Anyone else doing refi w new special FHA Streamline?

Question

We are doing the new FHA Streamline refi for homes pre-July 2009 with the .01 funding fee and less monthly MIP.  Just wondering if anyone else is having unexpected issues pop up.  Already surprised as it was supposed to be no income verification, no credit report, no appraisal, no qualifications other than 12 months of on-time mortgage payments on the property and verification of funds to pay prepaids as not allowed to include in loan balance.  So far, they required full application showing employment and net worth, have checked our credit, requested months of bank statements and documentation verifying deposits, including direct deposits that clearly state what it is for (payroll dept, property management, etc.), even though the program says just verify cash available for prepaids.  They also requested all mortgage statements from all my properties (although the program was supposed to be just payments on the property being refinanced).   We even had to sign the permission forms for them to obtain 2 years of tax returns, although they didn't ask us, personally, to provide the returns.    It will save us hundreds each month, so will jump through hoops to get it, but just wondering if the government knows they are not actually streamlining much in the process.

Lynn McGeein · Answer

Cheryl, as long as you qualify for one of the "No Appraisal Required" FHA streamline programs, which this new one is, then it doesn't matter if it's been converted to an investment property, at least that's what I read in the guidelines.  There was an addendum at closing actually stating the waiver of the owner-occupied requirement.  It was sort of a streamline -- much more documentation than expected, although no appraisal, no tax returns or schedule E's (just forms for them to obtain copies), no employment verification.  They did want credit report, 3 months bank statements, explanation of all deposits (even a $46 state income tax refund needed explanation -- weird), and mortgage statements from all properties showing escrow accounts for some reason.

We do actually have 2 FHA loans right now, but got our second due to meeting the distance requirement on transfer for work.  It was harder finding a lender who would actually do a 2nd FHA than it was to actually get the okay on it as I guess there is more work & more risk involved.   I don't believe there are any 3rd FHA loans available, as even if you assume them, you are required to qualify, and I don't think they qualify you if you already have one.

Cheryl C. · Answer

Tim Czarkowski, it's my understanding that FHA's are fully assumable on the original terms by a qualified owner-occ.  This is a great feature for those buying now and worried about significant rate increases.  If rates go to 5%, you have an assumeable 3.5% - a defininite selling feature.  I just wish that investors could still assume them.  I wouldn't even mind the "qualifying" part.

Brian Hoyt, yes the good old days.  No-qualifying FHA and VA assumptions.  Total lender fee $45!!!!

Tim Czarkowski · Answer

I recently did a FHA Streamline refinance on my primary residence which also happens to be a four unit building. I was told that we would just need to prove we were still employed. However, when I received the application it asked for our other debt, amount of income, other assets, etc. When I sent it back to the broker he returned it to me and had me leave those portions blank. The process was very smooth from there on and was completed in about 3 weeks. It only dropped my payment about $100 a month because of a change in the way they calculate MI but I had no out of pocket expenses. The amount of escrow returned to me was larger than what I had to put up also.

As I understand it, at this time it is very unlikely to be able to get more than one FHA loan. They have made it much more difficult to assume them also. If I'm wrong on that I would love to know.

James H. · Answer

Cheryl C.,

Wow, that is amazing. Maybe requirements have changed. Also, I am still fairly new at all this and have only looked into financing deals a handful of times. I will say that I was trying to get a second FHA loan a couple years ago, but was told I had to go with conventional becuase the loan amount of the new house was less than the one I was going move from and keep as a rental. This was despite the fact that the new house was now worth a lot more than the old house. So, it seems that if you are upgrading (the amount of the loan AND the property) you can do it. However, I do think I was trying a 203K which might have been a little different. We are looking to buy again soon and although we will likely do VA this time around, I will definitely hone my FHA skills again before making the final financing decision. Would love to assume an existing FHA and streamline refi it!

Cheryl C. · Answer

Brian Hoyt, I'm showing my age here, but investors used to be able to assume FHA loans for only a $45 fee.  No appraisal, no application - nothing!  I used to assume them and then, in some cases, later streamline refi them.  I clearly remember immediately going from 9% to 7% on one house.  They used the prior owner's payment history!  I also had a bunch of FHA's back in the day that we had used for purchase money on personal residences that were later converted to rentals.  I am surprised that FHA allows a streamline on a rental.

James H. · Answer

The lender will still require some documents for their own screening purposes. I did have to provide bank statements and some other stuff (already forgot some of it), but did not have to provide paycheck stubs. Maybe becuase I have direct deposit. Anyway, they were very critical of my bank statments and wanting justifications for all the "out of the ordinary" deposits we had. We also worked off my old survey and did not get an appraisal.

I don't believe it is possible to just go and and get a bunch of FHA loans. There must be some kind of justification to obtain more than one. I don't know what would be a good reason, but there are some that exist.

It is an excellent program for those that qualify and have the cash to pay the prepaid items that Lynn was refering to. I had to come up with 3600 bucks, but will get an escrow refund for 1300 and also "skipped" a mortgage payment. I could have skipped two, but did not understand the way the timing had to work out in order to do so and ended up making a payment prior to the closing...I still would have had to come to closing with the interest portion of that payment, so it wasn't a big deal - maybe lost 50 bucks in the grand scheme of things.

Cheryl C. · Answer

Great info here.  Is an FHA Streamline now a true streamline?  Or are they still wanting a full-doc?  Lynn, I'm surprised that they let you streamline a property that is no longer a primary.  I wish I had a bunch of FHA's.

James H. · Answer

Lynn M.,

Glad to hear your refi went well. I closed on mine week before last, so they got mine done in just over 4 weeks. And I'm sure that is only because they prioritize new purchase loans over refis. My rate went from 6.75 to 3.75 - very pleased. Dropped a PITI of 600/month to 450/month. We are now looking to buy a new primary and will convert this house to a rental. Should pull about 750/month. The only drawback is the PMI resets for another 5 years. But it is only 27/month on my loan, so I'm not worried about it. Probably would have taken another 5 years to get to 80% LTV anyways, lol.

Another plus was that I found out the county had dropped my homestead exemption due to an error on their part and we got a check for 230 bucks refunded from the county too!

Lynn McGeein · Answer

Just wanted to update that our Streamline refi on our FHA mortgage that we turned into a rental 2 years ago went through last week, so 6 weeks total, not too bad considering loan officer said it could take up to 3 months.  We did have to close with certified funds to cover prepaids as you cannot add them to loan balance, but will be getting refund from old lender's escrow account higher than paid funds.  We took a higher interest rate, 3.75, versus paying our own closing costs, but still dropped from 6.0 to 3.75 rate and virtually paid for.  They even sent a courtesy notary to our home to close as we are out of state now.  While they did ask for way more info -- credit score, all other rental property info, months of bank statements, etc. -- the program, itself, says those aren't required, so you may be able to find a lender that follows the program.

Just wanted to post this quote from an article I read, although I think banks are still ignoring it (as common sense does dictate main goal should be to make sure you are making a good loan that won't default, not that you are not penalized for making a bad loan), regarding it not affecting their default numbers:

Banks didn't want their Compare Ratios to rise.

The FHA has acknowledged this issue and, similar to how HARP II waives reps and warrants on HARP refinances, the FHA will now exclude FHA Streamline Refinances from its Compare Ratio calculation. Banks are no longer penalized if they make an FHA Streamline Refinance loan that goes bad.

Literally overnight, getting approved for an FHA Streamline Refinance has become faster, easier and, for lack of a better word, more streamlined.

Richard Malcom · Answer

Yes i asked my lender first back in march and they said sure theyd do it, no credit check or nothing. But told me itd be better to wait until june 11 for the new guidelines so i did....and then they had started doing credit checks,talk about frustrated! Im working on trying to get a conventional loan now with an appraisal because due to the amount of property with this house, it should apraise 80k more than i owe even in this market.Its on 10 acres I owned free and clear before i built the house.