November *This information is intended for mortgage professionals only and is not an advertisement to extend credit.*

Transcription

1 FHA Program Guide

2 History of FHA FHA was formed in 1934, to bring back the housing market after post 1929 stock market crash, by assisting homebuyers with low down payment The Federal Housing Administration is a Federal Agency within the Department of Housing and Urban Development (HUD) FHA does not provide the funds to borrowers for home loans FHA provides mortgage insurance on loans made by FHA-Approved lenders throughout the US, as protection against default by borrowers 2

3 WHY FHA? Down Payment 3.5% Up to 85% cash out refinance All funds may come from a gift Seller can pay up to 6% toward all closing costs Non-Occupant Co-Borrowers are allowed with true blended ratios No Cash Reserves (1 and 2 unit properties) Credit Leniency BK 2 years, Foreclosures 3 years, Short Sales 3 years Streamline Refinances Fully Assumable (credit qualifying only) 3

4 Common FHA Terms HUD/FHA Direct Endorsement (DE) CAIVRs LDP GSA MIP (Upfront & Annual) Base Loan Amount Total Loan Amount URLA vs (b), 234 (c ) A (Addendum to the URLA) LT vs Case # ADP Code FHAC (FHA Connection) HOC (Home Ownership Center) DELRAP/HRAP Condo Approvals HECM (Reverse) Mortgagee Letter 203k rehabilitation loan 4

5 FHA Products Purchase or Refinance of 1-4 unit primary residence - FHA 203b Fixed Products 15 and 30 Year for standard loan amounts and 30 year only on high balance loan amounts Arm Products 5/1 ARMs on standard loan amounts 5/1 ARMs on high balance loan amounts 1/1/5 caps, 2.00% Margin, Index is one year US Treasury Not available for streamline refinances 5

6 FHA Case Numbers requested online Each FHA loan is assigned an individual 10 digit loan number, called a Case Number. PCM will obtain this through the FHAC As a sponsored broker you will not have access to the FHAC (FHA Connection) Upon submitting your online request for case number PCM will you the new case number and Refinance Authorization (if applicable) All FHA loans must have a case number assignment to be insured Case numbers are ordered in FHA Connection by PCM Case numbers are assigned to the subject property Case number must be reflected on all HUD documents Case number printout is required with loan submission Streamline Refinances need previously assigned case number Must be ordered PRIOR to ordering an FHA Appraisal 6

7 CAIVRs through FHA Connection PCM will do this piece of processing CAIVRs Credit Alert Interactive Voice Response System checks for delinquent federal debt, should be on Case Number Printout PCM will access CAIVRS through the FHAC CAIVRS checks for delinquent/defaulted government debt This is informational only to you as a sponsored broker Must be ordered on all borrowers Any delinquency must be cleared, or not eligible for FHA loan Should a delinquency or issued be uncovered by PCM you will be promptly notified 7

8 LDP & GSA Databases All parties to the transaction must be cleared in both databases (Government lists of bad players) LDP Limited Denial of Participation Database can be accessed at GSA (Excluded Parties List Service, General Services Admin) Database can be accessed at Use PCM LDP/GSA Workflow and Participants List 8

9 Maximum LTV s BASE Loan Amount For Case Number Assignments on or after 1/1/2009 Purchase No Cash Out/Streamline Refi Cash Out Refinance 96.50% 97.75% 85% FHA Mortgage Limits Region 1 Unit 2 Units 3 Units 4 Units Low Cost Areas $271,050 $347,000 $419,400 $521,250 High Cost Areas $729,750 $934,200 $1,129,250 $1,403,400 Alaska & Hawaii $1,094,625 $1,401,300 $1,693,875 $2,105,100 A complete schedule of FHA mortgage limits for all areas is available at: 9

10 Maximum Loan Amount High Balance Loan Amounts - PCM High Balance pricing applies when base loan amount is over $417,000 Continental US or $625,500 in Hawaii Maximum Mortgage Calculation - Purchase 96.5% of the lesser of sales price or appraised value (base loan amount) Does not include Up Front MIP (UFMIP) Borrower must have minimum of 3.5% down payment (Can be gift) Closing costs may not be used in minimum 3.5% calculation Seller Concessions maximum 6% Maximum Mortgage Calculation Refinance No Cash Out and Streamline Refinances with appraisal 97.75% of appraised value (base loan amount) Cash out Refinances - 85% of appraised value FHA loan limits are set by HUD, and vary from county to county. Current loan amount limits can be found online at 10

11 High Balance Guides In addition to standard guidelines: Appraisal Requirements Loan amounts > $1,000,000 require 1 FHA appraisal w/ data verification or enhanced desk review w/data certification The lesser of the appraised value, review value or PP will be used Credit High Balance Cash Out transactions: Foreclosure or BK not allowed in most recent 7 years Credit Score DTI Cash Out FHA High Balance require minimum 660 score All other loan amounts require 640 Borrowers with NO credit scores are ineligible 50% max DTI if score is < 680 or subordinate financing exists 55% max DTI if score is >=680 and no subordinate financing exists 11

12 FHA Mortgage Insurance Premium (MIP) Up Front MIP (UFMIP) the FHA mortgage insurance premium is paid at closing in the form of cash, or financed in the loan amount. UFMIP must be 100% financed or 100% paid in cash, no partial financing Annual MIP is collected in monthly payments and calculated in ratios Upfront Premiums are refunded ONLY to borrowers refinancing to another FHA insured mortgage within a 3 year time period. The refund will be calculated in FHA connection when case number is ordered. Premiums vary, see next two pages for factors. Refer to Mortgage Insurance Amounts grid for MIP cancellation info 12

13 FHA Mortgage Insurance Premium (MIP) 13

14 FHA Mortgage Insurance Premium (MIP) 14

15 FHA Mortgage Insurance Premium (MIP) Upfront MIP in Box #3 on 2010 GFE Upfront MIP $6,750 $6,750 15

16 Energy Efficient Mortgage, aka, EEM s Borrower may upgrade their home by installing energy efficient improvements and incorporate the cost into the mortgage. 100% of improvements may be financed into the loan. Purchase and regular rate and term refinances only, not allowed on cash out refinances or streamlines Central Heat and Air, dual-pane windows, attic/wall insulation, water heater, sunscreens and more Existing 1-2 unit properties, purchase or refinance Maximum amount of EEM is lesser of 5% of The value of the property, or 115% of the median area price of a single family dwelling, or 150% of conforming Freddie Mac limit Weatherization may be added in addition to EEM improvements No appraisal requirement of improvements Must have Home Energy Ratings System (HERS) report, the cost may be financed in the loan. 16

17 FHA Purchases The Borrower may not receive any cash back through a purchase, other than an amount representing: A reimbursement for the Borrower s overpayment of fees Costs paid by the Borrower in advance; earnest money deposit, appraisal or credit report fees; or A legitimate real estate tax credit in locales where real estate taxes are paid in arrears If the Borrower receives an allowable amount of cash back, the minimum Borrower contribution must be met and verified See Loan Amount Calculation Worksheet 17

18 FHA Purchase Loan Calculation Base Loan Amount A $ X 96.5% = Lesser of Sales Price or Appraised Value Max LTV Minimum Down Payment B $ - $ = $ Base Loan Amount Sales Price Max Base Loan Amount Min Down Payment Up Front MIP C $ X 1.75 = $ Base Loan Amount Total Loan Amount D $ + $ = $ Up Front MIP Base Loan Amount Up Front MIP Total Loan Amount 18

19 No Cash Out Refinance/Regular Refinance Single Family, Owner Occupied Primary Residence Maximum mortgage is the LOWER of 97.75% of appraisal or Existing Debt Calculation Existing Debt includes payoff of existing 1 st, PM 2 nd, jr. lien over 12 months, closing costs, prepaid expenses, borrower paid repairs, and discount points less existing MIP refund If any portion of funds of equity line in excess of $1000 in last 12 months, for purposes other than repairs and rehab. of property the line of credit may not be included. Property owned less than 12 months, must use lesser of original purchase price + expenditures for repairs, or current appraised value unless existing loan is FHA & insured then appraised value can be used Modified/Restructured loans are okay to be paid off, as long as the loan is not delinquent and no late payments in past 12 months, unless AUS decision is Approve/Eligible. Current lender must supply letter that they will not file deficiency Proceeds to buy out ex-spouse are okay Borrower may not receive more than $500 at closing Non-Occupant Co-Borrower may be added 2 nd Liens may subordinate, up to 97.75% (case numbers as of 9/7/2010) Terms of subordinate lien must not have a balloon or prepayment penalty Payments are calculated in qualifying 19

20 No Cash Out Refinance Worksheet LTV Factor Method 20 A $ X 97.75% = Appraised Value Existing Debt Method B $ + $ = $ Payoff 1 st, PM 2 nd or seasoned Jr. Lien If paying off FHA MIP refund to be subtracted Closing Costs -nonrecurring, prepaids and discount points Up Front MIP C $ X 1.75 = $ Lower of Max #1 and Max #2 not to exceed current county limit Total Loan Amount D $ + $ = $ Lower of Max #1 and Max #2 Up Front MIP And EEM upgrades if any Max Mortgage #1 not to exceed current county limit Max Mortgage #2 not to exceed current county limit Up Front MIP Total Loan Amount

21 No Cash Out Refinance Worksheet LTV Factor Method 21 A $ X 97.75% = Appraised Value Existing Debt Method B $ + $ = $ Payoff 1 st, PM 2 nd or seasoned Jr. Lien If paying off FHA MIP refund to be subtracted Closing Costs -nonrecurring, prepaids and discount points Up Front MIP C $ X 1.75 = $ Lower of Max #1 and Max #2 not to exceed current county limit Total Loan Amount D $ + $ = $ Lower of Max #1 and Max #2 Up Front MIP And EEM upgrades if any Max Mortgage #1 not to exceed current county limit Max Mortgage #2 not to exceed current county limit Up Front MIP Total Loan Amount

22 Cash Out Refinance FHA will insure a cash out refinance, up to 85% of appraised value with the following requirements: Properties owned 12 months or more, use current appraised value Properties owned less than 12 months use lesser of purchase price or appraised value All Borrowers must hold title to property for at least six months Modified/Restructured loans are not eligible for a cash out refinance Borrowers whose loans are delinquent or in arrears are not eligible Non-Occupant Borrowers may not be added to qualify. Existing or new subordinate financing to a maximum CLTV of 85% Modified subordinate financing is acceptable to a maximum CLTV of 85% 1-4 units unit properties must pass self-sufficiency test & requires 3 months reserves Properties owned free and clear may be financed as cash-out transactions 22 Listing agreements on subject property must have been cancelled 6 mos. prior to loan application or subject to max 70% LTV/CLTV

23 Cash Out Refinance Worksheet Max LTV Calculation A $ X 85% = Appraised Value Up Front MIP C $ X 1.75 = $ Base Loan Amount may not exceed county loan limit Base Loan Amount may not exceed county loan limit Total Loan Amount D $ + $ = $ Up Front MIP Base Loan Amount may not exceed county loan limit Up Front MIP Total Loan Amount 23

24 FHA Streamline Refinance Loan must be an FHA insured loan, not delinquent, 6 months old (212 days) or case number will not be assigned until the 7 th month Fixed Rate Only, no new ARM loans Net Tangible Benefit - The refinance must result in an immediate payment reduction (Reducing the term of the mortgage is NOT a net tangible benefit, by itself) Lowering the borrower s monthly P&I payment, plus the annual MIP, by at least 5% OR Refinancing from an ARM to a Fixed The table below defines permissible minimum thresholds: From To Fixed Fixed Rate Reduction of at least 5% of P&I and MIP One-Year ARM New interest rate no greater than 2% above the current interest rate of the ARM Hybrid ARM, during fixed period Reduction of at least 5% of P&I and MIP Hybrid ARM, during adjustable period New interest rate no greater than 2% above the current interest rate of the Hybrid ARM 24

25 FHA Streamline Refinance LTV/CLTV Regardless of property state or value Type of Transaction Max LTV 1 Max CLTV 2 Credit Qualifying w/appraisal % 3 100% Credit Qualifying w/out Appraisal 5 115% 3 100% Non-Credit Qualifying w/appraisal 4 115% 3 100% Non-Credit Qualifying w/out Appraisal 5 115% 3 100% 1 - The loan must meet maximum insurable mortgage guides 2 - The max CLTV may vary depending on the type of subordinate financing 3 - Refer to the AVM notes coming up. 4 - Streamlines with appraisals, CLTV is based on the new appraised value 5 - Streamlines without appraisals (AVM only) CLTV is based on the ORIGINAL appraised value of the property 25

26 FHA Streamline Refinance Maximum Insurable Mortgage Amount - Streamline Refinance WITH Appraisal Credit Qualifying Max insurable mortgage is the lower of The outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP. OR 97.75% of appraised value of the property, plus the new UFMIP Non-Credit Qualifying Max insurable mortgage cannot exceed: The outstanding principal balance minus the applicable refund of the UFMIP, PLUS the new UFMIP An appraisal may not be used to increase the insurable mortgage balance beyond the sum of the outstanding principal balance and the new UFMIP. The new loan balance may NOT include closing costs, prepaid items or other financing The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may NOT include delinquent interest, late charges or escrow shortages. Discount points may not be included the new mortgage. 26

27 FHA Streamline Refinance Maximum Insurable Mortgage - Streamline Refinance WITHOUT Appraisal At the time of case number, the original value must be obtained from FHA Connection The maximum insurable mortgage cannot exceed: The outstanding principal bal. minus the applicable refund of the UFMIP, plus the new UFMIP The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages Condo project approval is not required Recently listed properties Listing must be cancelled at least 1 day prior to the date of the loan application A letter of intent to occupy from the borrower is required 27

28 FHA Streamline Refinance AVM is required on all Streamlines without appraisal Max LTV is 115% A CoreLogic RealQuest AVM must be obtained by PCM AVM estimated value is < 100%, Forecast Standard Deviation (FSD) may be disregarded If AVM Estimated Value is 100% to 115%, FSD is > than 20, the loan is not eligible, unless exterior-only or full appraisal is obtained and must support LTV < = 115% AVM estimated value is > 115%, loan is ineligible. Appraisal that supports 115% is ok. When AVM is unavailable, a 2055 exterior appraisal is acceptable AVM may not exceed 90 days from the date the note is signed 28

29 FHA Streamline Refinance (continued) Order new case number on our website, will need old case number, select streamline refinance. Need LDP and GSA run for all parties to transaction, include in submission CAIVRS NOT required on streamlines Minimum Credit Score is 640 Credit Report Score Only, Mortgage Rating Only Report. Mortgage lates in past 12 months on subject or ANY other property is unacceptable. Please submit credentials for THIS type of report in order for PCM to import it properly. The incorrect credentials may result in a FULL report application to be complete in its entirety, No INCOME is to be listed Income/Employment documentation: Salaried all employment info on 1003, including phone number Self Employed Business license, CPA letter or other 3 rd party verification of business. (411.com or similar does not meet requirement) DO NOT submit tax returns Other income types, see PCM guidelines (retirement, SSI, etc.) PCM will perform Lender Certification for Employment/Income Do not run AUS Manual underwrite only 29

30 FHA Streamline Refinance (continued) Assets - 2 months bank statements, if assets needed to close Copy of Hazard Insurance is required at submission Unused MIP refinance authorization is calculated in FHA Connection No cash may be taken out $500 max at closing Subordinate financing may remain in place subject to re-subordination, MAX CLTV is 100% New individuals may be added to title without credit review Removing individuals from title - original loan must credit qualify, with employment, income and assets Partial Claims, modified loans, are NOT allowed in Streamline Program Tax Impounds: Use amount shown on Prelim or proof from county of new tax amount. Refer to FHA MIP / Case Number Chart for appropriate MIP 30

31 Streamline Document Checklist PCM Submission Form Case Number Assignment Printout LT Loan Transmittal FHA Refinance Worksheet Net Tangible Benefit Worksheet 1003 Initial and typed, all sections to be completed HUD A, pages 1 and 2 completed and signed by borrower LDP/GSA Worksheet and Printouts for all parties verified Credit Report, score only (min 640), plus mortgage rating no mortgage lates Copy of Social Security Card and/or SS Authorization Form signed by borrower Hazard Insurance, coverage at least at or above loan amount Copy of Original Note, reflecting old case number Copy of current Pay off Demand, good through end of month Secondary financing documentation, if applicable Employment/Income documentation, if applicable Asset documentation if needed to close, 2 months bank statements, and source of all non-payroll deposits Preliminary Title Report Appraisal, if applicable Good Faith Estimate Borrower s Signed Credit Auth Important Notice to Homebuyer FHA Disclosure/Notice to Homeowner/Assumption Notice Informed Consumer Choice Disclosure ARM Disclosure if applicable 31

32 FHA Streamline Refinance Maximum Mortgage Calculation WITHOUT Appraisal $ Unpaid principal balance* of existing FHA loan - The LESSER of: $ Unearned UFMIP (from FHA Refinance Authorization or appropriate MIP Refund Schedule) OR $ New Estimated UFMIP = Maximum Base Loan Amount before UFMIP + New UFMIP = Total New Loan Amount including UFMIP *May include interest charged when payoff is not received on the first day of the month. Cannot include delinquent interest, late charges or escrow shortages or MIP. 32

33 FHA Streamline Refinance Maximum Mortgage Calculation WITH Appraisal Calculation A: $ Outstanding Principal Balance* - ( ) The LESSER of: $ Unearned UFMIP (from FHA Refinance Auth. or appropriate MIP Refund Schedule) OR $ New Estimated UFMIP + Closing costs** + Prepaids (includes per diem interest to end of month on new loan, hazard insurance and real estate tax deposits needed to establish escrow account) - Lender Credit for Closing Costs and Prepaid Items = Total A Calculation B: $ Total B = Appraised Value x 97.75% Calculation C: $ Total C = Max County Limit New Mortgage Amount: $ Maximum Base Mortgage (Lowest of Totals A, B and C) + New UFMIP (If financed) $ Total New Mortgage Amount *Outstanding Principal Balance May include Interest, but not delinquent interest, late charges or escrow shortages **Discount points may not be included in the loan amount, must be paid from borrowers funds. 33

34 Eligible Borrowers U.S. Citizen Permanent Resident Aliens Non-Permanent Resident Aliens All Borrowers must have a valid Social Security Number Title must be held in individual names only 34

35 Occupancy Owner Occupied Principal Residence FHA limits borrowers to one FHA loan at a time. The following are potential exceptions: Borrower relocating a reasonable distance away from prior home (100 + miles) Family size increased/decreased Vacating jointly-owned property (Divorce) Non-occupant Co-Borrower 35

36 Transactions Affecting Maximum Mortgage Identity of Interest Family or business relationships - Limited to 85% LTV with the following exceptions: Family member purchases another family member s primary residence Note: If property is seller s investment property, max mortgage is lesser of either 85% of appraised value or the appropriate LTV ratio percentage applied to sales price, plus or minus required adjustments. The 85% limit may be waived if family member has been tenant in subject property for at least 6 months An employee of builder purchasing builder s new home as primary A tenant purchases rented property, lease or other documentation evidencing at least 6 months as tenant immediately predating the sales contract A corporation transfers an employee, purchases that employee s home, then sells home to another employee 36

37 Transactions Affecting Maximum Mortgage Non-Occupant Co-Borrowers Permitted for purchases, no cash out refinances - all LTVs, and cash out refinances (must be on title, cannot add) up to 85% 2-4 units max LTV is 75% Must be immediate family member (others, case by case) or max LTV is 75% Housing and obligations are included in the DTI ratios. Credit, income and assets must be verified Must sign Note and Security Instrument and all other closing documents 37

38 Transactions Affecting Maximum Mortgage 3 and 4 unit properties The maximum mortgage is limited so that the ratio of the monthly mortgage payment divided by the monthly net rental income does not exceed 100% Monthly payment is principal, interest, taxes, insurance, mortgage insurance and any HOA dues. Net rental income is appraiser s estimate of fair market rent from ALL units, incl. borrower s own unit, less the appraiser s estimate for vacancies, or 15%*, whichever is greater (Santa Ana HOC) The above calculations are only to determine max loan amount, borrower must still qualify as usual, and projected rent may only be used as gross income and not to offset mortgage payment Borrower must have 3 months PITI reserves, reserves cannot be a gift. Gift ok for down payment 38

39 Transactions Affecting Maximum Mortgage Properties under Construction or Existing less than one Year Limited to 90% LTV, with the following exceptions: Construction completed more than one year preceding borrower s signature on HUD92900-A Building permit w/ 3 inspections issued prior to start of construction Local jurisdiction issued BOTH a building permit AND a Certificate of Occupancy or equivalent The dwelling is covered by a builder s ten-year warranty plan acceptable to HUD 39

40 40 Condo Project Approvals: At this time, Condo projects must be approved projects, and will either appear under the HRAP/DELRAP (HUD Review Approval Process) DELRAP (DE Lender Review Approval Process) DE (Direct Endorsement) lender reviews the Condo Documents Not available through PCM at present time Pre-HRAP/DELRAP Project Approvals These are any project approvals approved prior to the inception of the HRAP/DELRAP process (December 7 th 2009) HO-6 or Walls In insurance is required on all Condos $2 Million Liability per occurrence insurance required Fidelity insurance equal to 3 months aggregate HOA plus reserve fund HOA certification

41 FHA Property Flipping Property flipping is when properties are purchased and resold in a short period of time for a considerable profit Only owners of record may sell properties that will be financed using FHA insured mortgages. No sales or assignment of contract. Any resale of a property may not occur 90 or fewer days from the last sale to be eligible for financing Exceptions to follow Effective with all fully executed contracts of sale dated February 1, 2010 and after until December 31, 2014, FHA has revised their policies on exception to the FHA Flipping Rule (Where the Seller is owner-of-record 90 days or fewer). Refer to the HUD Waiver of Requirement of 24 CFR a(b)(2) for the complete FHA Flipping Rule exception policy. 41 Re-sales between 91 and 180 days where the new sales price exceeds previous price by 100% or more, additional appraisal will be required PCM may require additional documentation to support resale value of property sold more than 90 days and up to 12 months Restrictions do not apply to a builder selling a newly built home Appraisers are required to analyze prior sales of subject property PCM will require documentation to support increased value including any rehabilitation or remodeling, to possibly include a second appraisal

42 42 FHA Property Flipping (continued) Resales Occurring 90 days or less - Exception If the owner sells a property within 90 days after the recorded date of acquisition, it is not eligible, unless it falls into one of the following exceptions: Sales by HUD of REO s Sales by other US Government entities Sales by nonprofits approved by HUD Sales acquired by inheritance Sales by employers or relocation agencies Sales by mortgage companies, their subsidiaries and any vendors hired by these exempt entities Sales by State and Federally chartered financial institutions and Government sponsored enterprises (Fannie Mae and Freddie Mac) Sales by local and state government agencies Sales of properties within Presidentially-Declared Disaster Areas Please Note: Properties acquired by individuals, investment groups, REO property-re-sellers or others whose intent is the purchase, repair and reselling of the property are not exempt from the 90-day resale restriction

43 Appraisals/Property Requirements Must be completed by an FHA approved appraiser CASE NUMBER Must be ordered PRIOR to appraisal being ordered Termite Reports/Clearances not mandatory, but may be required if on contract or with underwriter s discretion Well/Septic not required unless appraiser or purchase contract notes issues Appraisals are valid up to 120 days. If appraisal expires, the case # must be canceled and a new case # assigned NOTE: Need at least 2 comps dated within 90 days of appraisal, and two current pending sales or active listings MC addendum required. 43

44 Appraisals/Property Requirements (continued) Appraisals may not be reused after the mortgage for which the appraisal was ordered has closed. The appraisal must state that the property is average or above condition Appraiser must follow HUD standards Mechanical Certifications must be made by appraiser, including ; electrical, plumbing and heating certifications Head and Shoulder inspections must be made on all attics FHA Case number must be on all pages of appraisal C02 detector required on all floors 44

45 Conversion of Primary Residence to Rental Effective with Case numbers ordered on or after September 19, 2008, ML , rental income on current primary residence being vacated, may not be considered, with the following exclusions (this applies solely to a principal residence being vacated in favor of another principal residence): Relocations Homebuyer is relocating with new employer or transferring with current employer Properly executed lease agreement of at least one year Evidence of security deposit and/or Evidence of first month s rent paid to homeowner Sufficient Equity in Vacated property 25% equity, determined by a current appraisal, less than 6 months old Rental income may NOT be derived from a family member 45

46 Qualifying Ratios Automated Approval (DO/LP) ratios per findings (see DTI restrictions under high balance loan amount section) Manual underwrite Maximum ratios are 31%/43% Higher ratios may be acceptable only if the borrower has at least 3 very strong compensating factors and at underwriter s discretion Housing ratio is computed as PITI plus MI, HOA fees, ground rent, special assessments and payments on secondary financing to income. 46

47 Credit Evaluation Minimum Credit Score 640 (regardless of AUS findings) All borrowers must have a credit score Credit will be closely examined over past months, with greater emphasis on past 12 months Borrower s housing payment history is very important Student loans deferred over 12 months are not considered Payoff of Debt to Qualify is allowed if the account is paid in full prior to closing, with a credit supplement showing a zero balance. Revolving debt cannot be paid through escrow Gift funds for deb payoff is acceptable 47 Open 30 day charge accounts, require balance to be paid in full each month. If assets to cover unpaid balance in addition to funds needed to close transaction, and are verified and submitted to AUS, the debt may be excluded. If sufficient assets are not verified, entire balance is included in ratios

48 Credit Evaluation (continued) CAIVRS All Borrower s need to be checked through FHA s CAIVRs system The system checks for delinquent federal debt Any issues will need to be cleared Non-purchasing spouse s credit must be pulled separately, in community property states 48 Credit score is not to be considered, but Debts will be considered in payments/monthly obligation Negative credit that may impact title on subject property, may be required to be paid Verify previous/current housing obligations Follow AUS, or for manually underwritten loans the following applies: Rental verification: Credit report, management service or 12 months cancelled checks. Note: if the borrower is renting from a private party PCM will require 12 months cancelled checks. Mortgage Verification Credit Report, Verification of Mortgage or 12 months cancelled checks. Note: if the borrower has privately held mortgage, PCM will require 12 months cancelled checks.

49 Credit Evaluation (continued) Consumer Credit Counseling Acceptable with 12 months payments made on time Need approval of CCC organization Late Payments and Delinquent credit Items Any Mortgage tradeline, including lines of credit, during the most recent 12 months consisting of more than one 30 day late: If risk decision was accept and the items above appeared on the CR & considered by AUS, manual downgrading and further documentation are not required For manual underwrites, if any of the above items appeared on the CR, the loan is ineligible Mortgage Credit Reject Underwriter must address on the LT May not be deleted or disregarded 49 Second signature from PCM Management is required

50 Credit Evaluation (continued) Collections, Disputed Accounts & Judgments The following guidance for Collections, Disputed Accounts and Judgments must be followed for all case numbers assigned BEFORE October 15, 2013: Disputed Tradelines: If a credit report reveals that the borrower is disputing any credit accounts, Manual Downgrade of a TOTAL Scorecard Approve/Accept recommendation to a Manual Underwrite is not required if: The disputed account has a zero balance OR The disputed account is marked as "paid in full" or "resolved OR The disputed account is both: less than $500 AND More than 24 months old, based on the date of the dispute Collection Accounts and Judgments : Collections are not required to be paid off as a condition of the mortgage approval Court-ordered judgments must be paid off. 50

51 Credit Evaluation (continued) The following guidance for Collections, Disputed Accounts and Judgments must be followed for all case numbers assigned ON OR AFTER October 15, 2013 Collections: Collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance, unless excluded by state law. All medical collections and charge off accounts are excluded from this guidance and do not require resolution A capacity analysis of collection accounts with an aggregate balance equal to or greater than $2,000 is required. Capacity analysis includes any of the following actions: At the time of or prior to closing, payment in full of the collection account (verification of acceptable source of funds required). The borrower makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower s debt-to-income ratio. If evidence of a payment arrangement is not available, the Underwriter must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower s debt-to-income ratio. Regardless of the Accept/Approve/Refer recommendation by TOTAL Mortgage Scorecard, the Underwriter must include the payment amount in the calculation of the borrower s debt-to-income ratio. Documentation requirements for Manual Underwrite: The Underwriter must document reasons for approving a mortgage when the borrower has collection accounts. Regardless of the amount of outstanding collection accounts, the Underwriter must determine if the collection account was a result of: The borrower s disregard for financial obligations OR The borrower s inability to manage debt OR Extenuating circumstances The borrower must provide a letter of explanation with supporting documentation for each outstanding collection account. The explanation and supporting documentation must be consistent with other credit information in the file. Automated (TOTAL) Underwrite: 51 There are no documentation or letter of explanation requirements for loans with collection accounts run through TOTAL Mortgage Scorecard receiving an Accept/Approve despite the presence of collection accounts. These accounts have been already taken into consideration in the borrower s credit score. If TOTAL Mortgage Scorecard generates a Refer, the lender must manually underwrite the loan in accordance with the guidance above applicable to manually underwritten loans with collection accounts.

52 Credit Evaluation (continued) Disputed accounts: Disputed derogatory credit accounts are defined as follows: Disputed charge-off accounts, Disputed collection accounts, and Disputed accounts with late payments in the last 24 months Disputed Derogatory Accounts Indicated on the Credit Report: If the credit report utilized by TOTAL Mortgage Scorecard indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute. The lender must analyze the documentation provided for consistency with other credit information in the file to determine if the derogatory credit account should be considered in the underwriting analysis. Guidance for TOTAL Mortgage Scorecard Accept/Approve loans with disputed accounts: Disputed Derogatory Credit Accounts greater than or equal to $1,000: If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a Refer and a DE underwriter is required to manually underwrite the loan as described above. Disputed Derogatory Credit Accounts less than $1,000: If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required. Excluded Accounts: Disputed medical accounts are excluded from the $1,000 limit and do not require documentation, Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit. However, the lender must provide in the case binder a credit report, letter from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges Non-Derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report. Non-derogatory disputed accounts include the following types of accounts: Disputed accounts with zero balance, Disputed accounts with late payments aged 24 months or greater, and Disputed accounts that are current and paid as agreed If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the lender is not required to downgrade the application to a Refer. However, the lender must analyze the effect of the disputed accounts on the borrower s ability to repay the loan. If the dispute results in the borrower s monthly debt payments utilized in computing the debt-to-income ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments. Non-derogatory disputed accounts are excluded from the $1,000 cumulative total. 52 Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a Refer.

53 Credit Evaluation (continued) Judgments: Judgements must be paid off. An exception to the payoff of a court ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three months of scheduled payments have been made prior to credit approval. Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three months of payments. Furthermore, lenders are instructed to include the payment amount in the agreement in the calculation of the borrower s debt-to-income ratio. FHA requires judgments of a non-purchasing spouse in a community property state to be paid in full, or meet the exception guidance for judgments above, unless excluded by state law. Documentation requirements: Manual Underwrite: The Underwriter must document reasons for approving a mortgage when the borrower has judgments. Regardless of the amount of outstanding judgments, the Underwriter must determine if the collection account or judgment was a result of: The borrower s disregard for financial obligations OR The borrower s inability to manage debt OR Extenuating circumstances The borrower must provide a letter of explanation with supporting documentation for each outstanding judgment. The explanation and supporting documentation must be consistent with other credit information in the file. Automated (TOTAL) Underwrite: If TOTAL Mortgage Scorecard generates a Refer, the lender must manually underwrite the loan in accordance with the guidance above applicable to manually underwritten loans with collection accounts and judgments. 53

54 Credit Evaluation (continued) Short Sale Borrower is not eligible if short sale on previous residence was to: Take advantage of declining market conditions, and Purchase similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value Borrower current at time of short sale is considered eligible for a new FHA mortgage if, from the date of application: All mortgage payments on the prior mortgage were made within the month due for the 12 months preceding the short sale AND Installment debt payments for the same time period were on time Borrower in default at time of short sale Not eligible for 3 years from the date of the pre-foreclosure sale Exceptions may be made to the three years for isolated cases only Default was due to circumstances beyond the borrower s control AND Credit was satisfactory prior to the circumstances that led to default Loans with borrowers in default must be manually underwritten 54

55 Credit Evaluation (continued) Short Sale Seasoning requirements for short sales may only be waived if all lien holders have accepted the short sale as payment in full. There can be no deficiency balance nor can any portion of any lien be converted to consumer debt. If the short sale was greater than 3 years prior to the date of the application and AUS is an Accept, no need to manual downgrade The credit report must reflect a zero balance on mortgage liens included in the short sale OR documentation must be obtained to support no further obligation 55

56 Credit Evaluation (continued) Bankruptcy 56 Credit report must accurately reflect bankruptcy with the correct code, or the loan must be downgraded to a manual underwrite. The code is commonly a 7 (CoreLogic, Credco and Old Republic), but may vary depending on the credit vendor. If the loan does not meet manual guidelines, the credit report must be corrected and the loan rerun through the AUS. The 1003 Loan Application must reflect a yes response to the bankruptcy question if the borrower filed within the past 7 years. AUS Findings must be reviewed to determine if finding is present for the BK. If not present, but credit report and 1003 reflects the BK accurately, an assumption may be made the BK was correctly read by the AUS. However, when the finding is present, but the code is not accurate, it cannot be assumed that the BK was correctly read by the AUS. Chapter 7 must have been discharged for at least 2 years, if less, an exception may be made if over 12 months, and reason was due to documented extenuation circumstances. Chapter 13 acceptable with minimum 12 payments made on time, and court approval for new financing. If Chapter 13 hasn t been discharged for 2 yrs, manual downgrade required High Balance Cash Out Transactions no BK in past 7 years

57 Credit Evaluation (continued) Foreclosure/Deed in Lieu Generally, 3 years must have elapsed prior to initial application date to qualify for a new home loan. If foreclosed mtg was government, seasoning is from date claim paid High Balance Cash Out, no foreclosures in past 7 years Foreclosures with Accept from AUS, and greater than 3 years prior to the date of the loan application do not require manual downgrade Credit Report must reflect zero balance on mortgage liens, OR documentation must be obtained to support no further obligation Credit report must reflect the correct code for AUS to read foreclosure accurately, or the loan will require a manual downgrade. The code is generally an 8 (CoreLogic, Credco and Old Republic), but may vary depending on the credit vendor. If the loan does not meet manual underwriting guidelines, the credit report must be corrected and the loan must be re-run through AUS Loan Application must reflect a yes response to the foreclosure question 57 AUS Findings must be reviewed to determine if a finding is present for foreclosure. If not present, but the credit report and the 1003 reflect the foreclosure accurately, an assumption may be made that the foreclosure was correctly read by the AUS. In cases where the finding is present but the code is not accurate, it cannot be assumed that the foreclosure was correctly read by the AUS.

58 Employment and Income Verification of Borrower s employment history for previous 2 years required. Gaps of over 30 days must be explained. If borrower has a gap of employment for more than 6 months in past 2 yrs the loan must be manually downgraded (regardless of AUS findings) Salaried borrowers, VOE covering 2 year period and most recent paystub; or 2 years W2 s, plus paystub, plus verbal VOE Back to Work Force, with 6 months on current job, and prior 2 year work history (ex, someone who took time off to raise children) Part time, second job, seasonal, overtime and bonus income may be used for qualification if the income has been received for at least 2 years, and it s continuance is likely. Income is averaged for 2 years. 58 Commission income must have 2 year history, document with 2 years tax returns (subtract 2106 expense)

59 Employment and Income (continued) Self-employment income: Borrower with a 25 percent or greater ownership interest in a business is considered self-employed Signed and dated individual tax returns (1040 s), plus all applicable schedules, for the most recent two years. YTD P&L and balance sheet required if more than a calendar quarter has elapsed since most recent tax return Signed copies of federal business income tax returns for the last two years, with all applicable schedules, if the business is a corporation, an "S" corporation, or a partnership. A business showing a significant decline in income over the period analyzed is not acceptable and will not qualify for FHA financing 59 Copy of business license for 2 yrs or CPA letter for independent verification of business

60 Employment and Income (continued) Other Types of Income Alimony and Child Support AUS loans may follow automated underwriting and documentation requirements Retirement, disability, social security income must have evidence that 3 years continuance is likely. Document with awards letters or other documentation. Disability income, public assistance income, military allowances and social security income are not subject to federal income taxes, and may be grossed up by 25% Any Non Taxable Income may be grossed up by 25% 60

61 Employment and Income (continued) Rental Income received for properties owned is acceptable if the borrower can document rental income is stable. The following documentation may be considered: Current lease or rental agreement if property obtained since last tax period ONLY. 85% of rental income is used to qualify borrower Tax returns for previous 2 years Boarder income is acceptable only if the parties are related by blood, marriage or law, and income is on filed previous year s tax returns 61

62 Assets Borrower s own funds Checking and Savings Most recent 2 months bank statements OR Computer generated VOD, with 2 month average balance AND One month bank statement with prior and current balance ANY recent large increase (non payroll deposits) and new accounts must be explained and documented Loans secured by 401K Sale of personal asset, etc Gifts are acceptable from: Relatives, including gifts of equity, close friend with defined interest in borrower, borrower's employer or labor union, charitable organization, real estate agents who are relatives Government agency or public entity program that provides homeownership assistance to low and moderate-income families or first-time homebuyers. Grant funds from HUD approved entity 62

63 Gift Funds Gift Letter The following is required The dollar amount The donor s name, address, telephone number The Borrower must be named The donor s relationship to the Borrower The donor s signature A statement that no repayment is required Must contain language asserting that the funds given were not made to the donor from any person with an interest in the sale of the property. See PCM Gift Letter sample. 63

64 Document source of Gift Funds Evidence of the source and transfer of funds is also required If the funds are in the Borrower s account, a copy of the cancelled check or withdrawal slip showing that withdrawal is from the donor s account. A copy of the deposit slip or bank statement showing the deposit of the funds into the Borrower s account is also required. If the funds are to be provided at closing, documentation must be provided to verify that the funds were withdrawn from the donor s account. (i.e. cashiers check, or bank wire must have name and account number of donor, and bank statement or other documentation to show the donors account number, etc). 64

65 Seller/Interested Party Contribution A transaction with an interested party contribution has the following (additional) appraisal requirements. The appraisal must indicate the amount of the contribution The appraiser must comment on the impact the contribution has to the final value of the property The appraiser must demonstrate the effect this has on final value The comparable sales must be adjusted by the value of the contributions as recognized by the market, in the appraiser s opinion, not just dollar for dollar amount of the contribution Any comparables sold with financing and/or sales concessions must reflect the difference between what the comparables actually sold for with and without concessions Positive adjustments for sales or financing concessions are not acceptable Max 6% 65

66 Forms, Disclosures and Processing Tips 66

67 What s different from Conventional? FHA Specific Disclosures More about this next Loan Transmittal Summary (LT) vs. FNMA 1008 URLA (Uniform Residential Loan Application) vs. FNMA 1003 Addendum to the URLA (HUD A) Conditional Commitment DE Statement of Appraised Value (HUD B)-PCM will supply & complete this form Case #s -Broker to request on PCM website CAIVRS Database Search-PCM will complete this task LDP & GSA Database Search-Broker to complete 67

68 Specific FHA Disclosures 1) Important Notice to Homebuyer (HUD B) 2) For your Protection: Get a Home Inspection 3) Informed Consumer Choice Disclosure 4) Amendatory Clause/Real Estate Certification 5) Notice to Homebuyer (Assumption of HUD/FHA Mortgages) 6) Arm Disclosure (if applicable) 68

69 69 HUD B

70 Important Notice to Homebuyers, page 2 70

71 Form HUD CN 71

72 72

73 Top of Amendatory Clause and Real Estate Certification 73

74 Bottom of Amendatory Clause and Real Estate Certification 74

75 Notice to Homeowner/Assumption Notice 75

76 Forms Who Signs and When FORM WHO SIGNS WHEN TO SIGN Initial HUD/VA Addendum 92900a page 1 (09/2010) Loan officer Application Initial HUD/VA Addendum 92900a page 2 (09/2010) Borrower 2x application Final HUD/VA addendum 92900a pg 1 (09/2010) Lender Prior to closing Final HUD/VA addendum 92900a pg 2 (09/2010) Borrower 2x At closing Final HUD/VA addendum 92900a pg 3 (09/2010) Underwriter Approval Final HUD/VA addendum 92900a pg 4 (09/2010) Borrowers & lender At closing and Post closing FHA/VA Amendatory clause and RE cert Borrowers, seller, realtors At purchase agreement For your protection: get a home insp cn (6/06) Borrowers- sig not mand no later than application Important Notice to homebuyer 92900b (12/04) Borrowers At application Informed Consumer Choice Disclosure Borrowers At application Loan Transmittal Summary LT (5/08) Underwriter Approval/Denial FHA ARM disclosure Borrower At application, if applicable 4506t Borrower At application Notice to homeowner (assumption of FHA loans) Borrower At closing 76

77 Case Number Requests and AVM requests online at As a sponsored broker you will not have access to the FHAC (FHA Connection) Upon submitting your online request for Case #-PCM will your case number and Refinance Authorization (if applicable) All FHA loans must have a case number assignment to be insured Case numbers are ordered in FHA Connection by PCM Case numbers are assigned to the subject property Case number must be reflected on all HUD documents Case number printout is required with loan submission Streamline Refinances need previously assigned case number AVM Requests may be made at this time. Use the Lender Notes to state you need the AVM ordered. 77

78 Ordering your Case Number Log on to 78

79 79

80 ADP Automated Data Processing Code 80

81 Streamline Refinance Type 81

82 Program ID Select Default Setting 82

83 LDP and GSA Databases All parties to the transaction must be cleared in both databases to check for individuals that have been denied participation in FHA s insurance programs OR other government contracts or programs because of wrong doing LDP (Limited Denial of Participation Database can be accessed at articipation GSA - Government Services Administration (ELPS - Excluded Parties List Service) Database can be accessed at Use PCM LDP/GSA Workflow and Participants Form 83

84 CAIVRS PCM will process this through FHA Connection CAIVRs Credit Alert Interactive Voice Response System checks for delinquent federal debt, should be on Case Number Printout PCM will access CAIVRS through the FHAC This is informational only to you as a sponsored broker Must be ordered on all borrowers Any delinquency must be cleared, or not eligible for FHA loan Should a delinquency or issued be uncovered by PCM you will be promptly notified 84

85 Checking for Condo Project Approval Search on HUD s website at this location: STEP ONE: Search for a HRAP/DELRAP Condo by inputting MINIMAL DATA State City Status: Approved 85

86 Condo Project Approval Print out and submit with package 86

87 Checking Pre-HRAP/DELRAP, Step 2 STEP TWO: Review the results and search for possible matches **TIP** If the Condo name was missing from the initial approval the Tract Number will be listed as Condo Name. You can find this in the legal description for your property. 87

88 Additional Training HUD Training Events fices/housing/sfh/events/events ABCs of FHA Lending or FHA Online University or Diehl & Associates or AllRegs Academy 88