More Changes for the New Year

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

There have been quite a few questions lately regarding appraisal requirements beginning January 1, 2009 not to mention some alarm. I have had more then a few questions as to if HUD has reduced the maximum LTV for cash out refinances to 85% and the answer to this questions is no, cash out refinances to 95% LTV are still available.

However there are other notable changes that will begin with case numbers ordered after January 1, 2009 and these changes were set forth in Mortgagee Letter 2008-40. These changes not only rescind certain changes set forth in ML 2008-23 but also implement further changes regarding streamline refinances, maximum LTV’s for rate/term refinances, title issues for non borrowing spouses and second appraisal requirements.

Beginning with case numbers ordered on or after January 1, 2009 the following guidelines are in place:

1. Second appraisals will now be required on all cash out refinance transactions where the LTV will exceed 85% excluding the UFMIP. This requirement is regardless of property location, i.e. “declining market area” and should also adhere to guidelines as set forth in ML 2008-09 where appraiser selection is concerned. It is also important to mention that these cases will be over selected for Post Endorsement Technical Review so use due diligence while underwriting. All other requirements for cash out transactions per ML 2005-43 will remain in effect. Please note that there are still scenario’s where the borrower’s maximum LTV will be limited to 85% and these requirements remain in effect.

2. Rate/Term Refinances: Beginning with case numbers ordered on or after January 1, 2009 the maximum LTV for Rate/Term refinances will be 97.75% excluding the UFMIP. This guideline will supersede the information provided in ML 2008-23 and will be in effect nation wide. Simply multiply the appraised value by 97.75% to determine the maximum base loan amount for these refinance transactions as well as Streamline refinance transactions with appraisal and use the lesser of the outstanding principal balance calculation or 97.75% of the appraised value.

3. Streamline with or without appraisal: The maximum cash back to borrower for streamline refinance transactions has been increased from $250.00 to $500.00. Full credit qualifying rate/term refinances still limit cash back to the borrower at time of closing to $500.00. Additionally mortgages being refinanced under the streamline program must be current and due for the month in which the refinance transaction will be completed.

4. Streamline refinance transactions for properties that are no longer owner occupied can be refinanced under the streamline program, however, can only be completed as a streamline without an appraisal and only the outstanding principal balance is eligible for inclusion into the new mortgage. (Refer to the 4155 for further guidance).

5. Title Requirements: ML 2008-40 eliminates the requirement for all borrowers who will remain in title to be present on the loan application and sign all security instruments at time of closing. It is however the lenders responsibility to insure that the lien that will result from the transaction be perfected therefore non borrowing spouses must sign the security instruments in conjunction with the transaction such as the Deed of Trust or Security Deed. Refer to ML 2008-40 for further guidance.

These are just a few of the highlights as set forth in Mortgagee Letter in 2008-40 so I recommend that that underwriters pull it and share it with production staff. 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.