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1 FHA-TBI ORIGINATION PROCESS October 2008 Training Segments 1. FHA History - Purpose of FHA Loans; Study Guide page 2 2. FHA Advantages; page 2 3. Economic.

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Presentation on theme: "1 FHA-TBI ORIGINATION PROCESS October 2008 Training Segments 1. FHA History - Purpose of FHA Loans; Study Guide page 2 2. FHA Advantages; page 2 3. Economic."— Presentation transcript:

1 1 FHA-TBI ORIGINATION PROCESS October 2008 Training Segments 1. FHA History - Purpose of FHA Loans; Study Guide page 2 2. FHA Advantages; page 2 3. Economic Stimulus Act of 2008 vs. Housing and Economic Recovery Act of 2008; page 3 4. Toll AOS Estimated Delivery, Sales Price & MSA Loan Limit Requirements; page 3 5. Toll Agreement of Sale & Amendatory Clause Disclosure; page 4 6. TBI Operations Workflow Flow Steps; page 5 7. TBI Mortgage Appraisal Process; page 6, 7 8. Property Types- Single Family & Condominiums; page 8 9. UFMIP & Monthly MIP Basics & Down Payment Requirements; page 9, Application Basics & Buyer Qualifications; page FHA Disclosures- Applicant & Toll Builder HUD forms; page BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens; page FHA Products, TBI FHA Investors & Secondary Marketing; page Reference Sources; page Question & Answer Session Study guide page: 1

2 2 FHA History & Purpose of FHA Loans FHA History The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio*. In the more than 60 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world. HUD has helped greatly with that success. * As of September 6, 2006 Established in 1934 as the Federal Housing Administration (FHA) Self-sustaining insurance fund – paid by homeowners via mortgage insurance premiums (MIP) Became part of HUD in 1965 when the agency was established To help achieve the national goal of safe and affordable housing To encourage lenders to fund riskier borrowers and properties To increase affordable homeownership opportunities To help more families achieve the American dream HUD oversees FHA programs & regulates FHA, creates & maintains handbooks & Mortgagee Letters FHA insures mortgages, responsible for Credit Policy & administers single family housing for HUD Study guide page: 2

3 3 FHA Advantages Almost 100% insurance for lenders Only 3.50% required down payment (100% gifted) Seller, real estate agent, builder and developer can pay up to 6% of sales price in seller contributions (closing costs, prepaid items, discount points) Gift funds can cover all transaction costs Sweat equity can be used for down payment No mandatory credit (FICO ) scores and flexible credit/underwriting standards No reserve requirements for one and two unit properties Adjustable Rate Mortgages (1, 3, 5, 7, 10 year terms) with annual and maximum caps Qualifying ratios of 31% for housing expense and 43% total debt, up to 33% and 45% for new const. Ratios can be exceed with true compensating factors HUDs automated underwriting Scorecard, TOTAL – reduced documentation requirements Non-occupant co-borrowers allowed for qualifying purposes FHA loans are assumable if occupant purchaser qualifies Premium pricing can be used to pay closing costs and prepaid items Loss Mitigation options available to borrowers if they encounter payment difficulties $300 cost for home inspection – eligible closing cost Streamline refinancing of current FHA-insured loan to new FHA-insured loan Upfront MIP 1.75%, monthly from.0025% to.0055% based on term & LTV on purchase transactions US Citizenship not required; lawful perm and non-perm resident aliens eligible with proper documentation Study guide page: 2

4 4 Economic Stimulus Act of 2008 vs. Housing and Economic Recovery Act of 2008 Hand out- Summary of Major Single Family Program Changes The Economic Stimulus Act of 2008 which was passed on February 13th 2008, allowed for temporarily higher FHA loan amounts. The Economic Stimulus Act of 2008 will expire on December 31, Under the Act, the maximum FHA loan amount in High Cost areas for single family 1-2 units, (determined by HUD) was set at 175% of the FNMA/FHLMC conforming limit of 417K. That represented a maximum FHA Base Loan amount of $729,750 in High Cost areas. FHA Mortgages originated on this temporary Act must be closed and insured by December 31, Note: TBI Mortgages date to close these temporary higher loan limits is- November 28, With the passing of the Housing & Economic Recovery Act of 2008 (HERA) on July 30, 2008 with an effective date of January 1, 2009 the legislation includes several initiatives. Of major importance to TBI Mortgage is that it allows for permanent, higher loan limits. Loan amount limits will be based on the lesser of 115% of the local area median home price, as determined by HUD (but no lower than a floor of 65% of $417,000) or 150% of the GSE limit. These changes are effective January 1, 2009 and permanently increase the national cap and floor. This new FHA loan limit will not go into effect until after the limits in the Economic Stimulus Act of 2008 expire on December 31, That would equate to a $625,500** maximum FHA loan limit potential in the highest home cost areas. (150% of FNMA/FHLMC conforming limit of 417K) The minimum FHA loan limit nationwide will be $271,050 (65% of FNMA/FHLMC conforming limit of 417K) **Base FHA loan amount excluding financed MIP. Final loan amount can exceed maximum loan limit if MIP is financed. Study guide page: 3

5 5 Toll AOS Estimated Delivery, Sales Price & Loan Limit Requirements With the upcoming expiration of the temporary FHA loan limits on December 31, 2008 (Economic Stimulus Act of 2008), all Toll Agreement of Sales where the FHA loan amount would exceed original (prior to February 13th 2008) MSA loan limits where the property is located, must close by November 30, This will allow time for TBI Mortgage to deliver an FHA insurable file to our investor by years end. Note: for all contracts that close on or after January 1, 2009, loan limits will be determined by the provisions set forth in the Housing & Economic Recovery Act of 2008 (HERA) as noted above. To check the maximum loan limits, useful tools are available on the Hud.gov website- FHA Mortgage Limits page and FHAs. These pages allow you to look up FHA mortgage limits in any area or several areas, and then list them by state, county, or Metropolitan Statistical Area. The links are: https://entp.hud.gov/idapp/html/hicostlook.cfmhttp://www.fhaoutreach.gov/ Study guide page: 3

6 6 Toll- AOS & Amendatory Clause (AC) Disclosure Hand out- Endorsement to Agreement of Sale TBI Mortgages procedures for obtaining FHA Appraisals are unique with Toll. The reason has to do with the Agreement of Sale and FHAs Amendatory Clause provision. FHAs Amendatory Clause (AC) mandates that buyers cannot be forced to consummate a purchase transaction if the appraised value does not meet (or exceed) the sales price. As a result of the AC, Toll buyers have essentially an escape clause in their sales contract. The Amendatory Clause is a separate endorsement included in Tolls standard Agreement of Sale contract. The title of the document is- VA/FHA ENDORSEMENT TO AGREEMENT OF SALE. The language below is in essence, the AC disclosure. ENDORSEMENT TO AGREEMENT OF SALE dated between _____________________("Seller") and ("Buyer") of House No. __________ Lot No. _____ in the community of _____________ (the "Agreement"). NOTWITHSTANDING anything contained in the Agreement to the contrary, Buyer and Seller further agree as follows: Buyer has indicated that Buyer intends to apply for a first mortgage which is (i) a Veterans Administration (VA) Guaranteed Loan or (ii) insured by the Federal Housing Administration (FHA). It is expressly understood and agreed that notwithstanding any other provision of the Agreement, that Buyer shall not be obligated to complete the purchase of the Premises described herein or to incur any penalty by forfeiture of the earnest money deposits or otherwise unless the Buyer has been given in accordance with FHA or VA requirements a written statement setting forth the appraised value of the Premises of not less than ______________________ (insert purchase price). To mitigate the potential for a sales contract to be lost, TBI has created a workaround for determining the value of the property before Toll signs the Amendatory Clause disclosure with their buyers. This workaround is discussed in the TBI Mortgage Appraisal Process segment. Study guide page: 4

7 7 TBI Operations Workflow Steps FHA application originated, returned & submitted to Operations Case opener setup, first UW Submission for first UW review TBI UW initial stips on the file & Conventional conditional appraisal ordered File returned to processor For UW conditions to be collected Processor resubmits file to UW for review and clearing conditions **UW sends file to sponsor (investor) or FHA (test cases) for approval Any final Conditions cleared, loan closes **Step 6 will be in effect until TBI Mortgage has Direct Endorsement- DE authority with FHA. Test Cases are currently being submitted to achieve our DE designation. Corporate underwriting will designate if a file is Test Case or Non-Test Case and inform the MLS of such. Operations Workflow Detail (From step #2 through #7 above) 1.Register the loan and obtain the FHA or VA case number 2.Order the appraisal, if required (see Ops Memo 08-07) 3.Review the loan package for all required exhibits/documents/disclosures. If additional documentation is required and/or the file is incomplete the underwriter will notify the originator and/or the processor and request what is needed 4.Once the file is complete the underwriter will send/transmit the necessary documentation to the FHA/VA/Sponsor, as the case may be, for review and approval. 5.Once determined upon approval the underwriter will notify the originator and the processor of any additional conditions required for the final loan approval and closing. 6.The processor will gather all required underwriting and closing conditions and submit to the underwriter for review and transmittal to FHA/VA/Sponsor for review and approval. 7.Once all u/w conditions are cleared, and the closing conditions are received the file may be submitted for the closing to- TBIM Closing Department for DE (or test cases) by the processor To the Sponsor, Sponsors require at least 72 hours of advance notice, with all conditions clear, to transact a closing. 8.Either TBIM or the Sponsor will close and insure the loan. Study guide page: 5

8 8 TBI Mortgage Appraisal Process The appraisal ordering procedure- refer to Operations Memo Buyer is identified as a FHA OR VA borrower. 2. Buyer signs standard Toll AOS, together with the required FHA/VA Endorsement (copy attached). 3. Toll sales person notifies TBI Mortgages Business Development Manager (BDM) and requests that an appraisal be ordered. 4. BDM notifies TBI FHA/VA Underwriting Center of the need to obtain the FHA/VA preliminary appraisal report. 5. TBI Mortgage FHA/VA Underwriting Center orders an appraisal from an approved FHA or VA appraiser. Toll PM/sales manager is notified of the name of the appraiser. 6. The appraiser contacts the project manager/sales manager to get a copy of the plans, together with the executed Builders Certification of Plans, Specifications and Site (a sample of which is attached) and any other information (such as comps) which will assist the appraiser in getting the necessary appraised value. 7. Once the appraisal is ordered, the buyer should not be permitted to purchase any additional options which are not on the plans and specs provided to the appraiser. 8. The appraiser should complete the appraisal within ten (10) days after receipt of information from the project manager/salesperson. 9. The appraisal is ed to the TBI Mortgage FHA/VA Underwriting Center. 10. The TBIM loan underwriter will review the appraisal report, and projected loan amount, to determine if a second appraisal is required. If so, the TBIM underwriter will order and obtain the second appraisal for comparison value. This will take an additional 10 days. 11. Upon receipt of all required appraisals the TBIM loan underwriter s the value as determined by the appraisal(s) to the Toll PM, the sales manager and the TBI BDM. Continued- To mitigate the potential for a sales contract to be lost, TBI has created the following procedure which is a workaround for determining the value of the property before Toll signs the Amendatory Clause disclosure. Study guide page: 6

9 9 TBI Mortgage Appraisal Process The appraisal ordering procedure- refer to Operations Memo f the property appraises for an amount at least equal to the purchase price: 12. Tolls VP signs the AOS and the FHA/VA Endorsement and forwards both to Conveyancing. Conveyancing distributes the AOS and FHA/VA Endorsement to all parties consistent with its standard AOS distribution procedures. 13. Upon receipt of the new loan application package the TBI FHA/VA Underwriting Center will register the loan with either FHA or VA, obtain the case number and convert the appraisal as needed. 14. During the final stages of construction but before settlement, Toll must get a pest control company to complete a termite inspection (and treatment if necessary) and to execute the Termite Soil Treatment Record (copy attached). 15. For FHA loans SETTLEMENT MUST OCCUR BY DECEMBER 31, 2008, in order to take advantage of the increased FHA limits which are presently not scheduled to be extended beyond December 31, SETTLEMENT MUST ALSO OCCUR WITHIN SIX MONTHS FROM THE DATE OF THE APPRAISAL. At the end of six months, the appraiser will have to recertify the propertys value. If the recertified value is less than the purchase price, the buyer will be able to walk away with its deposit and Toll will have a spec. home. 17. At Settlement, TBI VP executes Warranty of Construction and Termite Soil Treatment Guarantee (copies attached). PM also causes the pest control company to complete Termite Soil Treatment Record (copy attached). If the property appraises for an amount less than the purchase price: Toll will renegotiate a new purchase price with the buyer or allow the buyer to terminate and receive a refund of all deposit money and any other money paid in connection with the purchase. Continued- To mitigate the potential for a sales contract to be lost, TBI has created the following procedure which is a workaround for determining the value of the property before Toll signs the Amendatory Clause disclosure. Study guide page: 7

10 10 TBI Mortgage Appraisal Process The appraisal ordering procedure- refer to Operations Memo FHA will require a second appraisal for high-balance loans secured by properties in declining markets as indicated on the appraisal report or determined by the lender using other sources. The loan amount, excluding the upfront mortgage insurance premium, will exceed $417,000, and The LTV[1], excluding upfront MIP, equals or exceeds 95%, and[1] The property is determined as being in a declining market. Hint- Structure the max LTV at 94.9% if home may be determined to be in a declining market. [1][1] Loan-to-Value is defined as the mortgage amount, excluding any financed upfront mortgage insurance premium, divided by the lower of the adjusted sales price or the appraisers estimate of the propertys value. FHA Second Appraisal Requirements Refer to: Mortgagee Letter Study guide page: 7

11 11 Property Types- Single Family & Condominiums Single Family Properties and Condominiums are treated differently as to their HUD/FHA insurance eligibility. While single family attached (townhomes) and detached homes are easily insurable (must meet FHA minimum property standards and specific requirements if located in a PUD) condominiums are subject to different treatment. For new construction, condominium presale and owner-occupancy requirements must be certified in accordance with HUD Handbook REV-1, Paragraph These presale and owner occupancy requirements state that at least 51% of the total units within the condominium or phase of the condominium must be sold, and sold to owners who intend to occupy the unit. The 51% requirement must be met before any unit is eligible for insurance. Units sold as a lease/rent-to-own are not allowed to be counted towards the 51% presale requirement. NOTE: Loans that have a high LTV (over 90%) are only acceptable with a HUD approved ten year warranty plan for each of the units To check if a condominium is on HUDs approved list, a useful tool is available on the Hud.gov website- The Condominiums page. The Condominiums page allows users to search for FHA-approved condominium projects by location, name, or status. The search can be configured to find specific types of projects through the use of the pull- down menus and entry fields. The link is: https://entp.hud.gov/idapp/html/condlook.cfm Study guide page: 8

12 12 UFMIP & Monthly MIP Basics & Down Payment Requirements Protects the lender against mortgage loss in the event of default FHA pays the servicing lender if the property is foreclosed and a claim is filed Almost 100% insurance MIP paid for by borrower as an upfront and annual premium (amortized monthly) FHA has two forms of Mortgage Insurance and they are required on both Single Family (203b) & Condominiums (234c) properties. Both are a part of FHAs Mutual Mortgage Insurance Fund (MMI) which is sustained entirely by borrower premiums. The first one is the Up Front Mortgage Insurance Premium- UFMIP. The UFMP premium is a one-time up front payment. Payment of this one-time UFMIP can be done in two ways- The total premium can be paid in cash at settlement OR financed in whole by inclusion in the new mortgage amount. Currently the UFMIP is 1.75% of the Base Loan Amount for all Purchase Money Mortgages and Full-Credit Qualifying Refinances. Note: Partial financing of the UFMIP is not allowed and loan amounts are rounded down to the nearest dollar. See Mortgagee Letter: (September 4, 2008) What is FHAs mortgage insurance? Continued- Study guide page: 9

13 13 UFMIP & Monthly MIP Basics & Down Payment Requirements The second is the Monthly Mortgage Insurance- MIP. This MIP premium is an annual premium that is paid monthly and must be paid for a minimum of 5 years. Below are the Monthly Premiums. The following are calculation examples for computing the UFMIP and MIP: Base Loan Amount- $475,000 UFMIP Financed-$8,312 (475,000 X.0175) Total Loan Amount-$483,312 Monthly MIP**-$ (475,000 X.0055 / 12 = ) **MIP is based on the Base Loan Amount In the above example, the total monthly cost for both premiums is- $ per month. Compare that monthly cost to a conventional PMI premium of $ That is a difference of $74.14/month lower with FHA. Based on a 30 fixed 6.50% financing UFMIP of $8,312= 52.54/month. PMI premium factor of is based on 95% LTV, 700 score. See Mortgagee Letter: (September 4, 2008) What is FHAs mortgage insurance?LTV Annual for Loans >15 Years LTV Annual for Loans < 15 Years < < 90 -None- > > Continued- Study guide page: 9

14 14 UFMIP & Monthly MIP Basics & Down Payment Requirements Canceling FHAs Annual Mortgage Insurance Premiums Effective for all loans closed on or after January 1, 2001, FHAs annual mortgage insurance premiums will be automatically canceled under the following conditions: For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the loan to value ratio reaches 78 percent*, provided the mortgagor has paid the annual mortgage insurance premiums for at least five years. For mortgages with terms 15 years and less and with loan to value ratios 90 percent and greater, the annual mortgage insurance premiums will be canceled when the loan to value ratio reaches 78 percent*, irrespective of the length of time the mortgagor has paid the annual mortgage premiums. Mortgages with terms 15 years and less and with loan to value ratios of percent and less will not be charged annual mortgage insurance premiums. Note: *The 78% requirement is based on the lower of the original sales price or current appraised value. How Long Must FHA Mortgage Insurance Stay in Effect Before Able To Drop? Study guide page: 10

15 15 FHA Down Payment Requirements With the passing of the The Housing and Recovery Act of 2008, this revised the National Housing Act to allow FHA to change its down payment requirements. In effect this has created a simplified, industry standard down payment requirement when compared to FHA previous down payment calculations. See Mortgagee Letter: (September 5, 2008) Minimum of a 3.50% down payment, based on lesser of sales price or appraised value Maximum LTV limit is 96.5% Gift funds can cover all the down payment No party of interest can contribute any part of the borrowers down payment either directly or through a third party Note: The new revised 3.50% down payment requirements take effect with all FHA case numbers assignments on or after January 1, Until that time, FHA requires borrowers to have a minimum investment of 3.00% of the sales price in the transaction. The maximum LTV under the previous down payment calculations was 97.75%. The remaining.750% investment was allowed to include allowable closing costs and Prepaids. Transactions that Affect Maximum Mortgage Calculations- Identity of Interest – Non-arms length limit max LTV to 85% (family/business relationships) Non-Occupying Borrowers – Max LTV reduced to 75% Exceptions are: related by blood, marriage or law (Spouses, parent/child, siblings, step-children, aunts/uncles, nieces/nephews, etc) which allows maximum financing Study guide page: 10

16 16 Loan-to-Value ** Ability to Repay the Loan ** Willingness to Repay the Loan Application basics are very similar in comparison to a conventional loan application. Starting with a quality interview at application by the MLS, with an understanding of how and what the underwriter is looking for in the submission package, will greatly improve the approval percentage. The credit decision on an FHA file is based on a through analysis of the entire loan and not any one single factor. The components of underwriting are as follows: Loan-to-Value, Transaction Type and Eligible Properties A primary measurement of risk for a lender is the loan-to-value (LTV). LTV ratios are limited by the transaction and property type. Ability to Repay the Loan Careful consideration is given in the analysis of the borrowers ability to repay the loan as follows: Cash reserves or liquid assets remaining after the close Stable employment and income Increase in new housing expense compared to present housing expense Willingness to Repay the Loan The history of a borrowers payment habits, with other creditors, will enable the underwriter to determine the willingness to repay the loan. An excellent credit history would consist of the following: No late payments over 30 days No derogatory information such as past due payments, repossessions, or foreclosures No bankruptcies, collections, liens or judgments Underwriter Decisions: The Direct Endorsement (DE) Underwriter is responsible for both the approval and the denial of FHA loans. It Is the DE Underwriters responsibility to execute all HUD documents that require an underwriters signature. FHA Application Basics & Buyer Qualifications Continued- Study guide page: 11

17 17 In this segment we will cover all of the FHA application basics including: 1. Eligible Borrowers 2. Qualifying Income 3. DTI Ratios & FHA Total Scorecard 4. Liabilities 5. Credit 6. Compensating Factors 7. Assets & Funds to Close 8. Occupancy & Taking Title 9. Standard Applicant Documentation 10. Valuable Tips for Quality Submissions FHA Application Basics & Buyer Qualifications Continued- Study guide page: 12

18 18 Eligible Borrowers & Qualifying Income Owner-occupants Non-profit organizations (approved by HUD) Governmental Agencies No investors; except on HUD REO sales Can be: Co-borrower (occupying and non-occupying) Co-signer Living Trust Citizenship not required (must be in the US legally) Must have a SSN# No maximum age; minimum age determined by legal ability to sign mortgage note in State Income- Must be stable Must verify 2 years employment history Must be expected to last 3+ years Generally salaries or wages Other verified income may be considered Self-employed (2+ years ) acceptable Commission, bonus and overtime is averaged (typically need two years history to use) Can be manual or automated underwriting using HUDs TOTAL FHA Application Basics & Buyer Qualifications Continued- Study guide page: 12

19 19 DTI Ratios Ratios- Basic ratios are 31/43 or 33/45 for new construction May be exceeded with compensating factors* FHA does not use credit scores (manual underwriting allowed) FICO scores must be entered into FHA Connection if borrower has a credit score Ratios may be exceed with FHAs Total Scorecard automated underwriting approval *See Compensating Factors section. Manual underwriting required when- CAIVRS reveals existing Federal debt Parties to the transaction appear on suspended & debarred list Credit issues are present to include: Previous Mortgage Foreclosure Bankruptcy Late Mortgage Payment Borrowers with limited/no credit history FHA Application Basics & Buyer Qualifications Continued- Study guide page: 13

20 20 FHA Total Scorecard FHAs Total (technology open to approved lenders) Scorecard evaluates the overall creditworthiness of the applicants based on credit variables and with the AUS functionality indicates a recommended level of Underwriting & documentation for FHA insurance eligibility. NOTE: Currently access to the Scorecard through Loan Prospector is limited to select Sr. MLSs FHA Application Basics & Buyer Qualifications Continued- Study guide page: 13

21 21 Liabilities All debts must be considered Recurring obligations- Installment loans, revolving charge accounts, real estate loans, alimony, child support, and other continuing obligations Debts lasting less than ten months must be counted if the amount of the debt affects the borrowers ability to make the mortgage payment during the months immediately after loan closing; especially true if limited or no cash reserves after loan closing. Revolving accounts- If no payment is shown for an outstanding balance, then 5% of the balance or $10 will be used Alimony- Because of the tax consequences of alimony payments, the underwriter may choose to treat the monthly alimony as a reduction from gross income vs. a monthly obligation. (The applicant will always benefit from this process) Projected Obligations- If a debt, such as a student loan that is scheduled to begin within twelve months of loan closing, the debt must be included. Same for balloon notes due within one year of closing Contingent liabilities- Where borrower can be held responsible for payment of debt if other party defaults An acceptable 12 month payment history from other party may offset this obligation FHA Application Basics & Buyer Qualifications Continued- Study guide page: 14

22 22 Credit The purpose of mortgage underwriting is to determine a borrowers ability and willingness to repay the mortgage debt, thus limiting the probability of default. The property is also examined to determine if the property is of sufficient collateral. The The Three Cs of Credit are- Credit- History, previous and current Capacity- Sufficient income to repay the mortgage Collateral- Appraised value supports the mortgage FHA requires the use of a TRMCR credit report- Three Repository Merged Credit Report, Tri-Merge. A Residential Mortgage Credit Report (RMCR) from an independent consumer-reporting agency also may be used. FHA Application Basics & Buyer Qualifications Continued- Study guide page: 15

23 23 Credit Credit- Overall pattern Reasons for delinquencies Non-traditional credit (if no credit exists) Collections- Court ordered judgments must be paid off Bankruptcy- Chapter 7 Discharged at least 2 years Good credit re-established Chapter 13 1 year of pay out Court approved Foreclosure- A 3 year waiting period FHA wont insure another FHA loan for 3 years from date the claim was paid If on principal residence and caused by major extenuating circumstances, exception may be granted by DE Underwriter Extenuating Circumstances- Extenuating circumstances are catastrophic events resulting in extreme financial hardships. Events must have caused either a long term loss of income which was not preventable or massive debt which the applicant was not able to pay. Applicants must provide evidence of the events as well as an explanation of the event. FHA Application Basics & Buyer Qualifications Continued- LDP/GSA lists must be checked Limited Denials of Participation- LDPs are issued to parties, individuals & companies who fail to comply with HUD program standards. Review to be documented on the credit analysis worksheet Review to be documented on the credit analysis worksheet CAIVRS Credit Alert Voice System- identify individuals who are in default or have had claims paid on direct or guaranteed Federal loans, or are delinquent or other debts owed to Federal agencies. Should be checked at case number assignment Should be checked at case number assignment Defaulted loans – check with servicing lender or agency Defaulted loans – check with servicing lender or agency Study guide page: 15

24 24 FHA Application Basics & Buyer Qualifications Continued- Compensating factors that may be used to justify approval of mortgage loans with ratios exceeding FHAs benchmark guidelines are those listed below. Any compensating factor used to justify mortgage approval must be supported by documentation. 1. The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past months. 2. The borrower makes a large down payment (ten percent or more) toward the purchase of the property. 3. The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit. 4. Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses. 5. The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits. 6. There is only a minimal increase (10% or less) in the borrower's housing expense. 7. The borrower has substantial documented cash reserves (at least three months worth) after closing. In determining if an asset can be included as cash reserves or cash to close, determine if the asset is liquid or readily convertible to cash and can be done so absent retirement or job termination. Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves. Similarly, funds from gifts from any source are not to be included as cash reserves. 8. The borrower has substantial non-taxable income. 9. The borrower has a potential for increased earnings, as indicated by job training or education in the borrower's profession. Compensating Factors- Study guide page: 16

25 25 Assets & Funds to Close Sources- Borrowers cash and/or loan/gift from a relative Checking/Savings etc. IRAs & KEOGHS, TSP, 401K use 60% of value; if used to close, proof of liquidation is required Earnest money deposit, if over 2%, must document and verify source Sale of personal property Gift from a charitable organization, governmental agency, union, employer or public entity Down payment assistance programs funded by an interested party in the sale are not allowed Real estate commission, either borrowers or gifted from a family member 2nd mortgage from governmental agency, non-profit, other group or person (some restrictions) Seller contributions – not to exceed 6% of sales price Seller cannot provide any part of the 3.50% down payment Seller can pay closing costs, discount points and prepaid items Premium pricing by lender (cannot use premium pricing to pay unallowable fees or discount points) FHA Application Basics & Buyer Qualifications Continued- Seller Contributions- Sellers (builders, realtors, etc) may contribute up to 6% of sales price toward closing costs, prepaid expenses, discount points, & other financing concessions Sellers (builders, realtors, etc) may contribute up to 6% of sales price toward closing costs, prepaid expenses, discount points, & other financing concessions Contributions exceeding 6% viewed as inducements to purchase which will reduce mortgage amount; i.e. Buy- downs (Perm & Temp), Loan Protection Insurance Contributions exceeding 6% viewed as inducements to purchase which will reduce mortgage amount; i.e. Buy- downs (Perm & Temp), Loan Protection Insurance Study guide page: 17

26 26 Occupancy & Taking Title Principal Residence- Occupied by at least one borrower for the majority of the calendar year Borrower to establish occupancy within 60 days of closing with continued occupancy of 1 year All borrowers, regardless of occupancy status, must sign the security instrument and mortgage note as well as take title to the property Living Trusts- Eligible as long as an individual borrower remains the beneficiary & occupies the property as a principal residence FHA will not insure more than one mortgage for any borrower with exception of- 1) Relocations 2) Increase in family size 3) Vacating a jointly owned property 4) Non-occupying co-borrowers FHA Application Basics & Buyer Qualifications Continued- Study guide page: 17

27 27 Standard Applicant Documentation Social Security Number Validation- Social Security card not required May be validated with pay stubs, verifications, W-2s, etc Paystub and Verification of Employment VOE- Current pay stub covering a 30 day period for all employers Not older than 120 days old when loan closes 180 days on new construction If used in lieu of VOE pay stub must contain borrowers name, SSN, and YTD earnings Current Bank Statement / Verification of Deposit VOD- VOD and one complete bank statement or Two months complete bank statements Number may be reduced per AUS FHA Application Basics & Buyer Qualifications Continued- Document Expiration Dates New Construction – Not older than 180 days from the date of the note Includes credit report, canceled checks when verifying payment history Verifications of rental, mortgage, other debts, bank statements, pay-stubs Existing property – Not older than 120 days from date of the note Includes credit report, canceled checks when verifying payment history Verifications of rental, mortgage, other debts, bank statements, pay-stubs Study guide page: 18

28 28 FHA Application Basics & Buyer Qualifications Continued- 1. The Application It all starts with a COMPLETE loan application. Underwriters cannot be expected to make informed choices and decisions on naplications. The #1 reason for file issues such as suspenses, resubmissions and denials is due to the MLS not taking a complete and accurate application. 2. Credit Report Submit a cleaned up credit report. Have the credit report update any outdated trade lines to reflect current account balances and statuses, have the VORs added right to the credit report, have non-traditional credit sources verified and added to the credit report. If you submit a messy credit report, the underwriter will have a difficult time establishing the current credit profile for the borrowers. 3. Applicant Explanation Letters Submit letters of explanation for all derogatory credit, read the letters, make sure they hold water, make sure they make sense and if justified, request supporting documentation to prove the explanations. Underwriters cant always take a persons word for it when there is a substantial history of derogatory credit, especially when there are recent derogatory reported. Be prepared to back up the explanations. Valuable Tips for Quality Submissions Study guide page: 19

29 29 FHA Application Basics & Buyer Qualifications 4. Budget-Savings Request budget letters from borrowers whose proposed housing expense is increasing substantially. These are especially important for borrowers who have little or no reserves and are facing a payment-shock. Its not too much to address how they intend to handle a large increase to their monthly budget. 5. Employment History Establish a complete 2 year history with no significant gaps. Verify dates of employment for job hoppers. If needed, request a letter of explanation for frequent job changes, type up a history for underwriting, make notes in margins on copies of W2s, and most importantly, dont forget to update that data to the Submit a Complete File If you are simply submitting the credit documentation for an opinion as to approvability, be sure to submit every single piece of information the underwriter will need to make an informed judgement on a possible approval. If you are submitting a new file, review the entire contents prior to submission or have another MLS double check you. 7. Processor-Underwriter Memo / Letter Always use a cover letter or memo to the file. Underwriters appreciate cover letters for manual underwriting files or special circumstances. They greatly appreciate an outline of the file which addresses the challenges and concerns while pointing out the compensating factors to make the loan approvable. Valuable Tips for Quality Submissions Study guide page: 19

30 30 FHA Disclosures- Applicant & Toll Builder HUD Forms FHA Application Disclosures: 1.HUD/VA Addendum to URLA; form HUD-92900A 2.Adjustable Rate Mortgage Loan Program Disclosure; form Byte no # (where applicable) 3.Notice to Homeowner Assumption to HUD/FHA Insured Mortgage; form Byte FHA Informed Consumer Choice Disclosure; form Byte no # 5.Important Notice to Homebuyers; form HUD B (signed same as initial 1003) 6.Interest Rate and Discount Disclosure Statement; form Byte FHA Purchase Agreement Addendum; form Byte FHA Real Estate Certification; Byte For Your Protection: Get a home inspection; form HUD CN (dated same as sales contract or before) 10.Potential Home Energy Benefits; form Byte FHA Appraised Value Disclosure; form Byte 349 Continued- FHA disclosures are found in Byte and are in print groups to facilitate ease of printing and to ensure none are missed at the point of application Study guide page: 20

31 31 FHA Disclosures- Applicant & Toll Builder HUD Forms General Disclosures: 1.Initial TIL 2.Initial GFE 3.Authorization to Release Information 4.Transfer of Servicing Disclosure 5.Signed IRS Form Notice to Home Loan Applicant Credit Score Disclosure Statement 7.Appraisal Disclosure (Borrowers right to a copy of the appraisal) 8.State Disclosures FHA disclosures are found in Byte and are in print groups to facilitate ease of printing and to ensure none are missed at the point of application Builder (From Toll) Disclosures: 1.Builders Certification of Plans, Specifications & Site; form HUD Warranty of Completion of Construction; form HUD Building Permit and Certificate of Occupancy or Compliance Inspections and 10-Year Warranty 4.Subterranean Termite Soil Treatment Builders Guarantee; form HUD-NPCA-99-A & HUD- NPCA- 99-B 5.Local Health Authority well water analysis or septic report (where applicable) Study guide page: 20

32 32 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens MLS Origination Steps 1. MLS completes ERLS form and s to Secondary (rate locks) and copies the Proxy 2. MLS inputs file in BYTE and exports file s MTG_Files, copies Proxy and Openers 3. MLS turns in hard copy file to Opener. Note in file must give instructions on appraisal, do we have a Conventional Appraisal and do they want it flipped to FHA at this time, etc. Please Note Please Note – In order to obtain an FHA Case Number, Appraiser Assignment, CAVIERS, LDP and GSA, the following items are needed: Full Name for each borrower Social Security Number for each borrower Birth Date for each borrower Current Address for each borrower Subject Property Address Type of Property/Home (Single Family, attached, detached, Condo, PUD, etc) Full copy of Sales Contract, complete with all schedules, including FHA Amendatory Clause Continued- Study guide page: 21

33 33 BYTE Release 5.7 FHA Enhancements Whats New with BYTE- FHA? Modified MIP Calculations Maximum Mortgage Calculations (effective January 1, 2009) Revisions to the HUD forms Modification to the FHA/VA Addendum to the 1003 and the form previously known as the MCAW Modified MIP Calculation Byte offers the users three ways to calculate UFMIP based on Case Number order date Prior to July 14, 2008: Flat Rate of 1.5 Between July 14, 2008 and October 1, 2008: Risked Based On or After October 1, 2008: Flat Rate of 1.75% for purchases and refinanced OR 1.50% for streamline refinance OR 3.00% for delinquent FHA Secure refinances Continued- Study guide page: 21 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens

34 34 Continued- Study guide page: 22 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen MIP Setup Click on the Asterisk next to Loan with MIP/FF to ensure that you are using the correct dates to calculate your MIP factor.

35 35 Continued- Study guide page: 22 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen MIP Setup- Loan Program Screen

36 36 Continued- Study guide page: 23 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen MIP Setup- Upfront MIP Calculations and Dates

37 37 Continued- Study guide page: 24 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen MIP Setup- Upfront MIP Calculations and Dates

38 38 Continued- Study guide page: 25 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen MIP Setup- 3.50% Down Payment Rule Effective for Case Numbers originated after January 1, 2009 the borrower will have to have a down payment of 3.50%. What does this mean? Maximum LTV w/out UFMIP is 96.5%. There will be only one loan amount calculation. FYI: If there is no seller, realtor, or lender assist, the borrower will have to pay for closings costs, discount points, and pre-paids out of pocket. Reference: HUD Mortgagee Letter

39 39 Continued- Study guide page: 26 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen MIP Setup- 3.50% Down Payment Rule

40 40 Continued- Study guide page: 27 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen - Seller Closing Costs - Seller Credit Entry Fields

41 41 Continued- Study guide page: 28 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen - Applicant/Seller Closing Cost Splits Dropdown Box

42 42 Study guide page: 29 BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens Byte Loan Program Screen - Informed Consumer Choice Screen In this disclosure set up, a side-by-side comparison is shown between a similar structured (LTV) Conventional with mortgage insurance and the proposed FHA financing mortgage.

43 43 FHA Fixed Product Types 203(b) Fixed Rate Loan Most commonly used loan program Most commonly used loan program Purchase or refinance of 1-4 owner occupied Purchase or refinance of 1-4 owner occupied Existing & new construction Existing & new construction Terms of years Terms of years Temporary buy-downs allowed Temporary buy-downs allowed FHA Products, TBI FHA Investors & Secondary Marketing Continued- Study guide page: 31 FHA Adjustable Product Types 203(b) Adjustable Rate Mortgage 1-year (Caps 1/5) Qualifies at Start Rate + 1% 1-year (Caps 1/5) Qualifies at Start Rate + 1% New hybrid fixed/ARM New hybrid fixed/ARM Mortgagee Letter issued March 10, 2004 Allows fixed rate first 3, 5, 7 or 10 years Allows fixed rate first 3, 5, 7 or 10 years 3/1 (Caps 1/5) Qualifies at Start Rate 3/1 (Caps 1/5) Qualifies at Start Rate 5/1 (Caps 1/5) Qualifies at Start Rate 5/1 (Caps 1/5) Qualifies at Start Rate 7/1 (Caps 2/6) Qualifies at Start Rate 7/1 (Caps 2/6) Qualifies at Start Rate 10/1 (Caps 2/6) Qualifies at Start Rate 10/1 (Caps 2/6) Qualifies at Start Rate Ratios may only be exceeded with AUS approval Ratios may only be exceeded with AUS approval Purchase or refinance of 1-4 owner occupied Purchase or refinance of 1-4 owner occupied Existing & new construction Existing & new construction Terms of year Terms of year *ARMS not offered by TBI due to current note rates available

44 44 FHA Products, TBI FHA Investors & Secondary Marketing Continued- Study guide page: 30 TBI FHA Investors and Long-Term Locks Current FHA investors are- 33, Wells & 53, Countrywide. FHA locks are allowed at the point of issuance of a commitment. All FHA loans originated with a closing date at least 30 days out (non QDHs) will be handled as test cases. All FHA loans are registered and locked using the ELRS form ed to Rate Locks. While both offer long-term lock-in options, they differ. Also, both do not offer long term locks on Jumbo FHAs. 53 offers the best long term options as they allow for a traditional float down within 45 days of closing under the Builder Rate Cap Program with locks up to 345 days 53 offers the best long term options as they allow for a traditional float down within 45 days of closing under the Builder Rate Cap Program with locks up to 345 days 33 offers long term locks up to 345 days, however, there is no float down available. This is a hard lock 33 offers long term locks up to 345 days, however, there is no float down available. This is a hard lockNOTE: Remember we currently price all FHA loans with a.500% Origination Fee quoted on the GFE. If the published rates do not allow a.500% Origination Fee to be collected without incurring excessive overage, quote a rate/point structure accordingly. Additionally, if for competitive comparison a zero points / Origination fee quote is requested by the customer, build the.500% Origination Fee into the rate quoted.

45 45 FHA Products, TBI FHA Investors & Secondary Marketing Continued- Study guide page: 31 Investor 33 Sample Rate Sheet Sample quotes- Red cells for a Maryland property with TAP Pricing quoting the required.500% on the GFE

46 46 FHA Products, TBI FHA Investors & Secondary Marketing Study guide page: 32 Investor 53 Sample Rate Sheet Builder Rate Cap Program- FHA view only

47 47 Reference Study guide page: 33 HUD provides manuals to guide lenders through their programs. All are available on HUDs website and are valuable references to anyone originating an FHA mortgage. The following sites are the most common used in originating FHA mortgages- Headquarters Web-site Headquarters Web-site FHA Homepage FHA Homepage Mortgagee Letters Mortgagee Letters Maximum Mortgage Limits https://entp.hud.gov/idapp/html/hicostlook.cfm or Maximum Mortgage Limits https://entp.hud.gov/idapp/html/hicostlook.cfm or Condominium Lookup https://entp.hud.gov/idapp/html/condlook.cfm Condominium Lookup https://entp.hud.gov/idapp/html/condlook.cfmhttps://entp.hud.gov/idapp/html/condlook.cfm FHA Connection https://entp.hud.gov/clas/index.cfm FHA Connection https://entp.hud.gov/clas/index.cfmhttps://entp.hud.gov/clas/index.cfm Handbooks & Forms Handbooks & Forms Atlanta HOC Atlanta HOC Philadelphia HOC Philadelphia HOC Denver HOC Denver HOC Santa Ana HOC Santa Ana HOC


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