House votes to end FHA Short Refi

The House of Representatives voted Thursday to terminate the Federal Housing Administration‘s Short Refi program. The House Financial Services Committee cleared the bill, H.R. 830, last week. The House voted 256 to 171 to kill the program. The $8 billion program, launched in September provides FHA-insured loans through 23 participating lenders to essentially aid borrowers who owed more on their mortgages than their homes were worth. Rep. Robert Dold (R-Ill.) sponsored the bill. Under the program, eligible borrowers can receive an FHA-insured loan if the lender or investor writes off the unpaid principal balance of the original first-lien by at least 10%. To be eligible for the new loan, the homeowner must be underwater but still current on the mortgage, which cannot be already insured by the FHA. A credit score of 500 or better is required. The new refinanced loan must have a loan-to-value ratio of no more than 97.75%. After receiving the new refinancing through the program, the borrower’s combined loan-to-value ratio on the re-subordinated mortgages cannot exceed 115%. The new FHA mortgage can only be used to refinance the unpaid principal balance on the first lien. Testifying before the House committee last week, FHA Commissioner David Stevens said lenders have requested 245 FHA cases to look at, and 44 loans have been endorsed. The program has already spent $50 million, and the FHA expects to reach between 500,000 and 1.5 million borrowers with the program, according to the FHA’s original letter sent to lenders. Debate continued in committee and on the House floor Wednesday regarding three other bills that would assist troubled homeowners. The Treasury Department‘s Home Affordable Modification Program, the Department of Housing and Urban Development‘s Neighborhood Stabilization Program and Emergency Homeowner Loan Program are all targeted by House Republicans and should reach the floor this week. Republicans are reluctant to continue funding programs that they say cause more harm than good, while Democrats point out that ending programs too soon will leave many homeowners stranded and will cause future harm to neighborhoods and communities. However, the Obama administration said late Tuesday that it would veto any of these bills if passed by Congress. Write to Jon Prior. Follow him on Twitter: @JonAPrior