Obama Slashes Costs for FHA Streamline Refinances to Boost Market

March 6, 2012 7 Comments »
Obama Slashes Costs for FHA Streamline Refinances to Boost Market

In another effort to buoy the flagging housing market, the Obama administration announced today that it would essentially be removing the upfront mortgage insurance premium on streamlined FHA refinances.

So homeowners who currently hold an FHA loan, looking to refinance into another FHA loan to lower their mortgage rate, will pay just 0.01% in upfront mortgage insurance premiums.

This represents a huge discount compared to the 1% upfront premium currently charged.

The annual mortgage insurance premium will also be slashed in half to 0.55%, which together with the upfront premium reduction is estimated to save the average FHA borrower roughly a thousand dollars annually.

In order to qualify for the new program, your FHA loan must have been originated prior to June 1, 2009.

The Obama administration believes about 2-3 million FHA borrowers will be eligible to benefit from this initiative, but only time will tell how many are really helped.

Are Future Homeowners Eating the Cost?

While this is great news for those who currently hold FHA loans, it makes you wonder if future homeowners will wind up paying for it.

Last week, the FHA announced that it would be raising upfront mortgage insurance premiums from 1% to 1.75%, beginning in April.

Additionally, the agency said it would raise the annual mortgage insurance premium by 0.10 percent for loan amounts under $625,500, and 0.35 percent for loans between $625,500 and $729,750.

The measures were taken to meet the congressionally mandated minimum for the FHA’s Mutual Mortgage Insurance (MMI) fund, which has been depleted thanks to all the recent losses on bad loans. It is expected to boost the fund by $1 billion through fiscal year 2013.

So essentially first-time homebuyers and other current homeowners who do not hold FHA loans will pay a premium to take out an FHA loan.

It seems like a bit of a shift in wealth, though it will likely result in fewer new homeowners going to the FHA for mortgage financing, which is probably the end goal.

The FHA exploded in popularity in recent years as subprime lending fell by the wayside, but the agency bit off more than it could chew. So this is likely a bid to return to a more normalized mortgage market funded by private capital.

[FHA loan vs. conventional loan]

Still, it seems a little unfair for those who don’t hold FHA loans, regardless of what good it may do.

But if you have an FHA loan, this is a great time to inquire about a streamline refinance to lower your mortgage rate and your monthly mortgage payment, without being subject to steep closing costs.

Reviewing Servicemember Foreclosures

The White House also announced that it will conduct a review of all servicemembers foreclosed on since 2006 to identify any wrongdoings.

Those found to be wrongly foreclosed on will receive compensation equal to a minimum of lost home equity, plus interest and $116,785, paid for by the nation’s top loan servicers, who were involved in the National Mortgage Settlement.

Additionally, those who were wrongfully denied a refinance will be refunded any money lost as a result.

And those who were forced to sell their homes for less than the mortgage balance due to a Permanent Change in Station will also be provided with some form of relief.

Finally, the major loan servicers will pay $10 million into the Veteran Affairs fund, which guarantees funding for the VA loan program, and certain foreclosure protections will be extended to prevent future failings.

7 Comments

  1. Aaron March 6, 2012 at 2:36 pm -

    Hopefully alongwith this change there will also be the change so that you can roll your closing costs into the Streamline refinance. Currently that is not the case. If not, the borrower, who is probably struggling, needs to bring his closing costs (fees, escrow, Title insurance, Prorations for Taxes and Insurance, etc) IN CASH AT CLOSING. This looks like Political Window Dressing and not something that will actually help may Homeowners.

  2. Sho March 6, 2012 at 2:59 pm -

    This would work if you could roll in your closing cost. For a Streamline refinance you can only finance your balance and the FHA MIP. FHA changed the rules so you CANNOT roll your closing cost into ANY FHA STREAMLINE Refinance.

    This looks like Political “Double Speak” for an Election year. Sounds like a program that is good, but the REAL effect is NIL.

  3. Colin Robertson March 7, 2012 at 10:27 am -

    Good point…kind of defeats the purpose if you can’t pay your closing costs out-of-pocket. Perhaps the FHA will issue some clarification on this, as they always seem to do after the fact. They seem to figure it out as they go along…

  4. Robert Furmanski March 13, 2012 at 10:59 am -

    It does not go far enough. It should not have a date that goes back that far. Prior to June 2009 Fha was just begining to come backinto the game after the subprime meltdown. This is just flashy polotics. You wan to help people – allow them to get the benefits of today’s interest rates regardless of when they purchased their home. The loans are already insured and FHA does not loose anything by allowing someone who is already a good risk (satisfactory mortgage rating) into a loan that costs less. Where is the risk in that? By charging these new higher than high MI factors ( to pay back for payroll tax extension -are you kidding me?) they are eliminating millions of homeowners the abilty to lower their mortgage payments by refinancing. That would spurt the economy in the right direction as the money they save will be spent elsewhere in the economy as well as all the service providers monies earned for taking part in the refinance. Go figure.

  5. Jason March 24, 2012 at 7:01 am -

    You can’t roll costs but you can have your lender pay them through premium pricing/above par credit. This is an excellent program and anyone who says otherwise is wrong. I will be swamped come June 11th.

  6. Joesmylender May 31, 2012 at 5:41 pm -

    I do agree with the political “window dressing” that this really is and does kind of keep a segment out of the refinance program because not being able to roll in the basic costs, such as pre-paids and title… I agree with you Jason that the FHA Streamline Refinance Loan is an excellent program. I, too, expect to be busy.

  7. Sabrina June 5, 2012 at 11:39 am -

    This change is a dream come true. I actually have an incentive to refinance now. Removing the MIP hike will save me an extra 200/month.

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