The $8 billion program launched by the Federal Housing Administration in September to help
underwater borrowers refinance into a new mortgage continues to sputter.
The FHA Short Refi program was initially expected to reach between 500,000 and 1.5 million borrowers, according to a letter sent to lenders when the program was announced. Analysts were more pessimistic. More than $50 million has already been spent, but according to the Department of Housing and Urban Development, only 246 borrowers made it through the program so far.
Under the program, eligible borrowers can receive an FHA-insured loan but only if the lender or investor writes off the unpaid principal balance of the original first-lien by at least 10%.
To be eligible for the new loan, the homeowner must be underwater but still current on the mortgage, which cannot be already insured by the FHA. A credit score of 500 or better is required. The new refinanced loan must have a loan-to-value ratio of no more than 97.75%.
After receiving the new refinancing through the program, the borrower's combined loan-to-value ratio on the re-subordinated mortgages cannot exceed 115%. The new FHA mortgage can only be used to refinance the unpaid principal balance on the first lien.
According to the program's data through April, the latest numbers made available are that only 18 lenders participate in the program and only 149 new refinances had been made. A HUD spokesman clarified the recent numbers show 246 new loans from 24 lenders.
Through April, the leading lender to provide these new refinances was Nationstar Mortgage at 93. The next closest was
1st Alliance Lending at 12, followed by
Wells Fargo which conducted 11 refinances through the program.
Most of the borrowers that did make it through the program reside in California. Nearly one-third of Nationstar's FHA Short Refi loans backed homes in the Golden State. And nine of Wells' 11 were also located there.
Why are the numbers so low?
The main hurdle to the program is that Fannie Maeand Freddie Macare not participating. Without the participation of the government-sponsored enterprises, the pool of eligible mortgages was reduced by two-thirds.
The FHA Short Refi program also requires the borrower to become current through modification before becoming eligible.
"For borrowers who are not delinquent, servicers and investors have taken a cautious approach given their economic opinion on whether or not it's beneficial to forgive principal.
Given the voluntary nature of the program, the investors will only forgive principal if they feel it's economically in their best interest," HUD said.
National home prices have fallen nearly 33% from their peak before the crisis, pushing almost one-third of all mortgages into negative equity — the most prominent red flag for strategic default.