Further, an appraisal will be required in cases in which borrowers want to add closing costs to the transaction. The changes bring documentation standards for streamline refinances in line with other FHA guidelines.

The idea is to ensure borrowers' capacity to repay their new mortgage and prohibit churning, a practice FHA calls dangerous because it puts borrowers further in debt as a result of successive cash-out refinances.

Appraisers and appraisals

When working with loans to be endorsed for FHA insurance, mortgage brokers no longer can order appraisals. In addition, the appraisal-validity period for all property types -- including existing, proposed and new construction -- has been shortened to 120 days. This requirement replaces the past rule, which allowed for appraisal-validity periods of six to 12 months.

FHA also affirmed the portability of appraisals in cases when borrowers change lenders. Only in certain circumstances may a second appraisal be ordered by the second lender. According to HUD, these include times when:

• The first appraisal contains material deficiencies;
• The first appraiser is on the second lender's list of excluded appraisers; or
• Failure of the first lender to provide a copy of the appraisal to the second lender in a timely fashion would delay closing, potentially harming the borrower.

Darrin Stobaugh is owner of DES Financial Services in San Jose, Calif., and a 23-year veteran of the mortgage industry. He has held positions as a regional operations manager and corporate-underwriting manager at some of the top wholesale institutions in the industry. E-mail him at dstobaugh@desfinancialservices.com.

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