Changes on FHA Streamline Refinance Transactions

There are significant changes taking place with all FHA Streamline refinance transactions. The new guideline will read, "At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced and 12 months seasoning in the subject property." This is a very minor change from the previous guideline.

HUD Mortgagee Letter 2009-48 modifies FHA’s requirements for second appraisals (as described in Mortgagee Letter 2008-09), eliminating the need for a second appraisal on high balance loans in declining markets. This policy is extended to cash-out refinances that exceed $417,000 and is secured by a property located in a declining market. This change is effective immediately and actually favors the homeowner.

FHA will retain the second appraisal policy described in Mortgagee letter 2006-14, Property Flipping Prohibition Amendment. This policy requires a second appraisal when a property is resold between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or more) higher than the price paid by the seller when the property was acquired. CLC must obtain a second appraisal from another appraiser and the cost of the second appraisal may not be charged to the homebuyer.

For example, if a property is resold for $80,000 within six months of the seller’s acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price. The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property as support for the increased value but must still obtain the second appraisal.

FHA Financing For Condos

The recent Mortgagee Letter from HUD is going to impact the availability of purchase money for condos. In theory the new guidelines are supposed to make the process easier. At first glance I thought it would be (see post July 30), until I read the entire publication.

The item that alarmed me the most is the Recertification Process. All of the condos on the existing approved list will be moved a new list that requires recertification every two years. This is a big change.

Consider the unlucky buyer that purchases a condo under this system and finances it using an FHA loan. Three years later they try to sell it and the project is no longer approved unless someone has recertified the entire project. This could have a huge impact on values. It is possible a homebuyer could close on a loan today and the same loan would not be available for a new buyer tomorrow. A loan on the exact same condo may require only 3.5% down payment one day and then require 10% down the next. That difference would eliminate many buyers and that impacts value.

Here is something to consider, there are 322 projects in Kentucky on the existing approved list. This means someone will need to recertify 13+ projects per month, or roughly 3 per week - and do it for FREE??? Good luck with that.