Ohio FHA Streamline – HPML Unintended Consequence?

Ohio FHA Home LoansBeginning today (June 3, 2013), FHA Case Numbers assigned will be subject to longer periods of FHA’s Mortgage Insurance Premium (MIP), better known as monthly mortgage insurance. The main reason for this change is due to FHA’s drastic increase in market share. In 2006 only 4% of purchase mortgage were insured by FHA. That figure jumped to 20% by 2010. The 2 main causes of this is the tightening of Conforming Mortgage products offered by Fannie Mae and Freddie Mac, and the limited availability of 2nd mortgages.

A little talked about amendment to the Truth In Lending Act established a new category called Higher Priced Mortgage Loans (HPMLs). It covers applications received on or after October 1, 2009. Long story short, HPMLs are loans secured by the borrower’s principal dwelling that are priced at an Annual Percentage Rate (APR) exceeding a new index published by the Federal Reserve Board named the Average Prime Offer Rate (AOPR).

So what does this have to do with Ohio FHA Streamline Refinance mortgages?

A mortgage that is deemed a High Priced Mortgage Loan requires that lenders verify the consumer’s ability to repay the mortgage as follows:

  • Verify income to cover repayment ability through W-2, tax returns, pay-stubs, financial institution records or third-party verification
  • Verify the borrower(s) current obligations through credit reports and other documents.

The recent change to when FHA mortgage insurance falls off affects FHA Streamline Refinances because the length of time that mortgage insurance is paid is factored into the calculation for the APR on a mortgage. The higher APR, due to the increased time that mortgage insurance must be paid, may cause the FHA mortgage to fall into the classification of a Higher Priced Mortgage Loan (HPML).

If your FHA Streamline Refinance falls into this category, then you will need to document income (aka ability to repay) and meet debt to income ratio requirements. This will not be the case with every Ohio FHA Streamline, but it very well may be the case with some.

So why doesn’t this affect all Ohio FHA Mortgages?

Well, it does. All other FHA mortgages, both Ohio FHA refinance and Ohio FHA purchase mortgages, a borrower has to document income (aka ability to repay). So it will be business as usual.

And remember, if you have an existing FHA mortgage that was securitized by HUD prior to May 31, 2009 you may be eligible for lower mortgage insurance requirements.

Find out if you can take advantage of an Ohio FHA Streamline Today

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