Clarifications for Recently Issued Mortgagee Letter Content

Written By: Stacey Sprain, Op-Ed Writer

There seems to be confusion out there in regards to a few of the recent changes announced by FHA in Mortgagee Letters 2012-3 and Mortgagee Letter 2012-4. The purpose of this week’s article is to provide you with further clarity on a few of the recent changes here.

As you may recall, Mortgagee Letter 2012-3 included several major changes to underwriting guidelines effective for cases assigned on and after April 1st in regards to requiring profit and loss statements with balance sheets for self-employed borrowers if more than a calendar quarter has elapsed since most recent tax return filing, as well as announced specific new underwriting requirements for disputed credit and outstanding collection accounts.

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The good news is that HUD announced a delay to implementation for some of the guideline changes announced in Mortgagee Letter 2012-3. A copy of that actual emailed announcement follows:

FHA Notice for Lenders:

In order to allow Mortgagees additional time to adapt their procedures to implement portions of the new guidance found in Mortgagee Letter 2012-03 (ML 2012-03), FHA is delaying the effective date of the following topics from ML 2012-03:

• Handling of Disputed Accounts, Public Records FHA Total User Guide Chapter 2, and
• Handbook 4155.1 4.C.2.e, Paying off Collections and Judgments.
The new effective date of this section is delayed until July 1, 2012. Prior to the effective date, FHA intends to seek additional input on this section and work to clarify guidance, as appropriate.

Most lenders appear to be following HUD’s announcement of delayed implementation and will not require the new underwriting requirements for disputed credit and unpaid collections until on and after July 1st. However, HUD did not communicate delays to the implementation of requirements for profit and loss statements with balance sheet for self-employed borrowers if more than a calendar quarter has elapsed since most recent tax return filing. That requirement remains for cases assigned on and after April 1st.

Now on to the changes announced in Mortgagee Letter 2012-4. The biggest item of confusion in regards to FHA mortgage insurance changes appears to surround FHA streamline refinances.

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I couldn’t agree more that the changes to MIP and MI premiums are extremely confusing because of the different effective dates that apply based on loan type, loan amount and LTV. The strangest and least sensible part of the changes is that MIP actually increased for streamline refinances on April 9th but then decreases significantly on June 11th if the current FHA loan being paid off with the refinance was endorsed/insured prior to 06/01/2009. The point of confusion I have received the most questions on is whether or not the significant MIP reduction rates apply only for FHA streamline transactions or if they apply for all FHA to FHA refinances. That answer is simple. The 0.01% up-front MIP rate and 0.55% annual MI rates apply ONLY for FHA streamlines that are paying off existing FHA loans with endorsement dates prior to 06/01/2009 and are only effective for new FHA cases assigned on and after June 11th. The lower MIP rates are not applicable for any other transaction types and will not apply for FHA streamlines paying off existing FHA loans that were endorsed after 05/31/2009.

One other clarification HUD recently announced via email to the Single Family email distribution list was that FHA streamline refinances remain eligible as streamline refinances when lowering the mortgage term as long as other net tangible benefit requirements are met. Net tangible benefit requirements for streamline refinances are listed in Mortgagee Letter 2011-11.

About The Author

Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. 

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.