FHA refinance activity rose once again this last month as homeowners continue to make efforts to lower their FHA rates and monthly payments.  Homeowners like FHA refinance programs because the rates are low as the agency promotes fair lending and affordability. In a tough economy, many borrowers don’t qualify for a FHA streamline because they can’t afford to pay for closing costs and lender fees.  Consider a no cost FHA streamline that is available to qualified borrowers who have not been late on their FHA loan in the last 12 months.

Fixed FHA Rates starting at 4%

To figure out the average interest rate, we consider the FHA mortgage rates on Monday through Wednesday of each week from FHA lenders around the country. FHA rates often fluctuate significantly, even within a given day. FHA rates on five-year adjustable-rate mortgages averaged 3.76 %, down from 3.79 % a week earlier. Rates on one-year adjustable-rate home loans dropped to an average of 3.64 % from 3.70 %. The FHA mortgage rates do not include add-on fees known as points.

FHA Cash Refinancing FHA Streamline Refinance FHA for Home Improvements

Take advantage of FHA’s flexible credit guidelines and streamline loan process and get approved for an FHA refinance today.  As an approved FHA lender, we have the volume to justify the lowest FHA rates online.

The FHA streamline loan is a popular refinance option for homeowners that already have an FHA mortgage.  The FHA streamline refinance has been popular because the FHA interest rates are low, the closing costs are affordable and the refinancing process is simplified compared to the long drawn-out measures of traditional refinancing.  Borrowers need less paperwork, as income documentation and appraisal requirements are often reduced with FHA streamline refinancing. 

It is no secret that the Federal Housing Administration has made significant efforts to make sure that qualified borrowers really want the FHA streamline refinance loan.  Recently, FHA enacted big changes for the FHA streamline guidelines.  Now borrowers that want to lower their interest rate with the FHA streamline must pay for closing costs out of their pocket.  FHA does not allow borrowers to finance any closing costs when streamline refinancing.  That means in most cases that FHA borrowers are covering the $2,000 to $3,000 in lending costs from their savings. 

Did FHA go too far in tightening the Streamline Guidelines? 

The thinking behind the streamline tightening is that by requiring borrowers to pay the closing costs out of their pocket that they will think twice before refinancing and loan defaults will decrease.  FHA streamlines have never allowed cash out and they have not been a problem for defaults and foreclosures.  With depreciating values nationwide it would appear that FHA is protecting themselves and borrowers from increased mortgage balances that would come from a borrower financing the lender fees and closing costs into their FHA streamline loan.  For example, before the streamline guideline change if a borrower had $300,000 mortgage balance, it would be $303,000 after the refinance.  If a borrower refinanced once a year, after a while the balance would be $320,000 and with declining values, this increases the risk as more homeowners would be underwater with their mortgages.

The No Cost FHA Streamline Solution

There are approved FHA lenders that are offering no cost mortgage refinance opportunities for a select group of borrowers.  If you have good income and high credit scores above 700, there is a good possibility that you may qualify for a no cost streamline refinance in which the lender is paying for the closing costs on their end.  This way you do not have to come out of pocket to cover the closing costs and your mortgage balance would not go up because you are not financing fees that FHA will not allow anymore anyways.  Qualifying for no cost FHA streamline loans will take some shopping online to find a credible FHA lender that offers these unique refinancing incentives, but clearly it will be worth it financially in the long run.

Americans continue to be supported by FHA home loan programs for refinancing and new home buying.  FHA loan programs are aggressive with little equity required for FHA refinancing.  FHA finance programs have opened up many home buying opportunities because borrowers only need a 3.5% down-payment to become homeowners.  FHA credit requirements are considerably more flexible than conventional lending allows.  In 2010 FHA guidelines have tightened but FHA loan limits remain robust and underwriters are still able to approve loans based on the borrower’s history rather than just their credit score.  FHA refinance loan programs have made an effort to reach out to distressed homeowners seeking a lower fixed rate mortgage payment to help prevent foreclosures.

• FHA Home Loans
• FHA Mortgage Refinance
• FHA Streamline
• FHA 203b for Cash Out
• FHA 203K for Home Rehabilitation

According to Jeff Moran, a FHA loan specialist with Bank of America  Home Loans in Orange County, “The Federal Housing Administration continues to reinvent themselves and consumers are benefitting because they can get financed cost effectively with low rate FHA mortgages.”

FHA mortgage rates are available at 4.75% on fixed 30-year loan terms.   There is no pre-payment penalty for early pay-off and if the FHA rates drop, you can always utilize the FHA streamline for rate and term refinancing.  What are you waiting for?  FHA loan programs are more appealing and more affordable than ever.

FHA home loans have been an icon for first time home buying since 1934.  This government home financing initiative has been bolstering homeownership for decades with low FHA mortgage rates and fair lending criteria for all Americans.  The Wall Street Journal reported that the Federal Housing Administration is in serious talks with HUD to raise the insurance premium in an effort to raise the dwindling FHA loan reserves.  After FHA loan defaults have dropped for three straight months for FHA mortgage loans.  If that trend holds, the agency could avoid burning through the FHA reserves, which are estimated to fall sharply over the coming years. Still, the FHA’s commissioner, David Stevens, says “there’s plenty of room for caution.”  Clearly, FHA mortgage financing has not recovered enough to not be concerned about it’s future.

Are FHA Loan Programs at Risk?

As the economy continues to weaken, FHA will likely see more FHA defaults that could drain the FHA reserves even more.  I would expect FHA loan requirements to continue the trend of tightening.  This will limit the number of eligible borrowers to qualify for a FHA refinance that would lower their monthly mortgage payment and prevent home foreclosures for thousands of distressed homeowners.

Most industry insiders are forecasting additional losses because it has a much bigger exposure to housing today than it did when the housing market tanked three years ago.  Even if the HUD continues to amend FHA loan guidelines to stem the FHA defaults, it is likely that the annual audit will uncover the fact that that the Federal Housing Administration continues to operate on low reserves.  Let’s face it, if this great loan program was managed by the private sector the FHA loan program would be shut down.  One bright spot is that the FHA’s finances are performing better than anticipated.  In the last six months, FHA reserves have covered $6 billion that came from the loan defaults, but they had forecasted to pay $8.7 billion for loan defaults. Should we cheer because the FHA loan program is preforming better than anticipated or be critical of a federal loan program that is failing in a failing economy?

A frequent question from loan officers and mortgage brokers is in regards to the longevity of the FHA mortgage product.  I received an email just yesterday from a FHA lender asking me the following, “Do you believe that HUD will pull the FHA loan programs for borrowers looking to refinance their home?”  Since the subprime crash of 2006, there are still thousands of FHA mortgage brokers who rely heavily on FHA home refinancing.  I wanted to address this in this article, because I believe that FHA lending is in jeopardy.  FHA loan defaults have been climbing like the rest of the mortgage industry.  FHA is a government home loan program and our government is in serious debt.  The US government owns nearly 97% of all mortgage securities, so if the homes continue to be foreclosed upon because borrowers are not making their monthly loan payments, then it is safe to say that yes the future of FHA financing is cloudy at best. 

Let’s take a look at the FHA loan programs at risk.

FHA 203B – This FHA loan program enables borrowers to get cash out up to 85%.  FHA reduced it 10% from 95% cash out refinancing last year.  It will be interesting to see if the 10% reduction helped reduce FHA loan defaults for borrowers who took cash out when they refinanced their home. 

FHA Streamline – This legendary refinance loan is only for existing FHA borrowers seeking a rate and term refinance.  HUD tightened the FHA guidelines by not allowing borrowers to finance the lender closing costs.  FHA streamlines do not allow cash out and this new rule has significantly reduced the number of FHA streamline refinances in 2010.  My guess is that the streamline program will survive if FHA survives. 

FHA Home Loans – FHA goes hand in hand with first time home buying loans so it’s hard to imagine FHA would eliminate their flagship mortgage product, but if FHA loan defaults continue anything is possible.  In 2009 FHA loan reserves dipped to dangerously low levels, so funding the FHA program must continue to pass through Congress.  Last year FHA increased the down-payment requirements from 3% to 3.5%.  I would anticipate that this will go to 5% sooner rather than later.

To HUD’s credit, FHA loan requirements for FHA lenders have increased dramatically.  These changes were made to further solidify lending and weed out the shady or uncommitted lenders.  As mentioned earlier HUD also mandated significant changes to FHA guidelines.  Down-payment, home equity and cash out requirements were all tightened in 2009 and 2010.   It is my contention that the FHA loan product will survive, but I believe we the tightening of guidelines is far from over.

After the subprime mortgage crash, FHA took on more lending with their FHA loan programs than any other type of home loan in the mortgage business.  FHA guidelines have always kept an open mind in that they look at the borrower rather just the borrower’s credit score.  This type of underwriting worked great when the FHA loans were performing, but as soon as FHA loan defaults rose to record levels in 2008 and 2009, something needed to be done to the FHA loan requirements to prevent the foreclosures and diminishing FHA reserves. 

HUD decided to raise the FHA requirements and make some other changes with FHA guidelines in an effort to prevent the bad mortgages that first the first time since 1934 put the government loan program in jeopardy.  The first change HUD made was to increase the down-payment requirements for home buying.  The new FHA loan requirement for a down-payment was raised to 3.5%.  HUD also limited FHA refinancing to 96.5% rather than 97%.  Then the government agency decided it was not fair to roll lending fees into the FHA streamline loans.  Next change came from FHA lenders who were starting to require higher credit scores.  One good thing HUD did in 2010 was to keep the FHA loan limits unchanged. 

We understand HUD’s moves to minimize the FHA loan defaults, but going away from the FHA credit guidelines and allowing FHA lenders to dictate higher credit scores may significantly reduce its appeal to home buyers and consumers looking to refinance into a more affordable fixed rate.  Credit scores can be very misleading and someone needs to give these borrowers another shot.

FHA refinance loans have helped out millions of homeowners lower their monthly mortgage payment with a fixed interest rate and no pre-payment penalty.  Even with having so many FHA loan success stories, it seems there are many unhappy mortgage brokers, borrowers and industry pundits that come off like FHA can’t do anything right.  There are several reasons why FHA has taken a lot of heat over the last year. 

1.  FHA loan defaults have risen dramatically over the last 48 months.

2.  FHA mortgage reserves have dropped to dangerously low levels.

3.  FHA guidelines have tightened significantly and most FHA lenders require a 640 credit score to refinance.

4.  The FHA requirements for FHA streamline programs thus fewer borrowers qualify.

5.  The change in the appraisal policy for FHA refinance loans has slowed the process and increased the closing costs for borrowers.

These 5 obstacles FHA has faced this year has brought forth new challenges for government refinance programs, but HUD maintains they are focused on improving FHA home loans for consumers, while increasing the accountability and FHA requirements for mortgage companies that offer FHA mortgage products. 

FHA mortgage rates remain low with the 30 year fixed available at 5% and the 5/1 ARM available at 4.125%.  The Federal Reserve left interest rates unchanged so FHA rates should continue their trend of affordability. For borrowers with less than perfect credit, FHA introduced a home loan that allows credit scores as low as 580, but requires a higher insurance premium with more equity or down-payment required.  FHA refinance applications dropped last month, but that doesn’t mean Americans won’t reconsider FHA if they loosen the FHA guidelines a bit while keeping the rates at record levels.