Congress has eliminated refunds of upfront mortgage insurance premiums on Federal Housing Administration loans endorsed on or after Dec. 8, except for FHA streamline refinancings.The omnibus appropriations bill the president signed Dec. 8 eliminated FHA refunds except when the borrower refinances into an FHA loan within three years. Previously, FHA borrowers could get a refund for up to five years. FHA borrowers who refinance into a conventional loan are not entitled to any refund of the 1.5% upfront MI premium. The Department of Housing and Urban Development has issued a mortgagee letter notifying lenders about the changes, along with an updated disclosure and refund schedule for homebuyers. Without a refund, borrowers are going to have to consider the upfront premium a permanent expense and make FHA loans less competitive with low-downpayment conventional loans, particularly alternative-A loans, according to Washington consultant Brian Chappelle. "This is not the news that the FHA program needs," Mr. Chappelle said.

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