The FHA, a provider of mortgage insurance, has been slowly changing their rules on insurance refunds through-out the past few years. Currently, you may qualify for a refund if you financed your newly purchased home within a three year time period, with a FHA loan and then refinance it today with another government insured mortgage. What’s been changing is the time period to qualify – within the past decade this open window for consumers has gone from 7 to 5 and now 3 years.
Some speculate this refund of insurance premiums are being phased out altogether, spurred on by the knowledge of dangerously low main insurance funds that are well below congressional mandated levels. Many wonder if this is a phasing out period all together.
FHA spokesman, Lemar Wooley, stated the agency is “considering a different way to handle refunds.” He did not mention the future plans but assured more information would be addressed in future letters to lenders.
Currently, under today’s program, you may qualify for a refund close to 60% of the insurance premiums you spent for mortgage insurance. Plus get a less expensive loan with a lower interest rate. But for those who jump ship too early and refinance to a loan by a private lender will squash their chance of getting money back – even for the sake of switching to a less expensive FHA loan will not be entitled to a refund.
There is another possibility, according to sources, that their changes could help refinancers instead of punishing them.
The FHA may opt to apply the balance of what it owes borrowers to principles on their new loans. Another possibility is that the refund would be credited towards the cost of another loan, rather than a check being sent via mail. According to the FHA, the typical refund averages at $1,100. While not a staggering sum, the alleged changes would mean borrowers no longer having to wait for the government to write the check, which can take more than thirty days to process.
The hope is, of course, that what changes the agency makes will be more borrower-friendly. Given its track record since 2000, when the first cut to the refund time period occurred, and in 2004, when Congress further cut the refund period and ordered the FHA to end refunds except when borrowers refinance to another FHA-insured mortgage, what hope remains stands on uncertain ground.