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FHA Short Refinance Program Helps Upside-Down Homeowners

FHA Short Refinance Program Helps Upside-Down Homeowners
Mark Cappel
UpdatedMar 14, 2011
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    3 min read
Key Takeaways:
  • The FHA Short Refinance Program allows homeowners with negative equity to refinance.
  • The program slashes principal from mortgages on upside-down property.
  • Congress is threatening to remove funding for the program.

FHA Short Refinance Program Catching on With Lenders, Borrowers

Six months after the FHA announced its Short Refinance plan, it appears the program is developing traction among 23 lenders willing to follow its guidelines. The New York Times reported in mid March 2011 the following five lenders had restructured 44 loans:

  • Wall Street Mortgage Bankers, Lake Success, NY.
  • 1st Alliance Lending, East Hartford, CT
  • Nationstar Mortgage, Lewisville, TX
  • E Mortgage Management, Haddon Township, NJ
  • Glacier Bank, Kalispell, MT

The FHA has a complete list of FHA qualified lenders, although not all are participating the short refinance program. Notable non-participants in the FHA program are Bank of America, Citibank and JPMorgan Chase. The Times quoted a Bank of America spokesman, who said, "Without the participation of Fannie Mae and Freddie Mac, we don’t believe the program can help a significant number of our borrowers." Wells Fargo and Ally Financial (parent company of G.M.A.C. and Ditech), said they created test programs for the FHA option, and are studying the results.

The Times quoted a Citibank spokesperson who said the bank was "participating in a third-party pilot program along the same lines as the F.H.A. Short Refi program," but did not provide details.

John Diiorio, the owner of 1st Alliance Lending, said big banks were taking part behind the scenes, by referring homeowners to third-party lenders that could restructure their mortgages. He said 1st Alliance had "several hundred FHA Short Refi" loans in the pipeline.

Because the FHA announced the program in September 2010, and because such loans take three to four months from start to finish, Diiorio said the number of refinanced loans should increase in coming months. He said that, on average, 1st Alliance had negotiated a principal reduction of $86,000 on a $256,000 loan, a 33.5% cut, to $170,000. He said lenders and investors had agreed to reduce principal for only half of the loans 1st Alliance Lending worked on. Diiorio said borrowers pay a slightly higher fixed rate, typically 6% or so, but the financial impact was the same as a 5% rate on a higher-balance loan.

HUD estimated that 500,000 to 1.5 million borrowers could be eligible for the program. Even so, it faces challenges in Congress. In early March 2011 the House of Representatives voted to end it.’s Take on the FHA Short Refinance Program

Under the FHA Short Refinance program, a lender reduces the principal balance on the mortgage. The reduced-balance loan then passes from the private hands of the lender or investor that owns the loan to a loan that is guaranteed by the federal government. Previous government programs attempted to aid those who are behind on their mortgage payments. The FHA Short Refinance Program is targeted to borrowers who are current and can afford their payments, borrowers who could not qualify for the different loan modification programs available.

If you are upside-down or underwater on your mortgage and want to refinance, the FHA Short Refinance Program is a great way to knock-down your principal and pay less in your monthly mortgage payments. Congress is considering cutting the program, so if Fannie Mae or Freddie Mac are not your mortgage investor, call your mortgage servicer to learn if it is participating in the FHA Short Refinance Program. Or, contact one of the lenders mentioned at the top of this article.


IIzzy, Dec, 2013
Seterus holds my loan and they are not a mortgage company only a debt collector. Not sure how that works but that is what I was told once B of A sold my loan. I have never been late with my payments and want a short refi but I don't know who to contact since Seterus won't help, any ideas?
BBill, Dec, 2013
Unfortunately, if your lender is not willing to participate and reduce your principal balance, then you can't use the FHA Short Refi program.
KKenny, Jul, 2013
My first mortgage is with First Horizon (now Tennessee). I contacted them, as was given to Quicken Loans as they do all tehir refinances. The nice gentleman, D. Tritter, told me that he couldn't help. He basically said that this program was a game. He did not do these FHA Short Refinances, and he didn't know of any lender who did it. He said it was "voluntary" at the lender and, ha ha, I was most likely out of luck. He didn't know the number of First Horizon's loan mitigation department or the number of the person there who does FHA short refis. I read him an article that said First Horizon did the most of these, as well as the Nationastar mortgage guidelines issued 12/20/12 which shows First HOrizon had internal control set up. So, now I am going to write to First Horizon. If First Horizon has done some of the loans, then under HUD Fair Housing . . . wouldn't everyone similarly situated have to be fairly treated the same accord?The system screws the honest people who paid their mortgage and lost their 20% downpayment. I just read that Florida is sending out millions of dollars of settlement money to foreclosed homeowners. I am in a 100% conventional fixed rate mortgage that isn't Freddie, Fannie, nor FHA backed. I'm screwed, unless I walk away. And, Florida's governer just made that a real possibility.
BBill, Jul, 2013
The Short Refi program has helped very few people. Unfortunately, a lender can treat people who are similarly situated differently, as long as they don't discriminate on the basis of race, religion, national origin, or some other protected class.
VVanessa, Jun, 2013
My mortgage unfortunately is with Chase and 2nd Mortgage with Wells Fargo. Neither want to participate because they could care less if you are current on your mortgage they want to continue to take your money. My frustration has been they feel you can pay so keep paying - even though they are got bail outs and are helping others who don't pay their mortgage. A Wells Fargo Agent went as far as to tell me to "sign my home over to Wells Fargo" when I complained about their not participating in FHA Short Refinance. We need to find out who is NOT voting for this and vote them out of office. Sad the banks keep taking advantage of the people who pay! Wish I knew some options??
BBill, Jun, 2013
I understand your frustration. Perhaps rising property values will get you to the point where you can take advantage of a standard refinance.
DDeidre, Jul, 2013
It seems it does not pay to be on time making your mortgage payments or if you have good credit. Why not help a group such as this and is under water? What is wrong with this picture.
RRenee, May, 2013
I'm trying to do an FHA Refi. I spoke to the folks over at Making Homes Affordable and they said that I will qualify and suggested I do that. Problem is, you have to find someone to do it. I called 1st Alliance and they said that NJMFA (my lender) is not someone they regularly work with so I would have to have NJMFA contact them if they are willing to play. I called NFMFA and no one there seems to even know what an FHA Short refi is. Very frustrating. Know of any banks that are willing to do the leg work/negotiations for you?
BBill, May, 2013
I am not aware of any lenders that do what you want. Readers?