II.A.8.e. Refinance of Borrowers in Negative Equity Positions Program (Short Refi) (09/14/15)

Owned by Kacey Olson
Nov 21, 2018
3 min read

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Definition
ii. General Eligibility Criteria
iii. Underwriting

i. Definition

The Short Refi program allows the Mortgagee to refinance a non FHA-insured Mortgage in which the Borrower is in a negative equity position.

ii. General Eligibility Criteria

The existing first lien holder must write off at least 10 percent of the unpaid principal balance.

The Borrower must be in a negative equity position and may not have an existing FHA-insured Mortgage. The Borrower must be current for the month due or have successfully completed a three month trial payment plan on the existing Mortgage to be refinanced.

The Mortgagee is not permitted to use Premium Pricing to pay off existing debt obligations to qualify the Borrower for the new Mortgage.

The Mortgagee is not permitted to make Mortgage Payments on behalf of the Borrower or otherwise bring the existing Mortgage current to make it eligible for FHA insurance.

The refinanced FHA-insured first Mortgage must have a Loan-to-Value (LTV) ratio of no more than 97.75 percent and any new or re-subordinated Mortgages must not result in a Combined Loan-to-Value (CLTV) ratio greater than 115 percent.

There is no maximum CLTV ratio for second liens held by Governmental Entities or Instrumentalities of Government.

All Mortgages under the program must close on or before December 31, 2016.

(A) Borrower Certification

(1) StandardThe Borrower must certify on form HUD-92918, FHA Refinance of Borrowers in Negative Equity Positions Borrower Certification, that they have not been convicted within the last 10 years, in connection with a real estate or mortgage transaction, of any of the following: (a) felony larceny, theft, fraud, or forgery; (b) money laundering; or (c) tax evasion from receiving assistance authorized or funded by the Emergency Economic Stabilization Act of 2008 (EESA).

(2) Required DocumentationThe executed Borrower certification must be included in the FHA case binder submitted for insurance endorsement.

(B) Trial Payment Plan

(1) StandardA Borrower who is delinquent on their current Mortgage must successfully make three on-time payments on a trial payment plan before closing.At the time of underwriting the new FHA-insured Mortgage, the new total monthly Mortgage Payment amount cannot increase by more than 6 percent over the trial payment amount on the existing Mortgage.

(2) Required DocumentationThe Mortgagee must document in the case binder the Borrower’s successful completion of the most recent trial payment plan.

(C) Secondary FinancingNew or re-subordinated secondary financing that permits the Borrower to comply with the eligibility requirements of the program is permitted, subject to the following limitations:

  • the terms of the subordinate lien(s) must not provide for a balloon payment before 10 years, unless the Property is sold or refinanced;
  • the terms must permit prepayment by the Borrower, without penalty, after giving 30 Days advance notice;
  • periodic payments, if any, must be collected monthly; and
  • if payments on subordinate financing are required, they must be included in the qualifying ratios unless payments are deferred until at least 36 months after Disbursement.

iii. Underwriting

The Borrower must qualify for the new Mortgage under the applicable TOTAL Underwriting or Manual Underwriting requirements, except for the credit, debt-to-income and new mortgage requirements below.

(A) Credit RequirementsThe existing Mortgage to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable trial payment plan.

(B) Debt-to-Income RatiosFor Mortgages that receive a Refer risk classification from FHA’s Technology Open To Approved Lenders (TOTAL) Mortgage Scorecard and/or are manually underwritten, the homeowner’s total monthly Mortgage Payment, including the first and any subordinate Mortgage(s), cannot be greater than 31 percent of gross monthly income; and total debt, including all recurring debts, cannot be greater than 50 percent of the gross monthly income.ExceptionThe Borrower’s monthly total Mortgage Payment may be up to 35 percent of gross monthly income if their total debt does not exceed 48 percent of the gross monthly income.

(C) New Mortgage

(1) Write-offThe existing first lien holder must write off at least 10 percent of the unpaid principal balance of the Mortgage that is being refinanced.

(2) Mortgage Type and Automated Data Processing CodesThe Mortgagee must enter the Mortgage as a “conventional to FHA refinance non delinquent” in FHA Connection (FHAC).The Mortgagee must refer to the FHAC ADP Codes for Short Refinance codes.