Introduction: In this training material, we explore working with retail loan submissions. We will step by step walk you through the general processes and required procedures. The information contained here is meant to be a basic guide for each and every loan submission.
Topics covered in this training: 1. Loan Needs Lists Item 2. Needs Lists Labeling Conventions 3. Tell the Story 4. Mortgage Interest and Commuting 5. What the Credit Report Tells 6. Red Flags on the Credit Report 7. Red Flags on Employment 8. Overtime, Bonus and Commission Income 9. Income Calculation and Documentation 10. Unacceptable Income Types 11. Gift Funds Documentation and Sourcing 12. Rental Income
Loan Needs List Items: Most recent (1) one month's paystubs Most recent two years Federal Tax Returns (all pages/all schedules for all income received) Most recent two years W2's/1099's AND/OR K-1's for all income received Most recent two years corporate/partnership tax returns (if applicable/all pages/all schedules) Most recent 2 months bank statements for all asset accounts (all pages-even if blank) Most recent 2 months retirement statements (if applicable for all 401K/IRA/pension) Copy of mortgage payment statement, tax bill, insurance premium page and HOA statement (if applicable) for all property(s) owned Copy of drivers licenses for borrower and co-borrower Copy of divorce decree/property settlement (if applicable) Copy of bankruptcy discharge and all schedules (if applicable)
Needs List Labeling Conventions: Origination Submission Guidance
Tell the Story: We recommend that each and every Loan Officer create a summary of each loan prior to submitted 1. Provide detailed letters of explanation for topics such as Credit Derogatory, Credit Inquiries, short sale explanation etc. 2. Support what you submit 1. Provide Documentation which aligns with the Loan Application (1003) 2. Present your story to the Underwriter
Tell the Story: Employment Gaps: Explain gaps in employment, how they are in good position to meet their monthly obligations Multiple Jobs: Provide documentation and explanations with regards to work history clarifying income from multiple employment sources Review guidelines and seasoning requirements for multiple wage earners Address History: If the borrowers have lived at the same address for the past 2 years, the present address is the only address required In the event the borrowers have lived at more than 1 address in the past 2 years the previous address information must be entered for all borrowers
Tell the Story: Derogatory credit: Explain & provide supporting documentation on all derogatory credit items such as collections, charge offs, slow pays, liens, judgments If poor credit can be isolated to a specific period of time or event, this may be an indication it was onetime occurrence due to job loss, illness or other related event Support your letter of explanation with documentation Inquiries: Explain all credit itemized inquiries appearing on the credit report for the last 90 days and describe any accounts which have been opened or obtained Any new credit obligations which result in a new account being opened needs to be included in the loan application
Tell the Story: No bank accounts: Considered on an exception basis only A letter of explanation and supporting documentation will be needed to support cash on hand (paystubs, copies of checks received etc.) Other names on bank account: Explain relationship to our borrower and why they are on the account. Borrower will need a 100% access letter to named account/s Unmarried borrowers: letter of explanation on relationship between co-borrower s if unmarried Explain and provide supporting documentation for any large undocumented deposits made into accounts for borrowers and gift donors Explain large withdrawals that occur on bank statements Bankruptcy, Foreclosures and Short Sales Explain the reason for the Bankruptcy, Foreclosure and Short Sale and provide supporting documentation and explanation
Mortgage Interest and Commuting: Mortgage Interest: If borrower is currently renting and has claimed mortgage interest on their tax returns obtain a letter of explanation and supporting documentation, unless they were a previous homeowner Distance between home and work: Explain any unrealistic commuting distance and provide supporting documentation if necessary. If borrower telecommutes a letter from the employer will be required.
What the Credit Report Tells: Credit Reports : For married couples applying for an FHA loan with a non-borrowing spouse make sure to run credit on the non-borrowing spouse to obtain debts only for DTI calculation in all community property states Divorced Borrowers: Provide the property settlement and final divorce decree Child Support: If the borrower is receiving child support, obtain 12 months cancelled checks or refer to DU approval and investor guidelines Liens, Judgments, Collections: If there are liens, judgments or collections, and they are required to be paid off document the source of funds in addition to the down payment, closing costs and prepaid items. Bankruptcy: Provide Bankruptcy Petition and all Schedules as applicable Provide the Bankruptcy discharge letter. DU may not approve a loan with a BK even if it s within FHA guidelines Any loans that do not get an AUS approval will require a Manual U/W.
Red Flags on the Credit Report: Do recent credit inquires suggest borrower is obtaining a new loan? Do recent inquiries suggest borrower is having challenges qualifying for a loan? Are there conflicting address references on the 1003 vs. the actual credit report, depository statements and employment documentation? Does the report have multiple social security numbers on credit, AKA s, fraud alerts, victim of identity theft, modified or restructured mortgages, rapid acquisition of properties? Is there a pattern of increasing high balances on HELOC loans or open-end line of credit suggesting dependence on cash proceeds to subsidize income? Does the credit report show any recent mortgages which were likely originated as owner occupied? Does the credit report include evidence of undisclosed short sale or deed-in-lieu with verbiage such as P&L loss or settled accounts? If borrower is qualifying as an individual or married sole and separate, are the majority of the trade-lines individual vs. joint accounts? Are student loans deferred while the application shows seasoned active employment? For real estate investors - Do the origination dates for the mortgages on the credit report show a history of mortgage activities over the past several years not including their primary residence? Are borrowers trade line accounts open/ active trade lines sufficient without authorized user accounts?
Red Flags on Employment: Are telephone calls to the borrower s place of employment answered on a cell phone instead of a landline? Is the business line answered with a business greeting instead of Hello? Ex., Home Depot, how may I help you? Did the verbal employment verify job title as well as current employment status (full or PT) and start date? Does the verbal VOE confirm the job title shown on the application? Do current earnings evidence a declining trend? Does Veteran have 12 month or more left on enlistment until funding? Does Veteran collect VA disability pay supported by written documentation of continuation? Does YTD income shown on paystub support monthly income on the 1003?
Overtime, Bonus and Commission Income: OT/Bonus/Commission income will be considered effective income if received for 2 years and continuance can be verified by the employer (VOE required) Use the average monthly amount of the two years. If declining income, use most conservative calculation.
Other Income Sources: Child Support: Provide Divorce Decree or Court Order verifying 3 year continuance Provide copy of the court records (or copies of cancelled checks) showing regular receipt of payment for at least 12 months (DU may provide waiver for fewer months of cancelled checks instead of 12 months.) Alimony: Provide Divorce Decree verifying 3 year continuance Provide copy of the court records (or copies of cancelled checks) showing regular receipt of payment for at least 12 months. (DU may provide waiver for fewer months of cancelled checks instead of 12 months.) Social Security Income, Disability Income: Provide Award letter and evidence of continuance for the next three years (Unless standard social security and borrowers is of retirement age) Provide 2 months Bank Statements reflecting deposits for the income received. Military Income: Military personnel may be entitled to different types of pay in addition to their base pay Flight or hazard pay, rations, clothing allowance, quarter s allowance, and proficiency pay are acceptable sources of stable income, as long as documentation is provided to verify continuance in the future
Income Calculation and Documentation: Calculating income: Make sure to include the way the you calculated income and/or use the income calculation worksheets provided on FastTrac 360. Wage Earners: W2 s and or 1099 s for previous 2 years for all jobs. Pay stubs covering 30 days of employment for all current jobs and one with-in 30 days of funding. Full Complete VOE Overtime/Bonuses/Commission: OT/Bonus/Commission income will be considered effective income if received for 2 years and continuance can be verified by the employer (VOE required). Calculate: Use the average monthly amount of the two years. If declining income, use most conservative calculation. Federal Tax Returns: Provide 2 years most recent 1040 s with all schedules- Make sure the signature page is signed and dated (with current date and live signature) by all borrowers
Unacceptable Income Types: Gambling Winnings Except lottery winnings that will extend beyond a 5 year period Educational Benefits Refunds of Federal, State, or Local Taxes Illegal Income or income not claimed on tax returns Expense Account Reimbursement Per Diem Income Income from Unverified Sources
Gift Funds Documentation and Sourcing: Provide fully executed Gift Letter signed by donor and borrower, dated where indicated Provide donor s source of funds using a copy of all pages of their bank statement Make sure to have a LOE on all large deposits Provide a paper trail of funds from donors account to borrower such as a cancelled check, bank wire transfer, transaction history, validated deposit slip, evidence of receipt of funds from Escrow Provide proof gift funds were withdrawn from the donor s account such as a bank statement or transaction history showing the withdrawal of funds, certified check, or cancelled personal check (Front/Back)
Rental Income: PRMG allows two options to calculate net rental income. If the income has been received for 2+ years, tax returns must be used If tax return information is not available due to length of time the income has been received, lease agreements may be used in lieu of tax returns, but the client must be able to demonstrate a 2 year landlord experience (Case by case this could be less) Exception would be if the client is converting a primary residence to a rental property and they have the required equity in the property to meet LTV requirements or have the ability to pay down the loan to required levels This interactive worksheet can be found in the FastTrac 360 Resource Center. Figures are derived from the Schedule E of the 1040 s Subtotal is divided by 12 months. Then PITIA is subtracted for a final monthly income/loss. FORMULA IF LEASES ARE USED (Newly acquired property) Income from Lease Agreement $ Multiplied by.75 Conv FHA based off local HOC x.xx TOTAL $ Minus Mortgage Payment (PITI)& HOA ($ ) Equals qualifying income or loss $
End Origination Submission Guidance