The Housing Rescue Bill of 2008 | FHA Loan Refinance Facts and Senate Housing Bill

The Housing Rescue Bill of 2008

DUE TO A LACK OF INVESTOR INTEREST, ENG LENDING DOES NOT OFFER FHA MORTGAGES ASSOCIATED WITH THE 2008 HOUSING RESCUE BILL OR "THE HOPE FOR HOMEOWNERS ACT OF 2008" AT THIS TIME.

On October 1, 2008, new FHA Refinance Loan Guidelines will go into effect as part of The Housing and Economic Recovery Act of 2008 and the Senate Housing Bill. This new FHA Mortgage program is designed to help thousands of homeowners who are at risk of foreclosure in their current conventional or sub-prime home loans.

The FHA Loan refinance facts and new housing bill information as part of The “HOPE for Homeowners Act of 2008” of the Senate Housing Bill are as follows:

1. Eligible Borrowers

Only owner-occupants who are unable to afford their mortgage payments are eligible for the program. No investors or investor properties will qualify. Homeowners must certify, under penalty of law, that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt-to-income ratio greater than 31% as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.

2. Home Equity & Appreciation Sharing

In order to avoid a windfall to the borrower created by the new 90% loan-to-value FHA-insured mortgage, housing rescue bill provisions state the borrower must share the newly-created equity and future appreciation equally with FHA. This obligation will continue until the borrower sells the home or refinances the FHA-insured mortgage. Moreover, the homeowner’s access to the newly created equity will be phased-in over a 5 year period.

The borrower agrees to repay the following share of any home equity appreciation with the FHA when the home is sold or refinanced again;

A. 100% of any equity earned is paid to the government FHA if the home sells or the borrower refinances within 1 year.

B. 90% of any equity earned is paid to the FHA if the home sells or the borrower refinances within 2 years.

C. 80% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 3 years.

D. 70% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 4 years.

E. 60% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 5 years.

F. 50% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances after 5 years.

Note: The FHA requires a 3% Exit Fee of the Mortgage Principal Balance when the borrower sells or refinances the home again.

3. Other Requirements

Existing Subordinate Liens

Before participating in this program, all subordinate liens (such as second loans, home equity loans, etc.) must be extinguished. This will have to be done through negotiation with the first lien holder.

Mortgage Insurance and Other Fees

The Up Front FHA Mortgage Insurance Premium that is required on all FHA Refinance Loans will change as part The Housing and Economic Recovery Act of 2008. The Monthly MI Rates have also been updated. The following FHA MI rates will begin on October 1, 2008 and will be effective for 12 months;

FHA Up Front MIP - Required on all FHA Loans (Can be financed into loan amount).

1.75% - Normal FHA 203(b) Refinance
1.5% - FHA Streamlined Refinance
3.0% - FHASecure (Refinance for high risk borrowers who are already delinquent on current mortgage)

Monthly MI – Multiply the loan amount by the figure below and then divide by 12. The result is your Monthly Mortgage Insurance.

30 Year Note
0.55% - Refinance greater than 90% of the home’s LTV.
0.50% - Refinance less than or equal to 90% of the home’s LTV.

15 Year Note
0.25% - Refinance greater than 90% of the home’s LTV.
Monthly MI is not required on an 15 Year FHA Refinance Loan with an LTV of 90% or less.

The FHA Refinance Loan Process

Each new loan will be originated and underwritten on a case-by-case basis. To get approved, your income statements, bank accounts, credit scores and work history will be examined. A new appraisal must be performed on your home to determine its current value.

If doesn't have positive equity, then you must contact your current lender and negotiate with them to reduce (write down) your current mortgage to 90% of its current appraised value. If your current lender agrees to the write down, then you will be able to proceed with the FHA refinance application.

FHA Refinance Programs

FHASecure
The FHASecure program is for borrowers who want to refinance their current fixed rate mortgage or ARM loan into a stable, FHA insured mortgage. You can be delinquent on your current ARM mortgage and still qualify for an FHA Secure mortgage loan. You may even be allowed to include the amount you are behind on your current ARM in your new loan.

Cash-Out Refinance
An Cash Out FHA Refinance Loan is perfect for the homeowner who wants to access the equity that they have built up in their home. This program is beneficial to homeowners whose property has increased in value since it was purchased.

FHA Streamline Refinance
The FHA Streamline Refinance is designed to lower the interest rate on a current FHA mortgage or convert a current FHA adjustable rate mortgage into a fixed rate. An Streamline FHA Refinance Loan can be performed quickly and easily. It requires much less hassle and paperwork than a normal refinance including no credit check, no appraisal, no qualifying debt ratios and no income verification.

FHA Refinance Loan Questions & Answers

What are the guidelines for an FHA Refinance Loan?
If the borrower wishes to take cash out of the property, then the maximum financing amount is either 95% or 85% of the appraised value, depending on the borrowers qualifications. If the borrower does not take cash out then the maximum financing will be either 98.75% or 97.75% of the appraised value of the home or the amount you are refinancing plus closing costs, whichever is lower.

Why should I consider refinancing into a FHA-insured mortgage?
FHA Refinance Loans do not come with prepayment penalties, have no teaser rates nor balloon payments. They are offered at market rate with terms up to 30 years and are fully amortized, meaning that you pay towards principal and interest every month.

What if I have a prepayment penalty and other refinancing costs and there isn’t enough equity in my home to refinance?
If you do not have sufficient equity in your home to add your prepayment penalty and/or other refinancing costs into your new FHA mortgage, then you should ask your lender to consider a second mortgage to pay the difference or a short payoff on your existing loan. Offering either of these options is at the discretion of the lender.

Does it matter that the value of my home is now less than what I still owe?
Not to FHA, but the mortgage lender considering the refinance would have to be willing to accept a short payoff on the existing loan OR to hold a second mortgage to make up the difference needed to pay off the existing mortgage and the home’s value.