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FHA streamline refinance program: Great deal, but few qualify

by Karen Lawson
March 18th, 2012

The Los Angeles Times reported last week that FHA’s latest version of its streamline refinance program sounds sweet, but when you crunch the numbers, a lot of homeowners with FHA loans are ineligible for the program. Here are the qualifying criteria and their potential implications for would-be FHA refinancing candidates:

  • Home loans being refinanced must be insured by FHA. This makes sense, as eligible refinancing homeowners have met FHA lending criteria in the past, and allows the agency to forgo traditional reams of underwriting paperwork.
  • FHA loans owned by Fannie Mae, Freddie Mac, private investors or loans guaranteed by the Veterans Administration are not eligible for streamline refinancing.
  • FHA loans otherwise eligible must have been endorsed for FHA insurance no later than May 31,2009. This policy is intended to protect FHA from losses related to high default rates traditionally associated with mortgage loans less than three years old. Skeptics also note that FHA could save additional money, as it offers a partial refund of FHA mortgage insurance premiums for home loans refinanced within the first three years of the loan term. Estimates suggest that 145,000 households financed with FHA loans with interest rates above 5 percent are being denied refinances due to this requirement.
  • Homeowners must have made the past 12 consecutive mortgage payments on time.
  • Refinance terms must reduce the new mortgage payment by 5 percent of the original mortgage’s monthly principle, interest and mortgage insurance payment.

Cleared the streamline FHA qualification hurdle? Here’s the good news

Qualified homeowners will likely breathe sighs of relief as the “streamline” part of the FHA streamline refinance program kicks in:

  • No new verifications of employment or income required
  • Up front mortgage insurance premiums (UFMIP) will be reduced to .01 percent of the refinanced loan amount, and the annual mortgage insurance premium (MIP) will be reduced to .55 percent.
  • No new credit underwriting required. This means no new credit reports, credit scores or meeting current FHA credit criteria.
  • No new physical appraisal of the property securing the refinance mortgage.
  • Refinance terms must reduce the new mortgage payment by 5 percent of the original mortgage’s monthly principle, interest and mortgage insurance amount.

These requirements become effective for streamline refinance loans with FHA case numbers assigned on or after June 11, 2012.

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