Homeowners Excluded By FHA
FHA borrowers excluded from reduced mortgage insurance. What you can do.
by Scott Lucas
(This article was written to assist Maryland FHA Streamline Refinance borrowers but applies to all 50 states.)
FHA’s streamline refinance revision of 2012 was a great idea but unfairly excluded, and effectively barred hundreds of thousands of homeowners from the prospect of a better interest rate. Following is what you can do about it.
It’s well documented that FHA’s “cut rate” rule change is a huge success and an enormous savings for homeowners with FHA loans.
(Some parts of the US have very low average loan amounts. The following is an example for a Maryland FHA Streamline Refinance.)
Example: A $200,000 refinance under this reduced cost program, where the existing rate is as low as 4.5% still saves $85 per month at a new 3.5% rate, even after adjusting the term for the mortgage payments already paid on the old loan. And since the closing costs are paid by the lender (part of the rate credit)… the number of months to “break-even” is ZERO. Even homeowners who plan on selling in a year realize benefits.(See contact info below for specific situations.)
So how were homeowners barred?
FHA’s rule change only allowed the insurance break to borrowers whos loans were insured before June 1st, 2009. This date was set arbitrarily and was not an act of Congress. It could be easily changed by FHA with a simple administrative notice. It would not an act of Congress.
As it stands now, for borrowers with loans insured June 1st 2009 or later, instead of zero months, it would take a new 3.5% loan 18 payments for the monthly savings to surpass the loss in equity compared to an existing 5% loan.
( Some borrowers did get stuck with five percent loans after June 2009)
Worse, it would take 76 payments for the monthly savings of that 3.5% loan to surpass the loss in equity as compared to the existing loan of — say– 4.5% (and there are LOTS of those loans) In short, just not worth it.
Should FHA change the June 1st date?
No. FHA should REMOVE the date altogether and instruct that, for streamlines, the upfront mortgage insurance is removed (FHA already earned its upfront fee). The monthly insurance would continue on at whatever it was on the existing loan. This would be the fairest rule. Are we trying to help struggling homeowners or not?
Keep in mind that FHA is already allowing some homeowners this benefit (those whos loans were insured before the cutoff date). It costs FHA nearly nothing to allow that same benefit to all homeowners with FHA loans.
What can you do if you are one of the homeowners who could benefit? Contact your congressperson today. With enough pressure, FHA can fix the issue in with the stroke of a pen.
Contact Scott Lucas at 443-829-2210 or ScottLucas@1stMarylandFinance.com if you have questions.
Also at: BaltimoreLoanOfficer
filed under: Maryland FHA Streamline Refinances