The Grass Is Much Greener On the Other Side of June
May 10, 2012 11:44 AM   Subscribe

FHA refinance at the exact wrong time: any recourse?

We just finalized the streamline refinancing of our FHA loan at the end of April, for a loan originally written in May 2008. We live in California, and went through a mortgage broker recommended to us to assist with the process.

Imagine my surprise when I happened across this letter from HUD (warning: PDF) online the other day, which I'm reading to say that we made a big mistake by not waiting until June 11 to start our refinance. The FHA changes described in this letter are originating from the Temporary Payroll Tax Cut Continuation Act of 2011.

Given that our original (and never before refinanced) FHA loan was written before 5/31/2009, I'm taking the following away from this letter:
  • Our refinance saw our monthly mortgage insurance premium jump from 50 bps (0.50%) to 115 bps (1.15%). If we had waited, our bps would have only jumped to 55 bps (0.55%).
  • Our upfront mortgage insurance premium for closing was 1%. Had we waited until June 11, it would have been 0.01% (i.e. nothing).
We're in the Bay Area, and our loan is pretty sizable, making the figures above staggering, when played out both upfront and over time.

I wish we had actually gotten this letter in the mail, as opposed to randomly finding it online. Nevertheless this is the situation we find ourselves in. I broached the subject with our mortgage broker, and she was just as surprised as me, saying that she had been unaware of these changes and would start checking to see if something could be worked out.

My question is:
  • Is there any straightforward way to right this situation? I haven't yet tried to contact HUD, or any other advocacy groups. Can you make any recommendations on this front? Would hiring a lawyer who specializes in this stuff be helpful, or just throwing good money after bad?
  • This seems like pretty gross negligence on the part of our mortgage broker. This isn't exactly obscure vagaries of law or inside information. We hired her because of the expectation of handling things like this. Do we have any potential recourse on this front?
I'll live with this situation if I have to, but I don't want to go down without a fight. Any recommendations on next steps would be most welcome.
posted by Brak to Home & Garden (7 answers total) 5 users marked this as a favorite
Response by poster: As a follow-up, I did contact HUD. They were mostly noncommittal, suggesting that any actions we would take on this front would need to originate through our lender.

Also heard back from our mortgage broker, who says she's putting in an official exception request with HUD. Not sure what that entails, but it sounds like a good thing to try. She also says that her org's government loans department had only heard rumors of this through April (when we closed), but had never seen this letter. Given that we also (to my knowledge) never received a copy of it, I'm having a bit of a wtf moment at this point.
posted by Brak at 1:18 PM on May 10, 2012

You might also want to speak to any licensing bureaus about this, because these kinds of errors are often covered by their insurance. If your broker is working on it, you might not want to jump to an ethics complaint immediately, but you should see if that is an option.
posted by jeather at 1:27 PM on May 10, 2012

This is weird because several mortgage folks told me that the insurance was going UP in mid-June and that we needed to hurry for our scenario.

You said your loan was "finalized" in April - is is funded already?
posted by Big_B at 1:48 PM on May 10, 2012

Response by poster: Big_B, your mortgage folks are right too; different things are happening at the same time. Everything is going up (pretty dramatically, I might add) in June...for all FHA loans except for ones originated before May 31, 2009. For my loan (which did originate before 05/2009), the monthly MIP rate would be going up marginally from what it originally was, and upfront MIP would basically go away. The details for the post-2009 loans are in the aforementioned letter as well. For loans made after 05/2009, you definitely want to take any refi steps you can before June.

Incidentally, my reading says that the refi process needs to begin before June (in your case), not necessarily that it needs to close before then. But I Am Not A Real Estate Person.

To your second question, yes, the loan is closed and funded...and resold already. So we're definitely past the "no turning back" point there.
posted by Brak at 2:12 PM on May 10, 2012

Best answer: The rate notification changes occurred March 6 and were blogged about on March 7 (

In other words, your mortgage broker should have gotten the memo in early March. Reading the memo is Mortgage Brokering 101, so I would lean on her.
posted by otto42 at 2:19 PM on May 10, 2012 [2 favorites]

Oh ok that makes sense. I'm not a mortgage/real estate person at all, but we just refi'd our underwater house under HARP, and we're talking about picking up a rental (with a new mortgage), so your question stood out to me.

Regardless, I had heard about the changes from several people (a financial advisor, a family member who is a realtor, and the person doing our refi) so I'd definitely give your broker the WTF.
posted by Big_B at 4:00 PM on May 10, 2012

Yeah, your broker and lender blew it. Unfortunately there's no way to reset your eligibility for the new MI structure. HUD advised lenders that they could cancel refinances transactions in process and wait until the new structure comes into place in order to benefit borrowers. So any possible recourse is going to have to come from the broker or the lender, who is really more at fault. I can't imagine any FHA lender didn't know about the changes coming & that you would benefit from waiting.

I don't know that any true satisfaction for you would come out of it, but I do know that HUD takes it very seriously when borrowers complain to Congress. A letter to your Senator or Representative about this would almost certainly result in HUD contacting the lender about why they had proceeded with the loan.
posted by tinymojo at 8:31 PM on May 11, 2012

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