Across America about one quarter of the homes are underwater, meaning they are not worth as much as the mortgage, so an FHA short sale refinance program seemed like a magic bullet for the fragile real estate market when it was introduced in 2010.

A year later, it’s helped all of 304 homeowners.

The program allows borrowers with homes that are underwater to refinance into a new FHA loan while reducing the new loan amount to as much as 97.75 percent of their home’s current value.

Under the program guidelines, borrowers are required to have a perfect mortgage history and be able to qualify for an FHA loan.

It had been announced with great fanfare and bold predictions. Officials with the Department of Housing and Urban Development, which administers FHA loans, said the program, “will help the administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.”

Lemar Woodley, HUD spokesman, said that according to the most recent figures only 304 loans have been closed under the program nationwide.

According to several mortgage professionals, difficulties both with the processing and the bureaucracy have hampered efforts.

Rusty Massro of Smart Homes Marketing, a California mortgage broker with nearly three decades of experience, favors the program but has been frustrated by its bureaucracy.

He said that he has a number of borrowers who would qualify for the program, but the red tape has been insurmountable.

For example, banks must agree to provide a short sale payoff, and Massro says there’s no central database which lists all the banks that are participating in the program. As a result, he said, brokers could go through the long and tedious process of getting a loan approved only to find out that the current bank won’t agree to provide a short sale payoff.

He also describes a difficult appraisal process in which both the new bank and the old bank must agree to the appraised value. Massro said he normally uses a broker priced opinion, a mortgage tool that produces home values without spending much money. He sends the opinion to both banks. Only after both banks agree on a value does he order an FHA appraisal, which has several unique qualities and usually costs about $100 more than a normal appraisal.

Another problem cited by Massro is that Bank of America has refused to participate in the program. Because Bank of America currently owns about one in four mortgages, the bank’s absence immediately knocks out many potential loans.

Another issue is the presence of TARP incentives provided to participating banks.

According to Wooley, all second lien holders can retrieve between 15 and 20 cents of every dollar forgiven from TARP funds. For this reason, there has been opposition, including an effort in Congress.

In March, HR 830 was passed by the House of Representatives. The plan would have shut down the program, but it eventually died.

Aaron Zeitner, a Chicago mortgage broker, sees another problem with the program, and he draws parallels to the president’s loan modification program. Like this program, the administration claimed the loan modification program would help several million borrowers. Instead, it’s helped a fraction of that amount, and almost half those borrowers are now behind on their mortgages again.

Zeitner said that banks never had the manpower and systems to deal with the influx of new loan modifications. As such, the process was so slow that borrowers often were required to provide financial documents like pay stubs repeatedly. That’s because by the time banks looked at financial documents like pay stubs, they were out of date and needed to be updated. Zeitner said that a similarly unprepared bank bureaucracy has caused similar delays in this program.

Wooley said, “As with any new mortgage program, the lenders and servicers need ample time to build the necessary infrastructure to facilitate the program. This infrastructure includes technology, systems, product training and borrower outreach. These initiatives take significant time and money to complete.”

However, the program is scheduled to be closed down next year anyway.

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