Changes to FHA Streamline Loan Underwriting Guidelines applicable as of 11-17-2009

Posted by Ben Nicolas on Tuesday, November 3rd, 2009 at 12:35pm.

The following changes apply to new case numbers assigned on or after November 17, 2009:

o        Seasoning:  At the time of application, the borrower must have made at least 6 payments within the month due on the FHA-insured mortgage being refinanced.

o        Payment History:  At the time of loan application, the borrower must exhibit an acceptable payment history as follows:

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

§         For mortgages with a 12 month payment history or greater, the borrower must have 0x30 in the last 12 months, and made all mortgage payments within the month due for the three months prior to the date of the loan application.

o        Net Tangible Benefit: 

§         Reductions in total mortgage payment:  The new total mortgage payment must be the greater of 5% lower or $50 lower than the total mortgage payment for the loan being refinanced.  This applies when refinancing from Fixed Rate to Fixed Rate, or ARM to ARM.

§         Fixed Rate to ARM:  The new interest rate on the 1 year ARM must be at least 2% below the interest rate of the current Fixed Rate mortgage.

§         ARM to Fixed Rate:  The new interest rate on the Fixed Rate mortgage may be no greater than 2% above the current rate of the 1 year ARM.  For hybrid ARMs, the total mortgage payment on the new Fixed Rate mortgage may not increase by more than 20%.

§         Reduction in Term:  For transactions that include a reduction in term, loan must be underwritten as a rate/term refinance (no cash out), and not a streamline refinance.

§         Investment properties / 2nd homes:  Not eligible for streamline refinancing to ARMs.

o        Maximum Loan Amount:

§         For transactions without an appraisal, the mortgage amount cannot exceed

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

            PLUS

·                     The new UPFMIP that will be charged on the refinance

§         For transactions with an appraisal, the mortgage is the lower of

·         The outstanding principal balance minus the applicable refund of the UFMIP, plus closing costs and prepaid items to establish the escrow account and the new UFMIP

            OR

·         97.75% of the appraised value of the property plus the new UFMIP.

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

§         Note: The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages.

o        Maximum CLTV:  Maximum CLTV when subordinate financing remains in place is 125%

§         For streamline refinance without an appraisal, the CLTV is based on the original appraised value of the property.

§         For streamline refinance with an appraisal, the CLTV is based on the new appraised value.

o        Certifications and Verifications: 

§         The lender must certify, with a signed and dated cover letter, that the borrower is employed and has income at the time of loan application.  This must be included with the case binder.

§         If assets are needed to close, the lender must verify and document those assets.

§         A payoff statement must also be included in the case binder.

o        Credit Scores:  Credit scores must be entered into FHA Connection.  If multiple scores exist, all scores must be entered.  The minimum credit score for all streamline refinances is 640 for case numbers issued on or after November 17, 2009.

o        TOTAL Scorecard:  TOTAL should not be used on streamline refinance transactions.  If TOTAL is used, the loan must be underwritten as a rate/term fully qualified refinance transaction.

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