In a letter dated September 18, Assistant Secretary for Housing- Federal Housing Commissioner, David H. Stevens, outlined changes in the FHA Streamline Refinance Program to take effect November 17, 2009.

This program, which is available only to homeowners with existing FHA home loans, was designed to help those homeowners reduce their mortgage payments, and thus stay in their homes.

Right now, the program only requires that the homeowners meet a minimum credit score and that the new loan does not exceed the original balance of the old loan. Homeowners are not required to show proof of income, employment, or assets, and no appraisal is required.

This is about to change.

For starters, the loan to be refinanced must be seasoned for at least 6 months, and the homeowner must be in good standing. Contrary to rumors that the only people who get help with mortgages are those in default, default will put you out of the running for a FHA Streamline Refinance.

For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.

If the mortgage is one year old or older, the borrower must have made each payment within the month due for the previous 3 months, and must not have had more than one 30-day late payment in the past year.

Next, the borrower must now show proof of employment and income. If cash will be needed at closing, the lender must verify that those assets are available prior to submitting a loan for endorsement.

As might be expected, the new loan must be beneficial to the borrower. It must be a change in loan program, result in a 5% or more reduction in the mortgage payment, or result in a shorter loan term.

One significant change involves appraisals. If the borrower wishes to include closing costs and pre-paid escrow items, an appraisal will be required.

The loan will then be limited to either: the outstanding principal balance, plus closing costs, escrow amounts, and mortgage insurance, or 97.75% of the appraised value, plus such costs. Points may not be financed.

Since many homes are now appraising for less than their mortgage balances, this requirement could prevent use of the program for all homeowners without the cash to cover closing costs and pre-paid taxes and insurance.

The mortgage insurance premium can still be included in the mortgage, with or without the appraisal.

Author: Mike Clover
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