care!

    I don’t know what else to do. How can we get our mortgage companies to do something that would benefit both parties instead of hurting both twice as much??

  15. Does anyone have a list of participating lenders that are issuing short pay offs demands for the notes they currently hold. I am having a hard time getting them to issue the short pay demand.

    I undersand if the borrower currently has and FHA loan they do not qualify for this program.

  16. We own a home in South Florida that is currently 50% under water and we are current on our mortgage. When I found out about this FHA Short Refi, we jumped for joy….finally, something can be done since we did not fit into any other Obama programs. Well, I contacted our mortgage holder, US Bank, and to our surprise they stated they have never heard of this program and attempted to get us to sign onto a Streamline Refi that would save us a whopping $64 a month for 5 years. No brainer, right. Wrong! The whole object of the phone call was to get out of this negatve equity situation in an attempt to turn a bad situation around instead of walking away. How can these people not know about this program. Or is it that they just don’t want to discuss it because they will lose money. They will lose more than that if we walk. I just don’ t get it.


    • Are you saying that the bank agreed to make the short sale to the current owner?

      How can I contact you? I am very interested getting a short refi.


    • Yes… How can I contact you! Are you an attorney? Realtor? I am interested in getting a short refi also. Thank you.

    • Martin,

      Please email me, as I am underwater on my mortgage due to values dropping in my property. I would like to do FHA short term Refinance but have gotten the runaround from B of A the current mortgage holder. Can you help?


  18. Are you saying that the bank agreed to make the short sale to the current owner?

    How can I contact you? I am very interested getting a short refi.


  19. Anyone who thinks this program is workable is delusional. 301 refinances after 11 months. Why do these voluntary programs even see the light of day? Lenders are not interested. Even HAMP is hard to get and its requirements are less rigorous than this. Homeowners are suffering from BS fatigue.

  20. Someone want to tell me of a bank that actually participates in this Short Refinance program…cause I would love to find one. I have Bank of America and as soon as I read up on this program I called them up to see what they could offer…and all he kept talking about was streamline refinance. When I pushed the issue I was told that Bank of America DOES NOT participate in this program, nor is he aware of any bank that does. All a bunch of false hope if you ask me!

  21. Please provide contact info for I am very interested in the FHA Short Refinance, my lender citimortgage has not heard of the program.

  22. I am also trying to find anyone who participates. i am going to start a petition alleging fraud on the part of the federal government for wasting taxpayers time and money.

  23. You are sooo right – Bank of America is a JOKE!! We need to shine light on their misleading and unscrupulous practices. Bank of America leads Congress and FHA to believe they’re doing everything to help homeowners, they get bailout money, and give you 200 reasons why they cannot do a modification. It’s ridiculous! You’re right – BOA does NOT participate in the Short Refinance Option program. Make sure you let everyone know. Write to your Congressman, the President, file agrievances, don’t bank with them – pull your business. Make sure the lawmakers know how disappointed you are with this bank – Bank of America is a JOKE when it comes to loan modifications! Also, make sure you go through a 3rd party when trying to get a loan modification with Bank of America (try NACA). The only reason for doing this is for documentation purposes. Don’t do business with Bank of America!

  24. Bank of America is a JOKE!! Bank of American’s lending practices (as it relates to loan modifications) are unscrupulous! Please – write to your congressman, the President, file agrievances with HUD and the other government housing agencies. Tell them about your experience with Bank of America. Everyone needs to know about them! Don’t keep your checking account with Bank of America and tell your friends and family, too. Bank of America got a bailout – we got nothing!

  25. Rusty, are they still doing short refinance?
    we owe 360k and are worth 95k are still current but falling behind. they say we have 47 dollars extra each month and now my wife’s 2nd job 1200 ea. month is over. they are willing to modify my HSBC line of credit and said we are eligable then why wouldn’t we be eligable on the mtg. loan too.wepay 43 percent of gross income on this home and i don’t think they should have loaned that much to us in the first place. What info. might you have on this situation? Thanks ROB

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