FHA Streamline Refinance: Net Tangible Benefit Changes


Recently (February, 2011) FHA came out with a few changes to the FHA streamline refinance program in an official announcement called a “Mortgagee Letter”.

One of those changes was a change to something called the “Net Tangible Benefit” calculation which is a calculation that is required on all FHA streamline refinances.

FHA Streamline Net Tangible Benefit Changes

The official section about the net tangible benefit calculation from the FHA Mortgagee Letter:

This new guidance bases the calculation of the net tangible benefit on the principal and interest (P&I) and Mortgage Insurance Premium (MIP). The purpose of this change in guidance is to allow mortgagors who can reduce their P&I and MIP by 5 percent to do a streamline refinance, even if they have an increase in taxes and insurance, because mortgagors must pay taxes and insurance regardless of whether they refinance.

This will allow more mortgagors to qualify for a streamline refinance, increasing their ability to repay their mortgages.
The mortgagee must determine that there is a net tangible benefit to the mortgagor as a result of the streamline refinance transaction, with or without an appraisal.

“Net tangible benefit” is defined as:

  • A 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.

Note: Reducing the term of the mortgage, in and of itself, is not a net tangible benefit. Also, when refinancing to a hybrid ARM, mortgagees must treat the new hybrid ARM as a fixed rate mortgage.

The below chart outlines the changes:
FHA Streamline Refinance Net Tangible Benefit

Do you have more questions about the FHA Net Tangible Benefit calculation? Be sure to ask your loan officer.


About Author

Justin McHood is a Mortgage Commentator living in the Phoenix, Arizona area and is happy to answer any mortgage-related questions that you may have.

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