The Federal Housing Administration has rescinded a cap on the combined loan amount of first and second liens that some in the industry considered unnecessarily restrictive.
"This Mortgagee Letter eliminates the requirement that the sum of all liens not exceed the geographically maximum mortgage limit for both purchase and refinance transactions. Only the FHA-insured first mortgage is subject to FHA's geographically maximum mortgage limits" the agency says in ML 10-36.
On Sept. 7, FHA issued ML 2010-24 that imposed the combined loan amount cap and a 97.75% cap on the combined loan-to-value ratio for a rate-and-term refinance transaction.
The CLTV cap on refinancings is already restrictive, according to Bud Carter, an FHA consultant with Potomac Partners in Washington. "It was kind of piling-on to have both restrictions," Carter said.
Since FHA has increased its annual mortgage insurance premium from 55 basis points to 90 bps, some borrowers are finding it hard to meet FHA's net tangible benefit test for refinancings.
FHA requires a 5% reduction in the monthly loan payment, including principal interest, taxes and insurance. On a $300,000 loan, for example, the mortgage insurance payment has gone up to $225 a month from $137 a month.
One mortgage broker told National Mortgage New he was trying to refinance a borrower into an FHA loan because Fannie Mae would not accept the debt-to-income ratio.
The loan had a 70% LTV ratio and the FHA deal made sense for the borrower, the broker said. Due to the higher MIP payment, it didn't pass FHA's net tangible benefit test.
