Changes coming soon on FHA streamline refinances for Rhode Islanders.
Rhode Islanders looking to do a FHA streamline refinance will now have to be concerned with new changes going into effect on November 17, 2009.
On September 18, 2009, the Federal Housing Authority released a new mortgagee letter, ML2009-32, outlining the new changes. This Mortgagee Letter is effective for new case numbers assigned on or after 60 days from the date of this letter.
The Key Revisions:
I have outlined a brief explanation of the new revisions for streamline refinance transactions.
A. Seasoning: At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.
B. Payment History: 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 experienced no more than one 30 day late payment in the preceding 12 months, AND made all mortgage payments within the month due for the three months prior to the date of loan application.
C. Net Tangible Benefit: The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal.
In order for a net benefit to the borrower to occur, one of the following conditions must be met:
- A reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens). The new total mortgage payment is 5 percent lower than the total mortgage payment for the mortgage being refinanced. Example: Total mortgage payment on the existing FHA-insured mortgage is $1,000; the total mortgage payment for the new FHA-insured mortgage must be $50 less, or $950.
**This requirement is applicable when refinancing from a Fixed Rate to Fixed Rate, from an ARM to ARM, from a Graduated Payment Mortgage (GPM) to Fixed Rate, from GPM to ARM, from a 203(k) to 203(b) and from a 235 to 203(b).
- Reducing the term of the mortgage. For transactions that include a reduction in the mortgage term, that loan must be underwritten and closed as a rate and term refinance transaction.
- Refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage. The interest rate on the new fixed rate mortgage will not exceed 2 percentage points above the current rate of the one-year ARM. For hybrid ARMs, the total mortgage payment on the new fixed rate mortgage may not increase by more than 20 percent . For example: total mortgage payment on the hybrid ARM is $800; the total mortgage payment for the new fixed rate mortgage must be $1,000 or less.
**Fixed rate mortgages may be refinanced to a one-year ARM provided that the interest rate on the new mortgage is at least 2 percentage points below the interest rate of the current mortgage. However, investment properties or secondary residences are not eligible for streamline refinancing to ARMs.
D. Revised Streamline Refinance WITHOUT an Appraisal: The maximum insurable mortgage cannot exceed the outstanding principal balance minus the applicable refund of the UFMIP, and 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.
E. Certifications and Verifications: The lender is now being required to include a signed and dated cover letter on their letterhead certifying that the borrower is employed and has income at the time of loan application. If additional cash is needed to close, the lender must verify and document those assets. The lenders must also include the pay-off statement in the case binder.
F. Credit Score: Lenders are going to be required to pull a credit report and enter all scores into FHA connection. A minimum credit score of 620 is usually required by most lenders and/or investors to qualify for the FHA streamline refinance.
G. TOTAL Scorecard: Lenders should not use TOTAL on streamline refinance transactions. If a lender uses TOTAL, that loan must be underwritten and closed as a rate and term (no cash-out) refinance transaction.
H. Uniform Residential Loan Application (URLA): According to HUD “Mortgagees may no longer use an abbreviated version of the URLA. Due to various disclosure requirements and our long-standing belief that borrowers are best served when certifications they must make are divulged as early as possible in the loan application process, the application for mortgage insurance must be signed and dated by the borrower(s) before the loan is underwritten. Mortgagees are permitted to process and underwrite the loan after the borrowers and interviewer complete the initial URLA and initial form HUD-92900A, HUD/VA Addendum to Uniform Residential Loan Application”.
If you have any questions or would like to apply for a FHA streamline mortgage, please call me today. I would be happy to help.
Lynda Mckenzie
Mortgage Master, Inc.
NMLS#137627
Direct: 401-524-9796
E-mail: lmckenzie@mortgagemasterinc.com
Web: http://www.mortgagemasterinc.com/lmckenzie
RI Loan Broker 95000655 / RI Lender License 2005 1976LL
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