FHA Streamline Refinances Are A Changin’: No Cost Option Going Away November 18, 2009

In a letter dated September 18, 2009, HUD announced that it will be changing the way it operates regarding FHA Streamline loans. The new changes will take effect 60 days from the issuance date. The biggest change has to do with the way no appraisal option is handled. Up until now, and for the next 7 weeks, you can still get your FHA loan streamlined and incur NO out of pocket expenses. That was the beauty of the FHA Streamline. You mean, I can lower my rate and take advantage of the current interest rates and I don’t have to get an appraisal, document my income or assets and/or pay anything out of pocket to do so? Yes. But…like all good things, (or so it seems) this too is coming to an end. The highlights of the new, revised changes are as follows:


At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

1) For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.

2) For mortgages with a 12 months payment history or greater, the borrower must have:

       a) Experienced no more than one 30 day late payment in the preceding 12 months.

AND

       b) Made all mortgage payments within the month due for the three months prior to the date of      application.

The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal. Net tangible benefit is defined as:

1. reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens),

2. refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage,

OR

3. reducing the term of the mortgage

If a credit score is available, the lender must enter the credit score into FHA Connection. If more than one credit score is available, lenders must enter all available credit scores.

If subordinate financing is remaining in place, the maximum CLTV ratio is 125 %.

1. For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.

2. For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.

Revised Streamline Refinance Transactions WITHOUT an Appraisal:

The maximum insurable mortgage cannot exceed:

The outstanding principal balance minus the applicable refund of the UFMIP,

PLUS+

The new UFMIP that will be charged on the refinance.

Revised Streamline Transaction WITH an Appraisal:

The maximum insurable mortgage is the lower of:

1. Outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charge on the refinance;

OR

2. 97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.

Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, the lender must verify the borrower has the assets to pay them along with any other financing costs that are not included in the new mortgage amount.

The actual letter can be viewed at Mortgagee Letter 09-32: Revised Streamline Refinance Transactions

The moral of the story is: tell one, tell all to take advantage of the FHA Streamline Refinance as it exists now or be prepared to come in with cash. Maybe it’s just me but I find that most people are having a bit of a cash flow problem these days and need to take advantage of the underwriting guides as they exist.