Streamline Refinance : Lender Indemnification Fears “Slows FHA Lending?”

Indemnification are monies paid in compensation for a loss. With respect to the FHA, when a loan is originated by a bank and found to contain a serious or material violation of HUD requirements, regardless of whether the original loan has been since refinanced via a non-credit qualifying streamline refinance, the original mortgage lender remains on the hook for damages resulting from the loan.

The refinancing lender assumes no liability from the actions or omissions of the original FHA lender, nor is the refinancing lender responsible for violations of the original lender.

The lender performing the non-credit-qualifying streamline refinance is not absolved of all FHA responsibility, however. The second lender remains liable for whatever acts it performed in the process of the refinance.

If the second lender’s origination of a non-credit-qualifying FHA Streamline Refinance involves serious and material violations of HUD requirements, or fraud or misrepresentation which result in a claim, HUD reserves the right to request indemnification from the second lender for the “bad” non-credit-qualifying FHA Streamline Refinance.

In this instance, both the original and the refinancing FHA lender may be fined, depending on the violations uncovered by HUD. Interesting, did you know this?