[Charleston mortgage report] FHA Streamline refinance changes clear roadblocks
A lot of people would like to refinance from a higher interest mortgage rate to the record low rates we've seen for some time but have been unable to do so for a variety of reasons. With HARP II starting in March, the $26 billion mortgage settlement of the other day and other programs, some (but not enough) homeowners will now be able to refinance.
FHA loans have been difficult to refinance due to a little known roadblock known as a "Compare Ratio" and as Dan Green of The Mortgage Report explains, "A Compare Ratio is an FHA lender's default rate compared to the default rate of other FHA lenders in the area.".
Basically, the FHA wants to see more homeowners qualify for a streamline refinance as it was intended, no income, employment or credit verification and no home appraisal. But the lenders didn't want to get penalized for having a bad ratio so they tightened lending standards rather than easing them as the FHA intended.
Now before you say, wait a second, aren't loose lending standards that what got us into this mess in the first place. Well yes, but that was for buying, not refinancing and the FHA actually reduces their risk by making what appears to be a quite risky loan. However, the FHA doesn't actually make loans, they just insure the loans that banks make (made) and so if a borrower can lower their monthly payment, the odds are that less loans will go bad.
Read more on FHA Streamline Refinance from Dan and then hop on your old Schwinn Streamliner and head over to your lender and get refinanced at a lower rate if you'd like.
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