A STREAMLINE REFINANCE provides a way for current FHA homeowners to lower their interest rate with little or no out-of-pocket costs. These loans can also be made faster and with less documentation than a typical loan.

• Borrower's original loan must already be an FHA insured loan.
• The refinance must lower the principal and interest payments of the previous mortgage payment.
• The mortgage must have been paid as agreed for the last twelve (12) months and must be up to date at the time of refinancing. Borrower must have had the FHA mortgage for 6 months.
• Borrower cannot receive any cash back.
• No income or employment verification (See revision below)
• Appraisal only required if rolling in the closing costs. Streamlines without an appraisal are limited to the unpaid principal balance, minus any refund credit of the mortgage insurance premium, plus the new upfront MIP if it is to be financed in the mortgage.
• Any other liens must be subordinated to the FHA loan.
• Borrower must be up-to-date on any federal debts.

   

Lenders may offer streamline refinances and include the closing costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal. Streamline refinances can also be done without appraisals, but the new loan amount cannot exceed the original loan amount. Investment properties (properties in which the borrower does not reside in as his or her principal residence) may only be refinanced without an appraisal.

FHA Tightens Streamline Refinance Program

FHA's new rules regarding FHA-to-FHA Streamline Refis are effective with case numbers assigned on November 17, 2009. What has changed?

Key Revisions:

• Seasoning
• Payment history
• Net tangible benefit for the borrower
• Maximum Combined Loan-to-Value
• New Maximum Mortgage Amount for Streamline Refinances WITHOUT an Appraisal
• Discounts Points no longer included in Existing Debt for Streamline Refinances WITH an Appraisal
• Verification of any assets needed to close
• Certification that borrower is employed and has income
• Elimination of abbreviated Uniform Residential Loan Application (URLA)

Seasoning

At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

Payment History

At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

1. For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.
2. For mortgages with a 12 months payment history or greater, the borrower must have:
• Experienced no more than one 30 day late payment in the preceding 12 months, AND
• Made all mortgage payments within the month due for the three months prior to the date of loan application.

Net Tangible Benefit

The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal. Net tangible benefit is defined as:

• reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners' association fees, ground rents, special assessments and all subordinate liens),
• refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage, OR
• reducing the term of the mortgage.

Reduction in Total Mortgage Payment: The new total mortgage payment is 5 percent lower than the total mortgage payment for the mortgage being refinanced. Example: Total mortgage payment on the existing FHA-insured mortgage is $895; the total mortgage payment for the new FHA-insured mortgage must be $850 or less.

Fixed Rate to ARM: Fixed rate mortgages may be refinanced to a one-year ARM provided that the interest rate on the new mortgage is at least 2 percentage points below the interest rate of the current mortgage.

ARM to Fixed Rate: The interest rate on the new fixed rate mortgage will be no greater than 2 percentage points above the current rate of the one-year ARM. For hybrid ARMs, the total mortgage payment on the new fixed rate mortgage may not increase by more than 20 percent.

Reduction in Term: For transactions that include a reduction in the mortgage term, that loan must be underwritten and closed as a rate and term (no cash-out) refinance transaction.

Investment Properties/Secondary Residences: In addition to meeting the requirement for a reduction in the total mortgage payment, investment properties or secondary residences are not eligible for streamline refinancing to ARMs.

Certifications and Verifications

When submitting the loan for insurance endorsement, the lender must include a signed and dated cover letter on their letterhead certifying that the borrower is employed and has income at the time of loan application. If assets are needed to close, the lender must verify and document those assets. The lenders must also include the pay-off statement in the case binder.

Credit Score

If a credit score is available, the lender must enter the credit score into FHA Connection. If more than one credit score is available, lenders must enter all available credit scores.

Maximum Combined Loan to Value

If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

• For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.
• For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.

Streamline Refinance Transactions WITHOUT an Appraisal

The maximum insurable mortgage cannot exceed:

• The outstanding principal balance minus the applicable refund of the UFMIP, PLUS
• The new UFMIP that will be charged on the refinance.

Streamline Transaction WITH an Appraisal

The maximum insurable mortgage is the lower of:

1. Outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charged on the refinance; OR
2. 97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.

Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, the lender must verify the borrower has the assets to pay them along with any other financing costs that are not included in the new mortgage amount.