fha credit scores from 580-639 – retail - esnmc.com 580-639... · fha credit scores from 580-639...

Section 6.1: FHA 580-639 - Retail

SNMC P a g e | 1 March 03, 2017

FHA Credit Scores from 580-639 – Retail Revisions

Date Revisions 1/1/17 Maximum Loan Amounts have increased. Updated Sections 6.1-B9, 6.1-B10 and 6.1-G5 Loan Amounts 3/3/17 Removed some information in sections 6.1-B10 LTV/CLTV Parameters and 6.1-C1 AUS

6.1-A Overview The underwriting information contained in this chapter is intended for use in conjunction with HUD Handbook 4155.1 and subsequent applicable mortgagee letters. For Case Numbers ordered on or after September 14, 2015, please refer to the new HUD Handbook 4000.1.

6.1-B General 6.1-B1 Eligible Loan Programs 203(b) – Most frequently used loan program. Purchase or refinance. 1-4 unit properties. Energy Efficient Mortgage – May be used with most FHA property and loan types. Good Neighbor Next Door – Available on some HUD owned properties. If the borrower is a civil

servant, HUD may subsidize up to 50% of the purchase price. 203h Disaster- Increased financing for victims of natural disasters

6.1-B2 Ineligible Loan Programs/Transactions 203k Rehabilitation – Financing for home improvements 248 Native American – Financing for tribal members on leasehold property located on

reservations 247 Hawaiian Home Lands – Financing for homes in Hawaii that are under a homestead lease on

Hawaiian Home Lands. FHA cash out loans in the state of Texas

6.1-B3 Assumability Assumable by qualified borrower.

6.1-B4 Non-Borrowing Spouse Except for obligations specifically excluded by stated law, the debts of non-purchasing spouse must be included in the borrower’s qualifying ratios, if the: Borrower resides in a community property state, or Property being insured is located in a community property state.

Per HUD Handbook 4000.1, a credit report must be obtained for a non-borrowing spouse who either resides in a community property state or if the subject property is located in a community property state.



6.1-B General (cont.) 6.1-B4 Non-Borrowing Spouse (cont’d) The following is guidance on what documentation is required for non-borrowing spouses with a valid social security number as well as non-borrowing spouses without a valid social security number.

Non-Borrowing Spouse With Valid SSN

Required Documentation Non-Borrowing Spouse Credit Authorization form (posted in Credit Policy Section 12.3 FHA

Forms) Credit report indicating non-borrowing spouse’s SSN Completed Form SSA-89, signed and dated by non-borrowing spouse Social security number validation will be requested by Underwriter through FraudGuard SSN

Direct once Form SSA-89 for non-borrowing spouse is received

Non-Borrowing Spouse Without Valid SSN

Required Documentation Non-Borrowing Spouse Credit Authorization Form (posted in Credit Policy Section 12.3 FHA

Forms) Credit report indicating, at a minimum, the non-borrowing spouse’s full name, date of birth and

previous addresses for the last two years NOTE: Instructions on ordering a credit report for a non-borrowing spouse are detailed below.

Certification of No Valid SSN for Non-Borrowing Spouse Form must be completed and signed by non-borrowing spouse (form is posted in Credit Policy Section 12.3 FHA Forms)

Ordering Credit Report for Non-Borrowing Spouse Without Valid SSN The following credit bureaus are the ONLY companies that have a system in place to do this. Please follow the instructions below on how to order for each approved credit reporting agency. Entering 0’s or 9’s in lieu of a SSN is NOT acceptable.

Certified Credit When ordering credit for a non-borrowing spouse through Certified Credit, you will need the following information: Non-Borrowing Spouse Credit Authorization form (posted in Credit Policy Section 12.3 FHA

Forms) Non-borrowing spouse’s full name Non-borrowing spouse’s date of birth Non-borrowing spouse’s current address Non-borrowing spouse’s address history for last 2 years Contact information for person placing the order

E-mail this information to [email protected]. Certified Credit will run the report and e-mail you directly once the request is completed. You will then be able to retrieve the credit report for the non-borrowing spouse from the website by either using the file number or the individual’s last name.

mailto:[email protected]



6.1-B General (cont.) 6.1-B4 Non-Borrowing Spouse (cont’d)

CIS When ordering credit for a non-borrowing spouse through CIS, you will need the following information: Non-Borrowing Spouse Credit Authorization form (posted in Credit Policy Section 12.3 FHA

Forms) Non-borrowing spouse’s full name Non-borrowing spouse’s date of birth Non-borrowing spouse’s current address Non-borrowing spouse’s address history for last 2 years Contact information for person placing the order

E-mail this information to [email protected]. CIS will run the report and e-mail you directly once the request is completed. The e-mail will contain a link and file number. You will then be able to log in to the website and retrieve the credit report for the non-borrowing spouse.

Advantage Credit When ordering credit for a non-borrowing spouse through Advantage Credit you will need the following information: Non-Borrowing Spouse Credit Authorization form (posted in Credit Policy Section 12.3 FHA

Forms) Picture identification such as a driver’s license or nonresident passport for non-borrowing

spouse Non-borrowing spouse’s full name Non-borrowing spouse’s date of birth Non-borrowing spouse’s current address Non-borrowing spouse’s address history for last 2 years Contact information for person placing the order

E-mail this information to [email protected]. Advantage Credit will run the report and e-mail you directly once the request is completed. You will then be able to retrieve the credit report for the non-borrowing spouse from the website by either using the file number or the individual’s last name.

CIC Credit When ordering credit for a non-borrowing spouse through CIC Credit, you will need the following information: Non-Borrowing Spouse Credit Authorization form (posted in Credit Policy Section 12.3 FHA Forms) Non-borrowing spouse’s full name Non-borrowing spouse’s date of birth Non-borrowing spouse’s current address Non-borrowing spouse’s address history for the last 2 years Contact information for the person placing the order

E-mail this information to [email protected] with a note that SNMC will not order credit reports for individuals without an SSN and requires CIC Credit to pull these reports for us. CIC will run the report and email you directly with a credit file number to retrieve from the CIC web portal.






6.1-B General (cont.) 6.1-B4 Non-Borrowing Spouse (cont’d) Community Property States Arizona California Idaho Louisiana Nevada New Mexico Texas Washington Wisconsin

6.1-B5 Borrower Eligibility Maximum borrowers on a transaction are four. Borrowers must provide evidence of a valid Social Security number. Evidence includes a copy of the borrowers Social Security card, paystub, W-2, or other

government-issued card that includes the borrower’s Social Security number. In addition, FHA requires validation of Social Security numbers for consistency with the

borrower’s name and date of birth through FHA connection on ECHO systems or its equivalent. Underwriters must resolve issues regarding Social Security numbers before loans are delivered for purchase.

Military personnel stationed elsewhere are considered occupant-owners and are eligible for maximum financing provided a member of the immediate family will occupy the property as a principal residence.

Eligible Borrowers U.S. Citizens Permanent Resident Aliens Non-Permanent Resident Aliens Non-Occupant Co-Borrowers

Ineligible Borrowers Individuals with certain visa types – please see Credit Policy section 3.1-E3 Borrower Eligibility,

Non-Permanent Resident Aliens.

Residency Permanent and non-permanent resident aliens are eligible provided they: Occupy the property as a principal residence Have a valid social security number Are eligible to work in the United States

Please see the HUD Handbook 4155.1, section 4.A.3 for more details. 6.1-B6 Doc Type Full



6.1-B General (cont’d) 6.1-B7 FHA Case Number Assignment FHA case numbers should be requested and cancelled in accordance with FHA guidelines and prudent business practice. FHA guidance on requesting and cancellation of FHA case numbers can be located in the HUD Handbook 4155.2, section 1.A.2 and 4155.2, section 1.D.4. Effective with FHA case numbers ordered on April 18, 2011, the lender will need to certify the following at the time of case number assignment: At the time of case number assignment, they have an active loan application for the subject

borrower and property Provide borrower’s name and social security number for all new construction

Also effective April 18, 2011, any uninsured case number will automatically cancel where there has been no activity for six months since the last action. The last action includes: Case number assigned Appraisal information entered Insurance application completed (this action is completed after loan closing).

Note: Loans where an appraisal update has been entered, and/or loans where the UFMIP has been received are an exception to the case number cancellation. Mortgagee Letter 11-10 provides additional information and clarification to the above section. Transferring a Case number at the request of a borrower must be completed by an underwriting manager.

6.1-B8 Impound Accounts Escrow waivers are not allowed. Escrow/impound account is required to cover the costs of taxes and insurance.

6.1-B9 Loan Amount Maximum Loan Amount: Loan amounts are set by law. Individual county loan limits can be found at https://entp.hud.gov/idapp/html/hicostlook.cfm. The loan amount may never exceed the 2017 geographical statutory limit except by the amount of any new UFMIP, but can be exceeded on a non-credit qualifying streamline without an appraisal. The current loan limits will remain effective from January 1, 2017 through December 31, 2017. All loans up to $424,100 are coded as an F-F30. Base loan amounts ≥ $424,101 or ≥$636,151 in Hawaii are coded as an F-F30HB. All loan amounts over $650,000.00 require a second signature from a branch underwriting manager or from Corporate Underwriting.

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



6.1-B General (cont’d) 6.1-B10 LTV/CLTV Parameters Standard FHA Loan Program

Primary Residence

Purpose LTV CLTV Min Credit Score Max DTI Underwriting Method AUS Manual

Purchase 96.5% 100%⁴ 620 50%⁵ 40/50% 580¹ ² 31/43%¹ 31/43%¹

Rate/Term Refinance 97.75% 97.75% 620 50%⁵ 40/50% 580¹ ² 31/43%¹ 31/43%¹

Cash-Out Refinance 85% 85% 620 50%⁵ 40/50% Streamline Refinance N/A N/A³ 620 N/A N/A ¹ Refer to Section 6.1-C4 for manual underwriting ratios and guidelines. ² Minimum 620 Credit Score required for 3-4 unit properties. ³ Streamline refinance: If subordinate financing is remaining in place the maximum CLTV is 125% based on the original appraised value of the property. ⁴ On conforming balance purchase transactions, CLTV can exceed 100% with an eligible Community Second, however may never exceed 100% of the cost to acquire the property. Note: The cost to acquire the property is the sales price plus borrower-paid closing costs, discount points, repairs and rehabilitation and prepaid expenses. ⁵ Ratios from 50-55% are allowed with credit scores ≥620 and with an AUS approval. The file must have a completed compensating factor checklist and a branch underwriting manager second signature. Lock to code F-F30-13. For assistance in calculating the maximum mortgage amount, please see maximum mortgage calculation worksheets in Credit Policy, Section 12.3.



6.1-B General (cont’d) 6.1-B10 LTV/CLTV Parameters (cont’d)

High Balance FHA Loan Program When the maximum base mortgage amount exceeds the following: Loan amount ≥$424,100 ($636,150 in Alaska and Hawaii) for 1 unit Loan amount ≥ $543,000 ($814,500 in Alaska and Hawaii) for 2 unit Loan amount ≥ $656,350 ($984,525 in Alaska and Hawaii) for 3 unit Loan amount ≥ $815,650 ($1,223,475 in Alaska and Hawaii) for 4 unit

High Balance

Primary Residence

Purpose LTV CLTV Min Credit Score Max DTI Underwriting Method AUS Manual

Purchase 96.5% 96.5% 620 50%³ 31/43%¹ Rate/Term Refinance 97.75% 97.75% 620 50%³ 31/43%¹ Cash-Out Refinance 85% 85% 640 50%³ 31/43%¹ Streamline Refinance N/A N/A² 620 N/A N/A ¹ Debt ratio exceptions are not allowed on High Balance. ² Streamline refinance: If subordinate financing is remaining in place the maximum CLTV is 125% based on the original appraised value of the property. ³ Ratios from 50-55% are allowed with credit scores ≥620 and with an AUS approval. The file must have a completed compensating factor checklist and a branch underwriting manager second signature. Lock to code F-F30-13. The loan must be a 30 year fixed rate. If LP/DU Refer or manual underwrite the following apply: No housing or rental lates allowed in the previous 12 months (mortgage and rent payments) No foreclosure or Bankruptcy allowed within the most recent 7 years on cash out refinance. Maximum ratios 31/43.00% - no exceptions

For assistance in calculating the maximum mortgage amount, please see maximum mortgage calculation worksheets in Credit Policy, Section 12.3. In addition to standard appraisal requirements, the following additional requirements apply for loan amounts or total loan amounts, including a concurrent 2nd lien, of greater than $1 million. These requirements do not apply to streamline refinances without appraisals. One full FHA appraisal completed by a certified appraiser. A desk review with data verification of Enhanced Desk Review with data verification from RELS

Valuation. o The lesser of the appraised value, review value or the sales price will be used to determine

the LTV/CLTV.



6.1-B General (cont’d) 6.1-B11 Occupancy The home must be a primary residence. A primary residence is a property that will be occupied by the borrower the majority of the calendar year and meets the following criteria: 1-4 unit family homes, PUDs, or FHA-approved condominiums At least one borrower must occupy the property and sign the Note and security instrument for

the property to be considered owner-occupied The borrower must occupy the property within 60 days after the loan closes with continued

occupancy for at least one year. The only exceptions allowed are due to hardship or extenuating circumstances

3-4 unit properties will require an Occupancy Declaration HUD does not insure non-owner purchase transactions. However, HUD will insure a refinance of a non-owner occupied fixed-rate loan under the Streamline Refinance program. Check investor guidelines below for availability.

Mortgagor Occupancy of Former Investment Property

Effective with FHA Case numbers assigned on or after April 18, 2011, FHA has issued the following policy on borrower’s who re-occupy their investment property securing the mortgage which is being refinanced. If the borrower re-occupied the property 12 months or more prior to the loan application date, the loan

is eligible at maximum financing as an owner occupant. If the borrower re-occupied the property less than 12 months prior to the loan application date, the

loan is eligible for a rate/term refinance only (no streamline), with a maximum LTV of 85%.

This guideline applies to all FHA refinance transactions.

Retaining Current Residence For borrowers who are purchasing a new primary residence and will be retaining their current residence, a minimum credit score of 620 is required.

6.1-B12 One FHA Loan Limitation Generally, FHA will not insure more than one mortgage for any borrower. Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance, exceptions to this limitation and additional information can be found in HUD Handbook 4155.1, section 4.b.2. This guideline applies regardless of whether the borrower is obligated on the note of the property.

6.1-B13 Product Codes/Pricing The lower of the representative scores should be used for pricing.

Product Codes F-F15LC F-F15HBLC F-F30LC F-F30HBLC

F-F30S-LC F-F15S-LC



6.1-B General (cont’d) 6.1-B14 Temporary Interest-Rate Buydowns – NOT AVAILABLE AT THIS TIME Temporary interest-rate buydowns are designed to reduce the borrower’s interest rate and monthly payment during the early years of the mortgage. 2-1 temporary buydowns are allowed on fixed-rate owner occupied purchase transactions. The buydown may not result in more than a 1% annual increase in the interest rate and may

increase only once a year. Borrower must qualify at the note rate Allowed on 203(b) and 234(c) programs only Available on 30 year terms only Mortgage loan must be a level payment, unsubsidized mortgage Use the F-F30BD code and pricing

Required documentation: A copy of the escrow agreement signed by the borrower and provider of the funds at application The underwriter may condition the loan approval for an executed buydown agreement at

closing The agreement must provide that any escrow funds not distributed at the time the loan is

prepaid, be applied to the outstanding balance due The agreement must allow reversion of undistributed funds to the provider if the property is

sold or the mortgage is prepaid in full.

6.1-B15 Term 15, 20, 25, and 30 year Fixed rate Jumbo loan amounts are allowed with 30 year term only

6.1-C Underwriting 6.1-C1 AUS All loans, except non-credit qualifying Streamline refinances must be decisioned through FHA Total Scorecard. A copy of the FHA Total Scorecard must be included in the loan file. Refer decisions remain eligible for a manual underwrite provided they meet guidelines from Mortgagee Letter 2014-02. Manual underwriting and manual downgrades should follow guidance in section 6.1-C4. Refer decisions and manual downgrades require second signature from a branch underwriting manager or from Corporate Underwriting. Regardless of the risk assessment made by DU or LP, the DE underwriter remains accountable for compliance with FHA guidelines and eligibility requirements, as well as for any credit, capacity, and documentation requirements not covered herein. In addition, the DE underwriter must underwrite the appraisal according to standard FHA guidelines.



6.1-C Underwriting (cont’d) 6.1-C1 AUS (cont’d) AUS Downgrade Policy as per TOTAL Scorecard Guide In the event that credit terms or loan information was not considered in the AUS decision, an Approve/Eligible or Accept decision must be downgraded to Refer and be manually underwritten. Circumstances requiring a downgrade include, but are not limited to, the following. See TOTAL Scorecard User Guide for more information. Delinquent federal debt, CAIVRS, and suspended and debarred individuals Significant inaccuracy or undisclosed debt Previous mortgage foreclosure (within 3 years of application) Previous bankruptcy (within 2 years of application) If any mortgage trade line, including mortgage line-of-credit payments, during the most recent

12 months reflects: o 3 or more late payments of greater than 30 days; or o 1 or more late payments of 60 days plus one or more 30-day late payments; or o 1 payment greater than 90 days late.

Disputed accounts – see guidance in Section 6.1-C3 Bank statements that indicate multiple non-sufficient funds (NSF)charges

o Example: More than 1 or 2 isolated incidents over a 60 day period. An explanation for such NSFs will be required and additional asset statements may be required to decision the loan

Existing non-occupant co-borrower will remain as a non-occupant co-borrower on a new cash-out refinance.

Failure to meet the specific conditions of an AUS approval. Any mortgage trade line, including mortgage line-of-credit payments, reflects less than six

months payment history.

6.1-C2 Credit Analysis All loans must be run through Total Scorecard through DU or LP, even if manually underwritten, except non-credit qualifying streamline refinances. If a loan receives a Refer decision or is manually downgraded to a Refer, follow the Manual Underwriting guidelines in section 6.1-C4. Refer decisions and manual downgrades require second signature from a branch underwriting manager or from Corporate Underwriting. Installment debt may be paid off to qualify. Revolving debt may be paid off to qualify, however a minimum monthly payment of $10 must be included in the debt ratio.

Credit Score Requirements See LTV Matrix in section 6.1-B10 for minimum credit score requirements. Borrowers without a minimum qualifying credit score are ineligible. Each borrower must have at least two credit scores.



6.1-C Underwriting (cont’d) 6.1-C2 Credit Analysis (cont’d) Credit Score Requirements (cont’d) Regardless of AUS approval, for a credit score to be considered valid, the score must be generated based on sufficient credit. Sufficient credit depth can vary by borrower. Here are some examples of acceptable credit depth: The borrower has 3 tradelines that have been evaluated for at least 12 months. These tradelines

do not need to be currently active but require some activity in the last 24 months. The borrower has 2 tradelines that have been evaluated for at least 24 months and have had

some activity in the last 24 months. The borrower has a credit history of 5+ years and there are not any accounts with late payments

or any collection accounts in the last 24 months. Borrower’s mortgage/rental payment history with no late payments in the last 24 months.

Non-Traditional Credit Non-traditional credit on government loans has been eliminated. All borrowers must have traditional credit history with the exception of non-credit qualifying streamline refinances. Here’s some clarification on scenarios that you might come across: Two borrowers with no credit scores: Not Allowed One occupant borrower with a credit score and one occupant borrower without a credit score:

Not Allowed. Occupant borrower with no credit score and a non-occupant borrower with a credit score: Not

allowed, because the occupant borrower would be required to build non-traditional credit which is no longer acceptable

Occupant borrower with a credit score and a non-occupant borrower without a credit score: Not allowed. A non-occupant borrower must have credit scores.

For conforming balance, non-traditional tradelines may be considered in addition to traditional credit; however, it is not acceptable to base a credit decision solely off of non-traditional tradelines. Non-traditional tradelines can only be used to build on to traditional credit.

6.1-C3 Credit History Requirements

Foreclosure Seasoning – minimum 3 years Chapter 7 Bankruptcy Seasoning – minimum 2 years from discharge Chapter 13 Bankruptcy Seasoning – minimum 1 year since the beginning of payout period. Must

have satisfactory payment history and permission from the court Consumer Credit Counseling – follow guidelines in HUD Handbook 4000.1 Modification – If there were mortgage lates at the time of the modification and the modification

was done to pull the borrower out of a foreclosure or default situation, treat as a foreclosure. If there were no mortgage lates at the time of modification, 12 months of clean mortgage payment history since modification is required.



6.1-C Underwriting (cont’d) 6.1-C3 Credit History Requirements (cont’d) Disputed Accounts Guidance Effective for case numbers assigned on or after October 15, 2013. If the credit report utilized by Total Scorecard indicates that the borrower is disputing derogatory credit accounts, the borrower must provide a letter of explanation and documentation supporting the basis of the dispute. If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a Refer and a DE underwriter must manually underwrite the loan. Included in the total are disputed collections, disputed chargeoffs, and disputed tradelines with late payments in the most recent 24 months. If the cumulative outstanding balance of disputed derogatory credit accounts is less than $1,000 a manual downgrade is not required. Disputed medical accounts and disputed credit accounts from identity theft are excluded. Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance. Non-derogatory disputed accounts are excluded from the $1,000 cumulative total. Non-derogatory disputed accounts include disputed accounts with no balance, disputed accounts with late payments aged 24 months or greater, and disputed accounts paid as agreed. Refer to Mortgagee Letter 2013-24 for additional information including a definition of disputed derogatory and non-derogatory accounts. Effective for case numbers assigned prior to October 15, 2013. In regards to manually downgrading a file for disputed accounts, if the credit report reveals that the borrower is disputing any credit accounts, manual downgrade of a TOTAL Scorecard Approve/Accept recommendation is not required if the disputed account reflects any of the following on the credit report:

The disputed account has a zero balance The disputed account is marked as “paid in full”, or “resolved” The disputed account is both

o Less than $500, and o More than 24 months old, based on the date of dispute

Judgments Guidance Effective for case numbers assigned on or after October 15, 2013. FHA requires judgments to be paid off before the mortgage loan is eligible for FHA insurance. An exception can be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement and a minimum of three months of payments have been made prior to credit approval. Pre-payment of the three payments is not permitted. Include payment in debt ratios. Judgments of a non-purchasing spouse in a community property state are to be paid in full or meet the exception guidance for judgments above.



6.1-C Underwriting (cont’d) 6.1-C3 Credit History Requirements (cont’d) Judgments Guidance (cont’d) Effective for case numbers assigned prior to October 15, 2013. Judgments must be paid in full or a satisfactory repayment plan is in effect at time of application and there have been no late payments on the plan. Judgments cannot affect our lien position on title.

Collection Accounts Guidance Effective for case numbers assigned on or after October 15, 2013. FHA does not require collection accounts to be paid off but if the total outstanding balance is equal to or greater than $2,000, the lender must perform a capacity analysis which includes one of the following: At the time of, or prior to closing, collection accounts should be paid in full. The borrower makes payment arrangements with the creditor. The monthly payment must be

included in the borrower’s debt-to-income ratio. If a payment arrangement is not available, calculate the monthly payment using 5% of the

outstanding balance. Paying down collections to a cumulative balance less than $2,000 does not remove the

requirement. Medical collections and charge off accounts are excluded from this guidance. Collection accounts of a non-purchasing spouse in a community property state are included in the cumulative balance. Effective for case numbers assigned prior to October 15, 2013. Collection accounts do not have to be paid prior to closing. See HUD Handbook 4155.1, section 4.C for additional information and full FHA credit guidelines.

6.1-C4 Manual Underwriting Effective for case numbers assigned on or after April 21, 2014. The guidelines explain maximum qualifying ratios for manually underwritten loan. It revises and clarifies the compensating factors that must be cited in order to exceed FHA’s standard qualifying ratios for manually underwritten loans. These guidelines do not apply to: Non-credit qualifying FHA to FHA streamline refinance mortgages; Refinances of Borrowers in Negative Equity Positions Section 255 Home Equity Conversion Mortgages; or Title I loans

Manually underwritten loans include: Loans involving borrowers without a credit score which were not scored against TOTAL

Scorecard; Loans receiving a Refer scoring recommendation from TOTAL Scorecard; and Loans receiving an Accept scoring recommendation from TOTAL Scorecard but which have been

downgraded to a Refer by the underwriter. Manually underwritten loans with ratios that exceed 31/43% are not allowed on high balance loans. When a loan receiving an Accept scoring recommendation is downgraded to a Refer, the loan must be underwritten in accordance with these guidelines.



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Credit Review Review credit for the past two years. Overall review of entire reported accounts:

o Major indications of derogatory credit, such as a judgment, bankruptcy and foreclosure. All require sufficient written explanation.

Accounts reviewed for patterns of delinquency: o Disregard for financial obligations. o Inability to manage debt. o Factors that are beyond the borrower’s control. o Issue was isolated. o Was circumstance that led to derogatory credit likely to not happen again. o Has the borrower reestablished credit.

Most situations will need documentation to support decision. No derogatory credit in the last 12 months.

Documentation Requirements VOR or canceled checks to verify 12 months of rental payment history, or VOM Credit explanations for all derogatory credit in the past 24 months. All explanations must make

sense and be consistent. Two year work history is always required (not to include gap of employment). 4506T tax transcripts for 2 years. VVOE, paystubs covering 30 days, 2 years W-2’s, or written VOE, most recent paystub and 2

years W-2’s. Commission, bonus, and overtime need 2 year history. Two months bank statements or VOD and one month bank statements. NSF’s are considered

derogatory credit. For gifts, document transfer, including donor’s account with donor’s ability.

Reserves Reserves are defined as: the sum of verified and documented borrower funds; minus the sum the borrower is required to pay at closing, including the cash investment, closing costs,

prepaid expenses, any payoffs that are a condition of loan approval, and any other expense required to close the loan; but not including

the amount of cash taken at settlement in cash-out transactions or incidental cash received at settlement in other loan transactions, gift funds in excess of the amount required for the cash investment and other expenses, equity in another property, and borrowed funds from any source.

Reserve Requirement All manually underwritten loans must meet or exceed the following minimum reserve requirements: 1 and 2 Unit Properties - Reserves must equal or exceed one total monthly mortgage payment. 3 and 4 Unit Properties - Reserves must equal or exceed three total monthly mortgage

payments. This new policy replaces the current 2 month minimum reserve requirement for one and two unit properties for borrowers with insufficient credit.



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Borrowers With Minimum Decision Credit Scores of 580 or More and No Compensating Factors The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 580 or more and no compensating factors are as follows: total monthly mortgage payment may not exceed 31% of gross effective monthly income (33%

for Energy Efficient Homes); and total monthly fixed payment may not exceed 43% of gross effective monthly income (45% for

Energy Efficient Homes).

Borrowers With Minimum Decision Credit Scores of 580 or More and One Compensating Factor The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 580 or more provided they meet one of the compensating factors specified below are as follows: total monthly mortgage payment may not exceed 37% of gross effective monthly income; and total monthly fixed payment may not exceed 47% of gross effective monthly income.

Acceptable compensating factors are limited to the following: Verified and documented cash reserves that equal or exceed three total monthly mortgage

payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units);

New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous twelve months.

Residual income.

Borrowers With Minimum Decision Credit Scores of 580 or More and Two Compensating Factors The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 580 or more provided they meet two of the compensating factors specified below are as follows: total monthly mortgage payment may not exceed 40% of gross effective monthly income; and total monthly fixed payment may not exceed 50% of gross effective monthly income.

Acceptable compensating factors are limited to the following: Verified and documented cash reserves that equal or exceed three total monthly mortgage

payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units);

New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous twelve months.

Verified and documented significant additional income that is not considered effective income; and

Residual income.



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Borrowers With Minimum Decision Credit Scores of 580 or More with No Discretionary Debt The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 580 or more with established credit lines in their own name open for at least six months who carry no discretionary debt (housing payment is only account with an outstanding balance and borrower can document that revolving credit has been paid off in full monthly for at least the previous six months) are as follows: total monthly mortgage payment may not exceed 40% of gross effective monthly income; and total monthly fixed payment may not exceed 40% of gross effective monthly income.

For borrowers meeting this criterion no other compensating factors are required.

Maximum Qualifying Ratio Matrix For Case Numbers Issued on or After April 21, 2014

Lowest Minimum Decision Credit Score

Maximum Qualifying Ratios (%)

Acceptable Compensating Factors

500-579 or Non-Traditional/ Insufficient Credit Not Allowed

31/43 Not applicable. Borrowers with minimum decision credit scores below 580, or with non-traditional or insufficient credit, may not exceed 31/43 ratios. Energy Efficient Homes may have stretch ratios of 33/45.

580 and Above 31/43 No compensating factors required. Energy Efficient Homes may have stretch ratios of 33/45.

580 and Above 37/47 Must have one of the following: ▪ Verified and documented cash reserves equal to at least three total monthly mortgage payments (1-2 units) or six total monthly mortgage payments (3-4 units). ▪ New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and there is documented 12 month housing payment history with no more than one 30 day late payment. In cash-out transactions, all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. ▪ Residual Income

580 and Above 40/40 Borrower has established credit lines in his/her own name open for at least 6 months but carries no discretionary debt (i.e., monthly total housing payment is the only open installment account and borrower can document that revolving credit has been paid off in full monthly for at least the previous six months).



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Maximum Qualifying Ratio Matrix (cont’d) 580 and Above 40/50 Must have two of the following:

▪ Verified and documented cash reserves equal to at least three total monthly mortgage payments (1-2 units) or six total monthly mortgage payments (3-4 units). ▪ New total monthly mortgage payment is not more than $100 or 5% higher than the previous total monthly housing payment, whichever is less; and there is documented twelve month housing payment history with no more than one 30-day late payment. In cash-out transactions, all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. ▪ Verified and documented significant additional income that is not considered effective income (i.e., part-time or seasonal income verified for more than one year but less than two years). ▪ Residual Income

Recording Compensation Factors Compensating factors cited to support the underwriting decision must be recorded in the Underwriter Comments section of Form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary. Documentation supporting the compensating factors cited must be included in the endorsement case binder including, if applicable, a worksheet attached to Form HUD-92900-LT reflecting the calculation of residual income.

Energy Efficient Homes Current policy allows borrowers who are manually underwritten with homes built or retrofitted to exceed the applicable IECC standard including Energy Efficient Mortgages to exceed the 31/43 ratios (33/45 stretch ratios). These borrowers may be eligible for ratios in excess of the 33/45 stretch ratios but not exceeding 37 and/or 47, only if they have a minimum decision credit score of 580 or higher and meet at least any one of the compensating factors specified on page 6 of this Mortgagee Letter. Ratios exceeding 37/47 (not to exceed 40 and/or 50) may be approved only if they have a minimum decision credit score of 580 or higher and meet at least any two of the compensating factors specified on page 7 of this Mortgagee Letter. Example: A borrower with a credit score of 570 is purchasing an Energy Efficient Home. The maximum allowable ratios are 33/45. Example: A borrower with a credit score of 590 and one compensating factor is purchasing an Energy Efficient Home. The maximum allowable ratios are 37/47.



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Documenting Acceptable Compensating Factors The table below describes the compensating factors (and the documentation required to support the compensating factors) that may be used to justify approval of manually underwritten loans with ratios that exceed FHA standard qualifying ratios. Verified and Documented Cash Reserves

Verified and documented cash reserves may be cited as a compensating factor subject to the following requirements: ▪ reserves are equal to or exceed three total monthly mortgage payments (1 and 2 units); or ▪ reserves are equal or exceed six total monthly mortgage payments (3 and 4 units). Funds and/or “assets” that are not to be considered as cash reserves include: ▪ gifts; ▪ equity from another property; ▪ borrowed funds; and ▪ cash received at closing in a cash-out refinance transaction or incidental cash received at closing in the loan transaction. The mortgagee may use a portion of a borrower’s retirement account (IRA, Thrift Savings Plan, 401k, and Keogh accounts) to calculate cash reserves, subject to the following conditions: ▪ to account for withdrawal penalties and taxes, only 60% of the vested amount of the account, less any outstanding loans, may be used. The mortgagee must document the existence of the account with the most recent depository or brokerage account statement. In addition, evidence must be provided that the retirement account allows for withdrawals under conditions other than in connection with the borrower’s employment termination, retirement, or death. ▪ if withdrawals can be made only in connection with the borrower’s employment termination, retirement, or death, the retirement account may not be used to calculate the borrower’s cash reserves. If any of these funds are also to be used for loan settlement, that amount must be subtracted from the amount included as cash reserves.

Minimal Increase in Housing Payment

A minimal increase in housing payment may be cited as a compensating factor subject to the following requirements: ▪ the new total monthly mortgage payment does not exceed the current total monthly housing payment by more than $100 or 5%, whichever is less; and ▪ there is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions, all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. ▪ if the borrower has no current housing payment, mortgagee may not cite this compensating factor. Reference: Refer to HUD Handbook 4155.1, Chapter 1, Section B.2.a for information on documenting the previous housing payment.



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Documenting Acceptable Compensating Factors (cont’d) No Discretionary Debt

No discretionary debt may be cited as a compensating factor subject to the following requirements: ▪ the borrower’s housing payment is the only open account with an outstanding balance that is not paid off monthly; ▪ the credit report shows established credit lines in the borrower’s name open for at least six months; and ▪ the borrower can document that these accounts have been paid off in full monthly for at least the past six months. Borrowers who have no established credit other than their housing payment, no other credit lines in their own name open for at least six months, or who cannot document that all other accounts are paid off in full monthly for at least the past six months, do not qualify under this criterion. Credit lines not in the borrower’s name but for which he or she is an authorized user do not qualify under this criterion.

Significant Additional Income Not Reflected in Gross Effective Income

Additional income from bonuses, overtime, part-time or seasonal employment that is not reflected in gross effective income can be cited as a compensating factor subject to the following requirements: ▪ the mortgagee must verify and document that the borrower has received this income for at least one year, and it will likely continue; and ▪ the income, if it were included in gross effective income, is sufficient to reduce the qualifying ratios to not more than 37/47. Income from non-borrowing spouses or other parties not obligated for the mortgage may not be counted under this criterion. This compensating factor may be cited only in conjunction with another compensating factor when qualifying ratios exceed 37/47 but are not more than 40/50.

Residual Income Residual income may be cited as a compensating factor provided it can be documented and it is at least equal to the applicable amounts for household size and geographic region found on the Table of Residual Incomes by Region found in VA Pamphlet 26-7.

VA Guidance on Residual Income FHA has modeled the calculation of residual income on underwriting guidance provided by the Department of Veterans Affairs (VA) in Chapter 4 of VA Pamphlet 26-7 at http://www.benefits.va.gov/warms/pam26_7.asp. FHA is also using the tables from the VA guidelines for the determination of whether residual income is sufficiently high to qualify as a compensating factor.



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Calculating Residual Income Residual income is calculated in accordance with the following: Calculate the total gross monthly income of all occupying borrowers. Deduct from gross monthly income the following items:

o State income taxes o Federal income taxes o Municipal or other income taxes o Retirement or Social Security o Proposed total monthly fixed payment o Estimated maintenance and utilities o Job related expenses (e.g. child care)

Subtract the sum of the deductions from the table above from the total gross monthly income of all occupying borrowers.

The balance is residual income.

Calculating Gross Monthly Income Gross monthly income should be calculated only for the occupying borrowers consistent with the requirements of HUD Handbook 4155.1, Chapter 4, Section D. Do not include bonus, part-time or seasonal income that does not meet the requirements for effective income as stated in HUD Handbook 4155.1, Chapter 4, Section 2.b-e. Do not include income from non-occupying co-borrowers, co-signers, non-borrowing spouses, or other parties not obligated on the mortgage. Because taxes are taken into account in the calculation of residual income, non-taxable income may not be “grossed up.”

Calculating Monthly Expenses If available, mortgagees must use federal and state tax returns from the most recent tax year to document state and local taxes, retirement, Social Security and Medicare. If tax returns are not available, mortgagees may rely upon current pay stubs. For estimated maintenance and utilities in all states, mortgagees should multiply the living area of the property (square feet) by $0.14. Example: 1,500 square feet x .14 $210.00 per month



6.1-C Underwriting (cont’d) 6.1-C4 Manual Underwriting (cont’d) Using Residual Income as a Compensating Factor To use residual income as a compensating factor, count all members of the household of the occupying borrowers without regard to the nature of their relationship and without regard to whether they are joining on title or the note. Exception: As stated in the VA Guidelines, the mortgagee may omit any individuals from "family size" who are fully supported from a source of verified income which is not included in effective income in the loan analysis. These individuals must voluntarily provide sufficient documentation to verify their income to qualify for this exception. From the table below, select the applicable loan amount, region and household size. If residual income equals or exceeds the corresponding amount on the table, it may be cited as a compensating factor.

Table of Residual Incomes by Region For Loan Amounts of $79,999 and Below

Family Size Northeast Midwest South West 1 $390 $382 $382 $425 2 $654 $641 $641 $713 3 $788 $772 $772 $859 4 $888 $868 $868 $967 5 $921 $902 $902 $1,004

Over 5 Add $75 for each additional member up to a family of seven. Table of Residual Incomes by Region

For Loan Amounts of $80,000 and Above Family Size Northeast Midwest South West

1 $450 $441 $441 $491 2 $755 $738 $738 $823 3 $909 $889 $889 $990 4 $1,025 $1,003 $1,003 $1,117 5 $1,062 $1,039 $1,039 $1,158

Over 5 Add $80 for each additional member up to a family of seven. The Regions on the Table of Residual Income include the following states: Region States Northeast CT, MA, ME, NH, NJ, NY, PA, RI, VT Midwest IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI South AL, AR, DC, DE, FL, GA, KY, LA, MD, MS, NC, OK, PR, SC, TN, TX, VA, VI, WV West AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT WA, WY Note: HUD is adopting this VA guidance solely for the purposes of calculating residual income for use as a compensating factor on manually underwritten loans. Other VA underwriting policies cannot be used in connection with FHA loans, or cited as compensating factors.



6.1-C Underwriting (cont’d) 6.1-C5 DTI Requirements See matrix in Section 6.1-B10 for allowable ratios on conforming and high balance loan amounts. For manually underwritten loans see guidance in Section 6.1-C4 Ratios from 50-55% are allowed with credit scores ≥620 and with an AUS approval. The file must have a

completed compensating factor checklist and a branch underwriting manager second signature. Lock to code F-F30-13.

Exceptions There are additional circumstances where an underwriter may need or want a second signature on a loan, or an exception to policy (for example, review of declined loans when escalation is requested). In most cases the file should be fully underwritten by the branch underwriter and their justification for approval (or denial) noted on the transmittal or in a cover letter. Loan should be reviewed with branch underwriting manager or escalate to Corporate Underwriting.

6.1-C6 Compensating Factors Underwriters must record in the “remarks” section of the FHA Underwriting Transmittal (Form HUD 92900-LT) the compensating factor(s) used to support loan approval. Any compensating factor used to justify mortgage approval must be supported by documentation. Acceptable compensating factors do not include employment stability or good credit as they are a requirement of loan approval. A list of the acceptable compensating factors can be found in the HUD Handbook 4155.1, section 4.F.3. For Refer decisions or manual downgrades, see guidance in Section 6.1-C4.

6.1-C7 Maximum Financed Properties The maximum number of financed properties, including subject FHA property, is 4.

6.1-C8 Three to Four Unit Properties Effective with FHA case numbers assigned on or after April 18, 2011, HUD Handbook section 4155.1, section 2.b.4 applies in its entirety to all refinance transactions, as well as purchase transactions, of 3-4 unit properties.

6.1-C9 Non-Occupant Co-Borrowers Non-occupant co-borrowers are allowed. Maximum financing is permitted for 1 unit properties when there is a familial relationship between borrowers. Multi-unit properties are limited to 75% CLTV regardless of relationship if using a non-occupant co-borrower. If there are two or more borrowers and one will not occupy the property as a primary residence and the borrowers are not related then the maximum mortgage is limited to 75% CLTV. Non-occupant co-borrowers cannot be added to the loan on a cash-out refinance in order to meet FHA credit underwriting standards. See the HUD Handbook 4155.1, section 2.B.3 for more information.

6.1-C10 FraudGuard FraudGuard is required on all loans, including Streamline Refinances.



6.1-D Asset/Down Payment/Closing Costs Under most FHA programs the borrower’s minimum down payment is 3.5% of the lesser of the appraised value or sales price. This amount is in addition to any borrower paid closing costs. All funds to cover the minimum down payment and closing costs must come from acceptable sources and be verified and properly documented. Please see the HUD Handbook 4155.1 Chapter 5 for more details. In completing the 92900-LT the “Required” area needs to equal the total funds required for closing from the borrower. The amount listed in this area needs to be at least the borrower’s required minimum investment into the property (i.e. 3.5% down payment). Cash reserves are not required on 1-2 unit properties. 3-4 unit properties require 3 months PITI. Gift Funds are not allowed for reserves. Effective for case numbers assigned on or after April 21, 2014, all manually underwritten loans require at least one month of reserves. See section 6.1-C4 Reserves for additional information.

6.1-D1 Closing Costs FHA does not regulate or set the closing costs that a lender may charge. The lender can collect those closing costs that are customary and reasonable to close the mortgage. The borrowers may not pay a tax service fee. Maximum net broker compensation “rebate” on FHA loans is 4%.

Interested Party Contributions: Contributions exceeding 6% of the sales price or exceeding the actual cost of prepaid expenses, discount points and other financing concessions will be treated as inducements to purchase, thereby reducing the amount of the mortgage. The 6% limitation also includes property seller payment for permanent and temporary interest rate buydowns and other payment supplements, mortgage payment protection insurance, and payment of UFMIP.

6.1-D2 Business Funds Business funds from a partnership or corporation may not be used to meet the borrower minimum investment requirement. The funds must all be from the borrower’s personal assets. This does not apply to sole proprietorship where the personal and business funds can be comingled. The use of business funds for closing costs and reserves is allowed for sole proprietors. When using these funds, validate the borrower’s ability to access business funds without any detrimental effect to the business and to ensure there is strength and stability within the business. Borrower’s ownership or interest in the business must be confirmed by documentation such as a

business license, CPA letter, etc. Verification of the Availability of Funds: The following requirements apply: Sole Proprietor: Verification that the borrower has 100% ownership of the business, for example

using the tax returns provided or a copy of the business license.



6.1-D Asset/Down Payment/Closing Costs (cont’d) 6.1-D3 Gift Funds An outright gift of the required investment is acceptable if the donor is: Relative of the borrower defined as:

o Child: son, stepson, daughter, or stepdaughter o Parent, grandparent, spouse o Legally adopted sons or daughters or foster children o Child placed with borrower by an authorized agency for legal adoption

Borrower’s employer or labor union A charitable organization A governmental agency or public entity that provides homeownership assistance to low and

moderate income families or first time homebuyers A close friend with a clearly defined interest in the borrower

Regardless of when gift funds are made available to the borrower, the underwriter must be able to determine that the gift funds were not provided by an unacceptable source, and were the donor’s own funds. This information can be determined when sourcing the donor’s ability to gift the funds. Please see HUD Handbook 4155.1 for more information on gift funds. Gift Funds cannot be used for Reserves. Gift of Equity: Only family members may provide equity credit as a gift on property being sold to other family members.

Unacceptable Gift Funds Down payment cannot be from seller, real estate agent or broker, builder, lender subsidy, or any other associated entity. A gift from any other source is considered an inducement to purchase and requires a reduction to the sales price. Seller-funded down payment assistance programs are not eligible. This information also applies to where the seller is a government agency selling foreclosed properties such as the US Department of Veteran Affairs or Rural Housing.

An exception applies in regards to when a borrower or family member is a licensed real estate agent entitled to commission from the sale of the property being purchased, see HUD Handbook 4155.1, section 5.B.6.d.

Gift Letter Requirement The gift letter must list the following: The donor’s name, address and telephone number Specify the dollar amount State the nature of the donor’s relationship to the borrower State that no repayment is required

The gift letter must also contain language that the funds given to the homebuyer were not made available to the donor from any person or entity with an interest in the sale of the property including the seller, real estate agent or broker, builder, loan office or any entity associated with them.



6.1-D Asset/Down Payment/Closing Costs (cont’d) 6.1-D3 Gift Funds (cont’d) Gift Transfer Documentation Requirements If the gift funds are in the homebuyer’s account obtain:

o A copy of the withdrawal document showing that the withdrawal is from the donor’s account and evidence of donor’s ability

o The borrower’s deposit slip and bank statement showing the deposit Funds provided at closing by certified check obtain:

o Bank statement showing the withdrawal from the donor’s account and evidence of donor’s ability

o Copy of the certified check Funds provided at closing by cashier’s check, money order, official check, or other type of bank

check obtain: o Have the donor provide a withdrawal document or cancelled check for the amount of

the gift, showing the funds came from the donor’s personal account and evidence of donor’s ability

Funds provided at closing by wire transfer to the closing agent, obtain: o The donor to provide documentation of the wire transfer and evidence of donor’s ability

Gift Source in DU To run DU/Total Scorecard correctly, the gift source and amount of the gift should be entered in DU on the Asset screen and also on the Types, Terms and Property screen under Source of Down Payment. If a gift being used for down payment is not entered correctly, the DU/Total Scorecard assessment may not be accurate. Confirm that the Source of Down Payment field is completed correctly. A gift, no matter the amount, must always be listed as the first source of down payment in DU.

All assets should be entered as verified. If the borrower has received a gift and that gift has been deposited into a depository account, the gift should not be entered separately as a gift asset. If the gift has not been deposited into a depository account, it must be shown separately as a gift asset. This also applies in the “Assets” section in Encompass. For information on how to enter multiple gift and down payment sources in Encompass, please see Credit Policy Section 09-Encompass.



6.1-E Income FHA does not impose a minimum length of time a borrower must have held a position of employment to be eligible, however, the borrower’s employment for the most recent two full years must be verified. High school cannot be used to complete a two year work history. If a borrower indicates he or she was in college or the military during any of this time, the borrower must provide evidence supporting this claim, such as college transcripts or discharge papers. The borrower also must explain any gaps in employment spanning one month or more (6 months or more if TOTAL Scorecard Accept Recommendation). For additional information on gaps in employment, please see Income Section 3.4-E9 as well as the HUD Handbook 4155.1, Chapter 4.

6.1-E1 4506-T A signed and dated IRS form 4506-T completed at application and closing is required for all borrowers. IRS transcripts dated prior to the date of closing are required and must be reconciled and included in the loan file¹. For more details, please see Credit Policy section 3.4-D. ¹ Non-income qualifying streamline refinances are exempt from this requirement.

6.1-E2 Self-Employment Income Income Documentation Requirements Effective for case numbers assigned on or after April 1, 2012, these requirements apply to all FHA insured loans except non-credit qualifying streamline refinance loans and Home Equity Conversion Mortgage loans. A year-to-date P&L and Balance Sheet are required if more than a calendar quarter has elapsed since the date of the most recent calendar or fiscal year-end tax return was filed by the borrower, with no exceptions. Additionally, if the income used to qualify the borrower exceeds the two year average of tax returns, an audited P&L or signed quarterly tax returns obtained from the IRS are required. Annual earnings that are stable or increasing are acceptable, while businesses that show a significant decline in income over the analysis period are not acceptable, even if the current income and debt ratios meet FHA guidelines.



6.1-E Income (cont’d) 6.1-E3 Rental Income Rental income from existing and prospective tenants may be considered if documented in accordance with HUD guidelines. Rental income from the subject property may be considered effective income when the property is a two- to four-unit dwelling, or an acceptable one- to four-unit investment property. Rental income from other real estate holdings may be considered effective income if the HUD documentation requirements are met*. If rental income is being derived from the property being vacated by the borrower, the borrower must be relocating to an area more than 100 miles from the borrower’s current principal residence. The mortgagee must obtain a lease agreement of at least one year’s duration after the mortgage is closed and evidence of the payment of the security deposit or first month’s rent. *For specific documentation requirements, see HUD Handbook 4000.1 Section II.A.4.I.

6.1-E4 Verbal Verification of Employment Policy See Credit Policy, Income section 3.4-B2 for more details. A verbal verification of employment is required for all FHA loans (including non-credit qualifying streamlines).

6.1-F Identity-of-Interest Identity-of-interest transactions on principal residences are restricted to a maximum LTV of 85%. Please see the HUD Handbook 4155.1, section 2.B.2 for further clarification. Maximum financing above 85% LTV is allowed under the following circumstances: A family member purchasing another family member’s principal residence An employee of a builder purchasing one of the builder’s new homes or models as a principal

residence A current tenant purchasing the property that the tenant has rented for at least six months

predating the sales contract. A lease or other written evidence must be submitted verifying occupancy. The maximum mortgage calculation is not affected by a sales transaction between a tenant and landlord with no identity of interest relationship

Sales by corporations that transfer employees out of an area, purchase the transferred employee’s home, and then resell to another employee

Restricted family member transactions: If the property being sold from one family member to another is the property seller’s

investment property, the maximum mortgage is 85% of the lesser of the sales price or appraised value. **The 85% limit may be waived if the family member has been a tenant in the property for at least 6 months immediately predating the sales contract. A lease or other written evidence must be submitted to verify occupancy.

Additional Restrictions: If there is an identity-of-interest between the buyer and the property seller, commission from

the sale or listing of the property cannot be used for the down payment



6.1-G Refinances For all refinances, the file must include the payoff statements and calculations used for the FHA Underwriting Transmittal. The appropriate mortgage calculation worksheet located in Credit Policy Forms section 12 that identifies the payoff amount and closing costs used to calculate the loan amount must be in the file. For all No Cash Out and Cash Out refinances, at least one current borrower must be on title for a minimum of 12 months if acquisition costs cannot be documented.

Land Contracts or Properties Subject to Ground Rents Please reference HUD Handbook 4155.1, section 2.B.6.a which discusses the financing limit for loan transactions which payoff land contracts with no cash out at closing, also applies in its entirety to all cash out loan transactions which payoff land contracts, as well as refinancing transactions on properties subject to ground rents. Mortgagees should treat both of these types of transactions as if they were cash out refinances on property held fee simple.”(No rate/term refinances)

6.1-G1 Eligible Transactions No Cash Out Refinance Cash Out Refinance Streamline Refinance with appraisal Streamline Refinance without appraisal

6.1-G2 Ineligible Transactions Refinance loans made to borrowers that were delinquent on their previous mortgage Refinance transactions involving temporary buydowns Cash out refinances on FHA loans in the State of Texas A restructured or short payoff in which the terms of the original transaction have been changed,

resulting in either the forgiveness of debt or restructure of debt through a modification of the original loan or origination of a new loan

6.1-G3 No Cash-Out Refinance All proceeds are used to pay existing liens and costs associated with the transaction. The borrower may not receive cash back in excess of $500.00 at closing. The maximum mortgage amount calculation is the lower of 97.75% LTV (loan-to-value) or the existing debt calculation, and may never exceed the FHA county loan limit except by the new up-front MIP. The maximum CLTV for new and existing subordinate financing is 97.75% subject to the following: Second liens that have been permanently modified may use the modified lien amount to

calculate the CLTV ratio provided an executed modification agreement is supplied. The second lien CLTV requirements may be more restrictive

The amount of the existing first mortgage may include the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA- insured mortgages), up to 60 days maximum. The existing mortgage must be current for the month due; the amount of the existing first mortgage may not include delinquent interest. The specific mortgage amount calculations may be found in the HUD Handbook 4155.1, Chapter 3, Section B. A mortgage calculation worksheet is located in the Forms -Section 12 of Credit Policy.



6.1-G Refinances (cont’d) 6.1-G3 No Cash-Out Refinance (cont’d) Equity Line of Credit If any portion of the funds of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was used for purposes other than repairs and rehabilitation of the property, that portion above and beyond the $1,000 of the line of credit is not eligible for inclusion in the new mortgage.

Non-FHA to FHA If the property was acquired less than one year before the loan application and is not already FHA-insured, the original sales price of the property must be used in determining the maximum mortgage. Using conclusive documentation, expenditures for repairs and rehabilitation incurred after the purchase of the property may be added to the original sales price in calculating the mortgage amount. If acquisition costs cannot be documented, then borrower will need to be on title for a minimum of 12 months.

6.1-G4 Cash-Out Refinance FHA will allow a cash out refinance up to 85% LTV subject to the following: The property must be owner occupied principal residence Co-borrowers added to the note or currently on the note must occupy the property securing the

new FHA mortgage. Non-occupant co-borrowers may not be added to the note to meet FHA credit underwriting standards.

Manual downgrade is required if existing non-occupant co-borrower will remain as a non-occupant co-borrower on a new cash-out refinance.

New or existing subordinate financing is limited to 85% CLTV. Existing subordinate financing may remain in place, but subordinate to the FHA insured first

mortgage provided the homeowner qualifies for making scheduled payments on all liens. The combined amounts of the FHA first lien and any subordinate liens may not exceed the

applicable county limit. The second liens that have been permanently modified may use the modified total lien amount

to calculate the CLTV ratio provided an executed modification agreement is supplied. If the property is encumbered by a mortgage, the borrower must have made all his/her payments within the month due for the previous 12 months. No payment may have been more than 30 days late and must be current for the month due. Borrowers who are delinquent are not eligible. An acceptable payment history must be provided; an acceptable payment history is if the borrower is: Current, and Has made all payments for the mortgage being refinanced within the month due for the

previous 12 months For all mortgages with more than 6 months and less than 12 months of payment history the

mortgagor must have made all payments when due. Mortgages with less than 6 months of payment history are not eligible for a cash out refinance.

The specific mortgage amount calculations may be found in the HUD Handbook 4155.1, section 3.B.2. The mortgage calculation worksheet is located in the Forms -Section 12 of Credit Policy.



6.1-G Refinances (cont’d) 6.1-G4 Cash-Out Refinance (cont’d) Debt Consolidation Cash out refinances for debt consolidation represent considerable risk, especially if borrower(s) have not had a corresponding increase in income. Such transactions must be carefully evaluated.

LTV Calculation If the property has been owned by the borrower as his/her principal residence for 12 months or more proceeding the date of the loan application the LTV/CLTV is based on 85% of the appraised value. If the property has been owned by the borrower as his/her principal residence for less than 12 months preceding the date of the loan application the LTV/CLTV is limited to the lesser of 85% of the appraiser’s estimate of value, or the original sales price. If the original sales price cannot be documented, then borrower needs to be on title for a minimum of 12 months. Note: The sales price does not need to be considered if the property was acquired as the result of inheritance and is, or will become, the heir’s principal residence. FHA cash out transactions not allowed in Texas.

6.1-G5 Streamline Refinance Guidelines Regardless of who is currently servicing the loan, non-credit qualifying and credit qualifying FHA Streamline Refinances are subject to the following requirements: Streamline guidelines can be found in Chapter 6, Section C of the HUD Handbook 4155.1 Product Codes: F-F30S-LC, F-F15S-LC Minimum credit score of 620 is required. For credit scores 640 and above, please see Section 6.1

FHA 640 and Above of Credit Policy. Maximum loan term is lesser of 30 years or 12 years beyond the remaining term of the existing

loan. Minimum loan amount is $50,000 Mortgage rating showing no lates in the most recent 12 months. For mortgages with a 6-12

month payment history, the borrower must have made all mortgage payments within the month due.

Owner occupied and non-owner occupied properties are eligible and must meet FHA guidelines. FHA Streamlines are not required to meet FHA County Loan Limits. Cash back to borrower is not allowed with the exception of minor adjustments at closing

provided the amount does not exceed $500. For condos, non-credit qualifying FHA Streamlines are exempt from FHA condo approval

guidelines. H-O6 Insurance is required for all FHA loans on condominiums. If assets are needed to close, the underwriter must verify and document required funds

including source of any large deposit according to FHA guidelines. If existing subordinate financing is remaining in place, the maximum CLTV is 125%. Loans containing an FHA HAMP Partial Claim Note are limited to a maximum CLTV of 100%. For streamlines without an appraisal, the LTV/CLTV is based on the original value as found on

the Refinance Authorization from the FHA Connection.



6.1-G Refinances (cont’d) 6.1-G5 Streamline Refinance Guidelines (cont’d) Non-owner occupied properties and second homes cannot streamline refinance from a fixed

rate to an ARM. Credit qualifying and non-credit qualifying streamline refinances must meet FHA net tangible

benefit (see Net Tangible Benefit section below). Credit qualifying streamline refinances must be run through TOTAL and receive an AUS

approval; however the file is then manually underwritten to streamline credit qualifying standards. The 92900-LT and 92900-A is completed with the underwriter’s CHUMS ID, not ZHFA.

For non-credit qualifying transactions with an appraisal, the appraisal may not be used to increase the new loan amount.

FraudGuard is required to be pulled on all loans including non-credit qualifying streamlines. Manufactured/Mobile homes are not eligible Repair escrows are allowed on streamlines with an appraisal. Follow guidelines posted in Credit

Policy section 3.7-A12 Escrow Holdbacks. Properties located in the following state are not permitted:

o Hawaii Lava Zones 1 and 2 o New York

An affidavit is required from the borrower that the property was not listed for sale at the time of loan application.

HPML loans are eligible as credit qualifying streamlines and must comply with HPML/Rebuttable Presumption requirements. Borrowers ability to repay must be documented using the following criteria:

o The highest payment of principal and interest scheduled in the first seven years of the loan

o Consideration of taxes and insurance, including MIP; and o Borrower must credit qualify (income and assets must be fully documented in loan file –

including 4506 tax transcripts). o DTI not to exceed 43%.

Application Documentation A completed 1003 is required. No income to be disclosed. Employment or source of income must be disclosed and verified.

Seasoning The following clarification was provided by FHA in regards to the seasoning period for streamline refinances. On the date the FHA case number was assigned:

The borrower must have made at least 6 payments on the FHA-insured mortgage that is being refinanced, and

At least six full months must have passed since the first payment due date of the refinanced mortgage, and

At least 210 days have passed from the closing date of the mortgage being refinanced, and If the borrower assumed the mortgage that is being refinanced, they must have made six payments

since the time of assumption.



6.1-G Refinances (cont’d) 6.1-G5 Streamline Refinance Guidelines (cont’d) Net Tangible Benefit

The new guidance bases the calculation of net tangible benefit on the principal and interest (P & I) and the Mortgage Insurance Premium. The underwriter must determine there is a net tangible benefit to the mortgagor as a result of the streamline refinance transaction with or without an appraisal. FHA defines “net tangible benefit” as: A minimum 5% reduction to the P & I of the mortgage payment plus the annual MIP or Refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage (see Streamline Net

Tangible Benefit Table for specific requirements). FHA has also clarified that reducing the term of the mortgage, in and of itself, is not a net tangible benefit. Therefore you are able to reduce the term and complete a streamline refinance if one of the two net tangible benefit items listed above are met. FHA has included a table defining different refinance situations and the appropriate guidance. This Streamline Net Tangible Benefit Table, along with a Net Tangible Benefit Worksheet will be posted in Credit Policy Forms section 12.3.

Employment Income Employment/Income source must be verified at underwriting and again prior to funding. Income is not required. A Verbal VOE at closing must be completed as well per SNMC policy. SNMC will require the following documentation:

Income Type Documentation Requirements

Salaried/W-2 Wage Earner Verbal VOE

Self-Employment Income Verification of SE applicant’s business¹ ¹Self-employment can be verified by any third party source such as CPA letter, copy of business license, etc.



6.1-G Refinances (cont’d) 6.1-G5 Streamline Refinance Guidelines (cont’d) Employment Income (cont’d) If the completed loan application indicates income is from an “other income” source, documentation supporting the source of the income is required in the loan file. Refer to the list below for some examples of acceptable documentation the Direct Endorsement (DE) Underwriter may accept.

Other Income Types (not all inclusive) Examples of Acceptable Documentation

Alimony/Separate Maintenance Copy of Divorce decree/settlement agreement or court payment record

Annuity Most current institutional statement

Child Support Copy of Divorce decree/settlement agreement or court payment record

Interest/Dividend Income Document showing ownership of interest bearing account or copy of current statement showing interest income

IRA/Keogh Most current bank statement or letter from administrator

Note Income Copy of Note or most current statement

Pension/Retirement Most current bank statement or benefit award letter or most current W-2/1099

Rental Income Copy of current lease

SS/Ret/Survivor’s/Disability Income Award letter or most current deposit statement

Trust Income Copy of trust agreement or trustee’s statement

VA Benefits Award letter or most current deposit statement



6.1-G Refinances (cont’d) 6.1-G5 Streamline Refinance Guidelines (cont’d) Mortgage Calculation

FHA Streamline Refinance with or without an Appraisal

The maximum insurable mortgage cannot exceed: The outstanding principal balance¹ minus the applicable refund of the UFMIP

Plus The new UFMIP that will be charged on the refinance.

¹The outstanding balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month but may not include delinquent interest, late charges, or escrow shortages. Please see the HUD Handbook 4155.1, section 3.C.3 or the appropriate worksheet located in the form section 12.3 of Credit Policy. Non-owner occupied property: The unpaid existing principal balance may not include any interest, late charges or escrow shortages. In addition no closing costs, prepaids or discount points may be financed into the new loan amount. For more information please see the Mortgage Calculation Worksheets located in the Credit Policy Forms Section 12 or the HUD Handbook 4155.1. No appraisals can be ordered for non-owner occupied properties.

Property All FHA Streamline Refinance loans that are submitted without an appraisal must have additional documentation to verify the property is not the following: To verify the property is not a manufactured/mobile home

o The information regarding manufactured/mobile home, can be obtained from several sources such as RealQuest and Zillow.com.

To verify the property is not located in a federally declared disaster area. o If located in a disaster area, SNMC will require an exterior inspection to be performed

by an FHA Approved Inspector up until the expiration date of the disaster declaration.



6.1-G Refinances (cont’d) 6.1-G5 Streamline Refinance Guidelines (cont’d) FHA Streamline Program with the High Balance FHA Loan Program High Balance FHA Loans are eligible with the FHA Streamline Program and must be fixed rate only, no ARMs are allowed. Max CLTV is 100%. When the base loan amount exceeds the applicable dollar amount below, the transaction is considered a High Balance FHA Streamline transaction and must meet additional criteria.

For Properties Located In: With the Following Number of Units:

The Maximum BASE Mortgage Amount Exceeds:

48 Continental States 1-Unit $424,100 2-Unit $543,000 3-Unit $656,350 4-Unit $815,650

Alaska & Hawaii 1-Unit $636,150 2-Unit $814,500 3-Unit $984,525 4-Unit $1,223,475

For the High Balance FHA Streamline Program, in addition to FHA Streamline Program guidelines, the following requirements must be met: FHA case number must be assigned on or after November 17, 2009. The maximum CLTV is capped at the maximum LTV (max LTV = max CLTV).

6.1-H Building on Own Land The following information is for guidance on FHA Building on Your Own Land transactions. The Building on Own Land Calculation Worksheet is posted in Credit Policy Forms Section 12 to be used for calculations and included in the file on all transactions. LTV limits are applied to the lesser of: The appraised value, or The documented acquisition costs of the property, which includes:

o The builder’s price, or the sum of all subcontractor’s bids, materials, etc. o Cost of land (if the land has been owned more than six months or received as an

acceptable gift, the value of the land may be used instead of its costs. o Interest and other costs associated with any construction loan obtained by the borrower

to fund construction of the property Equity in the land (value or cost, as appropriate, minus the amount owed) may be used for the borrower’s entire cash investment. If the borrower receives more than $250.00 cash back at closing, the loan is limited to 85% of the sum of the appraised value and allowable closing costs. Replenishment of the borrower’s own cash expended during construction is not considered as “cash back” – provided the borrower can document with cancelled checks and paid receipts and all out of pocket costs used for construction.



6.1-H Building on Own Land (cont’d) All case numbers will need to be ordered as purchase transactions. The HUD-1 statement will resemble a refinance transaction. The “Total Acquisition Cost” as listed on worksheet will be used as “contract sales price” for calculation purposes. The allowable closing costs paid by borrower are no longer allowed to be included in the “Total Acquisition Cost calculation”. Loan will need to be submitted as a purchase through the FHA scorecard to support borrower has made 3.5% minimum investment. All inspections and other new construction documents are required as per FHA guidelines. See Chapter 2, Section B.5 of the HUD Handbook 4155.1 for additional information on Building on Your Own Land.

6.1-I Mortgage Insurance Upfront MIP can be financed into the mortgage amount or the entire amount may be paid in cash. UFMIP may not be partially financed. The underwriter will need to verify the correct premium upfront and monthly mortgage insurance premium and notate both percentages in the remarks section of the 92900-LT and the notes section of E-Approve. The correct figures can be determined by reviewing both the case number assignment date and the DU findings.

6.1-I1 MIP Premiums Based on Term The following tables list the MIP amounts based on the term of the loan for case numbers assigned on or after January 26, 2015.

Loan Term ˃ 15 Years Base Loan Amount LTV UFMIP Annual MIP

≤ $625,500 ≤ 95% 1.75% .80% ≤ $625,500 ˃ 95% 1.75% .85% ˃ $625,500 ≤ 95% 1.75% 1.00% ˃ $625,500 ˃ 95% 1.75% 1.05%

Loan Term ≤ 15 Years ≤ $625,500 ˃ 78% - 90% 1.75% 0.45% ≤ $625,500 ˃ 90% 1.75% 0.70% ˃ $625,500 ˃ 78% - 90% 1.75% 0.70% ˃ $625,500 ˃ 90% 1.75% 0.95%

Any Loan Amount ≤ 78% 1.75% 0.45%

Streamline Refinances of Loans Endorsed Prior to June 1, 2009 ONLY Loan Term ˃ 15 Years

LTV UFMIP Annual MIP All LTVs .01% 0.55%



6.1-I Mortgage Insurance (cont’d) 6.1-I1 MIP Premiums Based on Term (cont’d) The following tables list the MIP amounts based on the term of the loan for case numbers assigned on or after April 1, 2013.

Loan Term ˃ 15 Years Base Loan Amount LTV UFMIP Annual MIP

≤ $625,500 ≤ 95% 1.75% 1.30% ≤ $625,500 ˃ 95% 1.75% 1.35% ˃ $625,500 ≤ 95% 1.75% 1.50% ˃ $625,500 ˃ 95% 1.75% 1.55%

Loan Term ≤ 15 Years ≤ $625,500 ˃ 78% - 90% 1.75% 0.45% ≤ $625,500 ˃ 90% 1.75% 0.70% ˃ $625,500 ˃ 78% - 90% 1.75% 0.70% ˃ $625,500 ˃ 90% 1.75% 0.95%

Any Loan Amount ≤ 78% 1.75% 0.45% FHA Mortgagee Letter 2013-04 addresses changes to the duration of annual MIP and the addition of annual MIP on 15 year loans with LTV’s less than 78%. These changes are effective with case numbers assigned on or after June 3, 2013 (on all loans except Streamline Refinance transactions endorsed on or before May 31, 2009). The table below shows the previous and the new duration of annual MIP by amortization term and LTV ratio at origination.

Term LTV Previous MIP New MIP ≤ 15 Years ≤78% No Annual MIP 11 years ≤ 15 Years >78% to 90% Cancelled at 78% LTV 11 years ≤ 15 Years >90% Cancelled at 78% LTV Loan Term * > 15 Years ≤78% 5 Years 11 years > 15 Years >78% to 90% Cancelled at 78%

LTV and 5 Years 11 years

> 15 Years >90% Cancelled at 78% LTV and 5 Years

Loan Term *

*Annual MIP will be assessed until the end of the loan term or for the first 30 years, whichever occurs first. Note: FHA calculates LTV as a percentage by dividing the loan amount (prior to the financing of any UFMIP) by the lesser of the purchase price (if applicable) or the appraised value of the home. For streamline refinances without appraisals, FHA uses the original appraised value of the property to calculate the LTV.



6.1-J Subordinate Financing Subordinate financing allowed according to FHA guidelines, see the HUD Handbook 4155.1.5.C.

6.1-J1 Government Agencies Federal, state, and local government agencies may provide secondary financing for the borrower’s entire cash investment. The second lien itself must be made or held by the eligible governmental body. It is the underwriter’s responsibility to document the eligibility of the governmental body.

6.1-J2 Non-Profit Agencies Non-profit agencies that are considered instrumentalities of government may provide secondary financing for the borrower’s entire cash investment. The appropriate HOC is responsible for approving the nonprofit agency, as well as determining if it can be considered an instrumentality of government. If the non-profit agency is not considered an instrumentality of government, the borrower must make their required cash investment from another acceptable source. It is the underwriter’s responsibility to document the approval of the non-profit agency as well as their status as an instrumentality of the government. Lists from the appropriate HOC website should be printed and included in the loan file to document both items. Additional information on FHA regulations for secondary financing can be found in HUD Handbook 4155.1 Chapter 5, Section C.

6.1-J3 Maximum Combined Loan-to-Value

Government Agency

Charitable Organization/

Approved Non-Profit

Family Member

Other Organizations/

Private Individuals

Maximum CLTV

100% ¹of the acquisition costs² (the cost to acquire may exceed the appraised

value)

100% of the acquisition

costs²

100% of the lesser of the property value or sales

price plus normal closing costs, prepaids, and

discount points

The applicable loan-to-value

for the geographic

value ¹ On conforming balance purchase transactions, CLTV can exceed 100% with an eligible Community Second, however may never exceed 100% of the cost to acquire the property. ² Acquisition cost is defined as the sales price plus allowable borrower-paid closing costs, discount points, repair, and rehabilitation costs.



6.1-K Property 6.1-K1 Eligible Properties 1-4 Unit FHA Approved condominiums (low and high rise) Planned Unit Developments

6.1-K2 Ineligible Properties Condo hotels Commercial buildings Mobile/Manufactured housing Non-FHA approved condos

Co-ops Log Homes Leasehold Properties

6.1-K3 State Restrictions Hawaii: Properties in Lava Flow Zones 1 or 2 are not allowed. Massachusetts: Septic system inspection required when a property is transferred to a different

owner (purchase money). All systems must be inspected within 2 years prior to the transfer of title to the property served by the system. Inspections conducted up to 3 years before the purchase may be eligible when accompanied by records demonstrating that the system was pumped at least once a year during that time.

Mississippi: Not eligible. Montana: Lot size of the property may not exceed 40 acres. New Jersey: Maximum 50% DTI for TOTAL Scorecard Approve/Eligible recommendations. No

exceptions allowed. New York: Not eligible. Texas: Cash out refinance transactions are not eligible in Texas. West Virginia: Not eligible.

6.1-K4 Properties Listed for Sale Refinance on properties currently listed for sales are not permitted. Rate/Term Refinance: The listing must be cancelled at least one day prior to the date the loan application is taken Cash Out Refinance: The listing must have expired or been canceled at least one day prior to the date the application is taken for both rate/term or cash-out refinances.

6.1-K5 Appraisals The validity period for all appraisals on existing and proposed and under construction properties is 120 days. The following link calculates the expiration date (120 days) for an FHA appraisal, http://cgi.cs.duke.edu/~des/datecalc/datecalc.cgi. The underwriter must assure that the FHA Connection reflects the correct name of the appraiser.



6.1-K Property (cont’d) 6.1-K5 Appraisals (cont’d) Adoption of the Appraisal Update and/or Completion Report FHA has adopted the dual purpose form, Appraisal Update and/or Completion Report (FNMA 1004D/FHLMC 442). Please see Mortgagee Letter 2009-51 and Mortgagee Letter 2010-13 for further clarification. This form consists of the Part A, summary Appraisal Update Report and Part B, Certification of Completion. Guidelines for use of the Appraisal Update Report are as follows: The Update Report may not be used if the property value has declined; the appraiser must

certify there has been no decline in value. The Appraisal Update Report may only be used one time to extend the validity period of the

original appraisal report. The Appraisal Update Report must be ordered and performed prior to the expiration date of

the original appraisal report. The FHA appraiser who performed the original appraisal must perform the appraisal update and

the appraiser must be in good standing with FHA at the time the Appraisal Update is performed. The appraiser must use the Market Conditions Addendum, Fannie Mae 1004MC, to update their

research and analysis of the current market data to validate the subject property has not declined in value.

The appraiser must be able to observe from the street or a public way the subject property's improvements that contribute value to the property.

An exterior inspection of the property must not indicate any significant changes or deficiencies that were not observed at the time of the original appraisal report's effective date.

If the original appraisal report was transferred to a new lender, the appraiser must attach the original appraisal report to the Appraisal Update Report instead of referencing the report. This is a USPAP requirement.

The appraiser must provide a photo of the subject property from the street and photos from as many angles visible from a public way.

Appraiser Independence FHA lenders are prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission bases tied to the successful completion of a loan. FHA also prohibits any member of the loan production staff or any person who is compensated on a commission basis to have substantive communications with an appraiser related to or having an impact on valuation. For more information, please see Mortgagee Letter 2009-28. See Section 3.7 of Credit Policy for AIR guidelines.



6.1-K Property (cont’d) 6.1-K5 Appraisals (cont’d) Portability of Appraisals from One Lender to Another For AIR guidelines, see Appraisal Delivery Requirements in Credit Policy Section 3.7-C8. The following guidelines apply when a borrower switches from one FHA approved lender (first lender) to another (second lender), and an appraisal was ordered and completed for the first lender. FHA recognizes that the second lender may need to order a new appraisal, but this is allowed only under limited circumstances. The DE underwriter for the second lender found material defects with the original appraisal. The original appraiser is on the second lender’s exclusionary list. The first lender failed to provide a copy of the appraisal in a timely matter, which causes

potential harm to the borrower for events outside of the borrower’s control. The events include rate lock expiration, purchase contract deadlines, and foreclosure proceedings.

For cases 1 and 2 above, the lender must retain both appraisals in the FHA case binder. For case 3 the first appraisal must be added to the case binder when it is received. In all cases, the lender must document why a second appraisal was ordered and retained in the case binder. Please see Mortgagee Letter 2009-29 for further clarification.

6.1-K6 Declining Market If a property is located in a declining market the appraiser must: Include at least two comparable sales that closed within 90 days. If the appraiser is unable to

find comps that closed within 90 days, he/she is to provide a detailed explanation and include at least two sales that are as similar as possible that closed within 90 days to show market activity.

Include a minimum of two active listings or pending sales on the appraisal grid along with the closed sales comps. The appraiser should adjust the active listings to reflect the list to sale price ratio for the market. Adjust pending sales to reflect the contract purchase price and the list to sale price ratio

The appraiser is to reconcile the adjusted values of active listing or pending sales with the adjusted values of the closed sales provided. If the adjusted values of the closed comps are higher than the adjusted values of the active listings or pending sales, the appraiser must determine if a market condition adjustment is appropriate

6.1-K7 Market Conditions Addendum The Market Conditions Addendum is required by FHA on all appraisals. For more information, please refer to Mortgagee Letter 2009-09.

6.1-K8 Property Flipping To address the issue of property flipping, FHA has placed certain time restrictions and additional documentation requirements on purchase transactions involving the resale of an existing property. Property eligibility is dependent upon the time that has elapsed between the date the seller acquired the property (based on the settlement date) and the date the buyer signed the sales contract or purchase offer (the resale date). With certain exceptions, FHA has prohibited insuring a mortgage on a home owned by the seller for less than 90 days. This restriction was imposed in 2003 to prevent property flipping. On January 15, 2010, HUD announced a temporary waiver of the prohibition with strict conditions to insure against predatory practices. This temporary waiver expired on 12/31/2014.



6.1-K Property (cont’d) 6.1-K8 Property Flipping (cont’d) The FHA Property Flipping Waiver expired on December 31, 2014. Purchase contracts executed after 11:59 PM on December 31, 2014 are no longer eligible for the waiver. FHA deems a sales contract to be executed when all parties to the contract have signed the contract and the contract is enforceable under the law of the state where the property is located. Mortgages that are made on property flips within 90 days of the previous seller’s acquisition with a purchase contract dated after December 31, 2014, are no longer eligible. The current option of providing a second appraisal and a home inspection for a property flip within 90 days will no longer be allowed. The only exceptions to the FHA property flipping rule (property flip within 90 days) are: FHA REO properties sold by FHA. Resales of properties purchased by an employer or relocation agency in connection with

employee relocation. What FHA intends to exempt is bona fide relocation agencies that contract with employers to handle relocations of their employees. A relocation agency DOES NOT include individual real estate agents that advertise themselves as relocation experts and who purchase properties from persons who are relocating from the area.

Property inherited by the seller. The seller will not be required to hold title to that property for 90 days before he/she can sell it with FHA insured financing. The seller must still be the owner of record but the 90 day ownership period will not be required. Further, since there was no previous sale of the property because it was inherited, there is no previous sales price that might trigger the second appraisal requirement set forth in the flipping rules. The underwriter must include the documentation evidencing the inheritance in the case binder when submitting the case for insurance.

Sale by other U.S. Government Agencies of single family properties pursuant to programs operated by these agencies.

Sale of properties by nonprofits approved to purchase HUD-owned single family properties at a discount with resale restrictions.

Sale of properties by state and federally charted financial institutions and Government Sponsored Enterprises (e.g. Fannie Mae and Freddie Mac). (Note: Mortgage Insurance (MI) companies are not considered a state or federally charted financial institution and are not qualified as a government sponsored enterprise.)

Sale of properties by local and state government agencies Sale of properties within Presidentially-Declared Disaster Areas (upon FHA’s announcement of

eligibility in a mortgagee letter specific to said disaster). Any subsequent re-sales of the properties must meet the 90 day threshold in order for the mortgage to be eligible for FHA insuring.



6.1-K Property (cont’d) 6.1-K8 Property Flipping (cont’d) Properties Owned with Resale Dates Greater than 90 Days to 180 Days Loans with resale dates greater than 90 days and up to 180 days may require supplemental documentation. If the home is selling between 91-180 days and the sales price exceeds the previous sales price by 100% or more, FHA will require a 2nd appraisal. For additional information, please see HUD Handbook 4155.2, Chapter 4.7. A second appraisal will be required when: Resale of property greater than 90 days and up to 180 days if the resale price is greater than or

equal to 100% over the property seller’s acquisition price. If the second appraisal has an estimated value more than 5% lower than the original appraisal,

the maximum mortgage must be predicated upon the lower of the two appraised values. Guidelines for additional appraisal: Both appraisals need to be completed by FHA approved appraisers Only the first appraisal you order will have the FHA case number

Properties Owned < 90 Days These guidelines for Properties Owned < 90 Days are valid only for purchase contracts executed before 11:59 pm on December 31, 2014. SecurityNational Mortgage will allow the current HUD Waiver of Requirements of 24 CFR 203.37 a(b)(2) as per HUD guidelines. The Waiver of Requirements of 24 CFR 203.37 a(b)(2) takes effect with all properties with purchase contracts signed by the seller and buyer on or after February 1, 2010 and is limited to those sales meeting the following conditions:

All transactions must be arms-length, with no identity of interest between buyer and seller or other parties participating in the sales transactions. Some ways that the lender can ensure that there is no inappropriate collusion or agreements between parties is to assess and determine the following:

o The seller holds title to the property; o LLCs, corporations, or trusts that are serving as sellers were established and are operated in

accordance with applicable state and Federal law. o No pattern of previous flipping activity exists for the subject property, as evidenced by

multiple title transfers within a 12-month period time frame (chain of title information for the subject property can be found on the appraisal report)

o The property was marketed openly and fairly, via MLS, auction, For Sale by Owner offering, or developer marketing (any sales contracts that refer to an “assignment of contract of sale”, which represents a special arrangement between seller and buyer may be a red flag).



6.1-K Property (cont’d) 6.1-K8 Property Flipping (cont’d) Properties Owned < 90 Days (cont’d) Transactions in which the sales price of the subject property is 20% or more above the seller’s

acquisition cost. ¹ In addition to compliance with HUD’s requirements when applying the waiver, SNMC will require the following:

o A full second appraisal ordered from Rels Valuation Second appraisal must be completed by an approved FHA roster appraiser Second appraisal to be compliant with all FHA appraisal reporting requirements

o No variances allowed. o All health and safety items noted in the appraisal and/or home inspection must be

completed prior to closing. o Final Inspection to be provided showing repairs completed. o SNMC cannot charge the cost of the second appraisal to the borrower.

¹ The property seller’s acquisition costs is defined as what the seller paid to acquire the property. It does not include any repairs or improvements made by the seller. As a reminder, as stated in the original waiver the following HUD requirements apply to increases ≥ 20%: Justify the increase in value by retaining in the loan file supporting documentation which verifies

the seller has completed sufficient legitimate renovation, repair, and rehabilitation work on the subject property to substantiate the increase in value, or in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in value since the prior title transfer; And

Order a property inspection and provide the inspection report to the borrower before closing. The inspector must have no interest in the property or relationship with the seller, and must not receive compensation for the inspection from any party other than the mortgagee. Additionally, the inspector may not compensate anyone for referral of the inspection; receive any compensation for referring or recommending contractors to perform any repairs recommended, or to be involved with performing any repairs recommended by the inspection. At a minimum the inspection must include:

o The property structure, including the foundation, floor, ceiling, walls, and roof o The exterior, including siding doors, windows, appurtenant structures such as decks and

balconies, walkways, and driveways o The roofing, plumbing systems, electrical systems, heating and air conditioning systems o All interiors o All insulation and ventilation systems, as well as fireplaces and solid fuel-burning

appliances SNMC may charge the borrower for the property inspection

Any loan that does not meet the above conditions will be subject the 90 day flipping rule as per the original FHA guidelines. As per SNMC current policy on all loans, any increase in value from the original purchase price of the transaction within a 12 month period will need to be justified by the underwriter. Any loans in which you have questions or concerns should be reviewed with either the Branch Underwriting Manager or with Corporate Underwriting. This temporary waiver expired on 12/31/2014.



6.1-K Property (cont’d) 6.1-K9 New Construction Documentation Requirement for Proposed, Under Construction, and Existing < 1 Year Proposed and Master Appraisal Report (MAR) – approved prior to the beginning of construction by either a Conditional Commitment, Early Start Letter, or MAR form 91322 for High Ratio Loans.

Low Ratio Loan: 90% and Lower: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builders Certification (HUD 92541) (not for endorsement binder) Final Inspection by FHA fee inspector (HUD 92051) Health Authority approval on Well and Septic if needed Flood insurance (elevation cert noted as SFHA)

High Ratio Loan: 90.01% and Higher: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builders Cert (HUD 92541) (not on condo) 1 year warranty (HUD 92544) 10 year warranty and final inspection by fee inspector (92051) or 3 inspections by fee inspector (HUD 92051)** or

Early Start letter and 3 inspections by fee inspector (92051) or Building permit (or equivalent) and Certificate of Occupancy (or equivalent) Health Authority approval if needed Flood insurance (elevation cert notes as SFHA)

** Only 2 inspections are required on a Modular home

Under Construction Low Ratio Loan: 90% and Lower: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builders Certification (HUD 92541) (not for endorsement binder) Final Inspection by fee inspector (HUD 92051) Health Authority approval if needed Flood insurance (elevation cert noted as SFHA)

High Ratio Loan: 90.01% and Higher: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builders Certification (HUD 92541) (not on condo) 1 year warranty (HUD 92544) 10 year warranty and final inspection by fee inspector (92051)

or Building permit (or equivalent) and Certificate of Occupancy (or equivalent) Health Authority approval if needed Flood insurance (elevation cert noted as SFHA)

If early start letter is in file – treat as proposed construction.



6.1-K Property (cont’d) 6.1-K9 New Construction Documentation (cont’d) FHA Final Inspection When a property is “Under Construction” more than 90% complete at the time of appraisal with only minor finish work remaining (generally buyer preference items), items the appraiser would have the expertise to sign off, the final inspection may be completed by the appraiser under the guidance of Mortgagee Letter 01-27; otherwise the final inspections by must be done by a FHA Fee Inspector.

Existing (New) < 1 year old Low Ratio Loan: 90% and Lower: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builders Certification (HUD 92541) (not for endorsement binder) Heath Authority approval if needed Flood insurance (elevation cert noted as SFHA) High Ratio Loan: 90.01% and Higher Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state)

High Ratio Loan: 90.01% and Higher: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builder Certification (HUD 92541) (not on condo) 1 year warranty (HUD 92544) 10 year warranty, or

o Building Permit (or equivalent) and Certificate of Occupancy (or equivalent) o Health Authority approval if needed o Flood insurance (elevation cert noted as SFHA)

** If early start letter is in file – treat as proposed construction

Requirements for new construction > 1 yr old not previously occupied FHA will treat a new construction that is over 1 year old and not previously occupied as an existing home and will not require the normal new construction exhibits, provided that the underwriter documents that the home is over 1 year old by proving a Certificate of Occupancy. The date the home was cleared for occupancy will be the date to verify the home is over 1 year old.

Requirements for Resale of an existing home < 1 year old FHA will treat a resale of a second or subsequent purchaser of a new, less than one year old property that is 100% complete (including all on and offsite improvements) as an existing property and the new construction exhibits normally submitted will not be required, provided that: The re-sale is an arms-length transaction The lender clearly identifies the transaction as a resale to a second or subsequent purchaser in

the case binder (to avoid an NOR being issued by the Homeownership Center for missing new construction exhibits)

With respect to property flipping rule, underwriters are reminded that while a builder selling a newly built home is not subject to the property flipping rule, a subsequent seller would be.



6.1-K Property (cont’d) 6.1-K9 New Construction Documentation (cont’d) Requirements for Refinance of a Conventional to FHA – Property < 1 year old For a refinance of a conventional loan to an FHA loan on a property that is existing, less than one year old: Low Ratio Loan: 90% and Lower: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builders Certification (HUD 92541) (not for endorsement binder) Health Authority approval if needed Flood insurance (elevation cert noted as SFHA)

High Ratio Loan: 90.01% and Higher: Subterranean Termite Treatment Report – NPCA – 99a and 99b (termite state) Builder Certification (HUD 92541) (not on condo) 1 year warranty (HUD 92544) 10 year warranty, or

o Building Permit (or equivalent) and Certificate of Occupancy (or equivalent) o Health Authority approval if needed o Flood insurance (elevation cert noted as SFHA)

*** When a bank forecloses on a builder and is then listed as the "owner of record," the new construction is treated as existing. A final building permit and certificate of occupancy (or equivalent) should be obtained, but no "new construction documents" are required. Home must be complete. If the borrower must finish construction of the home then new construction docs would be required in most cases.

6.1-L Condominiums Effective with Case numbers assigned on or after December 7, 2009 the entire project must be approved by HUD or a Direct Endorsement Lender. The two processes are referred to as HRAP (HUD Review and Approval Process) and DELRAP (Direct Endorsement Lender Review and Approval Process). SNMC will not approve condos under the DELRAP process at this time. FHA approved condo projects can be searched at: https://entp.hud.gov/idapp/html/condlook.cfm. A printout from the web page showing evidence that the project is on the approved list should be included in the file. This section is not all-inclusive, for further information on FHA Condominiums; please see Mortgagee Letter 2011-22 and the Condominium Project Approval and Processing Guide.

6.1-L1 Eligible Property Types Condominium projects of 2 or more units and site (detached) condominiums.



6.1-L Condominiums (cont’d) 6.1-L2 Documentation Required SNMC requires a FHA Condo HOA Certification to be completed and included in the file. This form is located in Credit Policy Forms Section 12.2. As stated in Mortgagee Letter 2011-22/Condominium Project Approval and Processing Guide, the lender must verify the condominium project has been FHA approved via HRAP or DELRAP and must complete “Appendix B, Certification for Individual Unit Financing”. This form is located in Credit Policy Forms section 12.2. This attachment must be signed by the underwriter and included in the original file and certify the project’s continued compliance with the initial approval requirements regarding the following: Investor ownership Percentage of owners in arrears for condominium association fees Pre-sale ratio Owner-occupancy rate FHA loan concentration rate

The Appendix B which must be signed by the underwriter certifies the following: The mortgagee has verified that the condominium unit connected to the specific loan file is in a

project that is on the FHA approval list as of the date the FHA case number was assigned. To the best of her/her knowledge and belief, the information and statements contained in this

application are true and correct The Mortgagee has no knowledge of circumstances or conditions that might have an adverse

effect on the project or cause a mortgage secured by a unit in the project to become delinquent. (including but not limited to defects in construction, substantial disputes or dissatisfaction among the unit owners about the operation of the project or the owner’s association; and disputes concerning unit owner’s rights, privileges and obligations) and

The Mortgagee has reviewed and verified the project’s continued compliance with the initial approval requirements and verified that the investor’s ownership, percentage of owners in arrears for condominium association fees and owner occupancy meets FHA requirements

Additionally, the following requirements must be met: The required certification noted above (see Appendix B) must be executed by the underwriter when the loan decision is made, the borrower(s) is approved, and the loan is ready to close. This certification must have been executed within the 30 days prior to the date of closing and cannot be executed after the loan is closed.



6.1-L Condominiums (cont’d) 6.1-L2 Documentation Required (cont’d) Investor ownership: No more than 10% of the units may be owned by one investor. Additional requirements and information can be found in the Condominium Project Approval and Processing Guide, section 2.1.4. Percentage of owners in arrears for condominium association fees: No more than 15% of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments. This amount includes all units (occupied, investor, bank owned, vacant), please see the Condominium Project Approval and Processing Guide section 2.1.5 for more information. Pre-sale ratio: At least 30% of the total units must be sold prior to endorsement of a mortgage on any unit. Valid pre-sales include: Copies of sales agreements and evidence that a mortgagee is willing to make the loan* Evidence that units have closed and are occupied; OR Information from a developer/builder that lists all the units already sold, under contract, or

closed (e.g. a spreadsheet, chart, listing used for the company’s own tracking purposes) that is accompanied by a signed certification from the builder.

*Note: Secondary residences can only be included if it meets the requirements of 24 CFR 203.18 (f)(2). Owner-occupancy rate: At least 50% of the units in a project must be owner-occupied or sold to owners who intend to occupy the units. FHA will allow a minimum owner-occupancy amount equal to 30% of declared units for proposed, under construction, or existing > 12 months. One year after the first unit conveyance, the project requirement is at least 50% owner -occupancy of the declared units. The owner-occupancy percentage must be documented as follows: Copies of sales agreements and evidence that a mortgagee is willing to make the loan* Evidence that units have closed and are occupied; OR Information from a developer/builder that lists all the units already sold, under contract, or

closed (e.g. a spreadsheet, chart, listing used for the company’s own tracking purposes) that is accompanied by a signed certification from the developer/builder.

*Note: Secondary residences can only be included if it meets the requirements of 24 CFR 203.18 (f)(2). FHA loan concentration rate: The maximum FHA concentration requirement is currently at 50%. FHA will not issue new case numbers once the 50% concentration level (plus a small tolerance will accommodate for some fall-out) has been reached in any particular development. FHA will display the concentration information for each approved condominium development on the approved condominium listing, which can be found in the FHA Connection. The jurisdictional HOC may grant an exception to allow insurance of mortgages in a project with an FHA concentration greater than 50%. To be granted an exception, the required documents and a cover letter must be submitted to jurisdictional HOC for review and eligibility determination. Please review section 3.6 of the FHA Condominium Project Approval and Processing Guide for more details.



6.1-L Condominiums (cont’d) 6.1-L2 Documentation Required (cont’d) Insurance Coverage The condominium project must be covered by hazard, flood, liability, and other insurance required by state or local condominium laws or acceptable as defined to FHA in section 2.1.9 of the FHA Condominium Project Approval and Processing Guide.

Hazard If the HOA does not maintain 100% coverage, the unit owner may not obtain “gap” coverage to meet this requirement.

Flood The HOA, not the borrower or individual unit owner, is responsible for obtaining and maintaining adequate flood insurance under the NFIP on buildings located in a Special Flood Hazard Area. The flood insurance coverage must protect the interest of the borrowers who hold title to an individual unit as well as the common areas of the condominium project. If the FHA Roster Appraiser reports that buildings in a condominium project are located in a SFHA, the mortgagee is responsible for ensuring the HOA obtains and maintains adequate flood insurance on buildings located within the SHFA, per the requirements of ML 2009-37, 2010-43, and the Condominium Project Approval and Processing Guide.

HO-6 “Walls-In” Interior Coverage

In cases where the master policy does not include interior unit coverage, including replacement of interior improvements and betterment coverage to insure improvements that the borrower have made to the unit, the borrower must obtain a “walls-in” coverage policy (HO-6). Impounds for H0-6 insurance are required.

6.1-L3 General Information Project approval is not required for FHA to FHA non-credit qualifying streamline refinances

without appraisal or FHA/HUD REO sales. The project must be covered by the required insurance and may not be comprised of

manufactured home.

6.1-L4 Site Condominiums Condominium project approval is not required for site condominiums meeting all the below defined requirements. Site condominiums are defined as meeting all of the following criteria: Single family, completely detached dwellings (no shared garages, attached buildings, archways,

breezeways, porches, decks, etc.); and Units are encumbered by a declaration of condominium covenants or condominium form of

ownership; and The condominium unit consists of the entire structure as well as the site and air space and no

part of the structure is considered to be a common area or limited common area; and Insurance and maintenance costs are totally the responsibility of the unit owner; and Any common assessments collected will be for the amenities outside of the footprint of the

individual site*. Projects vary in terminology in defining the unit; however, if the unit structure’s front lawn and/or back lawn is the responsibility of the association, FHA project approval is required.



6.1-L Condominiums (cont’d) 6.1-L4 Site Condominiums (cont’d) Condominiums that do not meet this definition are not considered to be site condominiums by HUD and will require FHA full project approval. Additional Site Condominium Considerations: The FHA Case Number Assignment should show the subject property as a Site Condominium. The project cannot be on the FHA’s Approved List as an HRAP or DELRAP-Approved Project or

Rejected Project. Property must reflect ADP Code of 731 (Adjustment Rate Mortgage) or 734 (Fixed Rate). The appraisal must be completed on Fannie Mae Form 1073 – Individual Condominium Unit

Appraisal Report. The Condominium Rider to Deed of Trust must be included in the FHA Case Binder. The insurance policy should be an HO3 policy (follow FHA insurance requirements for 1-4 unit

properties.) Provide Covenants, Conditions, and Restrictions (CC&Rs)

6.1-M HUD Owned Properties/Repair Escrows HUD will allow repair escrows to be financed in the new FHA loan amount on some REO properties. The purchase contract from HUD will address on line 4 if repair escrows are allowed. These guidelines should be followed: Mortgage lenders request the HUD appraisal from the M&M contractor. Appraisal should

address what repairs are required and the cost to complete Must use the appraisal from the M&M Contractor unless the circumstance meets FHA guidelines

of ordering a second appraisal. HUD appraisals are good for 120 days. Obtain a copy of the fully executed purchase contract from the M&M contractor Purchase contract will list on line 4 the amount of the repair escrow that can be included in the

mortgage The repair escrow listed on line 4 of the purchase contract is 110% of the estimated cost of

repairs and must be used for the repairs specified in the property listing The repair escrow can be added into the loan amount. Please refer to Mortgagee Letter 2000-27

for instructions The maximum dollar amount to be eligible for FHA 203b financing is $5000 An escrow agreement for 110% of the cost of repairs must be signed by all parties A completed form HUD-92300, Mortgage’s Assurance of Completion will be included in the case

binder A completed form HUD-92051 or 1004D, Compliance Inspection Report (final inspection) must

be submitted after the completion of repairs. The repair inspection must be performed by a qualified individual (but does not necessarily require an FHA Fee Inspector). DE underwriter determines the level of qualification necessary for the inspection

The maximum escrow period is 60 days The escrow amount must be approved by the underwriter The Title Company will be instructed to hold the escrow monies until instructed by SNMC branch

to disburse the funds according to our instructions It is the branch’s responsibility to underwrite, close, track, and deliver all the follow up

documentation See Section 3.7-A12, Property Guidelines for additional information on Escrow Holdbacks Case number should be ordered as an REO case with or without an appraisal Temporary buydowns are not allowed



6.1-N Amendatory Clause and Real Estate Certification The FHA Amendatory Statement and Real Estate Certification Disclosure should be signed and dated with the Purchase Contract. If they are not, the processor or loan originator must get these signed by all parties prior to closing. Below is verbiage from the 4155 which states when the document is not required. The underwriter will ultimately be responsible to know if it is needed or not.

6.1-N1 Amendatory Clause The actual dollar amount to be inserted in the amendatory clause is the sales price stated in the contract. If the borrower and seller agree to adjust the sales price in response to an appraised value that is less than the sales price, a new amendatory clause is not required. However, the loan application package must include the original sales contract with the same price as shown on the amendatory clause, along with the revised or amended sales contract. The Amendatory Clause is not required on HUD REO sales, sales where the seller is Fannie Mae, Freddie Mac, the Department of Veterans Affairs, Rural Housing Services, other federal, state and local government agencies, mortgagees disposing of REO assets, or sellers at foreclosure sales and those sales where the borrower will not be an owner-occupant (e.g., sales to nonprofit agencies).

6.1-N2 Real Estate Certification The borrower, seller, and the selling real estate agent or broker involved in the sales transaction must certify that the terms and conditions of the sales contract are true to the best of their knowledge and belief and that any other agreement entered into by any of the parties in connection with the real estate transaction is part of, or attached to, the sales agreement. If the sales contract contains a provision that there are no other agreements between parties and that the terms of the sales contract constitute the entire agreement between the parties, the certification specified in the above paragraph is not needed if all parties are signatories to the sales contract submitted at the time of underwriting.

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