FHA Streamline Refinance Transactions

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

With rates falling to all time lows, people are starting to ask a lot of questions about FHA streamline refinances. Usually they begin with, “Does FHA have a stated income refinance program?” to which I promptly respond “No”. They do however have a streamline refinance program that is designed to refinance borrowers who already have an FHA insured mortgage, into a lower interest rate. The program, designed to simply put the borrower into a better financial position, does not verify income.

I decided that since I was receiving so many questions regarding the program, not to mention loan applications to underwrite, that I would give everyone some basic guidance where the program was concerned.

First there are two ways to do a streamline, with and without and appraisal. Streamline refinances without appraisals have specific maximum loan amounts, more particularly, you can not exceed the original loan amount of the loan being refinanced. This sometimes presents problems when trying to roll in closing costs, but with a lender credit towards the closing costs and the borrower bringing their current monthly mortgage payment to the table, you can usually pull it off.

The second way to do a streamline is with an appraisal. This way would allow you to go up to 97.75% in a high closing cost state and 97.15% in a low closing cost state of the appraised value and give you some additional room to roll in whatever closing costs that can not be covered by the broker yield spread or lender SRP. The maximum mortgage under these circumstances can not exceed the lesser of the outstanding principal balance, allowable closing costs, prepaid expense and reasonable discount points or your maximum LTV.

Documentation standards are also pretty limited under this program as income and assets to close do not need to be verified, there is no ratio calculation and supporting documentation is also limited. Keep in mind it can only be used on FHA to FHA rate/term refinances and there can be no cash back to the borrower. The refinance must also benefit the borrower in the respect that it will reduce the borrower’s monthly mortgage expense thereby putting them in a far better financial position.

Basic documentation for the program consists of the normal application package, a payoff statement, evidence of the borrowers SS number as well as evidence of the MIP refund from FHA connection. You will also need to verify the borrower mortgage history if you are doing a streamline without an appraisal, and if you are increasing the original mortgage amount and obtaining an appraisal you will need a full credit report. There are certain other guidelines that apply so underwriters might want to study up. Loan originators might also brush up on the guidelines and how to use their YSP to effectively pay borrowers closing costs and still generate their fee.

The streamline refinance program was extremely popular in the early 90’s. I am not kidding when I say most companies were closing about 200 or more a month and based on limited documentation requirements this is very possible. Given the recent drop in interest rates the program is again gaining momentum. For those of you who are new to FHA underwriting, I suggest that you brush up on the underwriting guidelines; I think we are going to be seeing a lot of them very soon. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.