The newly revamped FHA Streamline Refinance loan program is running into problems only a few weeks after the FHA mortgage insurance premiums decrease and FHA mortgage rates fall to all-time lows.
FHA Streamline Refinance loan problems
The biggest issue facing new FHA Streamline lender is the indemnification issues. Indemnifications are monies paid in compensation for a loss, like insurance. With respect to the FHA, when a loan is originated by a bank and found to contain a serious or material violation of HUD requirements, regardless of whether the original loan has been since refinanced via a non-credit qualifying streamline refinance, the original mortgager remains on the hook for damages resulting from the loan.
The refinancing FHA lender assumes no liability from the actions or omissions of the original FHA lender, nor is the refinancing lender responsible for violations of the original lender.
The lender performing the non-credit-qualifying streamline refinance is not
absolved of all FHA responsibility, however. The second lender remains liable for whatever acts it performed in the process of the refinance. In other words, as long as the refinancing lender doesn't make any material violations, they are liability free. However, if the second lender's origination of a non-credit-qualifying FHA Streamline Refinance Loan involves serious and material violations of HUD requirements, or fraud or misrepresentation which result in a claim, HUD reserves the right to request indemnification from the second lender for the non-credit-qualifying FHA Streamline Refinance.
Why this matters?
Fear Of Failure Results In Fewer FHA Streamline Refinances
Lenders are concerned for the FHA's indemnification policies. When business was scarce, FHA Streamline Refinances may have been a worth the risk to lenders. Today, with the biggest banks flush with business, the risk is unnecessary. Many large U.S. banks have stopped accepted FHA Streamline Refinance loans outside of a narrow criteria, and the trend has staying power.
If you've been turned down for an FHA refinance mortgage by your bank, you may find luck somewhere else. The FHA Streamline Refinance loan program is being underwritten by a lot of banks, just maybe not by the first FHA lender you called. Check to see if you qualify here FHA Streamline Refinance loan.
FHA Mortgage Rates Lower Than Comparable Conforming Mortgage Rates
30-year fixed FHA mortgage rates are currently lower than a comparable 30-year fixed conforming mortgage rate. But that doesn't mean it will be easy to get an FHA approval. With mortgage lenders fearful of the False Claims Act and the indeminification issues, and also not hurting for new business, many of the nation's largest mortgage banks are just saying no the FHA Streamline Refinance.
If your bank or broker has said they won't do an FHA Streamline Refinance for you, your first step should be to shop for another lender.