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.

Mortgage Rates Hit The Low Point

Here is the most frequent question I am asked about interest rates, "How much lower do you think they can go?" Whenever asked this question (everyday) my answer is a simple observation, "There are more numbers above the current rate than there are below it."

The most common rate mistake I have witnessed over the years is when people wait for another 1/8% improvement and then lock when the market moves up ¼% or ½% instead of down. Consider this, on a 30 year fixed rate loan of $200,000 with a rate of 5% the monthly payment is $1,073.64. An 1/8% improvement to 4.875% results in a payment of $1,058.42 which is a monthly savings of $15.22. Over the life of the loan that is a potential savings of $5,479. Not bad if the loan is not paid off early.

Now let us assume the rates move up instead of down, many people will lock on a ¼ point up tick but almost everyone that does not will when it hits ½ point higher. The same loan amount of $200,000 with a rate of 5.5% will have a monthly payment of $1,135.58 or $61.94 per month higher than the 5% rate. Over the life of the loan that is a $22,298 mistake!

Of course the majority of homebuyers will not keep the loan for 30 years. This is the reason I warn against any rule of thumb approach. It is personal, what works for your neighbor may not be the right path for you.