Earlier this year, the Obama Administration came out with a program that would make refinancing less expensive for certain borrowers with mortgages backed by the Federal Housing Administration.
But if you want to take advantage of the program, you probably won’t be able to shop around for the best interest rate. In other words, you may have little choice but to refinance through the bank that now holds your mortgage.
Wells Fargo, Bank of America and JPMorgan Chase all said this week that they would refinance only their own customers through the F.H.A.’s reduced-cost program. Most of the banks, more or less, gave the same reason: they expect high customer demand and want to focus on existing customers whose loans they already service.
Citi, meanwhile, said it would require an appraisal to refinance F.H.A. loans that it does not service, even though the program typically does not require one. And US Bancorp said it was taking applications from new customers but was evaluating whether it would continue to do so (The bank is no longer taking refinancing applications from brokers on loans it doesn’t already service.)
After the housing market collapsed in 2007, more borrowers began to turn to the F.H.A.’s loan program because it has less stringent guidelines than conventional mortgages: people with credit scores of 580 or more can put down as little as 3.5 percent. (The agency doesn’t actually make the loans, but it insures them.)
So as part of its effort to help resuscitate the housing market, theWhite House cut the cost of refinancing through the F.H.A.’s “streamline” program — which is typically much easier than a traditional refinancing. The fees that the F.H.A. typically charges borrowers have risen in recent years. Brokers have said this prevented many people from taking advantage of low rates and refinancing. This program aims to solve that.
There are a few requirements, though. First, borrowers must have an F.H.A. loan that they are seeking to refinance into another F.H.A. loan. But the biggest drawback is that only borrowers with loans that were originated on or before May 31, 2009, are eligible. All borrowers must also be current on their payments.
But the refinancing does not require any income verification or an appraisal, which means that homeowners who owe more on their mortgage than their house is worth are also eligible.
The savings, effective June 11, comes in the form of two reduced fees. Under the new initiative, the fee known as the upfront mortgage insurance premium will drop to a mere 0.01 percent of the loan balance from 1 percent. The second fee, known as the annual mortgage insurance premium, will be cut by about half — to 0.55 percent of the loan balance from 1.15 percent. Taken together, the administration said, the fee reductions could save the typical F.H.A. borrower about $1,000 a year. That does not include any savings from a lower interest rate.
The come after a series of fee increases that the F.H.A. announced last month that are meant to strengthen the agency’s reserves. Those higher fees will apply to borrowers taking out new mortgages and people seeking to refinance loans that originated after May 2009.
But to qualify for the reduced charges, you may have to go through your original lender, which limits your options. The same thing is happening with the Home Affordable Refinance Program, which is aimed at helping underwater homeowners. Here, too, the big banks are accepting applications only from existing customers — and some experts have said that’s because the banks feel it’s too risky to take on new borrowers, particularly those who owe far more than their houses are worth. The lack of competition among banks, however, has led to slightly higher interest rates.
It’s unclear whether the same sort of thing will happen with the F.H.A.’s streamline refinancing program. But an F.H.A. spokesman said that the agency had told lenders that it would not include loans refinanced through the program in judging how their loans were performing relative to their peers’. (Underperforming lenders are subject to greater scrutiny and can ultimately be asked to leave the program.) That should encourage more banks to do streamline refinancings.
Have you been able to easily complete a refinancing through the agency’s program? What interest rate did you qualify for? Please share your experience below.