If you’ve been looking for help with your mortgage, new HUD rules might affect you. HUD has revised the rules for streamline mortgage refinance transactions. The key revisions affect the seasoning of the loan, payment history, the benefit for the borrower, the maximum combined loan-to-value amount, and the maximum mortgage amount for streamline refinances without an appraisal. The HUD changes for streamline refinances will also affect discount points for streamline refinances with an appraisal, and verification of assets, employment and income. The HUD changes to streamline refinances apply to streamline refinance applications on or after November 18, 2009. Read the full mortgagee letter below for more details about what changes have been made to the streamline refinance application process.
Revised Streamline Refinance Transactions
This Mortgagee Letter provides (1) revised procedures; and (2) reaffirms existing procedures regarding Streamline Refinance transactions. This Mortgagee Letter is effective for new case numbers assigned on or after 60 days from the date of this letter.
- 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)
I. Revisions for ALL Streamline Refinance Transactions
At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.
B. 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:
a) Experienced no more than one 30 day late payment in the preceding 12 months,
b) Made all mortgage payments within the month due for the three months prior to the date of loan application.
C. 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,
- 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.
This requirement is applicable when refinancing from a Fixed Rate to Fixed Rate, from an ARM to ARM, from a Graduated Payment Mortgage (GPM) to Fixed Rate, from GPM to ARM, from a 203(k) to 203(b) and from a 235 to 203(b).
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. Example: total mortgage payment on the hybrid ARM is $895; the total mortgage payment for the new fixed rate mortgage must be $1,074 or less.
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.
D. 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.
E. 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.
F. 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.
G. TOTAL Scorecard
Lenders should not use TOTAL on streamline refinance transactions. If a lender uses TOTAL, that loan must be underwritten and closed as a rate and term (no cash-out) refinance transaction.
H. Uniform Residential Loan Application (URLA)
Mortgagees may no longer use an abbreviated version of the URLA. Due to various disclosure requirements and our long-standing belief that borrowers are best served when certifications they must make are divulged as early as possible in the loan application process, the application for mortgage insurance must be signed and dated by the borrower(s) before the loan is underwritten. Mortgagees are permitted to process and underwrite the loan after the borrowers and interviewer complete the initial URLA and initial form HUD-92900A, HUD/VA Addendume to Uniform Residential Loan Application.
II. Revised Streamline Refinance Transactions WITHOUT an Appraisal
The maximum insurable mortgage cannot exceed:
- The outstanding principal balance minus the applicable refund of the UFMIP,
- The new UFMIP that will be charged on the refinance.
III. Revised 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 charge on the refinance;
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.
IV. Unchanged Streamline Refinance Transactions
The following on streamline refinance transactions remains unchanged:
- Maximum mortgage limits and maximum mortgage term
- Streamline Refinances for investors/secondary residences
- Cash back at closing
- Permissible geographic areas
- HUD LDP and GSA exclusion lists
- Credit Reports
- Credit Qualifying [except maximum insurable mortgage]
- Holding period for assumed loans
- Adding/Deleting Borrowers
- Withdrawn Condominium Approval
- Seven Unit Limitation
- No Cost Refinances
- 203(k) to 203(b) [completion of rehabilitation]
- 235 to 203(b) [overpaid subsidy and junior liens]
If you have any questions regarding this Mortgagee Letter, please contact the FHA Resource Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TTD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).
David H. Stevens
Assistant Secretary for Housing
Federal Housing Commissioner