Tuesday marked the start of a new, targeted government housing program designed to help the millions of Americans who, in the wake of plummeting property values, owe more on the mortgage than their home is worth.[IMAGE]
The government's mortgage insurer, the ""Federal Housing Administration"":http://www.fha.gov, is at the center of the new program for underwater homeowners. FHA is now offering certain non-FHA borrowers with negative equity, who are current on their existing mortgage, the opportunity to refinance into a new FHA-insured loan, as long as their existing lien holders agree to write off at least 10 percent of the unpaid principal balance on the first mortgage.
Officials have suggested that between 500,000 and 1.5 million underwater borrowers could receive a new, more sustainable mortgage through the ""FHA Short Refinance"":http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf option.[COLUMN_BREAK]
But analysts say because participation in the program is voluntary and requires the consent of all lien holders, they expect significantly smaller results. ""Barclays Capital"":http://www.barcap.com estimates that the new FHA refinancing program will only reach 200,000 to 300,000 homeowners.
The ""latest data from CoreLogic"":http://www.dsnews.com/articles/underwater-homeowners-decline-to-11m-corelogic-2010-08-26 shows that some 11 million borrowers were in a negative equity position as of the end of June. That equates to 23 percent of all U.S. residential properties with a mortgage.
The FHA Short Refinance option, originally ""announced in March"":http://www.dsnews.com/articles/white-house-adds-underwater-unemployed-assistance-to-housing-program-2010-03-26, is aimed at providing some mortgage relief to homeowners whose biggest investment Ã¢â‚¬" their home Ã¢â‚¬" has left them with a huge equity gap because their local markets saw declines in home values.
Homeowner advocates and even government watchdog groups have been imploring the administration to tackle the underwater mortgage issue for some time now. Studies have shown that severe negative equity can be a strong default trigger. By getting in front of the problem early with a solution, while these homeowners are still current, the administration is hoping to fend off a new round of foreclosures.
To facilitate the refinancing of new FHA-insured loans under the program, the U.S. Department of Treasury says it will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens.
The government has earmarked $14 billion in Troubled Asset Relief Program (TARP) funds to support the program.