FHA Short-Pay Refi’s
The Short Payoff Refinance, which is done through our standard FHA Loan Program.
Where as a “Short Sale” has become a well known solution for borrowers to avoid foreclosure by selling their home for less than what is owed, the “Short Payoff Refinance” (Short-Pay Refi or SPR) is becoming a popular tool for borrowers to retain their home.
What’s a Short-Pay Refi?
This process is similar to a short sale but, instead of the property being sold, it is refinanced with a new lender. A Short-Pay Refi is unique in that it allows the borrowers to keep their home, lower their payments and eliminate the upside down equity in their homes while reducing their principal.
The transaction itself is a basically a three part process. Negotiations are done by your Mortgage Planner in conjunction with the borrower and the lien holder. First an appraiser needs to establish the actual current value of the home. Next, we underwrite the borrower at the maximum LTV for that new value and issue an approval. Now, armed with the appraisal and our approval, enter into equity re-negotiations with the bank/loan servicer for a discount on the current mortgage. Once the bank/loan servicer accepts the offer presented, we can complete the new loan transaction.
Who should get a Short-Pay Refi?
For those borrowers that still have decent credit, ficos, income and no mortgage lates but do to a decline in the value of their home (owing more than it’s worth), a Short-Pay Refi is the perfect solution. FHA credit Guidelines do apply. Aside from the decrease in the home’s value, there are certain scenarios where the current lender will be more open to the proposal, specifically, where there are financial challenges on behalf of the borrower and where default may be imminent due to these challenges or where the mortgage interest rate is scheduled to adjust upward. Remember, the intent is to refinance into a low fixed rate FHA loan at the highest LTV possible (97% FHA). This allows the borrowers to put the brakes on before everything gets away from them and spins out of control.
After the transaction is complete and the lien holder is paid off, it’s completely up to that lien holder as to how they are going to rate the paid-off mortgage to the credit bureaus. Depending on the lender, it may be filed as: Paid In Full, Settled, Charged-off, Paid for Less than Balance, etcetera. This something arived at during negotiations.
Why would the bank/loan servicer agree to a Short-Pay Refi and not just foreclose on the property?
Banks/Loan Servicers books are becoming swamped with REO’s, so now they’re more amenable to negotiations then ever. Remember, foreclosing on a property requires large amounts of legal fees and then the home is typically sold at a substantial discount off of the fair market value. The Short-Pay Refi allows the loan servicer to avoid the majority of the legal fees and let’s the new lender make its largest loan based on the fair market value. When a Loan Modification can’t solve the problem as many loan servicers are not lenders, a Short-Pay Refi becomes a very powerful alternative. Short-Pay Refi’s put borrowers in better positions then standard loan modifications because aside from lowering the payment, they also lower the balance owed.
If you are interested in obtaining more information or would like to apply for a FHA Short Refi feel free to contact me: Your Mortgae Planner William Doom, CMPS. 1.888.271.3437 x7 Will@MyEquityPro.com
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Hi, I was wondering if the Short Pay Refi is an option for homes in Las Vegas, NV. What are the fees ?
Will, must your current mortgage be an FHA? Or can this work for someone who has a conventional, 30 year fixed loan and fits your description of eligibility?