FHA Addresses Application Of Unused Escrow Funds In Refinance Transactions

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On September 5, HUD issued Mortgagee Letter 2013-29 regarding the application of unused borrower funds from an escrow account on an existing mortgage in FHA-insured refinance transactions. The letter states that mortgagees processing such refinances may apply unused borrower funds from an existing mortgage for any purpose authorized by the borrower, and the return of unused funds to the borrower at closing is not considered cash back to the borrower. Further, the letter provides documentation and submission requirements evidencing borrower authorization for application of unused escrow funds. The letter also reminds mortgagees that calculating the maximum mortgage on a streamline refinance transaction starts with the outstanding principal balance of the existing loan, not the payoff amount.

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FHA
HUD

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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