March 16, 2011 (Shirley Allen)
Just days after the House of Representatives voted to kill the Federal Housing Administration’s (FHA) Short Refinance Program, Bank of America, JPMorgan Chase, and Citigroup have joined Wells Fargo and Ally Financial/GMAC as participants in the struggling program.
The program enables homeowners in underwater mortgages to refinance out of a current, privately held non-FHA backed mortgage and into an FHA mortgage with a loan-to-value ratio of no more than 97.75 percent. The lender currently holding the mortgage must agree to write down the excess principal on the mortgage, with the government (the taxpayers) covering part of the cost.
The Obama Administration originally estimated this program would help between 500,000 and 1.5 million homeowners. However, only 44 mortgages have been refinanced through the program as of mid-February and only 245 applications have been submitted. The FHA launched the Short-Refi program September 7, 2010.
The House of Representatives voted 256 to 171 to kill the Federal Housing Administration’s (FHA) Short-Refi program citing the program as an example of wasteful government programs that spend more to save a single borrower than it costs to buy a home.
The Obama administration has defended the program as still getting up and running and that the number of homeowners assisted under the program has more than doubled over the past month.
One of the major criticisms of the program is that it takes a privately held, non-FHA mortgage loan, transfers it to the FHA, and if the borrower defaults, the responsibility would now fall on the taxpayers.
“The money from this program doesn’t go to the homeowner, it goes to the lender, it goes to the banks. And who pays for it? The taxpayers and ultimately our children and grandchildren because the federal government borrows 42 cents of every dollar it spends,” said Financial Services Committee Chairman Rep. Spencer Bachus. “This program is already allocated $50 million and has helped only 44 people. Do the math.”
Tags: FHA, short-refi program, refinance, mortgage loan, borrower, underwater mortgages