As a result to the nation's mortgage crisis, it is estimated that 25 percent of home owners have negative equity in their homes and owe more on their home loans than their properties are worth. In order to assist those struggling homeowners, the U.S. Department of Housing and Urban Development (HUD) launched the Short Refi Program six months ago and at this point 23 lenders have signed up to participate in the foreclosure prevention and mortgage relief program.

An underwater mortgage will create a financial imbalance, increasing the odds of a mortgage entering default. Until the introduction of HUDs Short Refi program, lenders were hesitant in refinancing underwater home mortgages because of the loss of revenue associated with the transaction. Since five of the nation's largest lenders have agreed to the terms set forth by the opportunity, struggling home owners can soon get the sweet mortgage relief they have been looking for.

Short Refi Program Details

HUD launched the $8 billion program in September and qualified borrowers will be able to refinance their existing loans into more affordable and more stable mortgages with Federal Housing Administration (FHA) insurance coverage. Once a homeowner is approved for the program, lenders will be required to write off a portion of the principal balance and to reduce the amount due on first mortgages to no more than 97.75 percent of a home's current fair market value.

At this point 23 lenders have signed up for the program. They have agreed to issue an FHA-insured mortgage if both the lenders and the investors agree to reduce the unpaid principal balance of a first mortgage by a minimum of 10 percent. HUD has budgeted $50 million for the program and some lenders committed to the program include Ally Financial, JPMorgan Chase, Wells Fargo and Citi Group.

Borrower Qualifications

The FHA estimates that between 500,000 and 1.5 million homeowners can qualify and benefit from the Short Refi program. Borrowers interested in applying for the assistance must meet the following qualifications including:

• Program participants must be able to meet standard FHA underwriting qualifications.
• A minimum credit score equal to or greater than 500 is required.
• Only borrowers with loans not owned or guaranteed by Fannie Mae, Freddie Mac, FHA, VA or USDA can apply.
• Program is specifically for underwater mortgage holders.
• Mortgage payments must be up to date.
• The house in question must be a primary residence.
• Total debt cannot exceed 55% of one's monthly gross income.
• Borrowers must have clean, legal records void of a conviction of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction for the past 10 years.

House Voted to Strip Program of Funding

The Short Refi program recently topped headlines as last week, the House of Representatives voted to cut funding for program as a way to better manage the nation's growing debt. The bill passed in a 256-171 vote. The bill still has to be approved by the Senate and if that is the case, the Obama Administration has already stated that they will veto the potential change.

Short Refi program activity has recently increased, as of March 11, HUD received 387 applications for the refinance program.