usda 7 cfr3555 regulation - sun west mortgage co€¦ · usda streamline refinance •us can be...
TRANSCRIPT
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277.
USDA 7 CFR 3555 Regulation
Underwriting Guide
Introduction
• This presentation will provide a brief overview of changes in
underwriting as per new USDA regulation.
• Effective December 1st, loan submitted to USDA for conditional
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 2
• Effective December 1st, loan submitted to USDA for conditional
commitment needs to meet requirement of new 7 CFR 3555
regulation which will replace previous 7 CFR 1980 regulation.
• USDA has launched new Handbook HB-1-3555 in accordance with the
new regulation.
• USDA also launched new forms in accordance with the new regulation.
Important Notice
• For effective transition of new regulation from old regulation,
USDA will not accept any loan submission from Nov 21st , 2014
till Nov 30th , 2014.
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 3
till Nov 30 , 2014.
• Any loans which have not received conditional commitments
need to be underwritten by new guideline.
• You may continue to enter new applications into GUS; however,
GUS will not be permitted to perform a final submission of the
application to USDA during Nov 21st , 2014 till Nov 30th , 2014.
USDA Streamline Refinance
• GUS can be used for Streamline Refinanced Loans.
• Direct Guarantee loans were previously not eligible for Streamline
except Rural Refinance Pilot Programs. Now Direct Guarantee loans
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 4
except Rural Refinance Pilot Programs. Now Direct Guarantee loans
where Payment Subsidy not received are eligible for Streamline
Refinance.
• Streamline loans must have a 12 month history with no late
payments in the past 180 days.
• Any late payments in last 36 months will be considered as risk and
LOE for the same is required.
USDA Rate and Term Refinance
• Permissible discount points financed may not exceed two
percentage points of the loan amount for a rate and term
refinance.
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 5
refinance.
Borrower Eligibility
• Updated eligibility for Military Borrower:
• Proof of discharge must be received within 1 year and the
service person's family will continue to occupy the property if
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 6
service person's family will continue to occupy the property if
they are assigned to combat zone or other hazardous duty prior
to discharge.
Borrower Eligibility
• Tax Transcript Requirement:
• Each adult (18 or older) member of the household must
complete and execute an IRS Form 4506-T for previous 2 year.
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 7
complete and execute an IRS Form 4506-T for previous 2 year.
• Note: The information gathered from the IRS on household
members not included on the loan is not intended to
document income, but to validate the income documentation
and disclosures provided by the applicant(s) on all adult
members of the household in order to verify eligibility for the
loan program only.
Allowable Age of Credit Documents
• All credit document validity periods have reduced from 180
days to 120 days for new construction.
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 8
Departing residence Guideline
• In case of departing residence, it needs to be verified that
current home no longer meets the applicants' need by
documenting change of status.
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 9
documenting change of status.
• Example of change status includes, but is not limited to:
• Verification of severe overcrowding (i.e. 1.5 household resident per
room) for past 90 days and future continuation for at least 9 months.
• Proof of deficiency of departing residence over suitability of new
residence for any household member with disability or limited
mobility.
Short Sale, Pre Foreclosure Sale or Deed in Lieu
• A short sale is considered a pre-foreclosure activity or event.
An applicant is ineligible for a mortgage loan if applicant takes
advantage of declining market conditions and purchases a new
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 10
advantage of declining market conditions and purchases a new
property at a reduced price, a similar or superior property
within a reasonable commuting distance.
• 3 years from date of Pre-foreclosure sale.
• No waiting period if borrower had no late payments on any mortgages
and installment debts within the 12-month period preceding the short
sale.
Disputed Account
• Loans underwritten with the assistance of GUS that receive an
underwriting recommendation of “Accept” will be
downgraded to a manual “Refer” unless the following
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 11
downgraded to a manual “Refer” unless the following
conditions are met on the credit report
• The disputed trade line has a zero dollar balance.
• The disputed trade line is marked “paid in full” or “resolved.”
• The disputed trade line has a balance owed of less than $500 and is
more than 24 months old.
Collection Account – Capacity Analysis
• If total outstanding balance of all open collection accounts excluding
medical collection and charge off accounts, including collection account of
Non Borrowing Spouse where subject property is in community property
state, are equal or greater than $2,000, then any of the following
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 12
state, are equal or greater than $2,000, then any of the following
restriction will apply
• Payment in full of all collection account at or prior to closing.
• Proof of payment arrangement for each outstanding collection account along
with agreed upon monthly payment for each outstanding collection account
which will be considered in DTI Ratio.
• In absence of a payment arrangement, 5% of outstanding balance of each
collection account should be considered in DTI Ratio.
Student Loan
• Student loan must be included in DTI ratio with greater of 1% of the
outstanding balance or the verified monthly payment reported in
the credit report; unless one of the below exceptions are met:
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 13
• If the student loan is a fixed payment loan verified by credit
supplement or letter from loan servicer verifying applicant is on fixed
payment plan, which is not subject to change under the current plan
and monthly payment amount due.
• IBR, Graduated payment plan, interest only and deferred plans are
example of plans that are subject to change and do not qualify for the
exception.
Authorized User Account
• When the loan is manually underwritten, the primary wage earner should
be treated as the applicant and all other applicants are considered co-
applicants.
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 14
• Credit trade-lines that list the applicant as an “authorized user” cannot be
considered in the underwriting decision unless:
• Another applicant in the mortgage transaction is the owner of the trade-line, or
• The owner of the trade-line is the spouse of an applicant, or
• The applicant can provide documented evidence that they have made the
payments on the authorized user account for 12 months preceding application.
Verification of Previous Rental History
• Borrower with FICO less than 680 will require 12 months of
previous rental history.
• There can be no late rent payments, paid 30 or more days
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 15
• There can be no late rent payments, paid 30 or more days
late, within the last 12 months.
Verification of Previous Rental History
• If the borrower does not have previous rental history, or Housing Payment
Shock is more than 100%, then loan may be manually underwritten if any
other risk factor present in the file. Risk factor, include but not limited to, is
below
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 16
below
• Borrowers with FICO less 640, Housing Ratio exceeding 29% or Past derogatory
event
• Strong compensating factor should be present in the file. Acceptable
Compensating factor include, but are not limited to, the following example:
• History accumulated savings, Borrowers with FICO more than 680, Potential
for Increased earning or demonstrated conservative attitude towards credit.
Rental Income
• Rental income for annual income
• Include in annual income regardless of duration
• Include total rental real estate income reported on most recent IRS
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 17
• Include total rental real estate income reported on most recent IRS
Form 1040 Schedule E for previous 12 months
• No Schedule E = canceled checks, money order receipts,
bank statements, or other documents may be used to support
amount of rents received
Note: As per Sun West Mortgage Company, Inc. policy, maximum
financed property per borrower is only one.
Rental Income
• Rental income for repayment
• Rents received less than 24 months:
• Cannot be used for repayment
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 18
• Cannot be used for repayment
• Newly signed leases are not stable and dependable
• Include mortgage liability in debt ratio
• The below restrictions on property have been removed:
• Minimal income producing activity is now allowed in property (garden,
not farm).
Restriction on Property
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 19
not farm).
• The previous land to Total Value limitation of 30% has been removed.
• In ground Swimming Pool restriction has been removed.
• Update on property restrictions
• Either the “Estimated Reproduction Cost” or the “Estimated
Replacement Cost” will be required in the appraisal for all dwellings
that have an actual age of more than 1 year.
• Funds of gifts from any source will not to be included in the
cash reserves calculation in GUS.
• 401K or IRA accounts may be used for loan closing but can not
Cash Reserves
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 20
• 401K or IRA accounts may be used for loan closing but can not
be included in reserves
• The most recent 2 month average of liquid accounts such as
checking or savings accounts may be considered as cash
reserves.
• Refinancing is allowed for “take out” purposes when financing
to construct a new dwelling, or to improve an existing
dwelling. However previous loan must be a USDA transaction
Construction Financing
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 21
dwelling. However previous loan must be a USDA transaction
• If previous loan is not a USDA loan then the file must be
treated as a purchase transaction.
• If any adult member of the household is not presently employed
but there is a recent history of such employment, that person’s
income will be considered in the calculation of annual household
income.
Annual Household income
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 22
income.
• If the adult member is not presently employed and does not intend
to resume employment in the foreseeable future, or if interest
assistance is involved, then during the term of the Interest
Assistance Agreement, the applicant(s) and the person involved
must sign a statement to such and statement must be provided.
• A deduction from annual income of $480 is made for each household member
who qualifies as a dependent and will make the home their principal
residence.
If it is unclear or if parents share custody of children, a determination as a
Dependent Deduction
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 23
• If it is unclear or if parents share custody of children, a determination as a
qualifying dependent deduction for a child who lives in the home part of the
time can be made by the lender through guidance provided in Internal
Revenue Service (IRS) Publication No. 501. IRS considers the custodial parent
the parent authorized to claim the dependent on a Federal Income tax return.
• A divorce decree, custody agreement and/or Federal income tax returns are
documentation evidence the applicant is authorized to claim the dependent.
• Lenders must meet all agency requirements (FHA/HUD, VA,
Fannie Mae, Freddie Mac) when qualifying a loan that is a
condominium.
Condo Requirements
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 24
condominium.
New Forms - Matrix
Form Description Old Forms New Forms
Request for Single Family Housing Loan
Guarantee
Form RD 1980 - 21 Form RD 3555 – 21
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 25
Guarantee
Conditional Commitment for Single Family
Housing Loan Guarantee
Form RD 1980 - 18 Form RD 3555 - 18
Loan Note Guarantee Form RD 1980 - 17 Form RD 3555 – 17
Loan Note Guarantee – Electronic Version Not Available Form RD 3555 –
17E
This brings us to the end of the 7 CFR 3555
Regulation Presentation !
CONFIDENTIAL ©2014 Sun West Mortgage Company, Inc. All Rights Reserved. Company NMLS ID 3277. 26
Regulation Presentation !
Thank you
All products are subject to credit and property approval. Program terms and conditions are subject to change without prior notice. Not all productsare available in all states or for all amounts. Other restrictions and limitations apply. The content in this booklet is for informational purposes onlyand not meant for legal, tax or professional accounting advice.