FHA Refi Applications Increase

By Sari R. Updated on 6/7/2013

By Daniel Duffield

Last June, statistics showed that applications for mortgage refinancing with the Federal Housing Administration fell just short of tripling the recordings of the previous month as many attempt to take advantage of the low rates.

According to a report released this week, banks received 102,640 applications for FHA mortgage refinancing in June, drastically increasing from May’s 34,000.

On June 11, the FHA allowed borrowers to use the streamlined program and pay lower rates for insurance premiums for all loans approved prior to June 1, 2009. With these loans, credit scores, employment records, and income are unconfirmed and an appraisal is unnecessary. With this program, principal and interest can be reduced or the borrower can refinance to shorten the term of the loan and regain equity faster.

Analysts of the Bank of America Merrill Lynch anticipate prepayment rates to start up again in June, however, even they were surprised by the data.

"While the grandfathered MIPs went into effect on June 11, 2012, speed increases in the June report provide evidence of pent up demand and high pull-through rates," analysts said. "We also believe there was added impact of third party originators on refinancings resulting in borrowers being targeted in the lead up to the June 11 effective date."

During June, loans secured by the FHA that originated before the cut off for eligibility pre-payed out twice as quickly as in May.

The program, announced early this year, attempted to lower future risk of the FHA group. In terms of delinquencies, rates rose for the second straight month in June to over 721,000 mortgages. The current delinquency rate measures at 9.5%, constituting the highest level this year.

Some hope that finances will bounce back as a result of insurance premium rates rising, providing a small reprieve for near default claims, according to a recent article in Bloomberg.

The program’s limits will be tested at the chief servicers for the streamlined refinancing program. Wells Fargo and other central banks have participated only as far as to secure their own loans. The program will start to disperse by this Fall, nearly the time when loans from the Home Affordable Refinance Program for Fannie may are expected to fall in demand, according to BofAML analysts.

The FHA forecasts to get 630,000 applications to refinance for the 2012 fiscal year, which would show a 23% rise from last year.