HUD Lowers Fees On Refinancing Your Existing FHA Loan – If Your Current Loan Closed Prior To Mid-Year 2009
Data provided via Freddie Mac Primary Mortgage Market Survey®
The Housing and Urban Development Department (HUD) has joined Fannie Mae and Freddie Mac in offering a special refinance loan program for FHA borrowers who may not have been able to refinance due to the value of their home or the high cost of the FHA mortgage insurance.
Fannie and Freddie have the Making Home Affordable Refinance Program (HARP) and FHA has their Streamline refinance program. FHA’s always had a Streamline, but recent increases to their mortgage insurance cost have made refinancing an existing FHA loan limiting due to the increased insurance cost erasing much of the benefit from the lower interest rate.
The FHA loan program has a couple of different mortgage insurance tiers depending upon how much you put down and whether the loan is a 30 year or 15 year term. The most common structure is an upfront (UFMIP) cost of 1.75% of the loan amount and an annual fee (MI) of 1.25%. The upfront fee is actually financed into the new loan and the annual fee is collected on a monthly basis. On a $200,000 loan that would be $3,500 added to the loan balance and the annual would be $208.33 collected monthly.
Because FHA’s annual premium was only .55% just a few years ago, this recent increase has made it increasingly difficult to realize a financial benefit from a Streamline refinance. That increase from .55% to 1.25% is almost the equivalent to .70% in interest rate. In other words, if you had an FHA loan at 5% you wouldn’t even benefit from refinancing your rate to 4% because almost all of that would be lost to the increase in mortgage insurance.
So someone at HUD got smart and lowered the upfront mortgage insurance and the annual mortgage insurance for any FHA loan being refinanced that was originally endorsed by FHA prior to May 31, 2009. And the change is very significant. The upfront premium will be lowered from 1.75% to .01% and the annual of 1.25% is being rolled back to .55%. This should make the Streamline refinance program available to thousands of borrowers who have been unable to refinance due to the higher insurance costs.
Using our $200,000 loan example again, this will lower the upfront premium from $3,500 to $20 and the annual from $208.33 to $91.66.
We’re hoping that FHA will change the eligibility criteria from the date your loan was “endorsed” to the date you “closed” because there is no way for you to know when your loan was endorsed. After an FHA loan is closed, it is sent to FHA for insuring and endorsement. This can take a few days, weeks, or even months. A loan that may have closed in the month of April or May of 2009 may or may not have been FHA endorsed by the required May 31, 2009 timeframe. If you need help determining your loan’s endorsement date, just give us a call. Lenders have access to FHA’s database, and we can pull up that information for you.
It’s an election year and Congress wants to make sure you know they are trying to “fix” the economy. If you have been unable to refinance your loan for some reason, keep watching as it’s quite possible we see another round or two of special programs being introduced to help you lower your payments. Still left without help are borrowers who have a loan not owned by Fannie, Freddie, or FHA (about 50% of outstanding loans from the mid 2000’s) and those whose loan closed June 2009 or later. There has been talk of changes for that other 50%, so stay tuned if that’s your situation.
Michael has 21 years’ experience in the lending industry. In that time he’s directly helped over 1,400 families finance the purchase of a new home or refinance an existing loan. Rebecca has a CPA background in auditing financial institutions which brings an incredible resource to First Priority Financial. They are licensed to help families in the states of WA and CA. If you, or anyone you know, needs help with a home loan call 509-252-9151 or send an email to Mike Mullin