Do you owe way more than your house is worth because property values went down? Are you on time with your mortgage payments? Are you optimistic and lucky? Is your mortgage not insured with the FHA? Do you have time and energy to spend countless hours on the phone with lenders, jawing with customer service reps who know less about the mortgage business than you do?
If you answer yes to all the above, the Federal Housing Administration has a program for you.
Last week the FHA announced a new short-refi program. Under this plan, you can refinance your current mortgage at today's low rates and get an FHA-insured home loan.
There's one catch: Your current lender -- the one that you're making on-time payments to -- must agree to write off at least 10 percent of what you owe. And if you have a home equity loan or line of credit, that lender must agree to remain in the subordinate lien position. The FHA would prefer the home equity lender to write off all or some of that loan amount.
So let's say you bought the house for $200,000 in 2005, and now it's worth $150,000. You owe $185,000, which means that you owe 23 percent more than the house is worth.
To get an FHA short refi, the lender would have to forgive at least $18,500 of your debt -- that's 10 percent of what you owe. In reality, because the FHA loan can't be for more than 97.75 percent of the appraised value, the lender would have to forgive enough debt to get you down to $146,625. So the lender would have to forgive $38,375, or almost 21 percent of what you owe.
After persuading the lender to do that, you would have to talk the home equity lender into resubordinating its loan, and maybe forgiving some of that debt, too.
Debt forgiveness, even when blessed by the government this way, takes a toll on your credit score.
The FHA estimates that between 500,000 and 1.5 million homeowners will take advantage of the short refi program, which begins Sept. 7 and runs until the end of 2012. As usual, they're probably wildly overestimating how many people will take advantage of the program. Lenders aren't gonna play ball on this, no matter how much the taxpayers paid to save their bacon.