Nearly a quarter of U.S. homeowners with a mortgage owe more on the loan than their home is worth, and home prices are threatening to fall further and push even more borrowers underwater. The Federal Housing Administration (FHA), though, is throwing out a lifeline.

Starting September 7, the federal agency will offer new FHA-insured mortgages to certain underwater, non-FHA borrowers who are current on their mortgage payments and whose lenders agree to write off at least 10 percent of the unpaid principal balance.

This last part could prove to be the caveat that leads the new FHA refi program down the same road as the federal government’s other housing programs – a road of below par results and public criticism.

Lenders are fantastically reluctant to write down mortgage principals. It would mean either they or their mortgage investors would have to eat the amount of debt that’s forgiven, and it could set a precedent that a loan contract is not a contract at all if the terms spelled out in black and white can be changed based on market nuances, such as a slump in real estate values.

The FHA refi program for underwater borrowers was originally announced in March as part of the administra-

tion’s expanded foreclosure prevention strategy. On Friday, FHA and HUD published a mortgagee letter explaining to lenders the details of the new negative equity refinancing program.

To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, and occupy the property as their primary residence. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal of at least 500.

Participation in the program is voluntary and requires the consent of all lien holders. The borrower’s existing first lien holder must agree to write off at least 10 percent of their unpaid principal balance to bring the borrower’s combined loan-to-value ratio to no more than 115 percent.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.

To facilitate the refinancing of new FHA-insured loans under this program, the Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens.

Servicers planning to take part in the new program must execute a Servicer Participation Agreement (SPA) with Fannie Mae by October 3, 2010.

HUD says interested homeowners should contact their lenders to determine if they are eligible and whether the lender agrees to write down a portion of the unpaid principal.

FHA Commissioner David H. Stevens, said, “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.”

America’s Coolest Cities

Francesca Levy, 08.02.10, 07:15 PM EDT

In these trendy metros, nightlife is hot and the people are cool.

In Pictures: America’s Coolest Cities

What do the Big Apple and Sin City have in common? According to a recent survey, they’re both among the hippest places in the world.

In fact, New York City and Las Vegas are the two coolest cities in the United States, tied for the No. 1 spot in our annual measure of America’s Coolest Cities.

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Full List: America’s Coolest Cities

To compile the list, market research company Harris Interactive ( HPOL – news – people ) conducted an exclusive poll for Forbes. In July Harris asked 2,104 adults from across the U.S. which of the 40 largest metropolitan statistical areas in the country were “the coolest.”

New York wins with singles
New York, NY, has topped the list of coolest cities for three years running–it’s sharing the top spot for the very first time. The fact that it attracts 47 million visitors annually shows that Americans regard the metro highly. New York isn’t only the country’s largest city; it’s the one with the most restaurants, museums, sports venues, bars and theaters. Few could deny that it generates buzz around the globe.

It turns out that what you think is cool may be influenced by whether there’s a ring on your finger. Of the single people polled, the largest percentage thought New York was the coolest city, but married people gave the title to Vegas.

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Was there a population minimum in the criteria? If not… Where is Austin???

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Vegas bucks the trend
Times have been tough in Las Vegas, NV, and the city is suffering a real estate crash that’s among the worst in the country. But the entertainment mecca still welcomes 36 million tourists per year–and the city’s relaxed laws around gambling and other vices add to its sense of danger and excitement.

Las Vegas has a reputation for attracting pensioners who come to while the day away at slot machines. But in fact, respondents between 18 and 34 years old thought Las Vegas was cooler than New York. A full 11% of that age group gave Sin City the “coolest” badge. Still, while they might imagine it to be a happening place, trendy young folks don’t account for the majority of visitors to the city. According to the Las Vegas Convention and Visitors Authority, the average age of vacationers in 2009 was 50.

The heat is on in Miami
Impressions about how hip a place is are tough to change. Most of the cities on our list have seen their coolness ranking change little over the past four years. But 5 of our 10 coolest cities–Las Vegas, Seattle, Chicago, Los Angeles and Miami–saw perceptions improve over last year.

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