My Condolences on the Loss of another Great - the FHA 95% Cash-Out Refinance

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I’d been hearing rumors that this was coming from as far back as last October and just when I’d stopped watching for it, HUD posted Mortgagee Letter 2009-08 to announce new limitations on Cash-Out Refinances. The bulletin appeared on HUD’s website on or about March 13th.

This Mortgagee Letter explains that effective for case assignments pulled on and after April 1st, FHA Cash-Out Refinance loans will be limited to a maximum of 85% of the appraiser’s estimate of value.

I imagine this restriction really stings for a lot of originators who have made a killing marketing the 95% FHA cash out refinances in order to stay afloat these past 12 to 18 months. I remember vividly when the 95% cash out was first introduced- It was with Mortgagee Letter 2005-43 dated back in October 2005 when HUD first announced the rollout of their 95% cash out refi. What an exciting time it was! I was absolutely thrilled to have that bulletin in my hot little hands and couldn’t wait to educate people on the opportunities. But to be honest, at that particular point in time, it didn’t necessarily grab the attention of many originators because there were so many other Fannie, Freddie, non-agency and sub-prime options available. In 2005, I recall much of the attitude was “FHA? Who needs FHA? Why would I wanna do an FHA loan when there’s all that extra paperwork and all those extra property conditions to deal with?”

My how things changed over those following two years in late 2007 and all through 2008. When so many lenders and banks imploded and left the market, taking so many products and programs with them, this program stood ground and allowed so many originators the opportunities to keep moving forward. I would like to think that it also helped many homeowners lower their expensive house payments, combine their high-rate sub-prime loans, and consolidate their high-rate revolving debt in order to keep their families in the homes they came to love. There’s no doubt in my mind this has been a majorly hot program, in this past year especially.

So if you have potential borrowers you may still be able to help by utilizing the 95% cash out program, you’ve got a very limited amount of time to work your magic. Don’t waste it. Take a look through your databases, your existing pipelines, touch base with any potential friends, relatives or colleagues you’ve put off to work your way through this most recent refinance bubble. You have until April 1st to get your FHA cases pulled for the cash out to 95% before it’s gone for an undetermined period of time. Who can you help before this opportunity is gone?

In the meantime, as more and more products disappear and credit requirements tighten, I would advise that you all set goals for the next important “journey” you will need to make to survive in this topsy-turvy crazy market of ours. If you’re not up to speed and educated on how to advise and educate on credit repair, there’s no time like the present. It’s more important than ever that YOU be able to direct people on the importance of credit, fico scores and how they can monitor and repair their past credit problems. Mark my words, you HAVE to know these things as we move through 2009 because the loss of the 95% FHA cash-out refinance is just the “tip of the iceberg.”

Credit education is a topic I am very passionate about and am always excited to pass on. Keep your eyes posted as I’ll be focusing on that topic for the next few weeks.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)