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March 6th, 2012

New FHA refinance plan could save you $1,000 a year



4-FHA-logoThe president made yet another push at stabilizing the nation’s housing market on Tuesday when he announced the White House’s latest refinance effort.

The president’s plan slashes fees associated with FHA refinances through what is known as an FHA streamline refinance.

An FHA streamline refinance is reserved for existing FHA borrowers who wish to refinance into a new FHA loan. The refinance process is streamlined in the sense that it does not require lenders to verify your income, employment and credit status, and no new appraisal is required, thus, underwater homeowners can qualify.

According to HUD, “The FHA currently charges an up-front mortgage insurance premium of 1% of the borrower’s loan balance and an additional 1.15% of the balance per year. FHA is reducing the up-front premium to .01% for streamlined refinancings of loans originated prior to June 1, 2009 and cutting the annual fee for these refinancings in half, to .55%. Together these reductions could save the typical FHA borrower about a thousand dollars a year.”

While HUD estimates that 2 to 3 million FHA borrowers are eligible, they expect “significant monthly savings for hundreds of thousands of families.”

Why the change?

 As recently as last week, the FHA announced yet another increase to both their upfront and annual mortgage insurance premiums, marking the fourth time the premiums have risen since April 2010.

Given these increases, many FHA borrowers have been deterred from refinancing. Keith Gumbinger, vice president of HSH.com, explained that the president’s latest refinance plan is basically a way to keep well-performing FHA borrowers in the program. The new plan is essentially putting older fees back in place, he said.

 Will this plan be another dud?

Given the June, 2009 cutoff date, the numbers seem to suggest that this latest refinance effort might be yet another dud.

According to an updated portion of Nick Timiraos’ post in the Wall Street Journal this morning, Credit Suisse estimates that “about two thirds of all FHA-backed 30-year mortgages were originated after the cutoff date and therefore wouldn’t be able to benefit from the reduced premium.” Timiraos notes that while that might be true, many recent FHA loans carry interest rates at or near historic lows.

“Still,” wrote Timiraos, “among loans that have a rate of at least 5% (meaning that at current rates of around 4%, they could reduce their mortgage rate by one percentage point), around half of those mortgages were originated after the June 2009 cutoff date.”

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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