Check the fine print of FHA refi program
WASHINGTON — The Obama administration's new plan to stimulate refinancings of FHA mortgages is likely to help large numbers of homeowners cut their monthly costs — even those who are underwater. But it's also likely to be a disappointment to many borrowers who aren't aware of the program's fine print and end up missing a chance to switch into a loan with a rate below 4 percent.
Here's a quick overview of the so-called "streamline refi" program and what it will take for you to qualify. First, the baseline criteria: Your current home loan must be FHA-insured and must have been put on the agency's books no later than May 31, 2009. If your mortgage is owned or backed by Fannie Mae, Freddie Mac, the Department of Veterans Affairs or private investors, you're out of luck.
The May 31, 2009, date is crucial. Your lender can tell you precisely when the FHA "endorsed" your loan for insurance. This is different from the dates you applied for your loan or closed on your house.
You also need to have an unblemished record of on-time mortgage payments for the past 12 months.
You may have time to get those 12 consecutive months of on-time mortgage payments. The FHA said the new ongoing program has no specific termination date.
On top of that, if your refinancing does not provide you a net savings of at least 5 percent in your principal, interest and mortgage insurance payments, you won't be eligible either. The program begins June 11.
Those are the main hurdles. But they are substantial enough to exclude hundreds of thousands of borrowers who might like to refi. According to spokesman Brian Sullivan, FHA has roughly 500,000 active loans in its portfolio that are eliminated from participation solely on the basis of the cutoff date. Of those, an estimated 145,000 have mortgage interest rates higher than 5 percent — making them prime candidates for a refi if it weren't for the cutoff date.
Now for the good stuff: Under the Obama plan, if you qualify on the criteria above, you get to breeze through the paperwork maze and underwriting hassles that come with any refinancing. The FHA streamline refi requires:
• No new verifications of income or employment. If you've been paying on time for a year, the presumption is that you've got the needed income.
• No new credit evaluation, credit reports or FICO scores.
• No new physical appraisal. The program generally accepts the appraised value of your home at the time you closed on your FHA loan as good enough — even if you're now in serious negative equity territory.
Along with the stripped-down underwriting, the new program also comes with valuable financial concessions.
To sweeten the deal, the FHA has slashed its regular insurance premium charges for qualified streamline applicants.
Kenneth R. Harney can be reached at [email protected]