Credit Qualifying Streamline Refinance Transactions

Written By: Bonnie Wilt-Hild, Op-Ed Writer

I know what you’re thinking already, “Really Bonnie, we know all about them”, but I say untrue, this based on a conversation I had yesterday with an underwriter friend at Philadelphia HOC. It is always nice to talk to her, catching up with friends is always a good thing and as you can image, she will sometimes share with me some of the most common disastrous mistakes lenders make where various loan types are concerned. Most of the time, the stories are amusing and you have to laugh when you try to figure out what someone was thinking when they underwrote the transaction, other times however, I am firmly convinced that a large number of lenders are providing breakfast for their staff that includes a big bowl of lead based paint, no kidding. Full credit qualifying streamline refinance transactions, in all of their simplicity seem to be the transaction type of late that is giving many lenders the most grief, not because they are difficult but because small errors are resulting in multiple cases being rejected from an insurability standpoint.

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It seems that many lenders nationwide feel compelled to run these transactions through Total Scorecard even though HUD has stated many times that this is unnecessary and has asked this not be done. The reason being that based on the data collection requirements there simply is not sufficient data to score these cases. Within mortgagee letter 2011-11 HUD rescinded their requirement for mortgagees to certify employment and income on non-credit qualifying streamline refinance transactions because based on the lack of information, the results provided by Total would be invalid. Therefore the cases must be manually underwritten by an FHA Direct Endorsement underwriter who must also supply the Chums ID number of form 92900LT. The guidance also goes on to say that the information pertaining Total Scorecard and streamline refinance transaction found in this letter supersedes and rescinds the guidance located in ML2010-19 which states that if the loan is scored by Total and receives a “Refer” risk classification, that manual underwriting is not required. So here is the problem, lenders are still scoring non-credit qualifying transactions through Total Scorecard and when they receive the “Refer” rating they aren’t documenting the file as a manual underwrite should be and they still insist on ZFHA in lieu of a Chums ID number resulting in an uninsurable file due to significant material deficiencies.

Next big issue seems to be FHA connection and how lenders are handling case number assignment. It seems that many lenders are jumping into FHA connection to order the case number as soon as they originate the loan, no knowing if the existing mortgage is an FHA loan type or if they can complete the transaction as a streamline with or without appraisal. This result in the lenders ordering case numbers as if they are completing a full credit qualifying rate/term refinance transaction as they indicate in FHA Connection that the case “is not streamlined”. After they collect additional documentation and decide they can complete the case as a streamline refinance with an appraisal, they go back into case number assignment to update the case but the box is gone and they cannot change the case to a streamline. By the way there is no way to correct this, at this point you have to complete a full credit qualifying rate/term transaction. With this said I recommend that originators try to obtain this information prior to case number assignment.

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In closing I will reiterate that even full credit qualifying streamlines can be completed without running the case through FHA Total Scorecard, at least for the time being, so don’t run them, otherwise you are on the hook for all documentation requirements as suggested by Total, in short you have a full documentation rate/term refinance transaction and at that point there is no turning back. If you would like further information on the streamline refinance transactions you may review ML2009-32 and ML2011-11 for further clarification. Have a great week all!

About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.