HUD has released Mortgagee Letter 2008-09 which announced new limits on cash-out refi’s. The new loan-to-value (LTV) ratio may not exceed 85% of the estimate of value if the loan balance is to exceed $417,000.
The letter also states that any loan where the amount of the loan exceeds the conforming loan limit of $417,000 (January 1st, 2008 limits) and the LTV exceeds 95% of the estimate of value and the property is determined to be in a declining market by the appraiser or the lender, then a second appraisal will be required.
These new rules are designed to protect the Federal Housing Administration which will now be in a position to guarantee larger loans than it has previously. The letter also describes how a declining market is determined.
