FHA Streamline Refinance- FAQs

Written By: Stacey Sprain

Next Monday, June 11th marks the first day of FHA’s significant MIP/MI rate decrease for certain FHA streamline refinance transactions. The following FAQs are presented in order to provide you with the information you need to make the best of this extraordinary marketing opportunity for existing FHA borrowers. Please note that the answers below reflect the answers that would be given to comply with standard FHA guidelines. Always consult your specific lender’s guidelines as lenders may apply their own credit requirements and overlays which may differ from FHA standard guidelines.

How do I know if a borrower would qualify for an FHA streamline refinance?

General Eligibility Requirements
o The borrower must hold a current FHA-insured mortgage; and
o The borrower must have made at least six payments on the FHA-insured mortgage being refinanced, and
o at least six full months must have passed since the first payment due date of the refinanced mortgage, and
o at least 210 days must have passed from the closing date of the mortgage being refinanced to the date you will request the FHA case assignment for the streamline refinance.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

Net Tangible Benefit Requirements

In addition to the standard eligibility requirements listed above, the borrower must benefit from the streamline refinance with
• At least 5 percent reduction to the P&I of the mortgage payment plus the annual MIP, or
• Refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage after the existing loan is no longer in the fixed rate period.

Refer to Permissible minimum thresholds in Mortgagee Letter 2011-11.

I’ve heard/read that streamline refinances can be done with or without an appraisal but how do I know which the borrower needs? For transactions done without an appraisal, the LTV/CLTV must be derived from the current value reflected in a Case Query from FHA Connection for the current FHA-insured case and no closing costs or prepaid expenses can be included in the loan amount.
For transactions done with an appraisal, the LTV/CLTV can be derived using current appraised value and when the borrower is fully credit-qualified with an appraisal, closing costs and prepaid expenses can be included in the loan amount when sufficient equity is present with new appraised value. The ONLY way closing costs and prepaids can be included in the new loan amount is by using a credit-qualifying streamline refinance with a new appraisal.
What is the difference between credit-qualifying and non-credit qualifying and how do I know which the borrower needs? The biggest benefit of a streamline refinance is that it allows borrowers who might not otherwise qualify to refinance the ability to refinance with much less credit documentation than a standard refinance transaction. Borrowers who have good mortgage payment histories but who may have made other derogatory late payment on other accounts may still qualify for a non-credit qualifying streamline. Borrowers with good mortgage payment history who have suffered a pay cut or temporary layoff or who have taken on medical expenses may be able to benefit from a non-credit qualifying streamline because debt-to-income ratios are not required. If by using the most recent value indicated in a case query the borrower’s LTV doesn’t exceed 97.75% and CLTV doesn’t exceed 125%, and the borrower doesn’t need credit-qualifying for any other reason, a non-credit qualifying streamline may be just the ticket. Premium pricing can be used to cover the borrower’s closing costs/prepaids since non-credit qualifying will not allow them to be rolled into the new loan amount.
Credit qualifying streamline refinances contain all the normal features of a streamline refinance, but provide a level of assurance for continued performance on the mortgage. Credit-qualifying with an appraisal would be needed in order to roll closing costs/prepaids into the new loan amount and to base the new loan amount off the new appraised value. A credit qualifying streamline refinance is also required
• when a change in the mortgage term will result in an increase in the mortgage payment of more than 20%
• when deletion of a borrower or borrowers will trigger the due-on-sale clause
• following the assumption of a mortgage that
o occurred less than six months previously, and
o does not contain restrictions (i.e. due-on-sale clause) limiting assumption only to a creditworthy borrower, or
• following the assumption of a mortgage that
o occurred less than six months previously, and
o did not trigger the transferability restriction (that is, the due-on-sale clause), such as in a property transfer resulting from a divorce decree or by devise or descent.

Is a borrower eligible for a streamline refinance if he/she originally purchased an FHA-insured property as a primary residence but has since converted the property as a second home or investment property? Yes but the transaction is only eligible for streamline without an appraisal
Exactly what documentation do I need to obtain from a borrower for a full credit-qualifying streamline refinance? Believe it or not, you need to document a credit-qualifying transaction with full documentation, just as you would any FHA manually underwritten loan as I recently verified/clarified with HUD. That means you need 30 days paystubs, 2 years W2s for wage earners, 2 years tax returns for self-employed borrowers, and a verbal or written VOE meeting agency requirements. You would also need to gather two months bank statements or a VOD and one month bank statement to document assets if needed for closing. You need to list all debts from the credit report on the 1003 and manually calculate debt-to-income ratios. In short, the loan requires manual credit underwriting, just as any other manually underwritten full documentation FHA loan.
If I need all that documentation in order for a borrower to roll costs into their refinance, why wouldn’t I just do a regular FHA rate/term refinance? What would be the benefit of a streamline? That’s a great question to ask. Really, the ONLY benefit of a credit-qualifying streamline versus a standard rate/term refinance is that the combined loan-to-value allows for up to 125% of the new appraised value or 125% of the existing FHA case value, depending on whether you choose to streamline with or without an appraisal. If your borrower qualifies for a standard FHA rate/term refinance at the maximum 97.75% combined loan-to-value and doesn’t need the expanded CLTV of up to 125%, it’s just as wise to offer a standard FHA rate/term refinance as it would be to offer a credit-qualifying streamline refinance. The rate/term refinance allows the potential benefit of AUS approval for expanded DTI.
• Max LTV for a streamline or rate/term refinance is 97.75%.
• Max CLTV for a streamline is 125%.
• Max CLTV for a rate/term refinance is only 97.75%.
What are the up-front MIP rates for an FHA Streamline Refinance?

• If Case assigned 10/04/2010 – 04/08/2012 UFMIP = 1.00%
• If case assigned on or after 04/09/2012 UFMIP = 1.75%
• If case assigned on or after 06/11/2012 and existing case was insured/endorsed prior to 06/01/2009 UFMIP = .01%.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

What are the annual MIP rates for an FHA Streamline Refinance?
• If case assigned 04/18/2011 – 04/09/2012
> 15 yr Term: > 95% LTV = 1.15%; <=95% LTV = 1.10%
< = 15 yr Term: > 90% LTV = .50%; <=90% LTV = .25%

• If case assigned 04/09/2012 – 06/11/2012
> 15 yr Term: > 95% LTV = 1.25%; <=95% LTV = 1.20%
< = 15 yr Term: > 90% LTV = .60%; <=90% LTV = .35%

• If case assigned on or after 06/11/2012
If loan being refinanced was insured/endorsed prior to 06/01/2009: MI = .55%
If loan being refinanced was insured/endorsed on or after 06/01/2009: MI =
> 15 yr Term: > 95% LTV = 1.25%; <=95% LTV = 1.20%
< = 15 yr Term: > 90% LTV = .60%; <=90% LTV = .35%

How do I know if the current FHA case was insured/endorsed prior to 06/01/2009 to qualify for the reduced MIP rates on and after 06/11/2012? You will need to pull a Case Query from FHA Connection for the current case which will provide the insured/endorsement date. Follow these instructions:

• Log on to FHA Connectionhttps://external.fairwaymc.com/FHA%20Max%20Mortgage%20Worksheets/FHA%20S...
• Choose Single Family FHA
• Choose Single Family Origination
• Choose Case Processing
• Scroll down the page and select “Case Query”

• You will need to choose the correct field office from the first dropdown box.
• If you know the current FHA case number, enter it in line 2 and Send.
If you do not have the current FHA case number, you can search by the borrower’s SSN, by the borrower’s last and first name or by the property address. (always use the property address option as a last resort- you’ll have better luck searching by SSN or borrower name) and click Send.

Once the Case Query data is reflected on your screen, refer to the “Insurance Date” field. This date indicates the date the existing FHA loan was insured/endorsed. If this date is prior to 06/01/2009, the borrower qualifies for the .01% up front MIP effective with streamlines starting 06/11/2012. If this date is on or after 06/01/2009, the borrower’s up-front MIP rate remains at 1.75% for a streamline refinance.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

What MIP rates should I disclose if my borrower applies for streamline before 06/11/2012? You must always disclose the MIP rates that are available/offered as of the date of loan application. If the borrower is determined to be eligible for lower rates once they become available during the loan process, you must re-disclose your loan with a Change of Circumstance on or after 06/11/2012.

Be sure to refer to the following resources for additional information about FHA streamline refinances:
• HUD Handbook 4155.1 Chapter 3, Section C- Maximum Mortgage Amounts on Streamline Refinances: http://portal.hud.gov/hudportal/documents/huddoc?id=4155-1_3_secC.pdf
• HUD Handbook 4155.1 Chapter 6, Section C-Streamline Refinances:http://portal.hud.gov/hudportal/documents/huddoc?id=4155-1_6_secC.pdf
• HOC Reference Guide-Refinances: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ref...
• FHA Mortgagee Letters 2011-11, 2010-24, 2010-19, 2009-32.

About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.