Underwater Borrowers Get a Lifeline on September 7 - Sponsorship

Is your home underwater? Do you owe the bank more than it's worth? if so, you may finally be able to get a fixed-rate Federal Housing Administration loan with principal reduction. Available to qualified homeowners on Sept. 7, these new FHA loans require banks to write down at least 10 percent of the unpaid balance of the first mortgage. The program ends Dec. 21, 2012.

With as many as 20 million homeowners going underwater by 2011, there could be a lot of interest in this new program.
"We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined," FHA Commissioner David H. Stevens said in a statement. "This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product."

The new loan product, called the FHA Short Refinance option, is targeted for those homeowners who are paying on time, but saw large declines in home values in their local markets. If your home is underwater and your interest rate is above 6 percent, you should definitely consider this. Even if you have a good interest rate, the write-down of your first and/or second mortgage may make this deal worth considering.