October 22, 2017

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Switching Lenders: The FHA Loan Rules in 2017

Home loans sometimes feature complications. A borrower may decide to cancel the transaction altogether, have a change of mind on certain details of the mortgage, or in some cases switching lenders may be required. What are the FHA loan rules for switching lenders?

Borrowers should know that the FHA loan rule book, HUD 4000.1, has some specific instructions in this area. Borrowers can expect the loan rules to function in some very specific ways should this be needed. According to HUD 4000.1:

“The original Mortgagee must assign the case number to the new Mortgagee using the Case Transfer function in FHAC immediately upon the Borrowers request” (emphasis ours).

The case number mentioned here refers to the FHA-assigned number required to move forward with the mortgage. Having an FHA case number means the borrower can proceed with FHA loan transaction processing. It does not guarantee final loan approval.

Transferring an FHA case number to a new lender requires the original lender to perform certain duties without charging the borrower, but some added fees may be permitted.

“The original Mortgagee may not charge the Borrower for the transfer of any documents, but the original Mortgagee may negotiate a fee with the new Mortgagee for providing the processing documents. The original Mortgagee is never entitled to a fee for the transfer of processing documents for a Streamline Refinance.”

Sometimes a case number transfer is needed because the original lender rejected the mortgage. FHA loan rules have a provision for this circumstance, too. “If the transfer involves a rejected Mortgage, the original Mortgagee must complete the Mortgage Credit Reject function in FHAC prior to transferring the Mortgage.” Borrowers should allow for the extra time required to complete this function.

In addition to all these rules, there is also a section in HUD 4000.1 allowing for the reinstatement of cancelled case numbers (where permitted). “The Mortgagee may request reinstatement of cancelled case numbers by submitting a request to the FHA Resource Center using the Case Reinstatement Request Template.”

HUD 4000.1 states that automatically cancelled case numbers “will be reinstated only if the Mortgagee provides evidence that the subject Mortgage closed prior to cancellation of the case number, such as a Settlement Statement or similar legal document”. If you are unsure about how these rules may affect your transaction, discuss your specific concerns with your loan officer.

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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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