April 11, 2011
In February 2011, the FHA and HUD issued an announcement about changes to the Streamline Refinancing program. Many alterations to the program were made, some effective immediately when the guidance was issued in February, other changes were designed to be implemented no later than 60 days from the date of Mortgagee Letter 2011-11, February 14th.
One of the important changes in that letter affects FHA non-credit qualifying streamline refinancing. The FHA and HUD wanted to have greater risk control over the FHA insurance fund; the FHA determined stronger rules were needed to safeguard FHA streamline loans. According to the mortgagee letter, “mortgagees must not use an appraisal to increase the insurable mortgage balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium.”
The new rules on FHA streamline refinancing, which must be enforced started no later than 60 days from Feb. 14, state that closing costs, prepaid items and financing charges cannot be added into the new loan balance when processing any FHA refinancing loan that does not require a credit check. Any borrower who wants to include these items in the loan balance must apply for a “credit qualifying” FHA refinancing loan.
At first glance, such an application would seem to be a logical move–but according to the new rules, the credit qualifying refinancing loan also require an appraisal which the buyer must pay for. Some FHA borrowers don’t want to add appraisal costs to the rest of their expenses when it comes to refinancing and choose to simply pay the closing costs and other expenses out of pocket and apply for the no-credit-check FHA refinancing option.
According to the new FHA rules, the old way of doing business on FHA streamline loans as stated in an earlier Mortgagee Letter (2009-32) has been rescinded. The new guidance is now in full effect. “Mortgagees may only increase the insurable balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium by using a credit qualifying refinance with an appraisal. This Mortgagee Letter rescinds the policy in HUD Handbook 4155.1.3.C.3.a (originally published in Mortgagee Letter 2009-32, Section III) in its entirety.”
New FHA guidance also in full effect this week also includes a requirement that FHA streamline refinancing provides “a net tangible benefit to the mortgagor as a result of the streamline refinance transaction, with or without an appraisal.” The FHA rules now in effect describe
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
Browse by Date: