Beginning September 7th, the Federal Housing Authority (FHA) will offer FHA-insured mortgages to qualifying borrowers who have a non-FHA mortgage. To be eligible, the borrower must owe more on the mortgage than the home is worth, be current on the mortgage, occupy the property as a primary residence, qualify for the new loan under standard FHA underwriting requirements, and have a credit score of at least 500. Similar to the under-performing Home Affordable Refinance Program (HARP), the FHA program will have limited affect on the current housing situation because so many borrowers are behind in their payments and lenders are reluctant to write off a portion of the principal.
Lenders are hesitant to write-off mortgage principals because then they would have to pay the investors for the amount of debt forgiven and it might establish a precedent that loan contracts can be changed due to market fluctuations. HUD recommends that borrowers contact their lenders to inquire about eligibility and whether the lenders will write down a portion of the mortgage.