Loan-to-value requirements for borrowers with subordinate liens are being reined in by the Federal Housing Administration.
In September 2007, under the Bush administration, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 2007-11. Among other things, the letter outlined the FHASecure program and indicated maximum LTVs of up to 98.75 percent would apply on properties appraised at $50,000 or less, while the maximum would be 97.15 percent on properties valued at more than $125,000.
Friday in Mortgagee letter 2010-24, HUD said that the 2007 letter introduced an unlimited combined LTV feature. The latest communication eliminates that feature.
Including any subordinate liens, the CLTV cannot exceed FHA’s applicable ratio. The combined liens must also fall within FHA’s maximum mortgage limitations by geography.
“FHA is returning to its former CLTV limit for case numbers assigned on or after Sept. 7,” the most recent mortgagee letter stated.
The new CLTV requirement does not apply to streamline refinances.
Existing or modified subordinate liens can be left outstanding if an FHA first mortgage qualifies based on HUD Handbook 4155.1 paragraph 5.C. In addition, subordinate liens can be offered to make a refinance transaction work.
The maximum CLTV on an FHA rate-term refinance is 97.75 percent, while a special program that runs through the end of 2012 allows refinances for negative-equity borrowers up to 115 percent. FHA-to-FHA streamline refinances can go as high as 125 percent CLTV.
Cashout transactions are limited to 85 percent.