The Federal Housing Administration will reduce fees significantly for borrowers who qualify for the streamline refinancing program. The new lower fees are set to go into effect this Monday June 11. Lower fees will be available to borrowers who have had mortgages endorsed by the FHA prior to June 2009.
The benefits of the streamline refinance program are two-fold: first the process is simplified when compared to normal refinancing and second borrowers can lower monthly payments as with a traditional refinance. The streamline refinance program minimizes the amount of paperwork that is required, and also eliminates the need for a new home appraisal. The biggest benefit is the no-appraisal rule, allowing borrowers who owe more than their home is worth to refinance to lower rates.
The FHA has reduced the upfront mortgage insurance premium to 0.01% of the total loan value, and the annual premium to 0.55% of the total value. The new rates are significantly lower when compared to rates faced by borrowers who do not qualify for the streamline program, who are subject to an upfront premium of 1.75% and an annual premium of 1.25% of the total loan value.
When the new fees are in effect borrowers refinancing a $200,000 loan will face an upfront fee of $20 and an annual premium of about $92. The lower fees make refinancing much more feasible when compared to premiums faced by those who do not qualify for the streamline program. A borrower refinancing a $200,000 loan, who does not qualify, will face an upfront premium of $3,500 and a annual fee of $208, making refinancing much more expensive.
To check FHA streamline refinance eligibility program borrowers must have a mortgage insured by the FHA, be current on payments, and the mortgage needs to have been endorsed prior to June 2009.
The FHA streamline program offers other benefits and allowances to borrowers, easing the requirements and burdens related to refinance. As long as a borrower’s payments decrease by over 5%, a lender does not have to require an appraisal. The FHA does not set minimum credit scores, although lenders might have restrictions, and submit lower credit scores to higher interest rates. Under FHA regulations borrowers do not have to show proof of employment or income, but some state laws require lenders to verify income on all mortgages.
Lender’s reluctance to underwrite these underwater loans has prevented the process from truly being streamlined. To encourage lenders to participate fully in this program, the FHA has changed the way they evaluate lender’s portfolios, and the requirements lenders must meet to continue working with the FHA. Traditionally lender portfolios were judged based on the number of delinquent loans, but now the FHA will exclude streamline refinances when judging lender’s performance.