September 6, 2012

FHA Refinances Soar on Reduced Fees

Streamlined refinancing of FHA mortgages has exploded in the two months since HUD slashed the fees charged for the simplified transactions.

There were 27,753 FHA streamlined mortgage refinances in July, a 42 percent increase from June’s level. That follows a nearly 200 percent monthly increase in June after the reduced fees took effect on the first of the month.

The July total sharply contrasts with the 5,756 FHA streamlined refinances approved in July 2011, a 347 percent annual increase. Streamlined refinances made up 89 percent of all FHA mortgages refinanced during the recent month, compared to 73 percent one year ago.

Total FHA refinances were more than double those of one year earlier, with 37,282 mortgages refinanced through the FHA this past July, up from 17,763 in July 2011. Of those, 8,352 were refinances of non-FHA mortgages a slightly lower figure than the previous year.

Although falling mortgage rates, which reached record lows during the summer, helped to drive up refinancing, demand for streamlined refis took off after HUD reduced the fees. Effective June 1, the one-time upfront charge for mortgage insurance on an FHA streamlined refinance was cut to 0.01 percent of the loan amount, a mere pittance, down from a full percent previously.

In addition, the annual fees were reduced to 0.55 percent, down from 1 percent previously. The reduction was designed to encourage borrowers to take advantage of lower mortgage rates.

An FHA streamlined refinance is a simplified way of refinancing for borrowers who already have an FHA mortgage. Approval is virtually guaranteed, as long as the borrower has kept up on the payments for the current loan. No credit check or proof of income is required, nor an appraisal of the property’s value, which enables underwater borrowers who otherwise would have a hard time refinancing to qualify.

Homeowners who currently have a non-FHA mortgage cannot qualify for the streamline option but they can still refinance through FHA, though they would pay higher fees.

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