Saturday, October 4, 2008


A short refinance occurs when a mortgage lender agrees to accept a reduce payoff balance that is short a full payoff amount. Lenders typically forgive the remainder and issue a 1099 for the forgiveness of debt. President Bush signed the Mortgage Debt Relief Act of 2007 that enables homeowners to write off the 1099 for qualified principal reisdences. That is all well and good so to speak, but in reality, how offer is the FHA Short Refinance utilized? You will be pleased to learn that, moving forward, and as a result of the monstrous $700 billion emergency bill passed by Congress yesterday, the FHA Short Refinance will be more and more popular. This article will detail some of the reasons why the FHA Short Refinance will be more readily available and how you can benefit by obtaining your FHA Short Refinance.

Much to do was made about the FHASecure program last year. Finally, some industry insiders explained, the government would provide an opportunity to refinance loans under the FHA loan program. This, as pundits excitedly exclaimed, would allow lenders to provide short payoffs and finance the new mortgage through and FHA refinance. The second mortgage lender could subordinate - all is well! As it turned out, the FHASecure program did not live up to the expectations. You will hear different stories on the relative success of the FHASecure program, but essentially what has happened is that mortgage lenders have used the FHASecure program as a means of charging borrowers and loan originators alike more fees and a higher loan rate whenever a borrower refinanced from a conventional loan to an FHA loan. That is why, my friends, you wil hear that the FHASecure program has funded so many loan. It is NOT becuase it has 'saved' borrowers from foreclosure but rather it is because FHA lenders have used it as a way to profit from unsuspecting borrowers in this housing crisis.

Myth #2 is that lenders want to provide a short payoff to borrowers to facilitate an FHA short refinance. In a sense, this can be true, however, for the vast majority of instances whereby the FHA lender permits a borrower to refinance at a reduced or short payoff, it is when the borrower has missed severeal payments and generally does not qualify for an FHA short refinance. So where does that leave us with the FHA Short Refinance? Not in such good of shape so far. Hold onto your hat. Here is some welcomed news in the next paragraph.

Enter the $700 billion dollar bailout that was preceded by the $300 bailout. The national debt now exceeds $10 trillion dollars. That's $10,000,000,000,000.00 that the taxpayers are supposed to pay back at some time. I wonder what the USA FICO score is right now? I would guess it's somehwere areound a 611 or so. OK, all kidding aside, here is how the FHA short refinance will work for you. The governement will be buying MBS from banks. This is what is referred to as toxic loans. I think I saw Treasury Secretary hold up a 'vial' of the toxix mortgage assets to show Congress last week. LOL I'm on a roll now. OK, wasn't that funny. Next paragraph will explain how the FHA Short Refinance wil provide your solution.

It works like this. The government buys the MBS from banks and then the government allows your loan to refinance through the Hope For Homeowners program. This means the government takes the loss on the short payoff and then permits the loan to be refinanced into the fha short refinance.

How will you know if you loan is taken over by the government? Check back for the next article on the FHA short Refinance to get the answer to that and much more.

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