New FHA Guideline - will this help protect against further downward spiral or hurt by restricting market stimulation?

Declining Markets have become a dirty word in our office. Is any market in Florida not considered "declining"? With so many home appraisals falling short of their estimated appraised value, it is no wonder that HUD has now adjusted the guideline in reference to <strong>cash out refinances</strong>. While very few homeowner's have significant equity, in their homes (regardless of original downpayment) the new guideline restricts refinances structured with "cash out" to a total Loan-to-Value Ratio to 85%.

<strong>What does this mean?
EXAMPLE</strong>
700-Score Suzie wants to consolidate her credit card and refinance her home. She purchased her home in 2006 for $210,000 with a sizeable down payment. Over the last few years Suzie made additional principal payments, on her mortgage, in hopes to save thousands in interest over the long run.

The current principal balance of her mortgage is $150,000. She would like to pay off 2 high-interest credit cards totaling $7,000 and take advantage of today's low rates. Suzie home appraisal just came back at $180,000. A previous foreclosure just sold down the street for dirt cheap and is now a new comparable in her market. Suzie is no longer eligible for this loan as her Loan-to-Value ratio is greater than 85%.