"MCC HANDBOOK" A Summary and Quick Reference Guide For MCC Processors

Transcription

1 "MCC HANDBOOK" A Summary and Quick Reference Guide For MCC Processors PART 1 BASIC PROGRAM INFORMATION Eligibility Guidelines...3 Targeted Census Tracts...3 First Time Home Buyer...3 Citizenship...4 Spouses...4 Title...4 Approved Properties and Loans...4 Approved Lender Household Income...4 Two Options For Computing Income...4 Sources of Income...4 Military Pay...4 Prior Year Earnings Tax Returns...5 Three Years Required...5 IRS Print-Out and Letter The Income Tax Affidavit Processing...5 Handbook...5 Two Packages...6 Processing Priority...6 What You Need to Fund...6 Errors...7 Updated Fund Balances...7 Closing Packages...7 PART 2 WHAT TO DO WITH THE QUALIFIED BUYER...7 PART 3 WHAT TO DO WITH THE MCC FORMS...9 PART 4 PART 5 SEQUENCE OF MCC PROCESS...14 UNDERWRITING GUIDELINES FOR THE MCC...16

2 MCC Handbook This handbook provides a capsule summary of important facts about the MCC Program, followed by a step-by-step guide for the person submitting their first MCC application. It is designed to be used in conjunction with a complete set of MCC application forms, which are named in the text, underlined and italicized. The Handbook also refers to the MCC Manual and makes reference to sections of the manual containing more detailed information than what is provided in the Handbook. Tables 1 and 2 of the MCC Manual appear at the beginning of this Handbook, providing a quick reference to the parameters, administrative office phone numbers and Target Area census tracts of this MCC program. PART 1 BASIC PROGRAM INFORMATION A. Eligibility Guidelines Eligibility for the MCC program hinges on: 1. borrower household income; 2. first-time homebuyer status; 3. property type, price, and location; 4. borrower's intention to occupy home as a principal residence; 5. borrower's ability to attain first mortgage financing. See Table 1 for eligibility guidelines pertaining to maximum applicant income and purchase price. Targeted Census TractsAll properties must be within the jurisdictional limits of this MCC Program to be eligible. In addition, if the property is being purchased in a targeted census tract, the income and purchase price maximums may be higher (see Table 1), and the borrower does not have to meet or verify first-time homebuyer status. See Table 2 for a list of the targeted census tracts. First-time homebuyer A first-time homebuyer is someone who has not owned a home in which he or she lived at any time during the three years prior to applying for the MCC. The borrower, and spouse, and any other adult who will go on title must qualify as first-time homebuyer. However, first-time homebuyer status and 3

3 verification is not relevant if the property is in a targeted census tract (see Table 2). Citizenship Applicants need not be U.S. citizens. Resident aliens are eligible. Spouses Married couples are treated as co-applicants for the MCC, regardless of: 1) whether they are separated; 2) whether each spouse is applying for the loan; or 3) whether each spouse plans to go on title. Under all conditions, both must sign the documents. Title All loan applicants who will go on title are considered applicants for the MCC. Computation of the gross annual income for the family must include the income of every individual, related or not, who will go on title. Approved Properties and Loans See Table 1 and the MCC Manual, Section I, for the types of properties and first mortgage financing which qualify under the program. Approved Lender The lender (broker or funder) receives approval to participate in the MCC program by: 1) Attending an MCC training session; 2) Paying enrollment fee; 3) Signing and complying with the Lender Agreement. 4) Completing and submitting the Lender Application Form. B. Household Income Two Methods of Computation The lender chooses from two methods of income computation depending on whether the applicant is employed or self employed. Generally, income for an employed person is computed by multiplying the current gross monthly income figure times twelve. Sporadic income may be averaged and added to that base figure for a total. Income for a self-employed person is computed by averaging the year-to-date total on a current profit and loss statement with the net income figures from the two most recent years federal income tax returns (with depreciation added back in). Sources of Income The IRS requires that every source of income, taxed or untaxed, be included in the underwriting of the MCC. See the MCC Manual, Appendix C, for a complete listing of the sources of income which must be considered in computing borrower income. Military Pay See Appendix C for Military Pay explanation. 4

4 Prior Year Earnings On some pay-stubs the year-to-date earnings include pay from the last part of the prior year. If you determine that this is the case, ask the employer for a signed statement of verification. Otherwise, your borrower may be determined "over income" due to an inflated average and be disqualified. The Declaration of No Income must be signed by each adult living in the household who receives no income. C. Tax Returns Three Years Required Each first-time borrower must submit copies of their Federal tax returns for the three most recent years. They must be signed and dated in blue ink during the application for the mortgage loan. After February 15, the applicant must submit their income tax return for the prior year. Married couples must submit tax returns, which account for both spouses for the three most recent prior years. This includes separated couples. Note: Those purchasing in targeted census tracts are not required to submit tax returns to verify first-time homebuyer status. IRS Print-Out and Letter 1722 The borrower can obtain a print-out of their three most recent year's tax returns at the IRS office. The print-out, or a letter 1722 is acceptable in lieu of copies of the actual tax returns. The Income Tax Affidavit must be completed: 1. If the borrower was not required by law to file an income tax return for one or more of the three most recent years; and 2. If escrow closes between January 1 and February 15, in which case verification of renter (non-owner) status must also be submitted. Remember, except for cases involving a self-employed applicant, the borrower submits copies of three prior year's tax returns NOT to verify income, but to verify first-time homebuyer status. D. Processing Handbook Every person attempting to complete a MCC application should read this Handbook first. The lender can be removed from the program for failing to provide adequate training for their employees. 5

5 Two Packages, The following documents must be submitted for each applicant: 1. Application Phase: a. MCC Transmittal and Checklist b. Four-page MCC Application and Affidavit c. Income Worksheet and supporting documentation d. Seller Affidavit e. Recapture Tax Notice #1 f. Check for application fee (see Table 1 for amount and payee). g. Three years of Federal tax return documentation (if applicable) h. Purchase Contract: ONLY first and last page and any counter offers. 2. Closing Phase a. Transmittal (something to identify the sender) b. Closing Affidavit, dated, and signed by borrower and lender c. Any special documentation conditioned on the MCC Commitment. (Normally there is none.) Forms Data must be entered on the forms by: 1) AHA processing software; or 2) typewriter; or 3) Neat and legible (ink pen) block printing. Only clear MCC program forms are acceptable. Power of Attorney Signatures under Power of Attorney are acceptable, provided they are accompanied by a copy of the recorded Power of Attorney. If not recorded prior to loan closing, the MCC program office must be provided with the recording date and document number as part of the closing phase package. How to Submit the Application When the application is complete including blue ink signatures on original MCC documents, and it is compiled in the stacking order of the Transmittal and Checklist, it is ready to be submitted. You may send it in the U.S. Mail, or via messenger service, or deliver the package in person to the MCC office. MCC applications will not be accepted by FAX. Processing Priority All application packages, including correction-packages, are date-stamped and reviewed in the order they are received. There is no other priority for handling (such as a request to please rush ). What You Need to Fund As soon as we have received and approved your package, we'll generate an MCC Commitment and Closing Affidavit for that loan, and both FAX and mail them to you. Upon receipt of these, you may fund the 6

6 loan. FUNDING THE LOAN WITHOUT THE MCC COMMITMENT WILL AUTOMATICALLY MAKE THE TRANSACTION INELIGIBLE FOR AN MCC. Errors Packages with four or more errors will be returned to the lender for corrections and re-submission. Changes to the Application/Affidavit form will not require re-typing the entire form, unless there are so many errors that the form cannot be salvaged. For manual corrections to that form, you may submit a blank MCC Application/Affidavit form; complete the name of the applicant and any other corrected data items that the program administrator has requested. Have the borrower sign that page, and resubmit it. Updated Fund Balances Call the MCC program office to ensure that the jurisdiction where your borrower is purchasing a home has sufficient funds remaining. Reservation of Funds In cases where remaining funds for a particular jurisdiction will only provide for 5 MCCs or less, the MCC program office may temporarily reserve funds for your borrower by phone. In such cases there must be a signed purchase contract. The lender receiving the reservation will be given 72 hours to submit a complete MCC application for that transaction. Closing Packages The closing phase package is due to the MCC office no later than the 10th calendar day after escrow closing. There is a $150 penalty for not meeting that deadline. See Program Manual for steps to take if the 120-day commitment period is coming to an end. PART 2 WHAT TO DO WITH THE QUALIFIED BORROWER Parts II and III are brief summaries of the procedures outlined in Section II of the Program Manual. Please see Section II for more in-depth information. 1. Determine the jurisdiction of the property by looking up the address in the street index of the Thomas Guide. The applicable jurisdiction will appear directly next to or underneath the street name, according to the hundred block. Make sure the jurisdiction is served by this MCC program and has funds currently available. Call the program office request line for updated information on funding levels. 2. Give the borrower a program brochure. Discuss income and purchase price limits, first-time homebuyer status, and the requirement to occupy the property. 7

7 3. Give the borrower the Welcome MCC Applicant package which includes the following: 1) Welcome flyer with questions and answers 2) Recapture Tax Notice # 1 and sample Recapture Tax Notice # 2. Discuss each of the items with the borrower. Make sure the borrower understands. Refer the borrower to the MCC office with any questions you can't answer. If the borrower has difficulty understanding the recapture tax and needs a simpler explanation, give the borrower a copy of the "Recapture Tax Summary" sheet in the MCC program training package. 4. Ask the borrower to collect their income tax documentation for the last three years (unless the home being purchased is in the targeted census tract). Have them sign and date the copies of their tax returns IN BLUE INK. 5. Complete the blanks on the Seller Affidavit and forward it for the Seller's signature. 6. Explain to the borrower that the MCC application fee is non-refundable. There is only one exception to this rule: If funds are no longer available for the jurisdiction where the MCC is being sought, the application package and fee will be returned to the sender. 7. Collect income documentation from the borrower. a. If borrower is employed, obtain a copy of a recent (30 days or less) yearto-date pay stub. If the borrower is self employed, ask for a profit and loss statement for the current year, as well as two prior years tax returns. b. Show the borrower the Income Summary Worksheet and ask the borrower if he/she earns income from any of the listed sources. Collect documentation of that additional income. Explain to the borrower that his/her spouse must also submit income documentation whether the couple is living together or not. 8. Explain to the borrower that he/she will receive the Mortgage Credit Certificate in the mail after the close of escrow and will then need to update his or her W-4 Withholding amount at work. 9. Go through the calculation with the borrower to explain the amount of the monthly tax credit that the borrower will be entitled to take with the MCC. Explain how changing the W-4 (tax withholding form) is the way the borrower informs the employer to take less taxes out 8

8 of the borrower's pay. Explain that the borrower should talk to a CPA (or other qualified tax professional) to get personal tax advice. Do not advise the borrower on how many exemptions to take on the W When you and the borrower have discussed the facets of the MCC program as described above, and have collected documentation to verify that the borrower, the residence and the loan transaction are eligible, it is time to start the application process. PART 3 WHAT TO DO WITH THE MCC FORMS A. MCC Application and Affidavit Note: As of Year 2000, the State requires additional information about each MCC-related loan. Therefore, the Application Affidavit now has a fourth page; instructions for completion are provided on that page. 1. The lender, not the buyer, completes the application. You will need the processing software or a typewriter for entering data on page 1. If necessary, you may use an ink pen to complete the form in neat, legible, block printing. "White-outs" and other obvious changes must be initialed by both signatures. 2. Use the MCC Transmittal and Checklist to properly assemble your application package. Follow its instructions, deleting all extraneous paper work. (In MCC, more is definitely NOT better!) 3. LEAVE NO BLANKS. If a question is not applicable (e.g. if there is no applicant # 2) type "N/A" in the blank box or on the blank line for the answer. 4. Find the box with the number "1" in it. Choose and check the three correct choices in that box. 5. Above the number "1" is a line which starts "Seller(s)." Enter the Seller(s), name(s) there. "Number of bedrooms" refers to the subject property. 6. Find the box with number "2" in it. Make sure that the purchase contract agrees with your answers in the number "2" box for price, 9

9 loan amount, and down-payment. Include all escrow amendments, especially those needed to verify your answers in box number "2". 7. Find number "3". Include all persons expected to occupy the residence, including children and relatives. 8. See the section on page one on applicant information. Read page two, section III of the application, to determine who qualifies as an applicant. Do not complete number 4 (gross annual income) until you have completed the computation of the household income on the Income Summary Worksheet. LEAVE NO BLANKS. 9. Check the "Yes" or "No" box for each applicant for all five questions in the yes/no boxes. 10. See number "5". On a separate sheet of paper, ask each applicant his/her places of residence for the last three years, and the applicable dates. Then enter the information on page 1, number "5". Attach additional Page One's if necessary to account for all three years for each applicant. 11. See Box entitled "Mortgage Information". Check the one correct box for each of the three categories. 12. See section entitled "For Statistical Purposes Only." For each applicant please fill in the age, then check both for gender and race. Explain to the borrower that this information is never used in determining program eligibility. 13. Complete page 4 of the Application/Affidavit. As of January, 2000, this information is required by the state. MCC applications will not be accepted without a fully completed page 4. Directions for completion are provided on page Have the borrower review pages one through four of the MCC Application, then have the borrower sign and date each page. Have an authorized representative of your company read, sign and date the "Certification of the Lender". Have two reliable responsible adults witness the signing of the MCC Application. 10

10 15. After explaining that the check is non-refundable, have the borrower make out a check for the application fee and attach it to the MCC Application. (See Table 1 for amount and addressee of check.) B. Income Summary Worksheet Instructions 1. Count the income of every adult who will go on title, plus their spouse. 2. For monthly wage, use current base monthly wage Do Not Average! 3. For all other sporadic sources of income of the employed applicant, calculate an average figure from a period of up to 2 prior years plus year-to-date. Use only that time which was spent at the same job in your calculation. Submit your calculator tape and label the figures. 4. For the self-employed applicant, add the current year-to-date total net earnings from a profit and loss statement plus two prior years net earnings. Add back in depreciation amounts, then figure the average monthly income for the entire period. Enter that as monthly wage. Submit calculator tape, tax returns, and P&L statement. 5. Have the applicant review the Other sources of income listed on the Worksheet, identify any that apply, and enter on the line labeled Other. 6. Always submit calculator tape, current pay stubs, and other helpful documentation. 7. Leave no blanks. Enter -0- or n/a as applicable. 8. Method A= Employed. Method B= Self Employed. When to submit a Verification of Employment. We realize that lenders are finding it more and more difficult to obtain an employer s verification of income. Therefore, we will only require a VOE if the circumstances render it necessary. Try the test below. 11

11 Test: Take the applicant s current year-to-date gross earnings from their paystub. Divide by the number of months to obtain a monthly average. Take the monthly average and multiply it by twelve for an annualized income. (This is what the MCC staff will do.) If that annualized income is over the program maximum, your applicant is disqualified unless special circumstances apply. Examples of special circumstances might include a case where the year-to-date gross earnings figure includes bonus income, prior year earnings, or other non-scheduled pay which causes the average monthly figure to be inflated. Such special circumstances can only be proven with a clear and complete VOE from the employer. Generally a VOE from the employer will be required by the MCC staff when the income documentation submitted with the application is insufficient for the MCC program staff to make an income determination. C. Seller Affidavit Complete the blanks on the Seller Affidavit: property address; borrower's name(s), purchase price; name and address of seller(s). Forward to the seller(s) who will complete the signature, social security number, and date lines. Refusal to provide social security number will result in the need to have the document notarized. Have the seller return the signed document to you (not directly to the MCC Program), then include the Affidavit in your MCC Application package to the Program. AN MCC COMMITMENT WILL NOT BE ISSUED WITHOUT THE ORIGINAL COMPLETED, AND EXECUTED SELLER AFFIDAVIT DELIVERED TO THE MCC PROGRAM OFFICE. The Lender may submit a Fax copy of the COMPLETED AND EXECUTED Seller Affidavit in the submission package, with the understanding that he/she is to submit the hard copy within three days. D. Purchase Contract The information on the first page must 1) be legible; 2) agree with the address, purchase price, and loan amount you have indicated on the Application Form. The pages should also include borrower(s)' and seller(s)' signatures and dates. Submit only the first and last page and any counter offers. E. Tax Returns You must submit Federal tax return information for: 1) each applicant,; 2) each spouse of each applicant; 3) each of the last three years. Submit either 1) copies of the actual federal income tax returns submitted to the IRS, signed and dated in blue ink during escrow; or 2) IRS 12

12 printout or 3) IRS Letter Also, an Income Tax Affidavit is due if no tax return was filed for one or more of the three years, or if the escrow is closing between January 1st and February 15th and the prior year's return has not as yet been submitted to the IRS. MCC applications submitted after February 15 must include the tax return for the past calendar year. (This requirement is waived if subject property is in a targeted census tract.) If the applicant signs and submits an Income Tax Affidavit, the MCC program may require additional documentation to verify the applicant's renter status during the period represented by the affidavit. F. Package Submission. Compile the contents of the application package, using the MCC Transmittal and Checklist for stacking order. Forward the package to the program administrator's office (See Table 1 or one of the MCC application forms for address). Then, relax and wait until you hear from us. We will date-stamp your package, process it as soon as possible and contact you if we need additional information. When the package is approved, we will both Fax and mail to you the MCC Commitment and Closing Affidavit. G. Declined Packages If the package you submit is rejected for any reason, a letter explaining the basis of the rejection will be Faxed and mailed to you, and a copy mailed to the applicant. H. Closing/Submission of the Closing Phase Package. The funding lender named on the MCC application package receives the MCC Commitment and Closing Affidavit from the MCC program office and ensures that the party handling the funding takes responsibility for completion of the Closing Affidavit at escrow closing. A broker may take responsibility for ensuring that the funding lender will properly execute and return the Closing Affidavit. The completed Closing Affidavit will have: 1) All material changes, according to instructions on the affidavit; 2) lender signature and date; 3) borrower(s) signature and date; 4) Closing date. The funder submits the completed Closing Affidavit to the MCC Program no later than the tenth (10th) day after escrow closes. If, on the Closing Affidavit, the funding lender has requested a copy of the Mortgage Credit Certificate and included a self addressed envelope with the request, a copy of the issued MCC will be forwarded by the MCC program office to the lender for their files. 13

13 PART 4 SEQUENCE OF MCC PROCESS 1. BORROWER/APPLICANT 1. With lender determines MCC eligibility. 2. Selects home. 3. Makes purchase offer which is accepted pending financing. 4. Applies to participating lender for financing. 5. Pays MCC application fee to lender. 6. Receives a "Welcome MCC Applicant" package from lender. 2. LENDER 1. Starts processing applications for the mortgage loan and for the MCC. 2. Verifies eligibility for MCC. Prepares and forwards MCC application package and check for fee to the program administrator. 3. Processes, underwrites, and approves applicant for first mortgage. 3. MCC PROGRAM OFFICE 1. Issues MCC Commitment, and partially completed Closing Affidavit to lender after approving application package. 4. ESCROW AND/OR LENDER 1. Coordinates signing of all closing documents. 5. LENDER FUNDING DEPARTMENT 1. Funds loan through ESCROW and records Title (escrow closing). 2. Sends close of escrow package to MCC program office within 10 calendar days. 3. Establishes permanent file for each MCC issued and retains for six (6) years. 4. Files annual report (IRS Form 8329) (in January) listing each MCC loan closed during the most recent calendar year. 6. MCC PROGRAM ADMINISTRATOR 14

14 1. Receives and reviews close of escrow package. Issues MORTGAGE CREDIT CERTIFICATE and information package to homebuyer and sends copy to lender, if lender has requested it. 2. Files IRS Form 8330 quarterly. 7. MCC APPLICANT 1. Receives MCC and retains for permanent tax records. 2. Amends W-4 Form. 3. Reports MCC use on annual federal tax returns. 15

15 PART 5 UNDERWRITING GUIDELINES FOR THE MCC General Guidelines for underwriting an MCC: 1. Multiply the loan amount by the interest rate to calculate the approximate interest payment the borrower will make in the first twelve months. 2. Multiply that amount by the certificate credit rate for the program (for example: 15%). This will give you the ANNUAL CREDIT AMOUNT. This is the amount of direct, dollar-for-dollar tax savings that the borrower is entitled to take the first year. 3. Divide that amount by twelve for the MONTHLY CREDIT AMOUNT. This is the amount of additional take-home pay (tax savings) the borrower will be entitled to take each month. 4. Apply the MONTHLY CREDIT AMOUNT (MCA) in the following ways: For a FHA loan or a conventional loan: 1) first determine what PITI (principal, interest, taxes, and insurance) payment the borrower would qualify for without the MCC; 2) add the MCA to that PITI. 3) Qualify the borrower at the higher PITI. This approach to underwriting the MCC is approved by both FHA and FANNIE MAE. You may want to check with the private mortgage insurer to see if their instructions differ. For a VA loan, deduct the MCA from the tax computation on line 33 of the loan analysis form. (This helps in computation of residual income.) 16