FHA Reduces Maximum LTV and CLTV Percentages for Cash-Out Refinance Mortgages

On August 1, 2019, FHA published Mortgagee Letter 2019-11, which will reduce the Maximum Loan-to-Value (LTV) and Combined Loan-to-Value (CLTV) percentages (as accounted for in FHA Single Family Housing Policy Handbook 4000.1) from 85 percent to 80 percent of the adjusted value on FHA-insured cash-out refinance mortgages.  These changes are meant to mitigate the risk to the FHA Insurance Fund associated with the increasing levels of insured loan balances on cash-out refinance mortgages.

According to FHA’s data, the total number of FHA endorsements with cash-out refinance mortgages has significantly increased in recent years.  As a result, FHA has concluded that the reduction to the LTV and CLTV percentages will help strengthen the equity position of cash-out refinances, reduce loss severities in the event of default, and allow FHA to stay ahead of future shifts in the housing market. 

The changes made by this Mortgagee Letter are effective for case numbers assigned on or after September 1, 2019.

Note that HUD is welcoming feedback from interested parties until August 31, 2019.