FHA Streamline Refinance vs Loan Modification
by Nwe Aung (Nora) from Daly City, California, USA
Ask Kate about FHA Streamline Refinance vs FHA HAMP Mortgage Loan Modification: Nora completed her trial FHA HAMP loan modification which reduces monthly payments to no more than 31% of a homeowner's income. But when it was time to make the modification permanent, her bank tacked on $14,000 to her loan.
Now Nora is wondering if she should switch to streamline FHA refinancing as a better option for obtaining affordable payments.Nora writes...
Hi! Kate, I applied for the FHA loan modification through NACA when my income was cut. My application was approved and I signed the modification agreement with partial claim amount till 30 years and completed my trial period.
Suddenly, Bank of America sent another agreement saying there were errors in previous agreement. Everything is the same except they added the items like past due interest, past due principal, and past due escrow in the total amount of $14,000 to our partial claim amount.
I never missed or have been late on my mortgage payments, even during hard times. I made complaints to BOA to review the agreement.
Meanwhile, I am thinking and researching about switching to FHA streamline refinance since the rate is pretty low. I want to know is that possible? What are the risks and how can I proceed?
Much appreciate. Nora
Kate Answers: FHA Streamline Refinance vs FHA Mortgage Loan Modification
Dear Nora, What good to homeowners is an inaccurate trial period?
Knowledge of the $14,000 Partial Claim should have been disclosed to you during your trial modification period. I think this is sloppy processing.
FHA HAMP Modification with Partial Claim Option
When homeowners with FHA-insured mortgages default on payments, many end up owing back taxes, interest, and legal fees. To modify the FHA mortgage, lenders advance a lump sum, the Partial Claim, to reinstate the delinquent mortgage.
This process requires a promissory note, similar to a 2nd mortgage, but won't accrue interest or require a monthly payment. The amount cannot exceed 12 combined monthly payments, including property taxes and insurance.
When the homeowner refinances or sells the house, the Partial Claim becomes due and payable.
But if you do not feel that you owe the $14,000 or that your modification was mishandled, call FHA's National Servicing Center at 877-622-8525 or a HUD-approved housing counselor at 888-995-4673 where you can ask for MHA Help
to speed up a response time.
How FHA Creates Affordable Payments Using HAMP Modification
In addition to the Partial Claim, Making Home Affordable sets up 3 safeguards to ensure an affordable mortgage payment.
- The FHA mortgage payment is modified to be no more than 31% of the homeowner's pretax income, based on a 30 year fixed rate mortgage.
- The mortgage payment and qualifying debt added together cannot exceed 55% of the borrower's gross income.
- A total of 30% of the outstanding mortgage balance (including the Partial Claim) is deferred and not used to calculate the monthly payment.
Streamline FHA Refinance vs FHA HAMP Loan Modifications
Streamline refinancing your FHA mortgage loan is a little different. In many cases, the home's original purchase price substitutes for the property appraisal. This comes in very handy if the value of your home has decreased.
Using the Non-Credit Qualifying streamline option, no income documentation and no bank statements are necessary. Some lenders will also forgo credit score requirements. However, this feature could slightly increase the mortgage rate, depending on the individual lender. (FHA does not set interest rates.)
Under certain circumstances, homeowners have the option of a shorter 15 year fixed rate mortgage term with a lower interest rate vs the mandatory 30 year fixed of HAMP's FHA mortgage modification.
Although the mortgage cannot be delinquent for streamline refinancing, lenders have the option of making 2 payments to bring the loan current. Borrowers cannot be required to repay this amount to lenders.
A common misconception with streamline refinancing is that there will not be any closing costs. There ARE closing costs and they ARE paid by the borrower, unlike the mortgage modification process.
More on FHA Streamline Refinancing vs Modifying a Mortgage
In the end, FHA streamline refinancing depends greatly on an acceptable mortgage payment history. This may be the deciding factor to qualifying for HAMP's FHA loan modification vs FHA streamline refinancing.
Read more about FHA streamline refinancing
here and FHA mortgage insurance premiums
as announced by President Obama here.
Good luck and best wishes,
Ask Kate's 2015 National Mortgage Affordability Newsroom
May 8, 2015: HARP has been extended through December 31, 2016. Learn about lower interest rates and no PMI for homes with less than 20% equity at HARP 2 Refinance Announcement.
HAMP ends December 31, 2015: Is your HAMP scheduled for an interest rate adjustment? Find out if you're eligible for a lower rate at Fannie and Freddie Initiatives to Lower HAMP Payments.
March 2015: The Mortgage Forgiveness Debt Relief Act that protects US tax payers is up for extension. Learn how you can help at The Mortgage Forgiveness Debt Relief Act 2015 Update.
February 18, 2015: Rust Consulting is re-issuing National Mortgage Foreclosure Settlement checks to this week to replace expired and uncashed checks.
January 26, 2015: Julian Castro, Secretary of HUD, announces a .5% reduction in FHA annual mortgage insurance premiums. Get the mortgage news that's projected to save new FHA borrowers an average of $900 a year.
The more you read my blog's Mortgage News, Updates, and Insider Secrets, the more you'll learn to navigate the lender maze.
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