So many people have underwater mortgages today that many are walking away from their homes leaving it to foreclosure. How did this happen? Many home owners purchased homes at the height of the housing boom when prices were high. With real estate values dropping drastically in recent years and continuing to fall, many home owners now owe more than their home is worth. Other home owners refinanced their homes during the housing boom when their home was worth more taking out all of the equity in their home. For these people, their homes are also worth less than their mortgage or mortgage and home equity loan. These are today's underwater mortgages.

Last week, FHA started their short refinance program. The program is intended for home owners who have underwater mortgages but are current with their mortgage payments. As they must be living in their home as the primary residence, this is not for second homes or investment homes. The mortgages being refinanced cannot be FHA loans, but the new refinance must meet FHA guidelines and go through regular, standard FHA underwriting. Even those home owners with second lien mortgages can apply as there are incentives in place for second lien holders to participate in the program.

Although these FHA short refi loans may take longer to close, they are definitely something to look into and apply for if a home owner is underwater in their mortgage and wants to stay in their home. They were created to eliminate strategic defaults and inevitable foreclosures. With this new type of loan, lenders are asked to write off a portion of the existing loan in order for the refinance to be more in line with today's market values. It is the same for second lien holders who are asked to reduce or forgive their lien.

Only time will tell if these new short refinances work out and if lenders are cooperative with FHA in getting them done. For right now, home owners who are interested should start by first contacting their mortgage servicer to inquire about the details.