If your home is worth less than your home loan, and you don't have a hardship that qualifies you for a mortgage modification, you may be considering strategic default -- that is, walking away from your mortgage and daring your lender to sue you. However, you'd rather not incur years of having bad credit and being unable to get another mortgage. Plus, you wouldn't feel too great when your foreclosure caused all of your neighbors' homes to lose value. And a foreclosure is a public record -- everyone in town would know, including those snotty ladies in your book club. Well, now there is a program that allows you to refinance to a lower mortgage rate, and brings your mortgage balance more in line with your home's current value. It starts on September 7th and it's called an FHA Short Refinance.

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How does the program work? First, it's not a mortgage modification. Your loan with your current lender will be replaced with a new FHA refinance mortgage. Second, it's not a bad credit home loan or a subprime rescue. Your mortgage has to be current for you to be eligible for this program. You have to meet FHA underwriting guidelines, meaning your credit can't be too horrendous. Finally, your current loan can't be an FHA mortgage. That's because FHA is specifically enjoined by federal law from writing down the principal on any loans it insures. However, FHA does allow you to defer up to 30% of your principal if you qualify through its loss mitigation programs.

The FHA Short Refi program is for people who can afford their underwater mortgages and who can qualify to refinance -- folks who might be temped to walk away from a home without some incentive to keep paying.

Here’s the deal:

Under the program, your first mortgage lender must agree to write off a some of your balance (at least 10%) to get it down to no more than 97.75% of your property's current disgusting horrible sad low value. If you have a second mortgage, that lender has to get on board as well -- agreeing to either write off the entire balance (unlikely) or re-subordinate it to the new first mortgage. If the total of both the new first mortgage plus the old second mortgage exceeds 115% of the home's current disgusting horrible sad low value, the second mortgage lender will have to write off the excess to make this program work.

Um, my lender isn't Santa Claus. Why would it agree to this?

Because homeowners across the country have shown that they are very willing to burn their lenders when their homes are worth significantly less than their mortgage balances. So, chances are your lender is already getting scared of you as your home's value drops, and making you go away may be worth writing down your loan's value -- it's cheaper than a foreclosure. In fact, FHA is concerned that lenders might like this deal enough to help borrowers qualify by bringing their mortgages artificially current. So FHA prohibited lenders from paying the homeowners’ mortgages for them. That’s how far some might be willing to go to get rid of you!

So, before burning your bridges with your current lender, check into the FHA Short Refi. The book club ladies will have to find someone else to gossip about if you don't go through foreclosure!