FHA Streamline No Appraisal Refi Ending? (insurance, loan, real estate, fees)

[sh9730]

Guess I just heard about this - that no appraisal - no asset verification streamlines for FHA will stop as of Nov 16th?

I guess I dont understand the premise? I saw an interview with the new FHA Director (commisioner?) and there was a slight mention that these loans were underperforming - so now they are going to require appraisals, which of course will put FHA borrowers in the same boat as so many others with LTV that will not qualify for refi.

BUT, my contention that these loans left as the original loans would likely also underperform, to an even greater extent than the refis, since in order to get a no appraisal refi you cannot take cash out, AND your payment must go DOWN. Also you cannot borrow more than the current outstanding loan balance (+/- a few fees)

The theory of these things is there is LESS risk to the govt by offering these refis since the payment goes down, and they are already the guarantor on the original loan, it can only increase the chances of success by the borrower if their payment is lower than it was, correct?

Am I missing something? My original loan (FHA) rate is 5.75% so rates have not quite made it worth the costs to refi, but it was nice to know that this simple, less expensive, refi option was always available. I am in no fear of defaulting, even at the current rate.

Am I missing something?

[winkalit]

Your premise is that the goal is to guarantee more loans. That's not necessarily the case. Right now, the focus is on curtailing the risk of default. So, the tightening of lending standards should be expected.

[sh9730]

Win,

Thanks for the response, but with these streamline refis there is no additional loan guaranteed. You must already be in an FHA backed loan, AND you cannot borrow more than your existing balance (some fees ok), AND your payment must be LOWER than it is now. You are only exchanging a higher payment for a lower payment. There is no "additional" loan created. Seems to me this can only REDUCE the exposure to FHA since they are already guaranteeing the original loan.

Makes no sense to me they want to back out of these. Now, the streamline with CASH BACK etc, which already require an appraisal, I can absolutely understand them backing off of those.

[SmartMoney]

I understand what you are saying, but it also depends upon where the loan is to be delivered. Yes, in the grand scheme of things, it appears you are trading a pink room for a blue room and all else is the same.

But this is the problem. Let's say the owner of the note (the investor) is Lala Real Estate Investments and you make your payment to CHASE, the servicer. Now you want to do a streamline refi, and you go back to CHASE. Only now, Lala is no longer the investor there, but it's ABC Inc. Why would ABC want to take on a new, risky loan, knowing values have dropped? Even if you have made your payment on time for years, ABC does not want to take on a property that does not have equity. It's proven when things get tough and there is no equity, people walk.

To put it bluntly, why would someone want to take on someone else's problem? FHA is the insurer, not the maker of the loan. If a loan is upside down or there is minimal equity, the insurance only covers a portion of the losses.

Does that help at all? I know it doesn't seem fair, but you have to remember, the investors buying into the mortgage market today are not the same players of the past.

[sh9730]

Smart,

At least thats an explanation - BUT, isnt the FHA backing the loan anyway? So they are actually taking on MORE risk by stopping this option since payments will be higher forever now?

Yes, I do know there are penalties if a loan originator/servicer has too many defaults, so even though the FHA backs it, is that the reason (given your description of the investor likely being different than the original)? Because the new investor does not want to damage their ability to originate FHA loans, especially in this new loan environment?

If thats it, I can kind of see it. Although, like so many other things, in my mind it means more defaults for the government to eat than would have been. BUT, unless they start doing direct lending (which I am NOT advocating!), I guess what you explained is the way it will be.

Thanks.