One mortgage lenders view on the fha short refi
Greatly simplified, this is how an FHA short refinance works: You owe $300,000 on a house that you bought at the top of the market. Since then, house values in your neighborhood have fallen by 20 percent, and your house is now worth $240,000. The rate on your subprime adjustable-rate mortgage has gone up, and you can't afford the higher payments. Instead of foreclosing, the FHA lender agrees to forgive $60,000 of the debt and refinances the mortgage for $240,000 -- an FHA loan you can afford!
"The lenders are going to take a hit anyway," FHA short refinancer argues. "The biggest thing this does is prevent the number of documented foreclosures happening in a neighborhood and causing the values to deflate. It keeps people in their homes and gives them an FHA short refi loan to boot."
These are intersting concepts for the FHA loan market for refinancing of FHA short refis.