FHA Changes for CLTV as of September

Combined Loan-to-Value Requirements for Refinance Transactions

This Mortgagee Letter eliminates the unlimited Combined Loan-to-Value (CLTV) ratio that was first introduced in Mortgagee Letter 2007-11. With the exception of streamline refinance transactions, the combined amount of the FHA-insured first mortgage and any subordinate lien may not exceed the:

• applicable FHA loan-to-value ratio  
• AND geographical maximum mortgage amount.

FHA is returning to its former CLTV limit for case numbers assigned on or after September 7, 2010.

Provided that the new FHA-insured first mortgage meets the eligibility criteria for mortgages with secondary financing outlined in HUD Handbook 4155.1 paragraph 5.C., existing or modified subordinate liens may remain outstanding; and/or new subordinate liens may be offered to facilitate the refinance. The chart below provides the applicable CLTV for refinance transactions. Maximum CLTV for Refinance Transactions

Rate and Term (or No Cash Out) Refinances                                     97.75%  (CLTV)

Refinances for Borrowers in Negative Equity Positions                               115% 

FHA-to-FHA Streamline Refinances With or Without Appraisals      125%  (CLTV)

Cash-out Refinances                                                                               85%   (CLTV)