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1 JoAnne Kuzma, Director, Home Mortgage Insurance Division Office of Single Family Program Development Dan Gomez, Director, Processing and Underwriting.

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Presentation on theme: "1 JoAnne Kuzma, Director, Home Mortgage Insurance Division Office of Single Family Program Development Dan Gomez, Director, Processing and Underwriting."— Presentation transcript:

1 1 JoAnne Kuzma, Director, Home Mortgage Insurance Division Office of Single Family Program Development Dan Gomez, Director, Processing and Underwriting Division Denver Homeownership Center Gerry Glavey, Director, Processing and Underwriting Division Philadelphia Homeownership Center Origination, Underwriting, Consumer Protection, and Systems

2 2 Comparison of FHA Refinance Options Origination Underwriting Appraisal Issues Declining Markets Consumer Protections Determining and Documenting Shared Equity and Appreciation Data Requirements Integrated Tools H4H – Topics

3 3 H4H vs. FHA Secure CriteriaHOPE for HomeownersFHA Secure Eligible Loan Types for Refi of Delinquent Fixed-rate or ARM Conventional or gov’t Loans originated on or before Jan. 1, months payments on loan ever, over life of loan ARM Conventional loans No limit on months of delinquency at time of refinance Prior to episode of delinquency, only two 30-day lates (3X30, 90 LTV) Availability10/01/2008 – 12/31/2011Ends 12/31/2008 Loan to ValueMaximum 90% Cannot include prepay penalties or late fees 97.0% (Standard FHA LTV) May include prepay penalties and late fees Property Type1 unit properties only1-4 family properties

4 4 H4H vs. FHA Secure CriteriaHOPE for HomeownersFHA Secure Combined Loan to value 90% No subordinate financing allowed Unlimited CLTV for new subordinate financing Unlimited CLTV for re- subordination or modification of existing subordinate financing New Mortgage30-year fixed-rate15- or 30-year fixed-rate, 1-year ARM, or hybrid ARM Upfront Mortgage Insurance 3.0% (included in 90% max LTV) Delinquent: 3% UFMIP Current: 1.75% UFMIP Annual Premium1.5%>95% LTV is.55% <95% LTV is.50% SharingEquity and AppreciationNone

5 5 Determining Borrower Eligibility Did not intentionally default Did not lie to obtain existing mortgage Has not been convicted of fraud Made a minimum of 6 full payments during the life of the existing mortgage Occupies subject property and does not own other residential real estate Bankruptcy does not preclude participation >31% mortgage payment DTI as of March 1, 2008 H4H – Origination

6 6 Determining Prior Mortgage Payment Aggregate total monthly mortgage payment DTI is the fully indexed, fully amortized PITI payment –May also include HOA fees, ground rent, special assessments and all subordinate lien payments Income: pay stubs for March 2008, W-2s, or tax returns for 2007 or 2008, VOE –Quarterly tax returns, PL Statement for self-employed Payment: obtain from servicer, estimate taxes and insurance when necessary H4H – Origination

7 7 Determining Mortgage Eligibility Originated on or before January 1, 2008 Any type mortgage is eligible Each lien holder must agree to waive prepayment penalties and default fees, and release his/her outstanding mortgage liens Determining Property Eligibility Primary and only residence Nonoccupant borrowers must quit claim interest 1-unit properties H4H – Origination

8 8 Calculating the Mortgage Amount Nationwide Limit of $550, LTV, including 3% UFMIP New H4H mortgage extinguishes all mortgage-related debt including –Advances for taxes and insurance –Out-of-pocket legal expenses H4H – Origination

9 9 Closing Costs and Prepaid Items Standard FHA Policy, including 1 percent cap on origination fee (ML ) Origination fee cannot be supplemented by application or processing fees or broker fees Closing costs and prepaids can be paid by –Borrower –Financing into the mortgage –Existing/new lender and/or third party –Premium pricing H4H – Origination

10 10 Must be scored through TOTAL Regardless of the risk classification, the underwriter must –Determine the new H4H monthly mortgage payment is less than borrower’s previous payment –Document and verify income (standard FHA policy) –Review income as reported in previous 2 years tax returns –Determine DTI ratios are at or below 31/43 –DTI ratios may be exceeded up to 38/50 with a trial modification H4H – Underwriting

11 11 Trial Modification Borrower demonstrates ability to handle DTI ratios in excess of 31/43 but cannot exceed 38/50 Trial modification period will probably occur prior to loan application Review trial modification documentation to ensure: –Borrower made payments using existing gross monthly income –Made full and timely payments for 3 consecutive months –Payments were at least 90 percent of estimated payment on new H4H loan H4H – Underwriting

12 12 Additional Documentation Requirements Prior Mortgage Origination Date Payment History Prior Total Mortgage Payment Primary Residence H4H Consumer Disclosure and Certifications Verification of Lack of Conviction of Fraud Previous 2 Years Tax Returns Trial Modification First Payment Made Lender Certifications H4H – Underwriting

13 13 New subordinate financing prohibited for first 5 years of the loan –Except to pay for maintenance of property standards Conditions for allowing such liens will be discussed in detail during presentation on servicing issues H4H – Underwriting

14 14 Appraisal must be Specifically ordered for H4H No more than 3 months old at closing Appraiser must be On FHA roster Certified (licensed acceptable under limited circumstances) Appraisal ordered by new lender prevails. H4H – Appraisal Issues

15 15 No standard definition exists Determined by the appraiser on a case- by-case basis Determined by the lender based on data services or feedback from LP or DU H4H – Declining Markets

16 16 Appraiser Responsibilities Determine if property is in declining market –Supply vs. demand, days on market listings, listings to sales ratios, financing availability Indicate in One-unit Housing Trends portion of Neighborhood section of appraisal Where Declining box for property values is checked provide explanation in Market Conditions section Support assertion of declining home values H4H – Declining Markets

17 17 Appraiser Responsibilities Describe impact of sales concessions and downpayment assistance for comparables Comps should be no more than 6 months old unless clear justification is provided Make appropriate adjustments to value when differences exist among subject and comparables Avoid conflicts of interest Report instances of undue pressure H4H – Declining Markets

18 18 Lender Responsibilities Review appraisal to determine whether accurate and adequately supported May use S&P/Case-Schiller Index, OFHEO House Price Index (or successor’s index), NAR statistics opic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html Is equally responsible for integrity, accuracy, and thoroughness of the appraisal Avoid conflicts of interest and be intolerant of undue pressure on appraisers Inform appraisers the appraisal will be shared H4H – Declining Markets

19 19 Counseling not required, but strongly encouraged –Pre- and post-H4H Benefits of H4H –Reduced principal –Affordable payments –Newly created equity –FHA loss mitigation Costs of H4H –Higher premiums/interest rates –Shared equity with FHA –Shared appreciation with FHA H4H – Consumer Protection

20 20 H4H Consumer Disclosure and Certifications Counselors are encouraged to explain and discuss disclosure and certifications with borrowers (emphasize benefits vs. costs) Originating lender is responsible for reviewing disclosure and certifications with borrower –Must be signed and dated by borrower at least 1 day prior to initial loan application –Must be signed and dated again by the borrower at closing H4H – Consumer Protections

21 21 Shared Equity Note and Mortgage (SEM) Equity = value at origination less H4H loan amount Sliding scale with 100% going to FHA in 1 st year and a 50/50% split after 5 years Originating lender prepares SEM SEM executed by borrower Recorded in second lien position Borrower can extinguish through refinance H4H – Equity and Appreciation Sharing

22 22 Shared Appreciation Note and Mortgage (SAM) Appreciation = net proceeds from sale less appraised value at origination –May subtract allowable capital improvements FHA can share its future appreciation entitlement with subordinate lien holders Originating lender prepares SAM SAM executed by borrower Recorded in third lien position Borrower can extinguish through sale only H4H – Equity and Appreciation Sharing

23 23 Originating SEMs and SAMs Identify existing lien holders Request pay-off statements Provide copies of pay-off statements to borrowers for review, giving them within 5 days of receipt to notify the lender of discrepancies Refer borrowers to equity/appreciation sharing notes in the Consumer Disclosure Resolve discrepancies identified by borrowers H4H – Equity and Appreciation Sharing

24 24 Originating SEMs and SAMs Calculate dollar amount of initial equity Use Appreciation Worksheet (Exhibit F in ML ) to calculate maximum appreciation share for subordinate lien holders –Lenders writing off less than $2,500 cannot share in future appreciation Send Appreciation Worksheet to subordinate lien holders and obtain signatures Prepare SEM/SAM documents for execution at closing Send copy of Appreciation Worksheet to HUD 10 days prior to closing Receive Appreciation Share Certificate from HUD and deliver to closing agent with other loan documents H4H – Equity and Appreciation Sharing

25 25 Document Delivery Within 15 days of endorsement send – Original recorded SEM/SAM documents – Copy of HUD-1 Settlement Statement – Copy of H4H Appraisal to c/o C&L Service Corporation/Morris-Griffin Corporation 2488 East 81 st Street, Suite 70 Tulsa OK H4H – Equity and Appreciation Sharing

26 26 Emergency Economic Stabilization Act of 2008 authorized payment of upfront appreciation shares Oversight Board is considering this option Subordinate lien holders could choose upfront or future appreciation share H4H – Upfront Appreciation Option

27 27 Appreciation Share Calculation Amount Owed1 st Lien P&I2 nd Lien P&I3 rd Lien P&ITotal P&I Principal (P)158,50020,00040,000218,500 Accrued Interest (I)10,9002,2004,40017,500 Total P&I169,40022,20044,400236,000 Cumulative P&I as % of current appraised value of %150, %127.8%157.3%

28 28 Appreciation Share Percentages Subordinate Lien Holder % of unpaid P&I lien holder is entitled to receive from future appreciation if any % of unpaid P&I lien holder is entitled to receive upfront appreciation* Cumulative LTV > 135% 3%9% Cumulative LTV < 135% 4%12% * If authorized

29 29 Demonstration of H4H Data Requirements in FHA Connection Discussion of integrated tools H4H – Systems


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