SUBJECT: The FHASecure Initiative
The Federal Housing Administration is pleased to announce an initiative that will enable homeowners to refinance various types of adjustable rate mortgages (ARMs) that have recently “reset.” This mortgagee letter describes how lenders and homeowners may refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent. The mortgagee letter also reiterates guidance to lenders about making objective decisions regarding the underlying collateral in declining markets. The FHASecure initiative, which is a temporary program designed to provide refinancing opportunities to homeowners and to increase liquidity in the mortgage market, requires that the loan application be signed no later than December 31, 2008.
Refinancing Non-FHA Adjustable Rate Mortgages Following Resets
FHA is currently doing a significant business in refinancing non-FHA mortgages for borrowers who are current under their existing mortgage. This mortgagee letter extends eligibility to borrowers who became delinquent under their current mortgage following the reset of the interest rate.
FHA recognizes that many lenders are engaged in a variety of loss mitigation activities to keep borrowers in their homes, and applauds these efforts. This mortgagee letter explains credit policies for refinance transactions involving non-FHA adjustable rate mortgages where the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.
These instructions are designed to permit homeowners, who previous to their reset, demonstrated an ability to meet their mortgage obligations, an opportunity to refinance into a prime-rate FHA-insured mortgage. In many cases homeowners may be permitted to include mortgage payment arrearages into the new loan amount, subject to existing geographical mortgage limits and the loan-to-value limit shown below.
Eligibility Highlights of the FHASecure Initiative
· The mortgage being refinanced must be a non-FHA ARM that has reset.
· The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments, i.e., the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.
- If there is sufficient equity in the Home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.
· Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits.
· Mortgagees must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.
Additional Information About the FHASecure Initiative
· Maximum FHA loan-to-value ratios
The maximum loan-to-value limits are shown below and are applied to the appraiser’s estimate of value, exclusive of any upfront mortgage insurance premium.
Maximum Loan-to-Value Ratios
States with Average Closings Costs At or Below 2.1 Percent of Sales Price
· 98.75 percent: For properties with appraised values equal to or less than $50,000.
· 97.65 percent: For properties with appraised values in excess of $50,000 up to $125,000
· 97.15 percent: For properties with appraised values in excess of $125,000.
States with Average Closings Costs Above 2.1 Percent of Sales Price
· 98.75 percent: For properties with appraised values equal to or less than $50,000
· 97.75 percent: For properties with appraised values in excess of $50,000
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