Conventional Refis Get an Equity Break

Conventional Refis Get an Equity Break
PrintEmailReprintsFeedbackShare | Tuesday, September 14, 2010

By Brian CollinsWASHINGTON—The Federal Housing Administration is opening the door for conventional borrowers with negative equity to refinance into government-insured loans.

The agency recently issued guidelines for its FHA Short Refinance Program, which requires investors to accept writedowns on first and second mortgages (if necessary) to a combined loan-to-value ratio of 115%. The first mortgage must be written down by at least 10% to qualify.

HUD deputy assistant secretary Vicki Bott said there is a lot of excitement in the marketplace about the program which was first proposed in March. She expects some FHA lenders will able to starting originating “short refis” on Sept. 7—the effective date.

However, even though FHA is open to refis where a principal writedown may occur on a nongovernment loan, the Department of Housing and Urban Development is shutting the door on conventional borrowers with high LTV mortgages and second liens from using its regular FHA refinancing program.

Starting Sept. 7, the maximum combined LTV for a rate-and-term refinance will be 97.75%. On cash-out refinancings, the maximum CLTV is 85%, according to Mortgagee Letter 2010-24.

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