The highlights of the new guideline are:

• This is being instituted on a temporary basis until HUD has a chance to analyze and review it’s portfolio and the housing market. This will probably be in place for a while though.
• Any new subordinate financing is subject to an 85% cumulative loan to value, but any existing subordinate financing may remain in place regardless of CLTV. Existing subordinate financing which has terms modified at the time of closing is not considered new subordinate financing.
• The property must have been owned by the borrower for at least 12 months in order to qualify for 85% of the appraised value. If owned less than 12 months, the maximum loan is the lesser of 85% of the appraised value or the sales price.
• Non-occupant co-borrowers may NOT be added in order to qualify.
• A second appraisal is required if the loan amount is higher that $417,000 and the property is in an area of declining values.
• Three and Four unit properties must still pass the self sufficiency test in order to be eligible.
• Of course delinquent borrowers are not eligible for cash out financing.
• There is a new warning that non-approved brokers must not receive fees that are out of proportion to the work they have done, and they are not allowed to do any of the loan origination or processing activities.

This change has been anticipated for some time and will hopefully get rid of some of the increasing risk to and decrease in the FHA loan insurance pool. Hopefully, it is not too little too late. This still leaves FHA as the most generous cash out refinance program available in a bad market.

Loan officers, if you have any 95% LTV cash out refinances working you need to get the case number ordered soon.