August 5th, 2019 5:05 AM by Jackie A. Graves, President
mortgage to take cash out using your home’s equity may not be as easy to do
under new limitations on cash-out refinances released by the Department of
Housing and Urban Development this week.
Thursday that it’s lowering the loan-to-value requirements to cash-out
refinances from 85% to 80%.
rule will limit the number of homeowners who qualify for a cash-out refinance.
The move is to lessen the risk for the Federal Housing Administration, which
has seen an increasing number of borrowers who use these loans.
taking another important step to support sustainable homeownership that builds
wealth for families,” says FHA Commissioner Brian Montgomery. “This is a
prudent measure to make certain that we protect and preserve the home equity
borrowers are building for their futures and guard against taxpayer losses from
the FHA program.”
will take effect Sept. 1. The new rules align with Fannie Mae and Freddie Mac’s
adjusted loan-to-value requirements a decade ago in 2009 from 95% to 85% after
noticing an increase in cash-outs through the 2000s.
refis have largely been considered risky by the housing industry. Some studies
have linked an increase in foreclosures with a high number of cash-out
refinances that were completed prior to the housing crisis.
The number of
FHA cash-out refinance mortgages has surged 250% from 2013 to 2018, HUD
reports. 2013 was the lowest year for cash-out refis. The FHA noted last fall
that cash-out refinances comprised 64% of all FHA-insured refinance
transactions, up nearly 39% from the year prior. The increase in home prices
has prompted more cash-out refis, according to the annual Report to Congress
issued last fall.
In a mortgagee letter announcing the change,
HUD justified the changes for the FHA as a “prudent measure in order to
strengthen the equity position of cash-out refinances and reduce loss
severities in the event of default, stay ahead of any potential future shift in
the housing market, and better support the FHA’s mission of providing access to
sustainable homeownership that builds equity.”
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