FHA Streamline Refinance : Indemnification Fears Slows FHA Lending
Despite the lowest mortgage rates of all time, the FHA Streamline Refinance program faces headwinds.
FHA Mortgage Rates Sink To New Lows
30-year fixed rate FHA mortgage rates are currently lower than comparable 30-year fixed conforming mortgage rates. However, that doesn't mean it'll be any easier to secure an FHA mortgage approval.
With mortgage lenders fearful of the False Claims Act and, more importantly, flush with new business, many of the nation's largest mortgage banks have been saying "no" to the FHA Streamline Refinance.
If your bank or broker has said they won't do an FHA Streamline Refinance for you, your next step should be to shop for another lender; you can click here to get today's FHA mortgage rates.
To understand why your bank may not do a FHA Streamline Refinance, read up on indemnification.
FHA Streamline Refinance Indemnification Rules
Indemnification are monies paid in compensation for a loss.
As it pertains to FHA-backed financing, indemnification refers to when a loan is originated by a bank and is found to contain a serious or material violation of HUD requirements. Regardless of whether the original loan has been since refinanced, the original mortgage lender remains liable for damages resulting from the loan.
The refinancing lender assumes no liability from the actions or omissions of the original FHA lender, nor is the refinancing lender responsible for violations of the original lender.
However, lenders performing non-credit-qualifying FHA streamline refinances are not absolved of all responsibility. The second lender remains liable for whatever acts it performed in the process of the refinance.
If the second lender's origination of a non-credit-qualifying FHA Streamline Refinance involves serious and material violations of HUD requirements, or fraud or misrepresentation which result in a claim, HUD reserves the right to request indemnification from the second lender, too, for the "bad" non-credit-qualifying FHA Streamline Refinance.
In this instance, both the original and the refinancing FHA lender may be fined, depending on the violations uncovered by HUD.
Fear Of Failure Yields Fewer FHA Streamline Refinances
The FHA's indemnification policies concern banks. Several years ago, when business was scarce, banks reviewed the policies and determined that underwriting and approving a FHA Streamline Refinance was been a "risk worth taking". Today, with the biggest banks flush with business, the risk may be unnecessary.
Many large U.S. banks no longer accept FHA Streamline Refinance applications which don't meet very specific criteria.
If you've been turned down for an FHA mortgage by your bank, therefore, you may find a better outcome somewhere else. The FHA Streamline Refinance is being underwritten by a lot of banks -- just maybe not by the first FHA lender you called.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.