Read U.S. refinancing program's fine print to save money, hassle
3/18/2012WASHINGTON -- The Obama Administration's new plan to stimulate refinancings of FHA mortgages is likely to help large numbers of homeowners cut their monthly costs -- even those who are deeply underwater.
But it's also likely to be a disappointment to many borrowers who aren't aware of the program's fine print and miss an opportunity to switch into a loan with a rate below 4 percent.
Under the program, the home loan must be FHA-insured and must have been put on the agency's books no later than May 31, 2009.
Holders of mortgages owned or backed by Fannie Mae, Freddie Mac, the Department of Veterans Affairs, or private investors don't qualify.
The May 31, 2009, date is crucial. It is not the date of application for the loan or closing on the property. If the loan went onto the agency's books later than May 31, 2009, it is ineligible for the program.
Borrowers also need an unblemished record of on-time mortgage payments for the past 12 months. In addition, if the refinancing would not produce a net saving of at least 5 percent in monthly principal, interest, and mortgage-insurance payments, the mortgage isn't eligible.
The program won't take effect until June 11.
According to the FHA, it has roughly 500,000 active loans in its portfolio that are eliminated from participation solely on the basis of the May 31, 2009, cutoff date. Of those, an estimated 145,000 have mortgage interest rates higher than 5 percent -- making them prime candidates for a refi if it weren't for the cutoff date.
But mortgage holders who qualify get to breeze through the paperwork and underwriting hassles of refinancing.
The FHA streamlining requires:
● No new verifications of income or employment.
● No new credit evaluation, credit reports, or FICO scores.
● No new physical appraisal.
To sweeten the deal, the FHA has slashed its regular insurance premium charges for qualified streamline applicants.
Why the May 31, 2009, cutoff? What about the thousands of responsible borrowers who took out FHA loans a little more recently, have paid on time, and have rates higher than 5 percent? Brian Sullivan, an FHA spokesman, said it's all about the traditional three-year "seasoning" period for mortgages during which the bulk of delinquencies and foreclosures normally occur.
He denied that the 2009 date had anything to do with the FHA's policy of making partial refunds of up-front insurance premiums to borrowers who refinance during the first 36 months, which might cost the agency millions of dollars if more recent borrowers could qualify for the new program.
Saving money by cutting out more recent FHA borrowers "was never a consideration," Mr. Sullivan said in response to an email question on the refunds.