A borrower who currently has an FHA mortgage has a large advantage over a borrower with a non-FHA loan due to the FHA Streamline Refinance program.
Although few FHA borrowers may be aware of the Streamline Refinance option, it is something that every FHA borrower should look into, especially with the recent HUD announcement of easier qualification guidelines.
As part of the Obama administration housing initiative to help struggling homeowners, HUD has announced changes to the FHA Streamline Refinance program that will allow more homeowners to take advantage of the current all time lows in interest rates.
The Streamline Refinance program has always allowed FHA borrowers who are current on their mortgage to refinance without the expense, red tape and delays traditionally associated with a mortgage refinance. The reason that the FHA Streamline Refinance is simple for homeowners is based on the simplified FHA guidelines associated with the program.
The Streamline Refinance is done without additional underwriting and best of all, does not require an appraisal of the property. From a practical standpoint, this mean that an FHA borrower who owes more on the mortgage than the house is currently worth, does not have to worry about being turned down for insufficient equity.
Despite the huge benefits of the FHA Streamline Refinance program, many borrowers were unable to take advantage of it because the banks were worried about the risks involved. If a borrower defaulted on a streamline refinance, the FHA would penalize the lender’s “compare ratio” which is used to measure the quality of a lender’s underwriting procedures. Defaults on FHA streamline loans can cause a bank’s “compare ratio” to increase which could potentially lead to the lender having their FHA status revoked by HUD.
In a HUD announcement, acting assistant secretary Carol Galante addressed the concerns of lenders who are reluctant to approve FHA streamline loans.
However, it has become apparent that some of our lending partners are reluctant to offer this product widely because of concern about taking on the risk of a loan which they may not have underwritten and the potential adverse impact such a loan may have on their FHA Compare Ratio.
In order to expand the availability of this product for eligible borrowers, FHA will make changes to the way in which FHA Streamline Refinance loans are displayed in the Neighborhood Watch Early Warning System (Neighborhood Watch). Streamline Refinances will be removed from the public compare ratio in Neighborhood Watch, but lenders will still be able to view their own traditional compare ratio (with streamlines included).
HUD will issue guidance to lenders on this change to the streamline refinance program during the coming weeks. Hopefully, lenders will become much more willing to do FHA streamline refinances once HUD finalizes the rule changes.
The expansion of the streamline refinance program will offer huge benefits to any FHA borrower who currently has a high rate. With FHA rates below 4%, millions of homeowners with FHA mortgages will be able to reduce their monthly mortgage payments.