FHA streamline refinance closing costs and insurance rates

Borrowers with some federally insured mortgages will be able to refinance into lower interest rate loans more easily and cheaply under a plan being unveiled Tuesday by the Obama administration.

At a news conference scheduled later in the day, President Obama was set to announce that the Federal Housing Administration will cut upfront fees for refinancing loans it already insures.

The new fees are for borrowers whose FHA loans were issued before June 1, 2009. An estimated 2 to 3 million borrowers could take advantage of the savings, which could reduce mortgage payments for the typical FHA borrower by about a thousand dollars a year, according to the administration.

Borrowers who refinance their existing FHA loans will pay an upfront insurance premium equal to 0.1% of the mortgage amount — $100 for a $100,000 loan — plus an annual fee of 0.55%.

The fees being announced for refinancing contrast sharply with the cost of obtaining a new FHA loan, according to Jaret Seiberg, an analyst with the Washington Research Group. A borrower making a 3.5% down payment on a home purchase as of April 1 will pay a 1.75% upfront fee and a 1.25% annual fee. Those purchase feeswere raised barely a week ago to improve the FHA’s capital reserve.

Still, lowering refinancing fees “should be broadly positive for housing and the economy by reducing foreclosures and freeing up income for consumers to spend on other goods and services,” Seiberg said.

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The new policy will also make it easier for the banks to refinance loans because it directs the FHA to not count these refinanced loans toward the lender’s “compare ratio.” That calculates the performances of loans issued by the lenders and compares it to other lenders’s performances.

Some lenders have not wanted to refinance FHA borrowers because their loans tended to have been made to borrowers from years with high default rates, according to Seiberg. The administration proposal eliminates the downside to banks making these refinance loans.

Also being provided with potential relief are servicemen wrongfully foreclosed on. Lenders and servicers will be required to review the cases of every service member foreclosed upon since 2006.

Under the plan, any service member wrongly foreclosed upon will receive compensation. There will also be a refund of any overcharges for those who were denied the opportunity to refinance, and relief for those who had to sell their homes at a loss because of a change in station.

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