Friday, December 10, 2010

Get the Facts on Your FHA Case Numbers

On October 4, 2010, FHA changed the upfront and the annual mortgage insurance premium.  The upfront premium decreased and the annual premium increased.  While all originators who work with FHA mortgages know this, what many do not know is that FHA case numbers follow the property--not the borrower.  This means that if a specific house had an FHA contract that fell through, the FHA case number that was assigned to the property is still valid for six months. 

This has the potential to pose a huge problem for an unsuspecting loan originator who is arranging an FHA mortgage for a resale.   Let's say that John and Mary Smith put in a contract to purchase 12345 Maple Street, and they go to A+ mortgage for loan approval.  The originator qualifies John and Mary for an FHA loan but does not check with FHA to see if the property already has an FHA case number assigned to it from a previous contract that fell through.  Within three business days, the originator issues a good faith estimate and a truth in lending to John and Mary Smith.  The originator uses the current FHA upfront and annual MIP to compute the estimate.   If there were a prior FHA case number on the property and the case number has not been cancelled, the originator has now issued a binding good faith estimate with the annual premium underdisclosed.  That means that the originator will have to pay the difference between the premium he disclosed and the premium he should have disclosed.  Since not getting proper information about the existence of a case number is not considered a legitimate reason to issue a new good faith estimate, the originator is stuck.  And since a lot of lenders are now rejecting loans with good faith estimates that contain even minor errors, this mistake could cost the originator more than money--it could cost him the entire loan.

To prevent this situation, originators need to check to make sure that the property does not have a case number assigned to it before issuing the estimate.  HUD does make provisions for cancelling case numbers so that a new case number can be issued to allow use of the new mortgage insurance. The lender holding the case number must fax a signed and dated written request on company letterhead to the Homeownership Center with jurisdiction. The request must state,"Case Number Cancellation requested to allow the borrower the benefit of using the new mortgage insurance premium structure."  Requests take up to three business days to process.

Here is where it gets dicey.  Since a lender cannot cancel a case number it does not own, if the new loan originator did not issue the previous case number, he cannot cancel it.  He would have to contact the company that issued the previous case number and ask them to cancel it which might take a while.  I have had some experience with trying to get VA appraisals released between lenders and it has always been a nightmare, so I can imagine that this process will probably be difficult also.

Be proactive in finding out whether properties have a case number before you issue any estimate.  My own personal advice would be that if you find out there is an existing case number and your company does not own it, issue an estimate with the old annual and monthly MIP.  Doing a little research on this as soon as you get the property address could save a lot of money and stress down the road.


1 comment:

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