The Federal Housing Administration is making it easier for existing FHA borrowers to qualify for streamlined refinancings.
The FHA has revised the "net benefit test" allowing more borrowers to lower principal and interest payments even though they are facing higher taxes and insurance payments. The agency also is putting the brakes on lenders packing closing costs, discount points or other financing costs into the loan amount. Lenders "must not use an appraisal" to increase the loan amount beyond the up-front mortgage insurance premium, according to a letter issued to lenders on Monday. The changes take effect in 60 days.
The FHA's portfolio of streamline refis is plagued by early defaults and negative equity. Many borrowers with subprime and exotic mortgages refinanced into FHA loans in 2008 and jumped to streamline refis in 2009 to take advantage of lower rates. The FHA completed 329,400 streamline refis in the year that ended Sept. 30, 2009; within six months 5.5% of the loans were 90 days or more past due. The agency clamped down on streamline refis in January 2010 with new requirements for loan seasoning, payment history, income verification and net benefit test.
