The Federal Housing Administration is making it possible for existing FHA borrowers who had trouble making their payments in the past to refinance at a lower rate.
FHA is opening its streamlined refinance program to borrowers who are still in arrears but making their monthly payments on time.
These borrowers may owe FHA up to 12 monthly payments which is treated as a “partial claim” or junior lien.
Last week, FHA issued a mortgagee letter (2013-16) that allows lenders to subordinate partial claims in a
In addition, lenders don't have to count the partial claim towards the 125% combined LTV limit on a streamline refinancing.
“Mortgagees should not include any partial claim notes in the CLTV ratio for determining FHA Streamlined Refinance eligibility,” the May 14 mortgagee letter says.
Sources indicate these changes won't have a significant impact on refinancing volumes.
FHA uses partial claims to correct defaults and avoid foreclosure. It provides relief for homeowners that are temporarily unemployed once they resume their monthly payments.
A partial claim is payable upon the sale of the home or when the borrower refinances out of a FHA loan.
