1 fha-tbi origination process october 2008 training segments 1. fha history - purpose of fha loans;...

11

FHA-TBI FHA-TBI ORIGINATION ORIGINATION

PROCESSPROCESS

October 2008

Training Segments

1.1. FHA History - Purpose of FHA Loans; FHA History - Purpose of FHA Loans; Study Guide page 2Study Guide page 2

2.2. FHA Advantages; FHA Advantages; page 2page 2

3.3. “ “Economic Stimulus Act of 2008” vs. “Housing and Economic Recovery Act of Economic Stimulus Act of 2008” vs. “Housing and Economic Recovery Act of 2008”; 2008”; page 3page 3

4.4. Toll AOS Estimated Delivery, Sales Price & MSA Loan Limit Requirements; Toll AOS Estimated Delivery, Sales Price & MSA Loan Limit Requirements; page 3page 3

5.5. Toll Agreement of Sale & Amendatory Clause Disclosure; Toll Agreement of Sale & Amendatory Clause Disclosure; page 4page 4 6.6. TBI Operations Workflow Flow Steps; TBI Operations Workflow Flow Steps; page 5page 5

7.7. TBI Mortgage Appraisal Process; TBI Mortgage Appraisal Process; page 6, 7page 6, 7 8.8. Property Types- Single Family & Condominiums; Property Types- Single Family & Condominiums; page 8page 8

9.9. UFMIP & Monthly MIP Basics & Down Payment Requirements; UFMIP & Monthly MIP Basics & Down Payment Requirements; page 9, 10page 9, 10 10.10. Application Basics & Buyer Qualifications; Application Basics & Buyer Qualifications; page 11-19page 11-19

11.11. FHA Disclosures- Applicant & Toll Builder HUD forms; FHA Disclosures- Applicant & Toll Builder HUD forms; page 20page 20 12.12. BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens; BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens; page 21-29page 21-29

13.13. FHA Products, TBI FHA Investors & Secondary Marketing; FHA Products, TBI FHA Investors & Secondary Marketing; page 30-32page 30-32

14.14. Reference Sources; Reference Sources; page 33page 33

15.15. Question & Answer SessionQuestion & Answer Session Study guide page: 1

22

FHA History & Purpose of FHA Loans

FHA HistoryThe FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgagessince 1934. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamilyprojects in its portfolio*. In the more than 60 years since the FHA was created, much has changed andAmericans 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 establishedTo help achieve the national goal of safe and affordable housingTo encourage lenders to fund “riskier” borrowers and propertiesTo increase affordable homeownership opportunitiesTo help more families achieve the American dreamHUD oversees FHA programs & regulates FHA, creates & maintains handbooks & Mortgagee LettersFHA insures mortgages, responsible for Credit Policy & administers single family housing for HUD

Study guide page: 2

33

FHA AdvantagesFHA Advantages

Almost 100% insurance for lendersOnly 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 costsSweat equity can be used for down paymentNo mandatory credit (FICO ) scores and flexible credit/underwriting standardsNo reserve requirements for one and two unit propertiesAdjustable Rate Mortgages (1, 3, 5, 7, 10 year terms) with annual and maximum capsQualifying 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 factorsHUD’s automated underwriting Scorecard, TOTAL – reduced documentation requirementsNon-occupant co-borrowers allowed for qualifying purposesFHA loans are assumable if occupant purchaser qualifiesPremium pricing can be used to pay closing costs and prepaid itemsLoss Mitigation options available to borrowers if they encounter payment difficulties $300 cost for home inspection – eligible closing costStreamline refinancing of current FHA-insured loan to new FHA-insured loanUpfront MIP 1.75%, monthly from .0025% to .0055% based on term & LTV on purchase transactionsUS Citizenship not required; lawful perm and non-perm resident aliens eligible with proper documentation

Study guide page: 2

44

Economic Stimulus Act of 2008 vs. Economic Stimulus Act of 2008 vs. Housing and Economic Recovery Act of Housing and Economic Recovery Act of

2008 2008 Hand out- Summary of Major Single Family Program ChangesHand 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, 2008. 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, 2008. Note: TBI Mortgage’s date to close these temporary higher loan limits is- November 28, 2008. 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, 2008. 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

55

Toll AOS Estimated Toll AOS Estimated Delivery, Sales Price & Loan Delivery, Sales Price & Loan

Limit RequirementsLimit 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, 2008. 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 provisionsset 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 FHA’s. 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.cfm http://www.fhaoutreach.gov/

Study guide page: 3

http://www.fhaoutreach.gov/

66

Toll- AOS & Amendatory Toll- AOS & Amendatory Clause (AC) DisclosureClause (AC) Disclosure

Hand out- Endorsement to Agreement of SaleHand out- Endorsement to Agreement of Sale

TBI Mortgage’s procedures for obtaining FHA Appraisals are unique with Toll. The reason has to do with the Agreement of Sale and FHA’s Amendatory Clause provision. FHA’s 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 Toll’s 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 Veteran’s 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 completethe purchase of the Premises described herein or to incur any penalty by forfeiture of the earnest money deposits or otherwise

unless the Buyerhas been given in accordance with FHA or VA requirements a written statement setting forth the appraised value of the

Premises of not lessthan ______________________ (insert purchase price).

To mitigate the potential for a sales contract to be lost, TBI has created a workaround for To mitigate the potential for a sales contract to be lost, TBI has created a workaround for determining thedetermining the

value of the property before Toll signs the Amendatory Clause disclosure with their buyers. value of the property before Toll signs the Amendatory Clause disclosure with their buyers. ThisThis

workaround is discussed in the “TBI Mortgage Appraisal Process” segment.workaround is discussed in the “TBI Mortgage Appraisal Process” segment.

Study guide page: 4

77

TBI Operations TBI Operations

Workflow StepsWorkflow Steps

1 2 3 4 5 6 7

FHA applicationoriginated,returned &

submitted toOperations

Case openersetup, first UW

Submissionfor first UW

review

TBI UW initialstips on the file& Conventional

conditional appraisalordered

File returnedto processor

ForUW conditionsto be collected

Processorresubmits file toUW for reviewand clearingconditions

**UW sends fileto sponsor

(investor) orFHA (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 number2. 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

88

TBI Mortgage Appraisal TBI Mortgage Appraisal ProcessProcess

The appraisal ordering procedure- refer to Operations Memo 08-07The appraisal ordering procedure- refer to Operations Memo 08-07

1. 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 Mortgage’s 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 Builder’s 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 emailed 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 emails 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

99



1f the property appraises for an amount at least equal to the purchase price:

12. Toll’s 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, 2008.

16. 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 property’s 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

1010



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 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] 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 appraiser’s estimate of the property’s value.

FHA Second Appraisal Requirements Refer to: Mortgagee Letter 2008-09

Study guide page: 7

1111

Property Types- Single Family & Condominiums

Single Family Properties and Condominiums are treated differently as to their HUD/FHA insuranceeligibility. 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 4150.01 REV-1, Paragraph 11-3. 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 HUD’s approved list, a useful tool is available on the Hud.gov website- The Condominium’s 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

https://entp.hud.gov/idapp/html/condlook.cfm

1212

UFMIP & Monthly MIP Basics UFMIP & Monthly MIP Basics & Down Payment & Down Payment

RequirementsRequirements

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 FHA’s 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: 2008-22 (September 4, 2008)

What is FHA’s mortgage insurance?

Continued-

Study guide page: 9

1313



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- $475,000UFMIP Financed- $8,312 (475,000 X .0175)Total Loan Amount- $483,312Monthly MIP**- $217.70 (475,000 X .0055 / 12 = 217.70)**MIP is based on the Base Loan Amount

In the above example, the total monthly cost for both premiums is- $270.24 per month. Compare that monthly cost to a conventional PMI premium of $344.38. That is a difference of $74.14/month lower with FHA. Based on a 30 fixed rate @ 6.50% financing UFMIP of $8,312= 52.54/month. PMI premium factor of .00870 is based on 95% LTV, 700 score.


What is FHA’s mortgage insurance?

LTVLTV Annual for Loans >15 YearsAnnual for Loans >15 Years LTVLTV Annual for Loans Annual for Loans << 15 Years 15 Years

<< 95 95 5050 << 90 90 -None--None-

> 95> 95 5050 > 90> 90 2525

Continued-

Study guide page: 9

1414



Canceling FHA’s Annual Mortgage Insurance Premiums

Effective for all loans closed on or after January 1, 2001, FHA’s 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 89.99 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

1515

FHA Down Payment FHA Down Payment RequirementsRequirements

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.


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 borrower’s 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, 2009. 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-arm’s 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


1616

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 borrower’s 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 borrower’s 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 judgmentsUnderwriter Decisions: The Direct Endorsement (DE) Underwriter is responsible for both the approval and the denial

of FHA loans.It Is the DE Underwriter’s responsibility to execute all HUD documents that require an underwriter’s signature.

FHA Application Basics FHA Application Basics & Buyer Qualifications& Buyer Qualifications

Continued-


1717

In this segment we will cover all of the

FHA application basics including:

1. Eligible Borrowers2. Qualifying Income3. DTI Ratios & FHA Total Scorecard4. Liabilities5. Credit6. Compensating Factors7. Assets & Funds to Close8. Occupancy & Taking Title9. Standard Applicant

Documentation10. Valuable Tips for Quality

Submissions


Continued-


1818

Eligible Borrowers & Qualifying IncomeOwner-occupantsNon-profit organizations (approved by HUD)Governmental AgenciesNo 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 StateIncome-

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 HUD’s TOTAL


Continued-


1919

DTI RatiosRatios-

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 FHA’s 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


Continued-


2020

FHA Total ScorecardFHA’s Total (technology open to approved lenders) Scorecard evaluates the overall

creditworthiness of theapplicants based on credit variables and with the AUS functionality indicates a recommended

level ofUnderwriting & documentation for FHA insurance eligibility.

NOTE: Currently access to the Scorecard through Loan Prospector is limited to select Sr. MLS’s


Continued-


2121

LiabilitiesAll 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 borrower’s ability to make the mortgage payment during the month’s 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


Continued-


2222

Credit

The purpose of mortgage underwriting is to determine a borrower’s 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 C’s 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”. AResidential Mortgage Credit Report (RMCR) from an independent consumer-reporting agency

also may beused.


Continued-


2323

CreditCredit-

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-establishedChapter 13

• 1 year of pay out

• Court approvedForeclosure-

A 3 year waiting period FHA won’t 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.


Continued-

LDP/GSA lists must be checked LDP/GSA lists must be checked Limited Denials of Participation- LDP’s are issued to Limited Denials of Participation- LDP’s are issued to parties, individuals & companies who fail to comply parties, individuals & companies who fail to comply with HUD program standards. with HUD program standards. Review to be documented on the credit analysis Review to be documented on the credit analysis worksheetworksheet

CAIVRSCAIVRS Credit Alert Voice System- identify individuals who are Credit Alert Voice System- identify individuals who are in default or have had claims paid on direct or in default or have had claims paid on direct or guaranteed Federal loans, or are delinquent or other guaranteed Federal loans, or are delinquent or other debts owed to Federal agencies.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 Defaulted loans – check with servicing lender or agencyagency


2424


Continued-

Compensating factors that may be used to justify approval of mortgage loans with ratios exceeding FHA’s

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 12-24 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-


2525

Assets & Funds to Close

Sources- Borrower’s cash and/or loan/gift from a relative Checking/Savings etc. IRA’s & 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 borrower’s 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)


Continued-

Seller Contributions-Seller Contributions-Sellers (builders, realtors, etc) may contribute up to 6% of sales price toward closing costs, prepaid Sellers (builders, realtors, etc) may contribute up to 6% of sales price toward closing costs, prepaid expenses, discount points, & other financing concessionsexpenses, discount points, & other financing concessionsContributions exceeding 6% viewed as inducements to purchase which will reduce mortgage amount; Contributions exceeding 6% viewed as inducements to purchase which will reduce mortgage amount; i.e. Buy-downs (Perm & Temp), Loan Protection Insurancei.e. Buy-downs (Perm & Temp), Loan Protection Insurance


2626

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


Continued-


2727

Standard Applicant DocumentationSocial Security Number Validation-

Social Security card not required May be validated with pay stubs, verifications, W-2’s, 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 borrower’s 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


Continued-

Document Expiration DatesDocument Expiration DatesNew Construction –New Construction –

Not older than 180 days from the Not older than 180 days from the date of the note Includes credit date of the note Includes credit report, canceled checks when report, canceled checks when verifying payment history verifying payment history Verifications of rental, mortgage, Verifications of rental, mortgage, other debts, bank statements, other debts, bank statements, pay-stubspay-stubs

Existing property –Existing property – Not older than 120 days from Not older than 120 days from date of the note Includes credit date of the note Includes credit report, canceled checks when report, canceled checks when verifying payment history verifying payment history Verifications of rental, mortgage, Verifications of rental, mortgage, other debts, bank statements, other debts, bank statements, pay-stubspay-stubs


2828


Continued-

1. The ApplicationIt all starts with a COMPLETE loan application. Underwriters cannot be expected to make informed

choices anddecisions on “naplications.” The #1 reason for file issues such as suspense’s, resubmissions and

denials is dueto 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 VOR’s 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

can’t always take a person’s “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


2929


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”. It’s 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, don’t forget to update that data to the 1003.

6. Submit a Complete FileIf you are simply submitting the credit documentation for an opinion as to approvability, be sure

to submitevery single piece of information the underwriter will need to make an informed judgement on a

possibleapproval. If you are submitting a new file, review the entire contents prior to submission or have

another MLSdouble 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


3030

FHA Disclosures- Applicant & FHA Disclosures- Applicant & Toll Builder HUD FormsToll Builder HUD Forms

FHA Application Disclosures:

1. HUD/VA Addendum to URLA; form HUD-92900A2. Adjustable Rate Mortgage Loan Program Disclosure; form Byte no # (where applicable)3. Notice to Homeowner Assumption to HUD/FHA Insured Mortgage; form Byte 3434. FHA Informed Consumer Choice Disclosure; form Byte no #5. Important Notice to Homebuyers; form HUD-92900-B (signed same as initial 1003)6. Interest Rate and Discount Disclosure Statement; form Byte 3517. FHA Purchase Agreement Addendum; form Byte 5308. FHA Real Estate Certification; Byte 3469. For Your Protection: Get a home inspection; form HUD-92564-CN (dated same as sales

contract or before)10. Potential Home Energy Benefits; form Byte 348 11. 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


3131

FHA Disclosures- Applicant & FHA Disclosures- Applicant & Toll Builder HUD FormsToll Builder HUD Forms

General Disclosures:

1. Initial TIL2. Initial GFE3. Authorization to Release Information4. Transfer of Servicing Disclosure5. Signed IRS Form 45066. Notice to Home Loan Applicant Credit Score Disclosure

Statement7. Appraisal Disclosure (Borrower’s 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. Builder’s Certification of Plans, Specifications & Site; form HUD-925412. Warranty of Completion of Construction; form HUD-925443. Building Permit and Certificate of Occupancy or Compliance Inspections and 10-Year

Warranty4. Subterranean Termite Soil Treatment Builder’s Guarantee; form HUD-NPCA-99-A &

HUD- NPCA-99-B5. Local Health Authority well water analysis or septic report (where applicable)


3232

BYTE File Setup, LTV, MIP & BYTE File Setup, LTV, MIP & FHA Specific Fields & FHA Specific Fields &

ScreensScreens

MLS Origination Steps

1. MLS completes ERLS form and emails to Secondary (rate locks) and copies the Proxy2. MLS inputs file in BYTE and exports file emails MTG_Files, copies Proxy and Openers3. 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 NotePlease Note – In order to obtain an FHA Case Number, Appraiser Assignment, CAVIERS, LDP and GSA, the

followingitems 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-


3333

BYTE Release 5.7 FHA Enhancements

What’s New with BYTE- FHA? Modified MIP Calculations Maximum Mortgage Calculations (effective January 1, 2009) Revisions to the HUD-92900 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-



ScreensScreens

3434Continued-



ScreensScreens 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.

3535Continued-



ScreensScreens Byte Loan Program Screen MIP Setup- Loan Program Screen

3636Continued-



ScreensScreens Byte Loan Program Screen MIP Setup- Upfront MIP Calculations and

Dates

3737Continued-



ScreensScreens Byte Loan Program Screen MIP Setup- Upfront MIP Calculations and

Dates

3838Continued-



ScreensScreens 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 outof pocket. Reference: HUD Mortgagee Letter 2008-23

3939Continued-



ScreensScreens Byte Loan Program Screen MIP Setup- 3.50% Down Payment Rule

4040Continued-



ScreensScreens Byte Loan Program Screen - Seller Closing Costs - Seller Credit

Entry Fields

4141Continued-



ScreensScreens Byte Loan Program Screen - Applicant/Seller Closing Cost Splits Dropdown

Box

4242Study guide page: 29


ScreensScreens 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.

4343

FHA Fixed Product Types

203(b) Fixed Rate Loan203(b) Fixed Rate Loan

Most commonly used loan programMost commonly used loan program Purchase or refinance of 1-4 owner Purchase or refinance of 1-4 owner

occupiedoccupied Existing & new constructionExisting & new construction Terms of 15-30 yearsTerms of 15-30 years Temporary buy-downs allowedTemporary buy-downs allowed

FHA Products, TBI FHA FHA Products, TBI FHA Investors & Secondary Investors & Secondary

MarketingMarketing

Continued-


FHA Adjustable Product Types

203(b) Adjustable Rate Mortgage203(b) Adjustable Rate Mortgage

1-year (Caps 1/5) Qualifies at Start 1-year (Caps 1/5) Qualifies at Start Rate + 1%Rate + 1%

New hybrid fixed/ARM New hybrid fixed/ARM Mortgagee Letter 04-10 issued March 10, 2004Mortgagee Letter 04-10 issued March 10, 2004

Allows fixed rate first 3, 5, 7 or 10 Allows fixed rate first 3, 5, 7 or 10 yearsyears

3/1 (Caps 1/5) Qualifies at Start Rate3/1 (Caps 1/5) Qualifies at Start Rate 5/1 (Caps 1/5) Qualifies at Start Rate5/1 (Caps 1/5) Qualifies at Start Rate 7/1 (Caps 2/6) Qualifies at Start Rate7/1 (Caps 2/6) Qualifies at Start Rate 10/1 (Caps 2/6) Qualifies at Start Rate10/1 (Caps 2/6) Qualifies at Start Rate Ratios may only be exceeded with Ratios may only be exceeded with

AUS approvalAUS approval Purchase or refinance of 1-4 owner Purchase or refinance of 1-4 owner

occupiedoccupied Existing & new constructionExisting & new construction Terms of 15-30 year Terms of 15-30 year

*ARMS not offered by TBI due to current note rates available

4444


MarketingMarketing

Continued-


TBI FHA Investors and Long-Term Locks

Current FHA investors are- 33, Wells & 53, Countrywide. FHA locks are allowed at the Current FHA investors are- 33, Wells & 53, Countrywide. FHA locks are allowed at the point ofpoint of

issuance of a commitment. All FHA loans originated with a closing date at least 30 days issuance of a commitment. All FHA loans originated with a closing date at least 30 days out (nonout (non

QDH’s) will be handled as test cases. All FHA loans are registered and locked using the QDH’s) will be handled as test cases. All FHA loans are registered and locked using the ELRS formELRS form

emailed to Rate Locks. emailed to Rate Locks.

While both offer long-term lock-in options, they differ. Also, both do not offer long While both offer long-term lock-in options, they differ. Also, both do not offer long term locks onterm locks on

““Jumbo FHA’s”.Jumbo FHA’s”.

53 offers the best long term options as they allow for a traditional float down 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 within 45 days of closing under the Builder Rate Cap Program with locks up to 345 days345 days

33 offers long term locks up to 345 days, however, there is no float down 33 offers long term locks up to 345 days, however, there is no float down available. This is a “hard lock” available. This is a “hard lock”

NOTE: NOTE:

Remember we currently price all FHA loans with a .500% Origination Fee quoted on the GFE. If the Remember we currently price all FHA loans with a .500% Origination Fee quoted on the GFE. If the published rates dopublished rates do

not allow a .500% Origination Fee to be collected without incurring excessive overage, quote a rate/point not allow a .500% Origination Fee to be collected without incurring excessive overage, quote a rate/point structurestructure

accordingly. Additionally, if for competitive comparison a zero points / Origination fee quote is requested accordingly. Additionally, if for competitive comparison a zero points / Origination fee quote is requested by theby the

customer, build the .500% Origination Fee into the rate quoted.customer, build the .500% Origination Fee into the rate quoted.

4545


MarketingMarketing

Continued-


Investor 33 Sample Rate Sheet

Sample quotes- Red cells for a Maryland property with TAP Pricing quoting the required .500% on the GFE

4646


MarketingMarketing


Investor 53 Sample Rate Sheet

Builder Rate Cap Program- FHA view only

4747

ReferenceReference


HUD provides manuals to guide lenders through their programs. All are available on HUD’s websiteand are valuable references to anyone originating an FHA mortgage. The following sites are the

mostcommon used in originating FHA mortgages-

• Headquarters Web-siteHeadquarters Web-site www.hud.gov/www.hud.gov/

• FHA Homepage FHA Homepage http://portal.hud.gov/portal/page?_pageid=73,1&_dad=http://portal.hud.gov/portal/page?_pageid=73,1&_dad=portal&_schemaportal&_schema=PORTAL=PORTAL

• Mortgagee Letters Mortgagee Letters http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfmhttp://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm

• Maximum Mortgage Limits Maximum Mortgage Limits https://entp.hud.gov/idapp/html/hicostlook.cfmhttps://entp.hud.gov/idapp/html/hicostlook.cfm or or http://www.fhaoutreach.gov/http://www.fhaoutreach.gov/

• Condominium LookupCondominium Lookup https://entp.hud.gov/idapp/html/condlook.cfmhttps://entp.hud.gov/idapp/html/condlook.cfm

• FHA Connection FHA Connection https://https://entp.hud.gov/clas/index.cfmentp.hud.gov/clas/index.cfm

• Handbooks & Forms Handbooks & Forms http://hudclips.org/cgi/index.cgihttp://hudclips.org/cgi/index.cgi

• Atlanta HOC Atlanta HOC http://hudclips.org/http://hudclips.org/

• Philadelphia HOC Philadelphia HOC www.hud.gov/local/philhoc.htmlwww.hud.gov/local/philhoc.html

• Denver HOC Denver HOC www.hud.gov/local/denhoc.htmlwww.hud.gov/local/denhoc.html

• Santa Ana HOC Santa Ana HOC www.hud.gov/local/sanhoc.htmlwww.hud.gov/local/sanhoc.html

1 fha-tbi origination process october 2008 training segments 1. fha history - purpose of fha loans;...

Documents