The Department of Housing and Urban Development could refinance distressed subprime borrowers into more affordable Federal Housing Administration loans in a prudent way that would not be a "bailout" for the lenders, according to the National Association of Realtors.The NAR is urging HUD to waive an underwriting requirement so the FHA can refinance borrowers who are behind on their adjustable-rate 2/28 and 3/27 mortgage payments. It is understood that the original lender would forgive a significant amount of the loan so the FHA can refinance at a 97% loan-to-value ratio reflecting the current appraised value of the property. "This would not be a bailout for lenders since they would incur significant losses," NAR president Pat Combs says in a letter to HUD Secretary Alphonso Jackson. Lenders generally lose $20,000 to $40,000 in a foreclosure. Mortgage banking consultant Brian Chappelle said there would be considerable lender interest in this program if it were implemented. A HUD official said the department has no comment at this time. "We believe FHA can design a mechanism where creditworthy borrowers could refinance subject to prudent guidelines and therefore avoid losing their homes," Ms. Combs said. The NAR can be found online at http://www.realtor.org.

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