FHA Would Be Waiving the Requirement That Existing Loan Be Current

FHA's principal change  would be to waive its standard prohibition on delinquent borrowers.  Below are the likely elements of the program (though they are subject to change).

1.       A homeowner could be eligible to refinance their delinquent loan if the delinquency was caused by an increase in their mortgage payment as a result of an interest rate reset.   The homeowner would be required to show an acceptable credit history (outside of the mortgage delinquency) and a capacity to repay the new FHA loan (and any second liens already in place). 

2.      FHA's limitations on maximum loan amount and loan to value ratios are set by law.  The maximum LTV therefore will range from 97.15% to 98.75% depending on the location of the property and the amount of the loan.   Based on current FHA policy, FHA will likely permit the homeowner to refinance the unpaid balance of the first mortgage, the unpaid balance of any purchase money second mortgage, closing costs, prepaid expenses, prepayment penalties, and late charges.  As part of this new program, FHA will likely permit some amount (possibly 6 months) of delinquent mortgage payments subject to the maximum loan amount limitation.  The upfront MIP may be added to exceed the maximum loan amount

3.      FHA regulations do not permit any new second liens to be added at closing (unless the second when combined with the first does not exceed FHA's  maximum LTV requirements)  to cover any shortfall from the difference between the existing loan balance, closing costs, etc and the maximum amount of the FHA loan based on a current appraisal.  The current mortgage holder could "write down" the amount of the shortfall to permit the FHA refinance transaction.

4.      A new appraisal would be required by an FHA-approved appraiser.  All borrowers would be required to meet standard FHA underwriting criteria (e.g. 31/43 ratios), with full documentation and validation of income, assets, credit and employment.

5.      While it could be argued that these loans may be less risky than a typical FHA loan, it is possible that FHA could implement a higher premium structure based on the recent comments of the FHA Commissioner.  Are you in need of help? Visit our website: www.stargaterealestategrp.com for more information.