August 15, 2011
The FHA changed the rules on Streamline Refinancing Loans for all case numbers assigned on or after April 18, 2011.
The new regulations now include a requirement that the lender must “determine that there is a Net Tangible Benefit (NTB) to the borrower as a result of the streamline refinance transaction”.
Those tangible benefits include specific requirements based on the type of refinancing loan. For example, a fixed-rate loan that is refinanced to another fixed rate mortgage must have a five percent minimum reduction in the principal, interest and mortgage insurance payment, also described as PI & MIP.
For FHA Streamline Loans which refinance fixed-rate mortgages to a One Year Adjustable Rate Mortgage, the requirements include a minimum two percent reduction in interest. Fixed rate FHA loans to Hybrid ARMs must feature a minimum five percent reduction in PI & MIP.
Borrowers who want to refinance one-year ARM loans to fixed-rate mortgages are subject to what the FHA official site describes as a”…maximum 2% interest rate increase.”
A one-year ARM loan refinanced to a one-year ARM must get a minimum five percent reduction in PI & MIP, while one year ARM refinancing to a Hybrid ARM loan must receive a minimum two percent interest rate reduction.
For borrowers who want to refinance a Hybrid ARM loan during the fixed period to another Hybrid ARM loan (fixed period), there’s a required minimum five percent reduction in the PI & MIP. Hybrid ARMS in the fixed period refinanced to a one-year ARM must see a two percent interest rate decrease.
There are many other changes–these are just a few of the most relevant. You can find the full list of these and related changes at:
http://portal.hud.gov/FHAFAQ/controllerServlet?method=showPopup&faqId=1-6KT-1636
One important thing to keep in mind is the addendum the FHA placed at the end of that list of changes. It’s not enough, according to the new rules, to simply reduce the term of the loan in order to qualify for FHA Streamline Refinancing. The Net Tangible Benefit must result in lower payments, a lower interest rate or other benefits as described in the FHA rules for Streamline Refinancing Loans.
The FHA official site states, “Reducing the term of the mortgage, in and of itself, is not considered a net tangible benefit.”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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