Another Good Mortgage Refi Program Gets Its Wings Clipped?

Is another effort to help homeowners refinance into lower rate home loans about to get its wings clipped before it flies? It certainly appears that way.

On Monday, June 11, 2012 new, lower Mortgage Insurance Premium (MIP) rates went into effect for borrowers who refinance FHA loans originated before June 1, 2009. These rates have been increasing over the past few years, making it impossible for many borrowers to save money by refinancing, even at today’s very low rates. When President Obama unveiled his plan to cut these fees, he estimated that the typical American family who refinances under the new rates could save about $1,000 per year.

Now less than a week later, mortgage heavyweight Wells Fargo has notified brokers and correspondents that on or after June 19^th it will no longer accept FHA enhanced streamline refinance transactions unless Wells Fargo already services the loan. Why is this important? Because Wells Fargo plays such a crucial role in the residential mortgage industry. It originated 31% of all residential mortgages in the fourth quarter of 2011, and is “one of the top refinance mortgage producers in the country,” according to Guy Cecala, publisher of Inside Mortgage Finance. Many mortgage brokers and firms originate loans to be sold to, or underwritten by, them.

But that’s not all.

“Other lenders may mirror this announcement,” said Joe Kelly, president of ArcLoan.com, in an email to me this morning. “That means less than three days after this new program went into effect many eligible FHA homeowners may miss their chance to refinance under this great program. So if you have an FHA mortgage from before May 2009 — and you are not serviced by Wells Fargo — you should act immediately and contact a trusted lender to lock you into this program.”

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While this doesn’t spell the end of the FHA program, it will mean frustration for some borrowers who hear about a new program that can save them money, but then can’t take advantage of it. It’s eerily similar to what has been happening with HARP 2, the program designed to help underwater homeowners refinance their loans. Most major lenders are limiting that program to loans they service, leaving borrowers whose loans aren’t serviced by them scrambling.

As a post in Mortgage Daily News points out: “The government does what it can to help borrowers… But as we’ve all found out, many times the government can’t “make” an investor follow a program, and investors often add overlays or restrictions when their own risk position is compromised.”

“This affects approximately 60-70% of the eligible FHA homeowners who hold mortgages from before May, 2009,” says Kelly, who adds that while there are other lenders willing to do these loans at this time, “their rates and pricing are not as good as Wells, and (this) will likely cause some other investors to follow suit. We are not trying to ‘cry wolf’ or put false pressure on consumers to rush on a decision. But it is strong motivation for people to act,” he adds.

Listen to a podcast with Joe Kelly where he describes the enhanced FHA Streamline Refinance program on Talk Credit Radio. Arcloan.com is a sponsor of Talk Credit Radio.

Listen online here; download the podcast; or listen on iTunes.

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Image: Mr. T in DC, via Flickr