President Obama today announced changes in fees charged to
FHA-insured borrowers who wish to refinance into another FHA-insured mortgage
as well as significant compensation to servicepersons and veterans who may have
suffered financial harm due to mistakes by lenders.
Borrowers with FHA-backed mortgages
who use FHA's streamlined refinancing program are currently charged an up-front
mortgage insurance premium of 1 percent of the outstanding loan balance and an
additional 1.15 percent as an annual premium.
FHA is reducing the upfront premium to .01 percent for streamlined
refinancing of loans originated before June 1, 2009 and cutting the annual fee
to .55 percent. These reductions will
save the typical borrower about $1,000 per year before any savings from reduced
The fee reduction will be coupled
with a previously announced initiative to "remove the reticence that many lenders have had to
provide refinancing to additional families."
FHA uses a formula called the "Compare Ratio" to assess lender performance. A lender's ability to do business with the FHA
is dependent on this ratio and up to now streamlined refinances have been part
of the calculation. Because many of the
loans refinanced have been of the vintage that has had such a high default rate
lenders have been reluctant to offer new loans out of concern over an impact on
their ratio. FHA will now remove those
loans from the calculation, hopefully reassuring lenders and opening up the
program to more borrowers.
to servicemembers is slightly different than what was reported earlier. The White House said the settlement arranged
with lenders is "on top of" the $25 billion settlement announced last month
with five lenders, federal agencies, and 49 of the state attorneys
general. Under the new agreement the
lenders will conduct a review of every foreclosure of a servicemembers home
since 2006 to check for violations of the Servicemembers Civil Relief Act
(SCRA). Any who were wrongly foreclosed
will receive compensation equal to the larger of the equity they lost plus
interest and $116,785 or an amount provided for the
same violation through a review conducted by the banking regulators. There will also be refunds for servicemembers
who were wrongly denied the opportunity to refinance to lower interest rates
and relief for servicemembers who had to sell their homes for less than the
mortgage balance due to a Permanent Change in Station.
Going forward the lenders will
extend certain foreclosure protections afforded under SCRA to those serving in
harm's way regardless of when that mortgage was obtained (it previously applied
only to mortgages obtained prior to active duty) provided that the servicemember
was receiving Hostile Fire/Imminent Danger Pay and was stationed away from home
within nine months of the foreclosure.
The lenders will also pay $10 million dollars into the Veterans Affairs
fund that guarantees loans on favorable terms for veterans.
Although The President was clear to note "we don't need congress to do this," he reiterated his commitment to expand refinance offerings beyond today's announcement:
"Congress should give every homeowner the possibility to refinance their
home at historically low rates." If Congress refuses, I'll continue to
do everything in my power to act without them."