Can I refinance my home for less than the current mortgage?  It is possible to do a short payoff and refinance  for less than the current mortgage.  On August 6, 2010, HUD issued  Mortgagee Letter 2010-23, to allow borrowers who owe more on their mortgage than their home is worth, opportunities to refinance into an affordable FHA loan.  This was an enhancement to the existing Making Home Affordable Program (MHA).   This short refinance allows borrowers who are current on their mortgage to qualify for a FHA refinance loan, provided that the lender or investor writes off at least 10 percent of the unpaid principal balance on the first lien.  The short payoff serves as payment in full and the loan can be refinanced at a lower interest rate.  

This is available for loans with FHA case numbers issued and  closed on or before December 31, 2012.   In order for a loan to be eligible, the following conditions must be met:

1. The homeowner must be in a negative equity position;

2. The homeowner must be current on the existing mortgage to be refinanced;

3. The homeowner must occupy the subject property (1-4 units) as their primary residence;

4. The homeowner must qualify for the new loan under standard FHA underwriting requirements and possess a "FICO based" decision credit score greater than or equal to 500;

5. The existing loan to be refinanced must not be a FHA-insured loan;

6. The existing first lien holder must write off at least 10 percent of the unpaid principal

balance;

7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent;

8. Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent.

In addition to the above, there are some other criteria that have to be weighed in for this short refinance program to work; therefore, those who believe they qualify should contact their existing servicing lender.  The program is funded with up to $14 billion from the Troubled Asset Relief Program, which covers the lender incentives and any losses on the new loans.   However,  participation is strictly voluntary on the part of the lender and requires the consent of all lien holders.