I’ve recently updated this post on April 29, 2009 for the Las Vegas Homeowners who are still making high mortgage payments on homes that are worth less then they owe on the home loans.
Even though the most recent round of legislation with the new housing rescue plan does not provide for a significant principal reduction, there are still cases where a homeowner can possibly negotiate for a short payoff from their current lender and then obtain a new FHA mortgage at a lower loan amount.
Not to be confused with the “Obama Refinance” that does not allow for a modified loan amount higher than 105% Loan-to-Value of the first mortgage on primary residences, a short refinance principal reduction loan is a program where a homeowner negotiates for a reduced payoff from their current lender and then qualifies for a new FHA mortgage with a new lender.
As of April 15, 2009, we just started seeing the first few banks start participating in the Home Affordable Modification plan. Since the new guidelines are just being digested by the big lenders and servicers, our attorneys who negotiate short payoff refinances for us are still using a forensic loan audit as their best weapon.
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**Important** UPDATED: June 18, 2009 –
Most of the lenders that we are working with on short refinances are requiring that the borrowers attempt a short sale or a loan modification prior to asking for a short payoff refinance. Since Raintree Mortgage does not negotiate short payoffs or short sales on behalf of homeowners, we have trusted affiliates that we can refer you to. Raintree Mortgage does not receive referral fees or other compensation for connecting you with loan modification or short sale attorneys, we have simply set up these relationships for the convenience and protection of our clients.
Due to an overwhelming response, the Raintree Mortgage short refinance department is currently running 7-8 business days behind on returning phone calls or online inquiries. We appreciate your patience and cooperation.
You may also contact our affiliates directly for a faster response or more specific questions:
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What is a Short Refinance?
A Short Refinance is a mortgage transaction in which a home owner qualifies for an FHA refinance 30 or 15-year fixed mortgage with a new lender at a loan amount less than the current value and amount owed on the property.
Basically, the current lender will issue a “short payoff” and write off the difference between what is owed and the payoff amount that the new bank is requiring to complete a new FHA mortgage.
This is for an FHA rate and term refinance only, not for cash-out or debt-consolidation loans.
Why would a lender approve a Short Payoff?
Some banks are starting to realize that they are going to take a substantial hit if a property goes into foreclosure. Instead of taking over the costs associated with retaining a foreclosed property and assuming the risk of selling it several months later at an even greater reduced rate, issuing a Short Payoff allows the lender to immediately budget its losses.
While the lender loses less money on the Short Payoff (compared to foreclosure), it also opens up the opportunity to for that lender to re-allocate the money collected into new investments and potential profits.
Do I have to be late on my mortgage to qualify for a Short Refinance?
Unlike a traditional Short Sale, which sometimes requires a borrower to be delinquent on their mortgage payments to prove a potential foreclosure is in the future, a Short Refinance follows standard FHA lending guidelines and only works if the borrower has a clean recent mortgage payment history.
While there are some exceptions to this rule, a Short Refinance is a mainly designed for a homeowner that can fully qualify for a new loan, yet wishes to remain in their home with a reduced total loan amount.
The main challenge with negotiating a short payoff is proving that it is in the current lender’s best interest to write off a portion of loan amount on a borrower who is paying their mortgage on time.
Will a Short Refinance have a negative impact on my credit score?
This mainly depends on how you negotiate the terms of the short payoff with your current lender. In order to qualify for a Short Refinance, there cannot be any remaining liens or judgments placed on the borrower. If the loan is settled as “Paid for Less” then there may be an initial hit to your credit score.
Do I have to pay taxes on the amount forgiven in the short payoff?
No, the lender agrees to clear you of any past obligations to that loan by issuing a short payoff. As described in the Mortgage Debt Relief Act of 2007, the amount discharged by a lender for a short sale, short refinance, or foreclosure is not considered income.
* Disclaimer – Since there are several details to this law, please check with your attorney, CPA or tax consultant about your unique scenario.
How much does a Short Refinance cost?
The standard fees that are associated with a traditional FHA refinance apply. Generally, you can include all closing costs into the new loan amount and avoid any out of pocket expenses.
Some banks may require the cost of an appraisal to be paid ahead of time by the homeowner, so you should still budget accordingly.
Word of caution – A Short Refinance approval is based on the successful negotiation of a Short Payoff from your existing lender where they release you from all present and future obligations of the amount owed. This includes the difference in the loan amount that is being paid off by the new lender and the amount that the old lender is essentially “forgiving” due to the fact that they are agreeing to take less.
If you are unable to cut through the red tape and thick layers of department filters before you find the right person at your bank that will give you what the new FHA approval requires, we can refer to you a professional short payoff negotiation expert. Raintree Mortgage does not make referral fees on these types of relationships, our objective is simply to get you into a new lower payment and loan amount.
What banks are approving / willing to negotiate a Short Payoff?
This list changes on a weekly basis depending on politics, federal funding, TARP guidelines, and neighborhood comps compared to the banks’ Net Present Value model.
Most of our clients seeking more information about a short refinance fall into three categories:
1. Upside down in value, but able to qualify for a new FHA mortgage – provided their current lender (s) will issue a short payoff.
2. Upside down in value, but not able to qualify for a short refinance. Loan Modification (Making Home Affordable) candidate.
3. Upside down in value and want to move, but need a local attorney’s help negotiating the short sale and payoff.
Regardless of which scenario you fall under, it will probably be a good idea to speak with a short sale attorney or Making Home Affordable Modification expert to determine your best plan of action.
Sometimes the results of a loan audit report or the right packaging of a hardship file can make the difference between an approved short refinance or modified loan terms.
Since Raintree Mortgage does not negotiate for short payoffs with lenders directly, we have put together a team of trusted affiliates who offer our clients free consultations.
To avoid any conflicts of interest, and to ensure our integrity, Raintree Mortgage does not receive referral fees or third party commissions from our Loan Modification or Short Sale Attorney partners.
Our main objective is to help our clients find the best plan of action.
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I hate to follow a post like this with an (*) and disclaimer stating that there is a chance things may not work out. From personal experience, I sincerely understand the need for hope and peace of mind. Values have declined, payments are up, and nobody seems like they can give you a straight answer.
Trust me, I understand your pain. All that we can commit to is regular communication and straight answers. We’re rolling with the Obama Refi and Hope for Homeowners changes every day.
Please complete the following form so that we can direct you to the right professional on our team that can answer your Las Vegas Short Refinance, Short Sale, or Loan Modification questions.
CLICK HERE FOR SHORT REFINANCE QUESTIONNAIRE
(scroll to the bottom of the post for form after clicking on link)
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Top 5 Las Vegas Mortgage Links / Articles / Questions
- Las Vegas First-Time Home Buyer Frequently Asked Questions
- Las Vegas Mortgage – How Much Can I Borrow?
- What Are The Current Mortgage Interest Rates?
- Applying For A Las Vegas Mortgage – Required Documentation?
- How Does The Mortgage Approval and Funding Process Work?
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Raintree Mortgage (Las Vegas)
9488 West Flamingo Rd. Suite 102
Las Vegas, NV 89147 | NV LIC 2511
702-432-5626 | Email
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The short refinance is a little known secret that the lenders don’t want you to know about. A great FHA guy can vastly improve your chances of getting it dunn.
Great Post Mark. We are actually seeing this nationwide with our clients. Many people are actually able to save thousands. Sometimes hundreds of thousands just by refinancing in to these types of products. Short Refinance is an extremely important option that very few people have a strong grasp on this and I think It’s great your out there educating the average homeowner looking for a principal reduction or a write down.