The Federal Housing Administration implemented its 'short' refinancing program in September and since then Obama Administration officials have anxiously been waiting for the GSE regulator to give Fannie Mae and Freddie Mac the green light to use the new principal reduction program as an option.
The Federal Housing Finance Agency is "doing the right thing" in carefully studying this program, FHA commission David Stevens said in an interview with ASR sister publication, National Mortgage News. "We believe they need to come to a conclusion here," Stevens said.
He maintains the GSEs have a fiduciary duty to take a principal writedown when they can to refinance an underwater loan with a high LTV and transfer all future risk of default to FHA.
"When you get to a certain combined loan-to-value, it may make more economic sense to get the borrower re-qualified in a more sustainable mortgage," Stevens said. (The FHA short program requires a minimum 10% writedown. It allows loans to be refinanced into an affordable FHA-insured mortgage with a 97.75% loan-to-value ratio. If there is a second lien on the property, the combined LTV cannot exceed 115% after refinancing. See story below for more information.)
FHFA acting director Edward DeMarco has been reviewing the FHA short refinance program for several months, but making the final decision may fall on Joseph Smith, the North Carolina banking commissioner. On Thursday, the Senate Banking Committee will take up the Smith's nomination to be the new GSE regulator. One industry official said Smith could be confirmed by the full Senate by Dec. 18.
"Ed DeMarco has done a good job," the source said. "But we need policy maker at that agency not a caretaker."