FHA Loan Expert Blog

FHA has permitted streamline refinances on insured mortgages since the early 1980’s. The “streamline” refers only to the amount of documentation and underwriting that needs to be performed by the lender, and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:

• The mortgage to be refinanced must already be FHA insured. 
• The mortgage to be refinanced should be current (not delinquent). 
• The refinance is to result in a lowering of the borrower’s monthly principal and interest payments. 
• No cash may be taken out on mortgages refinanced using the streamline refinance process.

It is important to stress that although loan servicers have delegated authority to execute individual loss mitigation actions, participation in the FHA Loss Mitigation Program is not optional.

• Within 45 days of default, every delinquent borrower must be provided comprehensive written information about workout options, including contact information for HUD-approved housing counseling agencies.
• Each borrower must be evaluated for loss mitigation by the 90th day of default.
• No servicer may initiate foreclosure until their senior management committee has reviewed the loss mitigation analysis and determined that the borrower does not qualify for any option.
• Servicers must offer loss mitigation throughout the foreclosure process any time the borrower requests such consideration or the servicer becomes aware that the borrower’s financial situation may have improved and assistance is now an option.
• And finally, these activities must be reported to FHA monthly and documented in the loan file.

To ensure compliance, FHA has developed a sophisticated tiered ranking system to both monitor and rate each servicer’s commitment to loss mitigation. Top ranked servicers – those who reported some type of loan work action for at least 80 percent of their seriously delinquent loans – are eligible to earn increased incentives. In the most recent round of tier ranking published in January 2008, 89 servicers ranked in Tier One and only five servicers ranked in Tier Four. Servicing lenders that do not take loss mitigation seriously are in jeopardy of paying to FHA a fine equal to triple the cost of their foreclosure claim and can also be held accountable with other sanctions.

Source - HUD Testimony, Laurie Maggiano Deputy Director, Office of Single Family Asset Management, Federal Housing Administration U.S. Department of Housing and Urban Development on April 16, 2008