As the House prepares to debate on the future of the Federal Housing Administration's Short Refinance option, FHA Commissioner David Stevens implored House subcommittee members to give the program a chance.
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The program is a voluntary option for lenders to agree to offer principal write downs and restructure loans for underwater borrowers.
With an estimated one-fourth of outstanding mortgages classified as underwater, Stevens says keeping the program alive is crucial to spurring economic recovery by helping to prevent more foreclosures.
""In many cases, providing a principal write down to a borrower is more economically rational for an investor or lender than not doing so,"" he said, ""as lenders lose significant value when a home goes to foreclosure.""
The program allows investors and lenders to reduce their expected losses while also enabling responsible borrowers to afford to stay in their home.
[COLUMN_BREAK]Stevens said as of February 11, 23 FHA-approved lenders are participating in the program and 245 FHA case numbers have been requested, of which 44 loans have been endorsed.
Stevens said that although the number of loans endorsed is relatively low, the program has only been available for a few months.
Furthermore, ""systems and operational infrastructure must often be developed to utilize this option, in addition to the significant coordination required throughout the mortgage chain.""
For the program to be successful lenders and investors must select the loans to be refinanced, borrowers must agree to apply for a new loan and submit the required documents. Lenders and investors must then agree to the principal write off, servicers must agree to cooperate with all parties, and originators must agree to provide a new loan.
But it seems the necessary cooperation is taking place, and Stevens believes the progress will continue as long as the program stays alive.
Wells Fargo and GMAC/Ally both recently announced publicly that they will soon begin pilots with a select population of their loans held on portfolio.
""Based on additional discussions, several more lenders are in the process of developing the capability to utilize the FHA Short Refinance option by midyear and intend to collectively assist several thousand more homeowners,"" Stevens said.""