FHA’s Streamline Refi Program Gets Strictby Tim Manni
We’ve read over a couple articles and blog posts today about the FHA’s new, stricter guideline for their streamline refinance program, due to go into effect next week. The advice from mortgage brokers is to submit your refi application A.S.A.P. in order to take advantage of the “old” requirements. Beginning on November 17, 2009, it’s going to get tougher for homeowners to refinance under the FHA’s streamline program. To that, we say “it’s about time.”
An FHA streamline refi allows existing FHA borrowers to refinance into a new FHA loan with limited terms and conditions to make the process easier.
We’ve been following the FHA closely all year long — documenting each report that suggested defaults were rising right along with their increased loan issuance. As the months passed, we speculated that the Federal insurer of home loans was destined for a taxpayer bailout. The FHA confirmed they were in trouble back in September when the agency said their cash reserves will drop below the minimum level set by Congress.
Let’s take a look at the main changes that will impact FHA borrowers seeking to refinance:
1. You must be employed at the time you submit your application, and must be able to verify your income.
2. You must have a credit score of at least 620.
3. Borrowers must be current on their mortgage.
4. In order to “roll in” your closing costs, applicants must get a home appraisal.
5. Your LTV must be at least 97.75% of your appraised home value.
6. The refinance must prove to result in a “tangible benefit” to the homeowner.
Wow. Are you still curious to why the FHA is running low on cash? Other loans seen in the past that didn’t require verified income, employment, or good credit were ascribed a name: subprime (we know how well those worked out).
While many are predicting that the new requirements will increase refi costs as well as limit availability, we welcome the changes as a much needed “modification” (if you will) to a refi program with a high default rate.
Be sure to read HUD’s official release for all the details.
(hat tip: Ben Barber)