The FHA Short Refinance – Banks are Discounting Mortgages

In Georgia we have been seeing record numbers of foreclosures, record numbers of bank repos and record numbers of short sales. There may be some in your neighborhood. Homeowners are faced with rising mortgage payments once their low adjustable rate mortgages begin to climb. The common answer up to this point to avoid foreclosure has been the short sale.

But what if the homeowner is in the right home; just in the wrong mortgage? The hassle and hearache of moving out and moving on can now be avoided. Enter, the Short Refinance FHA Loan. The short refinance works exactly the same as a short sale with the exception that the homeowner remains a homeowner.

With a short sale, once an offer comes in it is presented to the bank along with an application package from the seller asking the bank to take a discount on the current mortgage. Once the bank accepts the offer for less than what the seller owes the bank they have agreed to a short sale. A short refinance works in much the same way as a short sale only in the case of a short refinance the “offer” presented to the bank is actually a copy of the homeowner’s brand new short refinance FHA Secure approval. The short refinance approval, along with all the supporting documentation, is then submitted to the bank requesting a discount. Once the bank accepts the discount, they have accepted a short payoff and agreed to a discount on the loan allowing for the short refinance.

A major benefit of the short refinance is that it allows borrowers to keep their homes. The short refinance delights homeowners because they get a new start with a lower mortgage payment and a lower mortgage balance.

Why would the bank agree to a short refinance and not just foreclose on the property? Simply put 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 refinance allows the bank to avoid the majority of the legal fees and allows the new lender make its largest loan based on the fair market value.