by Ralph Mcallister

Created on: January 08, 2009   Last Updated: February 12, 2009

For those of you working with FHA loans involving cash-out refinancing, take note that there are changes for loans of this type in 2009. The good news is the 95% loan-to-value (LTV) is still available. The bad news is that a second appraisal is now required for all cash-out refinancing for LTV exceeding 85%, and will end up costing the borrower more money.

Review of the Mortgagee Letter (ML) 2008-40 from the US Department of Housing and Urban Development (HUD), shows that for any case number assignments on or after January 1st, 2009, the FHA will require a second appraisal for all cash-out refinances where the loan-to-value (LTV) will exceed 85% of the appraiser's value estimate; not including the upfront mortgage insurance premium (UFMIP). It is also noted that cash-out refinances with a LTV over 85% will be over-selected for post-endorsement technical reviews (PETR). The instructions previously published in ML 2008-09 should still be adhered to. The second appraisal must be done by a direct roster FHA appraiser with engagement by the lender, and the costs may be passed on to the borrower as well as any closing costs. It is also good to note that if the second appraisal has an estimated value more than 5% lower than the original appraisal, the maximum mortgage must be based on the lower of the two appraisals.

To gain a better understanding of the requirements and guidelines, go to the HUD website. On the website you can search using ML titles, or using keywords. It is recommended that you gather all information you can find on these types of loans. Locating a source to assist in understanding the guidelines may help as well. HUD is not known for organized and easy to digest descriptions, although details are abundant.

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