FHA Underwriting Updates Before-and-After Matrix Effective for FHA Case Numbers Assigned on and after April 1, 2012

Transcription

1 Self Employed Borrowers Generally, standard FHA guidelines apply with some exceptions on documentation requirements. If Approve/Eligible, the borrower must provide two (2) years of individual federal tax returns and corporate partnership federal tax returns (if applicable to business). If Approve/Eligible, profit and loss statements or balance sheets are not required. If one borrower is self-employed while another on the same loan is salaried, the DU Findings Report will provide an employment message for the self-employed borrower (ignore the employment message for the self-employed borrower and provide self-employed documentation as identified in the rest of the message). Generally, standard FHA guidelines apply with some exceptions on documentation requirements. The borrower must provide two (2) years of individual federal tax returns and corporate partnership federal tax returns (if applicable to business). If Approve/Eligible or Accept/Eligible, the borrower is not required to provide business tax returns if ALL of the following can be met: Individual Federal tax returns show increasing self employed income over the past two (2) years, Funds to close are not coming from business accounts, The loan is not a cash out refinance. Note: If Approve/Eligible or Accept/Eligible, a business credit report is not required for a corporation or S corporation. A profit and loss statement (P&L) and a balance sheet is required if more than a calendar quarter has elapsed since date of most recent calendar year or fiscal-year end tax return was filed by the borrower. If income used to qualify the borrower exceeds the two-year average of tax returns, an audited P&L or signed quarterly tax returns obtained from the IRS are required. If one borrower is self-employed while another on the same loan is salaried, the DU Findings Report will provide an employment message for the self-employed borrower (ignore the employment message for the self-employed borrower and provide self-employed documentation as identified in the rest of the message). Page 1 of 9

2 Collections/ Disputed Accounts Formerly Separate Subtopics Disputed Accounts If the borrower is disputing any credit accounts or public records that appear on their credit report, submit the file to a direct endorsement underwriter for review unless: the disputed account has a zero balance, is marked as paid in full or resolved on the credit report, or has both a balance less than $500 and the date of the dispute is more than 24 months old. Collections It is SunTrust s requirement for all (DU and LP) processed loans, collection and charge off account(s) that total more than $5,000 must be paid off prior to closing. Funds sufficient to settle the account(s) must be verified and documented. It is not acceptable to pay down the aggregate balance of these account(s) to $5,000 and allow them to remain open. Underwriter discretion will be used on collections outstanding less than $5,000 after full review of the file. Account balances reduced to a judgment by a court must be paid in full. The following criteria applies for loans that do not receive an Approve/Eligible through the TOTAL Scorecard: collections will be reviewed on a case by case basis depending on the overall loan quality, major indications of derogatory credit require sufficient written explanation from the borrower (i.e., collections judgments, and any other recent credit problems). The explanation must make sense and be consistent with other credit information in the file, the collections may be required to be paid off by closing based upon underwriter discretion after full review of the file, and. the underwriter must provide comments on the FHA Loan Underwriting and Transmittal Summary (HUD LT) regarding his/her analysis of the collections and the borrower s willingness to repay obligations. The following table shows information specific to. Fannie Mae DU/LP If Approve/Eligible, explanations of late payments are not required. (DU and LP) If Approve/Eligible, a hypothetical monthly payment does not need to be used in qualifying the borrower. (DU only) Collections/Disputed Accounts If a borrower is disputing any credit accounts or collections, the mortgage application does not have to be referred to a DE underwriter for review due to the disputed accounts and pay off of the accounts is not a condition of approval as long as all of the following conditions are met: TOTAL Scorecard Accept, and The total outstanding balance of all disputed credit accounts or collections is less than $1,000, and Disputed credit accounts or collections are aged two (2) years from date of last activity as indicated on the most recent credit report. If any of the above requirements cannot be met: The loan must be referred to a DE underwriter for review, and If individual or multiple disputed credit accounts or collections have a singular or cumulative balance equal to or greater than $1,000, the accounts must be resolved as follows: letter from creditor outlining the terms of the payment arrangements along with copies of cancelled checks or credit report supplement evidencing a minimum of three months payments have been made according to the creditor arrangements, or Note: If payment arrangements are verified for account(s), they must be included in the calculation of the borrower s debt-to-income ratios. verification that the debt(s) are paid in full (i.e. copies of cancelled checks or a supplement to the credit report) Disputed credit accounts or collections resulting from identity theft, credit card theft, or unauthorized use, will be excluded from the $1,000 limit if the following is provided in the case binder to support the borrower filed an identity theft or police report to dispute the fraudulent charges: Credit report, or letter from creditor, or other appropriate documentation. The file must include documentation to show all disputed or collection accounts are resolved, verified as not a debt to the borrower, arrangements made for payment, or paid in full. Note: Paying down of balances on disputed accounts and collections to reduce the singular or cumulative balance to below $1,000, is not an acceptable resolution of accounts. Page 2 of 9

3 Judgments, Garnishments, and Liens Transactions Affecting Maximum Mortgage Calculations/ Identity-of- Interest Judgments, garnishments and/or liens must be paid in full at or prior to closing. A letter of explanation written by the borrower is required. Borrower must provide documentation of payoff. The borrower must have reestablished credit, as reflected on the credit report in the file. An exception may be made if the borrower has been making regular and timely payments on the judgment and the creditor is willing to subordinate that judgment to the insured first lien mortgage. Standard FHA guidelines apply on all loans. Identity-of-interest is defined as a transaction between family members, business partners or other business affiliates. Identity-of-interest transactions are restricted to a maximum LTV of 85%. However, maximum financing above 85% is permissible under the following circumstances: family member purchasing another family member s principal residence, employee of builder purchasing home from builder, current tenant purchasing home she has rented for at least six (6) months predating the sales contract (with lease or other written evidence), or A sale by corporations purchasing an employee s home and reselling to another employee. Note: For all identity of interest transactions, a full appraisal is required and must include verification of the purchase price, last sale date and recent listing of the subject property regardless of the feedback provided in the messaging. Judgments, garnishments and/or liens must be paid in full at or prior to closing. A letter of explanation written by the borrower is required. Borrower must provide documentation of payoff. The borrower must have reestablished credit, as reflected on the credit report in the file. An exception to payoff may be made if the borrower has an agreement with the creditor to make regular and timely payments, provides documentation to verify a minimum of three (3) months payments have been made according to the agreement, the monthly payment is included in the borrower s debt-to-income ratio, and the creditor is willing to subordinate to the insured first lien mortgage if the judgment has been recorded as a lien against the subject property. Standard FHA guidelines apply on all loans. Identity-of-interest is defined as a transaction between family members, business partners or other business affiliates. Identity-of-interest transactions are restricted to a maximum LTV of 85%. However, maximum financing above 85% is permissible under the following circumstances: family member purchasing another family member s principal residence, employee of builder purchasing home from builder, current tenant purchasing home she has rented for at least six (6) months predating the sales contract (with lease or other written evidence), or A sale by corporations purchasing an employee s home and reselling to another employee. Notes: For identity-of-interest transactions, a family member includes a child, parent, grandparent (biological, foster or step), sister, step-sister, brother, step-brother, legally adopted son or daughter, or a child who is a member of the borrower s household due to placement by an authorized agency for legal adoption, aunt, and uncle. For all identity-of-interest transactions, a full appraisal is required and must include verification of the purchase price, last sale date and recent listing of the subject property regardless of the feedback provided in the messaging. Page 3 of 9

4 Loans From Family Members HUD will allow family member to make loans to borrowers for 100% of the funds required for closing. The loans may be secured or unsecured. A family member includes a child (biological or step), parent, grandparent, legally adopted son or daughter, or a child who is a member of the borrower s household due to placement by an authorized agency in anticipation of legal adoption and foster children. The following conditions must be met: the borrower cannot receive any cash back at closing (beyond the refund of any earnest money deposit), if period payments are required, the borrower must still qualify with the payment added to the total debt ratio (not housing ratio), the financing cannot provide for balloon payments within five (5) years from the date of the note, if the family member borrows the funds, the initial source of loan funds cannot be any party with an identity of interest in the sale of the property (i.e., seller, builder, loan officer, or real estate agent), and a family member can borrow the loan funds from the retail banking affiliate of a mortgage company as long as the financing made available is made under the terms and conditions that are available to all other borrowers (special considerations are not allowed). HUD will allow family member to make loans to borrowers for 100% of the funds required for closing. The loans may be secured or unsecured. A family member includes a child, parent, grandparent (biological, foster or step), sister, stepsister, brother, step-brother, legally adopted son or daughter, a child who is a member of the borrower s household due to placement by an authorized agency for legal adoption, aunt, and uncle. The following conditions must be met: the borrower cannot receive any cash back at closing (beyond the refund of any earnest money deposit), if period payments are required, the borrower must still qualify with the payment added to the total debt ratio (not housing ratio), the financing cannot provide for balloon payments within five (5) years from the date of the note, if the family member borrows the funds, the initial source of loan funds cannot be any party with an identity of interest in the sale of the property (i.e., seller, builder, loan officer, or real estate agent), and a family member can borrow the loan funds from the retail banking affiliate of a mortgage company as long as the financing made available is made under the terms and conditions that are available to all other borrowers (special considerations are not allowed). Page 4 of 9

5 Delinquent Mortgages for Cash-Out Transactions Borrowers who are delinquent or in arrears with their existing mortgage, or had a late payment in the last 12 months (no payment may have been more than thirty [30] days late) are NOT eligible for cash-out financing. Verification of a satisfactory mortgage payment history must be provided through the month prior to closing, ensuring that all payments have been made within the month due for the previous 12 months. An updated credit report or Verification of Mortgage (VOM) is required, if the mortgage payment history provided in the loan file is not reporting through the month prior to loan closing. A prior to closing condition, code CLS54, will be issued requiring evidence that the existing mortgage is less than 30 days past due at closing with 0 x 30 day late payment in the last 12 months. Correspondent lenders must inform their clients that all mortgage payments must be made within the month due on their current mortgage, until the date of closing for their new transaction. Notes: Payoff statements are not an acceptable means to document a mortgage payment history. Cancelled checks may be an acceptable source of documentation for a mortgage payment history, at the underwriter s discretion, on a case-by-case basis Borrowers who are delinquent or in arrears with their existing mortgage, or had a late payment in the last 12 months (no payment may have been more than thirty [30] days late) are NOT eligible for cash-out financing. Verification of a satisfactory mortgage payment history must be provided through the month prior to closing, ensuring that all payments have been made within the month due for the previous 12 months. An updated credit report or Verification of Mortgage (VOM) is required, if the mortgage payment history provided in the loan file is not reporting through the month prior to loan closing. A prior to closing condition, code CLS54, will be issued requiring evidence that the existing mortgage is less than 30 days past due at closing with 0 x 30 day late payment in the last 12 months. Correspondent lenders must inform their clients that all mortgage payments must be made within the month due on their current mortgage, until the date of closing for their new transaction. Notes: Payoff statements are not an acceptable means to document a mortgage payment history. Cancelled checks may be an acceptable source of documentation for a mortgage payment history, at the underwriter s discretion, on a case-by-case basis. Any cash-out refinance transaction scored through TOTAL Scorecard and receiving an Approve that reflects derogatory or delinquent mortgage credit payments, including mortgage line-of-credit payments (as outlined below) must be downgraded to a refer and manually underwritten: a current delinquency; or any delinquency during the most recent 12 months; or on the mortgage being refinanced, less than six months payment history. Page 5 of 9

6 Mortgage/ Rental Payment Histories Typically, the loan will receive an Approve/Ineligible if there are any 30/60/90 day late payments in the last 12 months on the credit report. If Approve/Eligible, rental payment history verification is not required. If Approve/Eligible, the loan must be manually downgraded to a Refer and traditionally underwritten if the following applies: The information was reported incorrectly on the credit report; or The account was not reflected on the credit report but direct verification outside of DU reflects more than 1x30 day late in the last 12 months. Reference: See Privately Held Mortgages subsequently presented for additional information regarding payment verification requirements for privately held mortgages. Typically, the loan will receive an Approve/Ineligible if there are any 30/60/90 day late payments in the last 12 months on the credit report. If Approve/Eligible or Accept/Eligible, rental payment history verification is not required. If Approve/Eligible or Accept/Eligible, the loan must be manually downgraded to a Refer and traditionally underwritten if the following applies: The information was reported incorrectly on the credit report; or The account was not reflected on the credit report but direct verification outside of reflects more than 1x30 day late in the last 12 months. The loan is a cash-out refinance and any mortgage trade line, including mortgage line-ofcredit payments, during the most recent 12 months reflects: Any mortgage delinquencies in the most recent 12 month period, or With less than 6 months payment history on the existing mortgage, or Currently delinquent. Reference: See Privately Held Mortgages subsequently presented for additional information regarding payment verification requirements for privately held mortgages. Page 6 of 9

7 Salaried or Hourly Wage Income All of the following documentation is required: paystubs for the most recent 30 day period, W-2 s for the previous two (2) years, telephone verification of employment from the current employer, and signed IRS form 4506-T. Automated Underwriting Systems () The following table shows information specific to. Fannie Mae DU If Approve/Eligible, all of the following documentation is required: one (1) paystub with YTD information, including bonus and/or overtime income, and telephone verification of employment from the current employer. All of the following documentation is required: paystubs for the most recent 30 day period, W-2 s for the previous two (2) years, telephone verification of employment from the current employer, and signed IRS form 4506-T. Automated Underwriting Systems () The following table shows information specific to. Current Employment Obtain the most recent pay stub showing at least one month of year-to-date earnings and any one of the following: written verification of employment (VOE) from current employer, or verbal verification of employment from current employer, must document the individual verifying employment, or electronic verification acceptable to FHA. Employment History Verification of applicant s previous 2-year employment history is required. Employment with the same employer for the previous 2 years does not require direct verification if all of the following conditions are met: current employer confirms a 2 year employment history, or a paystub reflects a hiring date, and only base pay is used to qualify (no overtime or bonuses), and the borrower executes form IRS 4506-T for previous 2 years. If employment has changed in the previous 2 years and/or not all conditions above can be met, one or a combination of the following are required to verify the applicants 2 year employment history: W-2(s) VOE(s) Electronic verification acceptable to FHA School college transcripts Military discharge papers Page 7 of 9

8 Checking & Savings Accounts and Certificates of Deposit Mutual Funds Stock and Bonds If Approve/Eligible, the borrower must provide one of the following: 1 month of bank statements, if received monthly (in some cases, the DU Findings Report may require 2 months), or most recent quarterly bank statement, if received quarterly. Explanations are required for large deposits on bank statements that may require additional documentation. If Approve/Eligible, the borrower must provide one of the following: 1 month of account statements, if received monthly (in some cases, the DU Findings Report may require 2 months), or most recent quarterly account statement, if received quarterly. If Approve/Eligible, proof of liquidation is not required. Explanations (with additional documentation) are required for large deposits. If Approve/Eligible, the borrower must provide one of the following: 1 month of account statements, if received monthly (in some cases, the DU Findings Report may require 2 months), or most recent quarterly account statement, if received quarterly. If Approve/Eligible, proof of liquidation is not required. The borrower must provide one of the following: most recent monthly bank statement showing the previous month s ending balance if received monthly. If previous month s balance is not shown, the most recent 2 monthly statements are required (in some cases, the Findings Report may require 2 months), or most recent quarterly bank statement, if received quarterly. Explanations are required for large deposits on bank statements that may require additional documentation. Note: If the borrower does not hold the deposit account solely, all non-borrower s on the account must provide a written joint access letter stating that the borrower has full access and use of the funds. The borrower must provide one of the following: most recent monthly bank statement showing the previous month s ending balance if received monthly. If previous month s balance is not shown most recent 2 monthly statements are required (in some cases, the Findings Report may require 2 months), or most recent quarterly bank statement, if received quarterly. If Approve/Eligible or Accept/Eligible, proof of liquidation is not required. Explanations (with additional documentation) are required for large deposits. Note: If the borrower does not hold the deposit account solely, all non-borrower s on the account must provide a written joint access letter stating that the borrower has full access and use of the funds. The borrower must provide one of the following: most recent monthly bank statement showing the previous month s ending balance if received monthly. If previous month s balance is not shown most recent 2 monthly statements are required (in some cases, the Findings Report may require 2 months), or most recent quarterly bank statement, if received quarterly. If Approve/Eligible or Accept/Eligible, proof of liquidation is not required. Note: If the borrower does not hold the deposit account solely, all non-borrower s on the account must provide a written joint access letter stating that the borrower has full access and use of the funds. Page 8 of 9

9 Credit Reports Joint credit reports may be ordered for borrowers who are married to each other. If there are two (2) or more borrowers who are not married to each other, individual credit reports must be ordered for each borrower, even if they live together and comingle accounts. A merged in-file credit report from three repositories is obtained through DU, unless the transaction is for a non credit qualifying streamline refinance. If the subject property is located in a community property state and the borrower has a non-purchasing spouse, individual credit reports are required. The nonpurchasing spouse s report should be ordered outside of DU Credit Report Expiration Date: The credit documents may be up to 120 days old at the time the loan closes unless the transaction is for new construction, in which case, the documents can be 180 days old. DU will return a message identifying the final date the loan can close based on the date the credit report will expire. Joint credit reports may be ordered for borrowers who are married to each other. If there are two (2) or more borrowers who are not married to each other, individual credit reports must be ordered for each borrower, even if they live together and co-mingle accounts. A merged in-file credit report from three repositories is obtained through, unless the transaction is for a non credit qualifying streamline refinance. All credit reports for all borrowers must be reviewed. The feedback certificate must identify the borrower s credit report used for TOTAL s risk evaluation. If the subject property is located in a community property state and the borrower has a nonpurchasing spouse, individual credit reports are required. The non-purchasing spouse s report should be ordered outside of Credit Report Expiration Date: The credit documents may be up to 120 days old at the time the loan closes unless the transaction is for new construction, in which case, the documents can be 180 days old. will return a message identifying the final date the loan can close based on the date the credit report will expire. Page 9 of 9