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Big changes are coming to the FHA Streamline Refinance program that will affect Orange County, CA home owners ability to take advantage of the program. the changes are set to take effect. According to the newly issued Mortgagee Letter 2009-32, these changes will take affect 60 days from the Letter issuance date of September 18, 2009.

Changes to FHA Streamline Refinance Program

• Seasoning – Borrowers must have made at least 6 payment prior to taking advantage of the program.
• Payment History- The borrower can have no more than 1 30day mortgage late in the past 12 months, and no mortgage lates in the previous 3 months.
• Net Tangible Benefit – The borrowers payment must drop by 5%. For example, if the current payment is $1,000, then the new payment must drop by at least $50. This is reasonable. Also, a benefit can be going from an adjustable rate mortgage to a fixed, or shortening the term.
• Verification of Assets- Under the current guidelines assets did not need to be verified. With the revised guidelines, if funds are needed to close, the lender will need to verify the funds. Because of new a formula for calculating maximum refinance loan limits, there will almost always be funds required to close.
• Credit Score – If FICO scores are available, the lender must enter the scores into FHA Connection. This is not a deal because most lenders have been requiring minimum FICO scores anyway.
• Verification of Job and Income- Lenders must now verify the borrower has a job and income. Previously, for a Streamline, no verifications were required.
• Other Changes – There are a few other changes that won’t affect the borrower too much regarding how the lender underwrites the loan, regarding how the application is completed and how these loan are eventually insured.
• Here’s the BIG change – Revised Formula for Maximum Loan Amount – The amount will be calculated by taking the current loan amount, minus the FHA MIP Refund, and then adding back the new MIP.

Comparison of Old Max Loan Formula Versus the New Formula

Since just prior to 2003, FHA has used a fairly lenient formula for calculating FHA Streamline loan amounts. The lender could take the borrowers original FHA loan balance (including the MIP) and add the new MIP on top of it. This created “room” in the new loan to include closing costs, new impounds accounts, and/or the final 30 days interest in the payoff to the old lender.

 It has been easy to close FHA Streamline Refinances where the borrower did not have to come in with any money to close. That will not be the case now.  Below is a quick example: Let’s assume an original base FHA loan amount of $300,000, plus the MIP of $5,250 for a total original FHA loan of $305,250. Now let’s say 12 months have passed. After 12 months the approximate FHA balance would be $301,500. With the current calculation, the new FHA loan amount could be as high as $309,828 ($305,250 + MIP equal to 1.5%, or $4,578). Paying off the $301,500 balance meant there would be approximately $6,700 available to cover closing costs, taxes, insurance, or interest. (Original loan of $305,250-payoff $301,500+MIP Refund $2,940). The new formula will be more conservative. Going back to the current balance of $301,500, the lender will then determine how much MIP is to be refunded. In this case, there would be approximately $2,940. This also means the actual FHA base loan amount is $298,560. The new loan amount will be based on this FHA Base loan amount, plus the new MIP. So the new loan amount will be $303,038. By using this formula, FHA will be able to make sure the base loan amount is not increasing, but also means the borrower will most likely need to “come in” with their mortgage payment to the current lender, along with money for a new taxes and insurance impound account.

FHA Streamlines Are Not Going Away!

This “new” formula is actually the old formula. Thousands of FHA borrowers took advantage of the Streamline program back in the 90′s when the “new” formula was the standard. There will still be no appraisal, and it will still make sense to take advantage of the program when mortgage interest rate are low.

FHA Streamline Refi Before November 18

For those Orange County, CA FHA borrowers who still haven’t taken advantage of low rates, this is the time to get off the fence. Rate are low and the guidelines are still favorable.  After November 18, there will be a few more hoops to deal with.

Authored by Tim Storm, an Orange County, CA Loan Officer – Please contact my office at Trust One Mortgage for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

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