The homeowner must be underwater but still current on the mortgage.

Short Refinancing Program Just Started

The Federal Housing Administration (FHA) began offering new government-insured
mortgages to rescue underwater borrowers yesterday, but the new Short Refinancing
program may face as many limitations as earlier programs designed to aid the still
sputtering housing market. The Treasury Department set aside $14 billion in Troubled
Asset Relief Program (TARP) funds to encourage mortgage servicers to support write-
downs of second mortgages and to provide coverage for a share of potential losses on
these new loans, according to HUD.

The combination of TARP dollars and the FHA insurance means the new lenders will
have a loan backed by the U.S. for up to 97.75% of the home value. 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.

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