APPRAISAL All FHA appraisals are valid for 120 days including New Construction and HUD REO s. FHA approved lenders are prohibited from accepting appraisals prepared by appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender s staff who is compensated on a commission basis tied to the successful completion of a loan. When the appraisal is logged into FHA Connection, the appraiser s name will be added. FHA will no longer insure loans performed by appraisers who are not current on the FHA Appraiser Roster at the time of the effective date of the appraisal. The effective date of the appraisal cannot be before the case number assignment date of the appraisal unless the lender certifies, via the certification field in Appraisal Logging Screen in FHA Connection, the appraisal was ordered for Conventional lending (including USDA) but was performed by an FHA Roster Appraiser and was converted to an FHA appraisal. The file must contain documentation in the case binder substantiating the conversion. FHA allows only one appraisal to be used to determine value. Please refer to ML 2009-29 for the circumstances under which a second appraisal may be ordered and the value used in underwriting. When a case number is transferred after the appraisal has been completed, the lender is not permitted to request that the appraiser change the name of the client. FHA does not require that the client name on the appraisal be changed. BORROWERS (ELIGIBLE AND INELIGIBLE) CAIVRS AND DEFAULTED FEDERALLY INSURED DEBT All borrowers must have a minimum mid FICO of at least 640. (680 minimum FICO for Streamline) All borrowers must have a valid Social Security number. Permanent and non-permanent Resident Aliens, provided they o Have a valid SSN o Are eligible to work in the US o Occupy the property as a principal residence. At least one borrower must be an owner occupant. Ineligible borrowers include but are not limited to o Any individual without a valid SSN o Individuals with only US Taxpayer ID (ITIN). An ITIN is formatted like a SSN, but begins with 9. o Any individual listed on HUD s LDP or GSA lists o Foreign Nationals and borrower with diplomatic immunity o More than 4 borrowers on a transaction. Every file must contain proof of a clear CAIVRS number for each borrower. If a borrower or loan documentation indicates the borrower has an outstanding indebtedness for a government overpayment, education or home loan in default, or indebtedness resulting from a previous claim, they are not eligible for a new loan until they can provide evidence of payment in full of the debt OR there is a pre-existing repayment plan established between the borrower and the federal agency with 12mo paid as agreed verified in writing with FHA connection. CASE NUMBER ASSIGNMENTS A case number is valid for up to 6 months. A case number will automatically be cancelled by FHA systems when there has been no activity for 6 months. Case numbers that were automatically cancelled will not be re-instated unless the mortgagee provides evidence that the subject loan closed prior to cancellation or proof of an undue hardship to the borrower that is unrelated to recent changes to premiums and underwriting requirements. For Sponsored Originators, TIB will order the Case Number. TIB requires that a loan be registered for the borrower and the subject property. TIB requires this because they will have to certify that an application exists for the borrowers listed and the subject property. Page 1 of 9
CASH TO BORROWERS CLOSING COSTS AND ALLOWABLE FEES CLOSING REQUIREMENTS Cash back at closing on Rate/Term refinances is limited to $500 and due to incidental changes in payoff and recalculation of closing costs and pre-paid, or for reimbursement of out of pocket expenses. Cash back in Texas is not allowed. Cash back at closing on a Purchase transaction is rare and must be reviewed on a case by case basis. Borrower must have a 3.5% investment into the transaction. Any funds reimbursed to the borrower on the HUD-I cannot impact this investment. Documentation must be provided that the funds came from borrowers account. Borrower cannot be reimbursed for items that were paid by credit card. For loans closing through TIB s Fulfillment process, lenders may not charge an origination fee or a processing fee if the loan application was taken on or after 4/1/11. FHA does not allow lenders to charge a Tax Service Fee. Lenders cannot mark up any third party fees. For loans closing by an FHA Sponsored Originator, the loans must close in TIB s name. TIB requires that the lender use Pierson Patterson LLP, or Roberson/Anschutz s fulfillment services. TIB requires that the appraisal and title work reflects TIB as the lender when a loan is closed by an FHA Sponsored Originator. Interest credits are allowed. Loan must fund by the 5 th calendar day of the month preceding the first payment date. Real Estate Commissions are limited to 8%. Power of Attorney is allowed providing the borrower has signed the initial disclosures and it is specific to the transaction. CREDIT HISTORY All borrowers must have at least one valid FICO score. Minimum mid FICO for all borrowers is 640 for all loan types. No non-traditional credit is allowed. If the credit report indicates a disputed accounts totaling <$1,000.00, the underwriter must downgrade the loan to a manual underwrite. Manual underwriting guidelines for ratios and documentation will be followed. If a loan receives an accept/approve through TOTAL Scorecard, the borrower s decision to participate in credit counseling does not trigger a requirement for additional documentation since the credit bureau scores already reflect any degradation in credit history. TIB considers a Short Sale and/or Short Pay off as a Foreclosure and follows Foreclosure guidelines. FHA does allow that under certain circumstances a borrower may be eligible for a new mortgage prior to the three year waiting period, but TIB is not considering those circumstances at this time. COMMUNITY PROPERTY STATE REQUIREMENTS Community Property States are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If a borrower or a property is located in a Community Property State, the debts of a non-purchasing spouse must be counted in the borrower s qualifying ratios. Any negative credit does not impact the loan with the exception of items that may impact title or with delinquent Federal debts. FHA requires that the file contain proof of the non-purchasing spouse s Social Security Number. Page 2 of 9
CONDOMINIUMS AND PUDS TIB does not accept properties in Condominium complexes. FHA requires Condominiums must be approved either through DELRAP (DE Endorsement Lender Review and Approval Process) or HRAP (HUD Review and Approval Process). FHA no longer has any requirements for the approval of PUD s. Both Detached and Attached are acceptable to TIB. ENERGY EFFICIENT MORTGAGE (EEM) ESCROWS ESCROW HOLDBACKS FLIPPING GUIDELINES GIFT FUNDS Not available at this time. Escrow waivers are not allowed under any circumstances. Not allowed with TIB. FHA defines property flipping as the practice whereby recently acquired property is resold for a considerable profit with an artificially inflated value, often abetted by a lender s collusion with an appraiser (4000.1 Handbook) The restrictions do not apply to New Construction FHA requires that the seller on the transaction must also be the Owner of Record FHA restricts the insuring of any property which has transferred title within 90 days or less. FHA defines acquisition as the date of settlement on the seller s purchase, and the re-sale date as the date of contract execution by the buyer. FHA has issued a Federal Register Notification that the restriction from sale in 90 days or less has been lifted until 12/31/2011 under certain circumstances. If the property has been sold in 90 days or less, TIB will allow the transaction as long as the resale price does not exceed more than 20% of the seller s acquisition price; regardless of any work that has been done to the property. The transaction must also be a non-arm s length transaction with a 2 nd full appraisal through FHA registered appraiser [if 2 nd value is more than 5% less 2 nd value to be used]. If the resale date of a property is between 91 and 180 days following the acquisition and the resale price is 100% or more than the price paid by the seller when the property was acquired, TIB will obtain a 2 nd appraisal. This appraisal may not be charged to the borrower. FHA has granted exceptions to these requirements for properties acquired through a valid relocation, for re-sales by HUD, US Government agencies, nonprofits approved by HUD and sales of properties by state and federally charted financial institutions and government sponsored enterprises or local and state governments. Properties with Presidentially Declared Disaster Areas and sale of property that are acquired by the seller through an inheritance are also exempt. Refer to 4000.1 HUD Handbook for all details. See Source of Funds section LENDER ELIGIBILITY Lenders must either have Full FHA approval or be accepted as a Sponsoring Originator. TIB will place lenders on our Sponsored Originator list once we receive a request and the lenders EIN number. TIB requires that lenders attend training with one of the two Fulfillment Companies prior to closing any loans through the Fulfillment process. Page 3 of 9
LIABILITIES Installment debts under $100 and less than 10 months will automatically be omitted by TOTAL Scorecard. Debts over $100 are considered to impact the borrower s ability to repay the loan and will be counted regardless of the number of months left. For revolving debts, if no payment on the credit report use the greater of 5% or $10 Contingent liabilities can be omitted if the primary obligor for the account can provide proof they have been making the payments for the previous 12 months and do not have a history of delinquent payments. Please note the debt cannot be omitted if only the borrower is obligated on the debt. Payments on 401(k) or other secured loans do not have to be added to the debt-to-income ratio. However, the asset securing the debt cannot be counted as an asset either. Student loans if the actual payment is zero or not available, use 1 percent of the outstanding balance for the monthly payment. Deferred liability-use the payment to be paid on a deferred liability, when available. If the actual payment is not available, must the terms of the deb or 5% of the outstanding balance. LOAN TERMS 15, 20, and 30 years LOAN TYPES TIB only offers 203(b) LEASEHOLDS Must comply with FHA Requirements found in 4000.1 Handbook. When the appraisal is logged into FHA Connection, the leasehold information must be entered. FHA requires the term of the lease extend at least 10 years beyond the mortgage maturity. MAXIMUM LOAN AMOUNTS TIB does not do any FHA Jumbo (over $424,100) FHA publishes Mortgage Limits at https://entp.hud.gov/idapp/html/hicostlook.cfm Limits are based on the county that the property is located and by the number of units. Loan limits do not include UFMIP MAXIMUM LTV Maximum LTV varies depending on loan type. TIB does not allow any new Secondary Financing on Purchase Transactions. 96.5% maximum LTV/CLTV for Purchase transactions and Build on Own Land (BOOL) transactions. 97.75% maximum LTV for Rate/Term Refinances. 85% maximum LTV for Cash Out Refinances. (Cash Out Refinances are not available in Texas) Per ML 2011-11, for case numbers assigned on or after April 15, 2011, Non-Qualifying Streamline Refinances are limited to the sum of the outstanding principal balance and the new UFMIP; regardless if there is an appraisal or not. Mortgagees may only increase the insurable balance beyond the sum of the outstanding principal balance and the new UFMIP by using a creditqualifying refinance with an appraisal. TIB will require that this be done as a Rate/Term refinance and the loan scored by TOTAL Scorecard. Page 4 of 9
MORTGAGE INSURANCE (UP FRONT AND MONTHLY) On FHA loans, mortgage insurance is collected to insure the lender against default. An upfront mortgage insurance premium (UFMIP) is collected on all loans. The UFMIP is a percentage of the base loan amount (loan amount excluding UFMIP). The mortgage amount is rounded down to a multiple of $1, regardless of whether or not the UFMIP is financed. If financed in the mortgage, the UFMIP is not subject to the statutory loan amount limits. Additionally, an annual mortgage insurance premium (MIP), which is paid monthly, is collected. The annual MIP is calculated on the base loan amount and loan term. See HUD Handbook 4100.1 for additional information. The following table shows the existing annual MIP rates by amortization term, base loan amount and Loan to Value (LTV) ratio. Page 5 of 9
NEW, PROPOSED AND UNDER CONSTRUCTION NON OCCUPYING CO BORROWERS FHA has three categories of newly constructed properties. All require additional documentation over an existing property. Please refer to 4150.2 for complete documentation requirements. Proposed Construction is defined as a property where no concrete or permanent materials have been placed. Digging of footings and placement of re-bar is not considered permanent. o Subterranean Termite Treatment Report NPCA 99a and 99b, if applicable o Health Authority approval of well and septic, if applicable o Builder s Certification (HUD 92541), signed at dated up to 30 days prior to the date of the appraisal o Builder s 1 year Warranty (HUD 92544) o Any one of the following: Building Permit and Certificate of Occupancy 10-year Warranty and Certificate of Occupancy 10-year Warranty and Final Inspection by HUD Fee Inspector 3 Inspections from HUD Fee Inspector. For this option, appraisal must be completed prior to start of construction Under Construction is defined from the first placement of concrete or other permanent material to 100% completion. o Subterranean Termite Treatment Report NPCA 99a and 99b, if applicable. o Health Authority approval of well and septic, if applicable o Builder s Certification (HUD 92541), signed and dated up to 30 days prior to the date of the appraisal o Builder s 1 year Warranty (HUD 92544) o Any one of the following: Building Permit and Certificate of Occupancy 10-year Warranty and Certificate of Occupancy 10-year Warranty and Final Inspection by HUD Fee Inspector Existing Less than 1 year is when the appraisal is performed after the home is 100% complete but prior to one year following completion of construction and obtaining occupancy permit. New construction exhibits are required when the house is less than 1 year old, even if previously occupied. o Subterranean Termite Treatment Report NPCA 99a and 99b, if applicable. o Health Authority approval of well and septic systems, if applicable o Builder s Certification (HUD 92541), signed and dated up to 30 days prior to date of the appraisal o Builder s 1 year Warranty (HUD 92544) o Any one of the following: Building permit and Certificate of Occupancy 10 year Warranty and 100% complete appraisal TIB requires that all non-occupying co-borrowers to be related to the borrowers by blood, marriage or law or have a documented longstanding substantial family-type relationship. FHA allows maximum financing for related parties except for non-arm s length transactions. OCCUPANCY Owner occupied primary residences only HUD defines a primary residence as the location where the borrower resides for a predominant amount of the year. Family members, who are not on the loan, may not be used to meet their occupancy requirement. An example of an unacceptable situation is if the borrower works overseas for 10 months of the year. Even if the spouse resides in the property, it does not FHA requirements and is uninsurable. Page 6 of 9
OVERLAYS Minimum of 640 FICO for each borrower (680 minimum FICO for streamline) Only allowable Non-Traditional credit is VOR (Verification of Rent); all other types are unacceptable Maximum DTI of 49% Only Government sponsored down payment assistance (DAP) allowed on Purchase Transactions. Maximum number of financed properties is 4 File must include 2 years of Federal Tax Transcripts 8% cap on Real Estate Commissions on purchase transactions No 3-4 unit properties No Condominiums All loans must be scored through TOTAL Scorecard. TIB will only purchase loans with Approve/Eligible findings. TIB requires letter of explanation on any mortgage late reflected on the credit report. No EEM s PROPERTY ELIGIBILITY 1-2 unit properties only All properties must be shown in average or better condition. (TIB will not accept any property listed in fair condition.) Ineligible Properties include: o Condominiums or Co-Ops o 3 or 4 unit properties o Manufactured Homes o Properties with water purification systems o Loans originated under expanded FHA back to work guidelines. o Properties in Special Flood Hazard Area where flood insurance is not available o Coastal Barrier Resources Systems areas o Properties with site hazards and nuisances High voltage, Overhead towers, High Pressure Gas easements ETC. o Properties which do not meet HUD s minimum property standards or TIB Q & C ratings. RATIOS Standard underwriting guidelines are 31/43. To exceed these guidelines, file must contain valid compensating factors or have a valid TOTAL Scorecard approval. TIB has a maximum DTI of 49%. REFINANCE TRANSACTIONS If there is an existing subordinate lien on the property such as a HELOC, the entire lien must be subordinated at refinance. Also for the calculation of the CLTV, the mortgagee must use the maximum accessible credit limit of the existing subordinate lien. Rate/Term refinance o Maximum LTV/CLTV is 97.75% o Borrower must be current o o Loan must be underwritten by TOTAL Scorecard New loan amount may include payoff of existing 1 st lien, payoff of any purchase money 2 nd liens, any junior liens over 12 months old, closing costs, prepaid expenses, borrower paid repairs required by the appraiser, discount points, and then subtract any UFMIP refund. o Any portion of an equity line of credit in excess of $1000 that was advanced in the last 12 months is not eligible to be included unless file contains proof it was used for repairs and rehabilitation. o If the property is owned less than 12 months and not currently FHA insured, the lower of the sales price when acquired or new appraised value is used when determining LTV. Page 7 of 9
REFINANCE TRANSACTIONS Continued Cash Out Refinances o Maximum LTV/CLTV is 85% o Borrower must be current and have made all payment within the month due for the last 12 months. For mortgages with more than 6 months and less than 12 months of payment history, the mortgagor must have made all payments when due. Mortgages with less than 6 months of payment history are not eligible for a cash-out refinance. o Loans must be underwritten by TOTAL Scorecard. o Non-occupant co-borrowers may not be used for qualification purposes. Any co-borrower or co-signer being added must be an occupant of the property. o If the property is owned less than 12 months, regardless if it is FHA insured, the new loan amount is limited to the lesser of 85% of the new appraised value or sales price when acquired. Streamlines Refinances NO appraisals allowed on Streamline REFI o As of April 15, 2011, an appraisal cannot be used to increase the insurable mortgage balance beyond the sum of the outstanding principal balance, less UFMIP refund, plus the new UFMIP. o Maximum CLTV is 125% using the original value showing on the refinance authorization. o Assets sufficient for closing must be documented. Since these are manually underwritten loans, 2 months bank statements or a VOD must be provided. o TIB will require a verbal VOE and 4506T signed for all borrowers, even though FHA no longer requires certification of employment. RESERVES All reserves used to qualify a borrower in TOTAL Scorecard must be documented. FHA does require 6 months PITI in reserve for all transactions (both purchase and refinances) for 3 and 4 unit properties regardless of TOTAL Scorecard. These reserves cannot be from a gift. SPONSORED ORIGINATOR PROGRAM SUBORDINATE FINANCING As of January 1, 2011, FHA no longer allows Correspondent Lenders but has instituted a Sponsored Originator Program. Due to TIB s status as a Fully Approved Supervised Lender, we are participating in this program. Lenders may be added to our Sponsored Originator list by providing their Tax ID # to TIB. Pierson Patterson, LLC and Robertson/Anschutz have been designated as our Fulfillment Centers. Please contact an FHA Underwriter for all the specific details for this program. On Refinance Transactions, the existing subordinate lien on the property must be subordinated in its entirety. On Refinance Transactions, when calculating Combined Loan to Value (CLTV), the mortgage must use the maximum accessible credit limit of the existing subordinate lien. On a purchase transaction, TIB allows only Government Sponsored Down Payment Assistance (DAP) Subordinate Financing. SELLER CON- TRIBUTIONS FHA allows 6% seller contributions. SOURCE OF FUNDS FHA requires all funds used to qualify be documented. Loans receiving an approval through TOTAL Scorecard qualify for documentation relief. They require only 1 month bank statement which has both a beginning and an ending balance. FHA requires all large deposits be sourced. Acceptable sources o Gifts can constitute the entire investment and reserve requirements. o Secured loans Page 8 of 9
SOURCE OF FUNDS Continued o Grants o Subordinate financing from Government entity or an approved Non-profit Unacceptable sources o Unsecured signature loan o Cash advance on credit cards Donor s gift funds cannot be from cash Origin must be documented TEMPORARY BUYDOWNS Not available at this time TOTAL SCORECARD Technology Open To Approved Lenders It is considered a Scorecard rather than an Automated Underwriting System It is accessed through either DU or LP FHA has set the following tolerance levels o Cash Reserves verified cannot be reduced by more than 10% o Income verified cannot be more than 5% less than verified o Tax and Insurance escrow used cannot increase debt-to-income ratio by more than 2%. TOTAL Scorecard User Guide, Frequently Asked Questions and Developers Guide can be found at the following link: http://www.hud.gov/offices/hsg/sfh/total/total_scorecard.cfm UNDERWRITING CONSIDERATIONS TEXAS REFINANCE- SPECIFIC OVERLAY GUIDELINES TIB requires that all loans, with the exception of Streamline Refinances, be run through TOTAL Scorecard. TIB only purchases Approve/Eligible loans. FHA requires that a file which contains any of the following items, be manually downgraded to a refer o Derogatory Credit not evaluated by TOTAL Scorecard o Previous foreclosure in the last 3 years from application date o o Bankruptcy discharged in the last 2 years from application date Any mortgage trade line or other credit obligation, during the last 12 months shows 3 or more late payments of greater than 30 days, or 1 or more late payment of 60 days plus 1 or more 30 day late payments, or 1 payment greater than 90 days. o Disputed accounts A TOTAL Scorecard approval does not constitute loan approval. Incidental cash back to the borrower is not allowed-effective with RESPA application dates on or after July 1, 2014: o Fees paid outside of closing (POC) cannot be financed into the loan amount o In order for fees to be included in the loan amount, the fee must be reasonable, incurred, and be a necessary closing cost (i.e., required to close the transaction) o Principal curtailments are not allowed on the HUD as the loan amount is not being reduced on the loan documents; closing documents must be re-drawn lowering the loan amount o Reducing cash back to the borrower by increasing the payoff amounts on HUD results in prohibited cash back to the borrower in the form of a payoff refund, and is therefore not allowable o Adding pre-paids/escrows to the new loan amount when they have not been netted from the loan payoff is not allowable A TOTAL Scorecard approval does not constitute loan approval. Page 9 of 9