Reminder- FHA Streamline Guidelines Change Effective November 17th!

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

As announced in Mortgagee Letter 2009-32-Revised Streamline Refinance Transactions, major changes will be effective for cases requested on and after Tuesday, November 17th! Are you ready for these changes?

For many years, streamline refinances have been a treat for FHA-insured mortgagors because they have offered the benefit of little required documentation, immediate interest rate and/or payment reduction, and the ability in many cases to roll in all costs without the need for any funds out of pocket. Starting Tuesday I suspect we won’t be seeing nearly as many of them or we will be seeing more of them done with the need for borrowers to bring funds to their closings.

A number of things are changing with the implementation of the new requirements; one of them being a requirement for a minimum of six month’s seasoning on any FHA loan to be streamlined. In the past no seasoning has been required aside from investor overlays. Another requirement is the need for a strong payment history in the most recent 6-12 month period. If the mortgage being refinanced is seasoned less than 12 months, a perfect payment history must be verified. For those mortgages seasoned 12 months or greater, no more than 1 30-day late payment may have occurred in the most recent 12 month period and late payments cannot have been made in the most recent 90 day period.

Streamline refinances must still clearly exhibit a tangible benefit to the borrower(s) but requirements have been detailed a bit more specifically within the Mortgagee Letter than in the past.

Investor overlays have included the requirement for verbal employment verifications in some cases but starting Tuesday, the lender is required to certify that the borrower is employed and/or has income at the time of the loan application. This will lead to a requirement for verbal VOEs in all cases and if the lenders are wise, they will require that the employment be verified within a few days of settlement to protect their interests.

HUD still isn’t requiring minimum qualifying credit scores with the changes, however, they are said to be adding data fields within FHA Connection where credit scores must be entered if they are obtained to comply with lender minimum score requirements.

No caps on subordinate financing CLTV has always been a great benefit of streamline refinances in the past; especially in those areas that have experienced market decline but effective on the 17th, the CLTV when secondary financing is subordinated, can no longer exceed 125% of the property value. I suspect many lenders will cap this at 100% though.

I did verify with HUD that once a loan is run through TOTAL, it cannot be processed and closed as a non-credit qualifying streamline. Once it’s run through TOTAL, there is a record of the AUS run for the loan and it must close as a full credit qualifying rate/term refinance.

The most significant of changes to the streamline guidelines involves the new max mortgage calculations which, starting Tuesday, look like this:

To view the FHA Streamline - Max Mortgage calculation Tables
CLICK HERE: FHA%20Streamline%20Max%20Mortgage%20Calculation%20tableS.pdf

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)