In it’s announcement on Friday, FHA tightened the credit standards for it’s Streamline Refinancing Program. So if you currently have an FHA loan on a San Jose home and want to refinance into another FHA loan, you will be subjected to new parameters starting January 1, 2010. Below are the highlights per FHA mortgagee letter issued on 9/18/2009.

A.Seasoning

At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

B.Payment History

1)For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.

2)For mortgages with a 12 months payment history or greater, the borrower must have:

a)Experienced no more than one 30 day late payment in the preceding 12 months,

AND

b)Made all mortgage payments within the month due for the three months prior to the date of loan application.

C.Net Tangible Benefit

The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal.  Net tangible benefit is defined as:

reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners association fees, ground rents, special assessments and all subordinate liens),

refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage,

OR

reducing the term of the mortgage.

Reduction in Total Mortgage Payment:  The new total mortgage payment is 5 percent lower than the total mortgage payment for the mortgage being refinanced.

D.Certifications and Verifications

When submitting the loan for insurance endorsement, the lender must include a signed and dated cover letter on their letterhead certifying  that the borrower is employed and has income at the time of loan application.

If assets are needed to close, the lender must verify and document those assets.

E.Maximum Combined Loan to Value

If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

Also read my earlier post on Streamline refinance by clicking here

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