FHA Streamline Refinance: Actually Possible for Underwater Loan?

January 13, 2012 1:02 PM

Can I actually get an FHA streamline refinance?

With mortgage rates being as low as they are, I've been looking into options for refinancing my current mortgage, to take advantage of the savings. First, here are the relevant details that I can think of:

• My mortgage is an FHA-insured mortgage, owned by a large leder
• I currently have a 30-yr fixed rate of 5.875%
• Unofficial property assessments track at approximately 25% underwater from the outstanding mortgage principal
• I meet all of HUD's stipulated requirements for an FHA streamline refinance, and have excellent credit
• I'm not clear if there are any FHA-insured loans that are eligible for Making Home Affordable, but mine is not (not owned by Fannie Mae or Freddie Mac)

My main reason for posting here is that I'm finding it difficult to find comprehensive information about my options and expectations online; most search redirects are going to lenders with a vested interest in the pros or cons of the process. I'd like to be well-armed with my rights and lack thereof, before I start discussing things with a lender, as I've had plenty of historical experience to give me a complete unwillingness to trust what lenders tell me on this front. Basically, there's a hole in my research, between HUD's "you can get an FHA streamline refinance" and whatever I'd be at the mercy of a lender to understand.

So here's my (multi-faceted) question:

• tl;te (too long to explain) Are there good, trusted consumer/third-party resources, online or offline, to better explore my options? I'm certainly willing to do the legwork.
• On the spectrum of "you have a right to use this refinance tool" (given the met-prerequisites) and "it's not gonna happen", where do my chances lie? I mean, in theory it doesn't matter how underwater your current loan is, but what incentive would a lender have to take that risk, even though my credit and repayment history is spotless?
• Is PMI one of the costs factored into a lender's APR quote?

I'll take any advice I can get. But an answer to the first point would be particularly desirable, as I'm sure there's a ton of details around this process that I simply haven't managed to uncover.

Thank you in advance, Hive Mind.

posted by Brak to home & garden (3 answers total)

Talk to some brokers who do FHA work in your area. The worst they can do is tell you they can't find a lender at an interest rate you're willing to pay.

A few years ago when we bought our house, finding a broker that knew anything about the FHA process was nearly impossible, but it seems like everyone is pushing them these days, so it should be easier.

So yes, you should be able to find a lender to write the loan, since the government is on the hook for any loss.

www.mtgprofessor.com has a crap-ton of useful information.

I don't remember, but it's clear from the GFE what is included and what isn't.
posted by wierdo at 1:22 PM on January 13 [2 favorites]

If you meet the qualification requirements, it's pretty unlikely you would be turned down for a streamline refi. They are easy money for lenders: they generate the same origination fee, but with much less work than a fully-documented refi.

what incentive would a lender have to take that risk

They really already have the risk, or at least HUD does, since your loan is already FHA-insured. If someone's going to default because the house is underwater, they're as likely to do it on the old loan as the new one. And the new loan may actually be somewhat less risky since your monthly payment will be lower (a requirement of all streamlines).

I'd second going through a broker. One of the questions you'll want to talk with them about is how closing costs will be paid; you can't finance them on a streamline, so you'll either have to pay cash or get the lender to credit you, which will affect your interest rate.

MI charges should be included in the APR calculation and will not vary from one lender to another as they are set by HUD.

Good luck!
posted by tinymojo at 5:06 PM on January 13

Thanks for the advice! Sounds like going to a broker for advice would be my next best course of action. I'll give that a shot.
posted by Brak at 9:43 AM on January 14