Transcript TBI Mortgage POS

FHA-TBI ORIGINATION
PROCESS
Training Segments
1.
3.
FHA History - Purpose of FHA Loans; Study Guide page 2
2.
FHA Advantages; page 2
“Economic Stimulus Act of 2008” vs. “Housing and Economic Recovery Act of 2008”; page 3
4.
Toll AOS Estimated Delivery, Sales Price & MSA Loan Limit Requirements; page 3
5.
Toll Agreement of Sale & Amendatory Clause Disclosure; page 4
6.
TBI Operations Workflow Flow Steps; page 5
7.
TBI Mortgage Appraisal Process; page 6, 7
8.
Property Types- Single Family & Condominiums; page 8
9.
UFMIP & Monthly MIP Basics & Down Payment Requirements; page 9, 10
10. Application Basics & Buyer Qualifications; page 11-19
11. FHA Disclosures- Applicant & Toll Builder HUD forms; page 20
12. BYTE File Setup, LTV, MIP & FHA Specific Fields & Screens; page 21-29
13. FHA Products, TBI FHA Investors & Secondary Marketing; page 30-32
14. Reference Sources; page 33
15. Question & Answer Session
Study guide page: 1
October 2008
1
FHA History & Purpose of
FHA Loans
FHA History
The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages
since 1934. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily
projects in its portfolio*. In the more than 60 years since the FHA was created, much has changed and
Americans are now arguably the best housed people in the world. HUD has helped greatly with that success.
* As of September 6, 2006
Established in 1934 as the Federal Housing Administration (FHA)
Self-sustaining insurance fund – paid by homeowners via mortgage insurance premiums (MIP)
Became part of HUD in 1965 when the agency was established
To help achieve the national goal of safe and affordable housing
To encourage lenders to fund “riskier” borrowers and properties
To increase affordable homeownership opportunities
To help more families achieve the American dream
HUD oversees FHA programs & regulates FHA, creates & maintains handbooks & Mortgagee Letters
FHA insures mortgages, responsible for Credit Policy & administers single family housing for HUD
Study guide page: 2
2
FHA Advantages
Almost 100% insurance for lenders
Only 3.50% required down payment (100% gifted)
Seller, real estate agent, builder and developer can pay up to 6% of sales price in seller contributions
(closing costs, prepaid items, discount points)
Gift funds can cover all transaction costs
Sweat equity can be used for down payment
No mandatory credit (FICO ) scores and flexible credit/underwriting standards
No reserve requirements for one and two unit properties
Adjustable Rate Mortgages (1, 3, 5, 7, 10 year terms) with annual and maximum caps
Qualifying ratios of 31% for housing expense and 43% total debt, up to 33% and 45% for new const.
Ratios can be exceed with true compensating factors
HUD’s automated underwriting Scorecard, TOTAL – reduced documentation requirements
Non-occupant co-borrowers allowed for qualifying purposes
FHA loans are assumable if occupant purchaser qualifies
Premium pricing can be used to pay closing costs and prepaid items
Loss Mitigation options available to borrowers if they encounter payment difficulties
$300 cost for home inspection – eligible closing cost
Streamline refinancing of current FHA-insured loan to new FHA-insured loan
Upfront MIP 1.75%, monthly from .0025% to .0055% based on term & LTV on purchase transactions
US Citizenship not required; lawful perm and non-perm resident aliens eligible with proper documentation
Study guide page: 2
3
Economic Stimulus Act of 2008 vs.
Housing and Economic Recovery Act of 2008
Hand out- Summary of Major Single Family Program Changes
The “Economic Stimulus Act of 2008” which was passed on February 13th 2008, allowed for temporarily
higher FHA loan amounts. The “Economic Stimulus Act of 2008” will expire on December 31, 2008. Under
the Act, the maximum FHA loan amount in “High Cost” areas for single family 1-2 units, (determined by
HUD) was set at 175% of the FNMA/FHLMC conforming limit of 417K. That represented a maximum FHA
“Base Loan” amount of $729,750 in High Cost areas. FHA Mortgages originated on this temporary Act must
be closed and insured by December 31, 2008. Note: TBI Mortgage’s date to close these temporary higher
loan limits is- November 28, 2008.
With the passing of the “Housing & Economic Recovery Act of 2008” (HERA) on July 30, 2008 with an
effective date of January 1, 2009 the legislation includes several initiatives. Of major importance to TBI
Mortgage is that it allows for permanent, higher loan limits. Loan amount limits will be based on the lesser
of 115% of the local area median home price, as determined by HUD (but no lower than a floor of 65% of
$417,000) or 150% of the GSE limit. These changes are effective January 1, 2009 and permanently increase
the national cap and floor. This new FHA loan limit will not go into effect until after the limits in the
Economic Stimulus Act of 2008 expire on December 31, 2008.
That would equate to a $625,500** maximum FHA loan limit potential in the highest home cost areas.
(150% of FNMA/FHLMC conforming limit of 417K) The minimum FHA loan limit nationwide will be $271,050
(65% of FNMA/FHLMC conforming limit of 417K)
**Base FHA loan amount excluding financed MIP. Final loan amount can exceed maximum loan limit if MIP is financed.
Study guide page: 3
4
Toll AOS Estimated Delivery,
Sales Price & Loan Limit
Requirements
With the upcoming expiration of the temporary FHA loan limits on December 31, 2008 (Economic Stimulus
Act of 2008), all Toll Agreement of Sales where the FHA loan amount would exceed original (prior to
February 13th 2008) MSA loan limits where the property is located, must close by November 30, 2008. This
will allow time for TBI Mortgage to deliver an FHA insurable file to our investor by years end.
Note: for all contracts that close on or after January 1, 2009, loan limits will be determined by the provisions
set forth in the Housing & Economic Recovery Act of 2008 (HERA) as noted above.
To check the maximum loan limits, useful tools are available on the Hud.gov website- FHA Mortgage Limits
page and FHA’s. These pages allow you to look up FHA mortgage limits in any area or several areas, and
then list them by state, county, or Metropolitan Statistical Area. The links are:
https://entp.hud.gov/idapp/html/hicostlook.cfm
http://www.fhaoutreach.gov/
Study guide page: 3
5
Toll- AOS & Amendatory Clause
(AC) Disclosure
Hand out- Endorsement to Agreement of Sale
TBI Mortgage’s procedures for obtaining FHA Appraisals are unique with Toll. The reason has to do with the
Agreement of Sale and FHA’s Amendatory Clause provision. FHA’s Amendatory Clause (AC) mandates
that buyers cannot be forced to consummate a purchase transaction if the appraised value does not
meet (or exceed) the sales price. As a result of the AC, Toll buyers have essentially an escape clause
in their sales contract. The Amendatory Clause is a separate endorsement included in Toll’s standard
Agreement of Sale contract. The title of the document is- “VA/FHA ENDORSEMENT TO AGREEMENT
OF SALE”. The language below is in essence, the AC disclosure.
ENDORSEMENT TO AGREEMENT OF SALE dated
between _____________________("Seller") and
of House No. __________
Lot No. _____ in the community of _____________
(the "Agreement").
("Buyer")
NOTWITHSTANDING anything contained in the Agreement to the contrary, Buyer and Seller further agree as follows:
Buyer has indicated that Buyer intends to apply for a first mortgage which is (i) a Veteran’s Administration (“VA”) Guaranteed Loan or (ii)
insured by the Federal Housing Administration (“FHA”).
It is expressly understood and agreed that notwithstanding any other provision of the Agreement, that Buyer shall not be obligated to complete
the purchase of the Premises described herein or to incur any penalty by forfeiture of the earnest money deposits or otherwise unless the Buyer
has been given in accordance with FHA or VA requirements a written statement setting forth the appraised value of the Premises of not less
than ______________________ (insert purchase price).
To mitigate the potential for a sales contract to be lost, TBI has created a workaround for determining the
value of the property before Toll signs the Amendatory Clause disclosure with their buyers. This
workaround is discussed in the “TBI Mortgage Appraisal Process” segment.
Study guide page: 4
6
TBI Operations
Workflow Steps
1
FHA application
originated,
returned &
submitted to
Operations
2
3
4
5
6
7
Case opener
setup, first UW
Submission
for first UW
review
TBI UW initial
stips on the file
& Conventional
conditional
appraisal
ordered
File returned
to processor
For
UW conditions
to be collected
Processor
resubmits file to
UW for review
and clearing
conditions
**UW sends file
to sponsor
(investor) or
FHA (test
cases)
for approval
Any final
Conditions
cleared,
loan closes
**Step 6 will be in effect until TBI Mortgage has Direct Endorsement- DE authority with FHA. Test Cases are currently being
submitted to achieve our DE designation. Corporate underwriting will designate if a file is “Test Case” or “Non-Test Case” and
inform the MLS of such.
Operations Workflow Detail
(From step #2 through #7 above)
1.
2.
3.
4.
5.
6.
7.
8.
Register the loan and obtain the FHA or VA case number
Order the appraisal, if required (see Ops Memo 08-07)
Review the loan package for all required exhibits/documents/disclosures. If additional documentation is required and/or the file
is incomplete the underwriter will notify the originator and/or the processor and request what is needed
Once the file is complete the underwriter will send/transmit the necessary documentation to the FHA/VA/Sponsor, as the case
may be, for review and approval.
Once determined upon approval the underwriter will notify the originator and the processor of any additional conditions required
for the final loan approval and closing.
The processor will gather all required underwriting and closing conditions and submit to the underwriter for review and
transmittal to FHA/VA/Sponsor for review and approval.
Once all u/w conditions are cleared, and the closing conditions are received the file may be submitted for the closing to
TBIM Closing Department for DE (or test cases) by the processor

To the Sponsor, Sponsors require at least 72 hours of advance notice, with all conditions clear, to transact a closing.
Either TBIM or the Sponsor will close and insure the loan.
7
Study guide page: 5
TBI Mortgage Appraisal Process
The appraisal ordering procedure- refer to Operations Memo 08-07
To mitigate the potential for a sales contract to be lost, TBI has created the
following procedure which is a workaround for determining the value of the
property before Toll signs the Amendatory Clause disclosure.
1. Buyer is identified as a FHA OR VA borrower.
2. Buyer signs standard Toll AOS, together with the required FHA/VA Endorsement (copy attached).
3. Toll sales person notifies TBI Mortgage’s Business Development Manager (“BDM”) and requests that an
appraisal be ordered.
4. BDM notifies TBI FHA/VA Underwriting Center of the need to obtain the FHA/VA preliminary appraisal
report.
5. TBI Mortgage FHA/VA Underwriting Center orders an appraisal from an approved FHA or VA appraiser. Toll
PM/sales manager is notified of the name of the appraiser.
6. The appraiser contacts the project manager/sales manager to get a copy of the plans, together with the
executed Builder’s Certification of Plans, Specifications and Site (a sample of which is attached) and any other
information (such as comps) which will assist the appraiser in getting the necessary appraised value.
7. Once the appraisal is ordered, the buyer should not be permitted to purchase any additional options which
are not on the plans and specs provided to the appraiser.
8. The appraiser should complete the appraisal within ten (10) days after receipt of information from the
project manager/salesperson.
9. The appraisal is emailed to the TBI Mortgage FHA/VA Underwriting Center.
10. The TBIM loan underwriter will review the appraisal report, and projected loan amount, to determine if a
second appraisal is required. If so, the TBIM underwriter will order and obtain the second appraisal for
comparison value. This will take an additional 10 days.
11. Upon receipt of all required appraisals the TBIM loan underwriter emails the value as determined by the
appraisal(s) to the Toll PM, the sales manager and the TBI BDM.
Continued-
Study guide page: 6
8
TBI Mortgage Appraisal Process
The appraisal ordering procedure- refer to Operations Memo 08-07
To mitigate the potential for a sales contract to be lost, TBI has created the
following procedure which is a workaround for determining the value of the
property before Toll signs the Amendatory Clause disclosure.
1f the property appraises for an amount at least equal to the purchase price:
12. Toll’s VP signs the AOS and the FHA/VA Endorsement and forwards both to Conveyancing. Conveyancing
distributes the AOS and FHA/VA Endorsement to all parties consistent with its standard AOS distribution
procedures.
13. Upon receipt of the new loan application package the TBI FHA/VA Underwriting Center will register the
loan with either FHA or VA, obtain the case number and convert the appraisal as needed.
14. During the final stages of construction but before settlement, Toll must get a pest control company to
complete a termite inspection (and treatment if necessary) and to execute the Termite Soil Treatment
Record (copy attached).
15. For FHA loans SETTLEMENT MUST OCCUR BY DECEMBER 31, 2008, in order to take advantage of the
increased FHA limits which are presently not scheduled to be extended beyond December 31, 2008.
16. SETTLEMENT MUST ALSO OCCUR WITHIN SIX MONTHS FROM THE DATE OF THE APPRAISAL. At the end
of six months, the appraiser will have to recertify the property’s value. If the recertified value is less than
the purchase price, the buyer will be able to walk away with its deposit and Toll will have a spec. home.
17. At Settlement, TBI VP executes Warranty of Construction and Termite Soil Treatment Guarantee (copies
attached). PM also causes the pest control company to complete Termite Soil Treatment Record (copy
attached).
If the property appraises for an amount less than the purchase price:
Toll will renegotiate a new purchase price with the buyer or allow the buyer to terminate and receive a refund
of all deposit money and any other money paid in connection with the purchase.
Continued-
Study guide page: 7
9
TBI Mortgage Appraisal Process
The appraisal ordering procedure- refer to Operations Memo 08-07
FHA Second Appraisal Requirements
Refer to: Mortgagee Letter 2008-09
FHA will require a second appraisal for “high-balance” loans secured by properties in declining markets as
indicated on the appraisal report or determined by the lender using other sources.



The loan amount, excluding the upfront mortgage insurance premium, will exceed $417,000, and
The LTV[1], excluding upfront MIP, equals or exceeds 95%, and
The property is determined as being in a declining market.
Hint- Structure the max LTV at 94.9% if home may be determined to be in a declining market.
[1] Loan-to-Value is defined as the mortgage amount, excluding any financed upfront mortgage
insurance premium, divided by the lower of the adjusted sales price or the appraiser’s estimate of the
property’s value.
Study guide page: 7
10
Property Types- Single Family
& Condominiums
Single Family Properties and Condominiums are
treated differently as to their HUD/FHA insurance
eligibility. While single family attached
(townhomes) and detached homes are easily
insurable (must meet FHA minimum property
standards and specific requirements if located in a
PUD) condominiums are subject to different
treatment.
For new construction, condominium presale and
owner-occupancy requirements must be certified in
accordance with HUD Handbook 4150.01 REV-1,
Paragraph 11-3. These presale and owner
occupancy requirements state that at least 51% of
the total units within the condominium or phase of
the condominium must be sold, and sold to owners
who intend to occupy the unit.
The 51% requirement must be met before any
unit is eligible for insurance. Units sold as a
“lease/rent-to-own” are not allowed to be counted
towards the 51% presale requirement.
To check if a condominium is on HUD’s approved list, a
useful tool is available on the Hud.gov website- The
Condominium’s page. The Condominiums page allows
users to search for FHA-approved condominium projects by
location, name, or status. The search can be configured to
find specific types of projects through the use of the pulldown menus and entry fields. The link is:
https://entp.hud.gov/idapp/html/condlook.cfm
NOTE: Loans that have a high LTV (over 90%) are
only acceptable with a HUD approved ten year
warranty plan for each of the units
Study guide page: 8
11
UFMIP & Monthly MIP Basics
& Down Payment Requirements
What is FHA’s mortgage insurance?

Protects the lender against mortgage loss in the event of default
 FHA pays the servicing lender if the property is foreclosed and a claim is filed
 Almost 100% insurance
 MIP paid for by borrower as an upfront and annual premium (amortized monthly)
FHA has two forms of Mortgage Insurance and they are required on both Single Family (203b) &
Condominiums (234c) properties. Both are a part of FHA’s Mutual Mortgage Insurance Fund (MMI) which is
sustained entirely by borrower premiums.
The first one is the “Up Front Mortgage Insurance Premium”- UFMIP. The UFMP premium is a one-time up
front payment. Payment of this one-time UFMIP can be done in two ways- The total premium can be paid in
cash at settlement OR financed in whole by inclusion in the new mortgage amount. Currently the UFMIP is
1.75% of the Base Loan Amount for all Purchase Money Mortgages and Full-Credit Qualifying Refinances.
Note: Partial financing of the UFMIP is not allowed and loan amounts are rounded down to the nearest
dollar.
See Mortgagee Letter: 2008-22 (September 4, 2008)
Continued-
Study guide page: 9
12
UFMIP & Monthly MIP Basics
& Down Payment Requirements
What is FHA’s mortgage insurance?
The second is the “Monthly Mortgage Insurance”- MIP. This MIP premium is an annual
premium that is paid monthly and must be paid for a minimum of 5 years. Below are
the Monthly Premiums.
The following are calculation examples for computing the UFMIP and MIP:
Base Loan Amount$475,000
UFMIP Financed- $8,312 (475,000 X .0175)
Total Loan Amount$483,312
Monthly MIP**- $217.70 (475,000 X .0055 / 12 = 217.70)
**MIP is based on the Base Loan Amount
LTV
Annual for Loans >15 Years
LTV
Annual for Loans < 15 Years
< 95
50
< 90
-None-
> 95
50
> 90
25
In the above example, the total monthly cost for both premiums is- $270.24 per month. Compare that
monthly cost to a conventional PMI premium of $344.38. That is a difference of $74.14/month lower
with FHA. Based on a 30 fixed rate @ 6.50% financing UFMIP of $8,312= 52.54/month. PMI premium factor of .00870 is based on 95% LTV, 700
score.
Continued-
See Mortgagee Letter: 2008-22 (September 4, 2008)
Study guide page: 9
13
UFMIP & Monthly MIP Basics
& Down Payment Requirements
How Long Must FHA Mortgage Insurance
Stay in Effect Before Able To Drop?
Canceling FHA’s Annual Mortgage Insurance Premiums
Effective for all loans closed on or after January 1, 2001, FHA’s annual mortgage insurance premiums
will be automatically canceled under the following conditions:
 For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be
canceled when the loan to value ratio reaches 78 percent*, provided the mortgagor has paid the
annual mortgage insurance premiums for at least five years.
 For mortgages with terms 15 years and less and with loan to value ratios 90 percent and greater,
the annual mortgage insurance premiums will be canceled when the loan to value ratio reaches 78
percent*, irrespective of the length of time the mortgagor has paid the annual mortgage premiums.
 Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will
not be charged annual mortgage insurance premiums.
Note: *The 78% requirement is based on the lower of the original sales price or current appraised value.
Study guide page: 10
14
FHA Down Payment
Requirements
With the passing of the “The Housing and Recovery Act of 2008”, this revised the National Housing Act
to allow FHA to change its down payment requirements. In effect this has created a simplified,
industry standard down payment requirement when compared to FHA previous down payment
calculations.
See Mortgagee Letter: 2008-23 (September 5, 2008)
Minimum of a 3.50% down payment, based on lesser of sales price or appraised value
Maximum LTV limit is 96.5%
Gift funds can cover all the down payment
No party of interest can contribute any part of the borrower’s down payment either directly or
through a third party




Note: The new revised 3.50% down payment requirements take effect with all FHA case numbers assignments on or after
January 1, 2009. Until that time, FHA requires borrowers to have a minimum investment of 3.00% of the sales price in the
transaction. The maximum LTV under the previous down payment calculations was 97.75%. The remaining .750%
investment was allowed to include allowable closing costs and Prepaids.
Transactions that Affect Maximum Mortgage Calculations• Identity of Interest – Non-arm’s length limit max LTV to 85% (family/business relationships)
• Non-Occupying Borrowers – Max LTV reduced to 75% Exceptions are: related by blood, marriage or
law
(Spouses, parent/child, siblings, step-children, aunts/uncles, nieces/nephews, etc) which allows maximum financing
Study guide page: 10
15
FHA Application Basics &
Buyer Qualifications
Loan-to-Value ** Ability to Repay the Loan ** Willingness to Repay the Loan
Application basics are very similar in comparison to a conventional loan application. Starting with a quality interview at
application by the MLS, with an understanding of how and what the underwriter is looking for in the submission package,
will greatly improve the approval percentage. The credit decision on an FHA file is based on a through analysis of the
entire loan and not any one single factor. The components of underwriting are as follows:
Loan-to-Value, Transaction Type and Eligible Properties
A primary measurement of risk for a lender is the loan-to-value (LTV). LTV ratios are limited by the transaction and
property type.
Ability to Repay the Loan
Careful consideration is given in the analysis of the borrower’s ability to repay the loan as follows:
•
•
•
Cash reserves or liquid assets remaining after the close
Stable employment and income
Increase in new housing expense compared to present housing expense
Willingness to Repay the Loan
The history of a borrower’s payment habits, with other creditors, will enable the underwriter to determine the willingness to
repay the loan. An excellent credit history would consist of the following:
•
•
•
No late payments over 30 days
No derogatory information such as past due payments, repossessions, or foreclosures
No bankruptcies, collections, liens or judgments
Underwriter Decisions: The Direct Endorsement (DE) Underwriter is responsible for both the approval and the denial of FHA loans.
It Is the DE Underwriter’s responsibility to execute all HUD documents that require an underwriter’s signature.
Continued-
Study guide page: 11
16
FHA Application Basics &
Buyer Qualifications
In this segment we will cover all of the
FHA application basics including:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Continued-
Eligible Borrowers
Qualifying Income
DTI Ratios & FHA Total Scorecard
Liabilities
Credit
Compensating Factors
Assets & Funds to Close
Occupancy & Taking Title
Standard Applicant Documentation
Valuable Tips for Quality Submissions
Study guide page: 12
17
FHA Application Basics &
Buyer Qualifications
Eligible Borrowers & Qualifying Income
Owner-occupants
Non-profit organizations (approved by HUD)
Governmental Agencies
No investors; except on HUD REO sales
•
Can be:

Co-borrower (occupying and non-occupying)

Co-signer

Living Trust
•
Citizenship not required (must be in the US legally) Must have a SSN#
•
No maximum age; minimum age determined by legal ability to sign mortgage note in State
Income







Continued-
Must be stable
Must verify 2 years employment history
Must be expected to last 3+ years
Generally salaries or wages
Other verified income may be considered
Self-employed (2+ years ) acceptable
Commission, bonus and overtime is averaged (typically need two years history to use)
Can be manual or automated underwriting using HUD’s TOTAL
Study guide page: 12
18
FHA Application Basics &
Buyer Qualifications
DTI Ratios
Ratios




Basic ratios are 31/43 or 33/45 for new construction
May be exceeded with compensating factors*
FHA does not use credit scores (manual underwriting allowed)
FICO scores must be entered into FHA Connection if borrower has a credit score
Ratios may be exceed with FHA’s Total Scorecard automated underwriting approval
*See Compensating Factors section.
Manual underwriting required when






Continued-
CAIVRS reveals existing Federal debt
Parties to the transaction appear on suspended & debarred list
Credit issues are present to include:
Previous Mortgage Foreclosure
Bankruptcy
Late Mortgage Payment
Borrowers with limited/no credit history
Study guide page: 13
19
FHA Application Basics &
Buyer Qualifications
FHA Total Scorecard
FHA’s Total (technology open to approved lenders) Scorecard evaluates the overall creditworthiness of the
applicants based on credit variables and with the AUS functionality indicates a recommended level of
Underwriting & documentation for FHA insurance eligibility.
NOTE: Currently access to the Scorecard through Loan Prospector is limited to select Sr. MLS’s
Continued-
Study guide page: 13
20
FHA Application Basics &
Buyer Qualifications
Liabilities
All debts must be considered
Recurring obligations
Installment loans, revolving charge accounts, real estate loans, alimony, child support, and other
continuing obligations

Debts lasting less than ten months must be counted if the amount of the debt affects the
borrower’s ability to make the mortgage payment during the month’s immediately after loan
closing; especially true if limited or no cash reserves after loan closing.

Revolving accounts- If no payment is shown for an outstanding balance, then 5% of the balance
or $10 will be used

Alimony- Because of the tax consequences of alimony payments, the underwriter may choose to
treat the monthly alimony as a reduction from gross income vs. a monthly obligation. (The
applicant will always benefit from this process)

Projected Obligations- If a debt, such as a student loan that is scheduled to begin within twelve
months of loan closing, the debt must be included. Same for balloon notes due within one year
of closing
Contingent liabilities
Where borrower can be held responsible for payment of debt if other party defaults

An acceptable 12 month payment history from other party may offset this obligation
Continued-
Study guide page: 14
21
FHA Application Basics &
Buyer Qualifications
Credit
The purpose of mortgage underwriting is to determine a borrower’s ability and willingness to repay the
mortgage debt, thus limiting the probability of default. The property is also examined to determine if the
property is of sufficient collateral.
The “The Three C’s of Credit” are-



Credit- History, previous and current
Capacity- Sufficient income to repay the mortgage
Collateral- Appraised value supports the mortgage
FHA requires the use of a “TRMCR” credit report- Three Repository Merged Credit Report, “Tri-Merge”. A
Residential Mortgage Credit Report (RMCR) from an independent consumer-reporting agency also may be
used.
Continued-
Study guide page: 15
22
FHA Application Basics &
Buyer Qualifications
Credit
Credit


Collections-
Overall pattern
Reasons for delinquencies
Non-traditional credit (if no credit exists)
CAIVRS
Credit Alert Voice System- identify individuals who are in
default or have had claims paid on direct or guaranteed
Federal loans, or are delinquent or other debts owed to
Federal agencies.
Court ordered judgments must be paid off
Should be checked at case number assignment
BankruptcyDefaulted loans – check with servicing lender or agency
Chapter 7
•
Discharged at least 2 years
LDP/GSA lists must be checked
•
Good credit re-established
Limited Denials of Participation- LDP’s are issued to parties,
Chapter 13
individuals & companies who fail to comply with HUD program
•
1 year of pay out
standards.
•
Court approved
ForeclosureReview to be documented on the credit analysis worksheet

A 3 year waiting period

FHA won’t insure another FHA loan for 3 years from date the claim was paid

If on principal residence and caused by major extenuating circumstances, exception may be granted by

DE Underwriter
Extenuating Circumstances- Extenuating circumstances are catastrophic events resulting in extreme financial hardships. Events must

have caused either a long term loss of income which was not preventable or massive debt which the applicant was not able to pay.
Applicants must provide evidence of the events as well as an explanation of the event.
Continued-
Study guide page: 15
23
FHA Application Basics &
Buyer Qualifications
Compensating FactorsCompensating factors that may be used to justify approval of mortgage loans with ratios exceeding FHA’s
benchmark guidelines are those listed below. Any compensating factor used to justify mortgage approval
must be supported by documentation.
1.
2.
3.
4.
5.
6.
7.
8.
9.
The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater
than the proposed monthly housing expense for the new mortgage over the past 12-24 months.
The borrower makes a large down payment (ten percent or more) toward the purchase of the property.
The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the
use of credit.
Previous credit history shows that the borrower has the ability to devote a greater portion of income to
housing expenses.
The borrower receives documented compensation or income not reflected in effective income, but
directly affecting the ability to pay the mortgage, including food stamps and similar public benefits.
There is only a minimal increase (10% or less) in the borrower's housing expense.
The borrower has substantial documented cash reserves (at least three months’ worth) after closing. In
determining if an asset can be included as cash reserves or cash to close, determine if the asset is liquid
or readily convertible to cash and can be done so absent retirement or job termination. Funds borrowed
against these accounts may be used for loan closing, but are not to be considered as cash reserves.
Similarly, funds from gifts from any source are not to be included as cash reserves.
The borrower has substantial non-taxable income.
The borrower has a potential for increased earnings, as indicated by job training or education in the
borrower's profession.
Continued-
Study guide page: 16
24
FHA Application Basics &
Buyer Qualifications
Assets & Funds to Close
Sources












Borrower’s cash and/or loan/gift from a relative
Checking/Savings etc.
IRA’s & KEOGHS, TSP, 401K use 60% of value; if used to close, proof of liquidation is required
Earnest money deposit, if over 2%, must document and verify source
Sale of personal property
Gift from a charitable organization, governmental agency, union, employer or public entity
Down payment assistance programs funded by an interested party in the sale are not allowed
Real estate commission, either borrower’s or gifted from a family member
2nd mortgage from governmental agency, non-profit, other group or person (some restrictions)
Seller contributions – not to exceed 6% of sales price
Seller cannot provide any part of the 3.50% down payment
Seller can pay closing costs, discount points and prepaid items
Premium pricing by lender (cannot use premium pricing to pay unallowable fees or discount points)
Seller ContributionsSellers (builders, realtors, etc) may contribute up to 6% of sales price toward closing costs, prepaid expenses,
discount points, & other financing concessions
Contributions exceeding 6% viewed as inducements to purchase which will reduce mortgage amount; i.e. Buydowns (Perm & Temp), Loan Protection Insurance
Continued-
Study guide page: 17
25
FHA Application Basics &
Buyer Qualifications
Occupancy & Taking Title
Principal ResidenceOccupied by at least one borrower for the majority of the calendar year
Borrower to establish occupancy within 60 days of closing with continued occupancy of 1 year
All borrowers, regardless of occupancy status, must sign the security instrument and mortgage
note as well as take title to the property

Living Trusts- Eligible as long as an individual borrower remains the beneficiary & occupies the property as a

principal residence
FHA will not insure more than one mortgage for any borrower with exception of


1)
2)
3)
4)
Relocations
Increase in family size
Vacating a jointly owned property
Non-occupying co-borrowers
Continued-
Study guide page: 17
26
FHA Application Basics &
Buyer Qualifications
Standard Applicant Documentation
Social Security Number Validation

Social Security card not required
May be validated with pay stubs, verifications, W-2’s, etc
Paystub and Verification of Employment VOECurrent pay stub covering a 30 day period for all employers
Not older than 120 days old when loan closes
180 days on new construction
If used in lieu of VOE pay stub must contain borrower’s name,
SSN, and YTD earnings




Current Bank Statement / Verification of Deposit VOD


Continued-
VOD and one complete bank statement or
Two months complete bank statements
Number may be reduced per AUS
Document Expiration Dates
New Construction –
Not older than 180 days from the date
of the note Includes credit report,
canceled checks when verifying
payment history Verifications of rental,
mortgage, other debts, bank
statements, pay-stubs
Existing property –
Not older than 120 days from date of
the note Includes credit report,
canceled checks when verifying
payment history Verifications of rental,
mortgage, other debts, bank
statements, pay-stubs
Study guide page: 18
27
FHA Application Basics &
Buyer Qualifications
Valuable Tips for Quality Submissions
1. The Application
It all starts with a COMPLETE loan application. Underwriters cannot be expected to make informed choices and
decisions on “naplications.” The #1 reason for file issues such as suspense’s, resubmissions and denials is due
to the MLS not taking a complete and accurate application.
2. Credit Report
Submit a cleaned up credit report. Have the credit report update any outdated trade lines to reflect current
account balances and statuses, have the VOR’s added right to the credit report, have non-traditional credit
sources verified and added to the credit report. If you submit a messy credit report, the underwriter will have a
difficult time establishing the current credit profile for the borrowers.
3. Applicant Explanation Letters
Submit letters of explanation for all derogatory credit, read the letters, make sure they hold water, make sure
they make sense and if justified, request supporting documentation to prove the explanations. Underwriters
can’t always take a person’s “word for it” when there is a substantial history of derogatory credit, especially
when there are recent derogatory reported. Be prepared to back up the explanations.
Continued-
Study guide page: 19
28
FHA Application Basics &
Buyer Qualifications
Valuable Tips for Quality Submissions
4. Budget-Savings
Request “budget letters” from borrowers whose proposed housing expense is increasing substantially. These
are especially important for borrowers who have little or no reserves and are facing a “payment-shock”. It’s not
too much to address how they intend to handle a large increase to their monthly budget.
5. Employment History
Establish a complete 2 year history with no significant gaps. Verify dates of employment for “job hoppers.” If
needed, request a letter of explanation for frequent job changes, type up a “history” for underwriting, make
notes in margins on copies of W2s, and most importantly, don’t forget to update that data to the 1003.
6. Submit a Complete File
If you are simply submitting the credit documentation for an opinion as to approvability, be sure to submit
every single piece of information the underwriter will need to make an informed judgement on a possible
approval. If you are submitting a new file, review the entire contents prior to submission or have another MLS
double check you.
7. Processor-Underwriter Memo / Letter
Always use a cover letter or memo to the file. Underwriters appreciate cover letters for manual underwriting
files or special circumstances. They greatly appreciate an outline of the file which addresses the challenges and
concerns while pointing out the compensating factors to make the loan approvable.
Study guide page: 19
29
FHA Disclosures- Applicant &
Toll Builder HUD Forms
FHA disclosures are found in Byte and are in print groups to facilitate ease of
printing and to ensure none are missed at the point of application
FHA Application Disclosures:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Continued-
HUD/VA Addendum to URLA; form HUD-92900A
Adjustable Rate Mortgage Loan Program Disclosure; form Byte no # (where applicable)
Notice to Homeowner Assumption to HUD/FHA Insured Mortgage; form Byte 343
FHA Informed Consumer Choice Disclosure; form Byte no #
Important Notice to Homebuyers; form HUD-92900-B (signed same as initial 1003)
Interest Rate and Discount Disclosure Statement; form Byte 351
FHA Purchase Agreement Addendum; form Byte 530
FHA Real Estate Certification; Byte 346
For Your Protection: Get a home inspection; form HUD-92564-CN (dated same as sales contract or before)
Potential Home Energy Benefits; form Byte 348
FHA Appraised Value Disclosure; form Byte 349
Study guide page: 20
30
FHA Disclosures- Applicant &
Toll Builder HUD Forms
FHA disclosures are found in Byte and are in print groups to facilitate ease of
printing and to ensure none are missed at the point of application
General Disclosures:
1.
2.
3.
4.
5.
6.
7.
8.
Initial TIL
Initial GFE
Authorization to Release Information
Transfer of Servicing Disclosure
Signed IRS Form 4506
Notice to Home Loan Applicant Credit Score Disclosure Statement
Appraisal Disclosure (Borrower’s right to a copy of the appraisal)
State Disclosures
Builder (From Toll) Disclosures:
1.
2.
3.
4.
5.
Builder’s Certification of Plans, Specifications & Site; form HUD-92541
Warranty of Completion of Construction; form HUD-92544
Building Permit and Certificate of Occupancy or Compliance Inspections and 10-Year Warranty
Subterranean Termite Soil Treatment Builder’s Guarantee; form HUD-NPCA-99-A & HUD- NPCA99-B
Local Health Authority well water analysis or septic report (where applicable)
Study guide page: 20
31
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
MLS Origination Steps
1.
2.
3.
MLS completes ERLS form and emails to Secondary (rate locks) and copies the Proxy
MLS inputs file in BYTE and exports file emails MTG_Files, copies Proxy and Openers
MLS turns in hard copy file to Opener. Note in file must give instructions on appraisal, do we have a
Conventional Appraisal and do they want it flipped to FHA at this time, etc.
Please Note –
In order to obtain an FHA Case Number, Appraiser Assignment, CAVIERS, LDP and GSA, the following
items are needed:







Full Name for each borrower
Social Security Number for each borrower
Birth Date for each borrower
Current Address for each borrower
Subject Property Address
Type of Property/Home (Single Family, attached, detached, Condo, PUD, etc)
Full copy of Sales Contract, complete with all schedules, including FHA Amendatory Clause
Continued-
Study guide page: 21
32
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
BYTE Release 5.7 FHA Enhancements
What’s New with BYTE- FHA?

Modified MIP Calculations

Maximum Mortgage Calculations (effective January 1, 2009)

Revisions to the HUD-92900 forms
Modification to the FHA/VA Addendum to the 1003 and the form previously known as the MCAW
Modified MIP Calculation

Byte offers the users three ways to calculate UFMIP based on Case Number order date

Prior to July 14, 2008: Flat Rate of 1.5

Between July 14, 2008 and October 1, 2008: Risked Based

On or After October 1, 2008: Flat Rate of 1.75% for purchases and refinanced OR 1.50% for streamline
refinance OR 3.00% for delinquent FHA Secure refinances
Continued-
Study guide page: 21
33
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen MIP Setup
Click on the Asterisk next
to Loan with MIP/FF to
ensure that you are using
the correct dates to
calculate your MIP factor.
Continued-
Study guide page: 22
34
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen MIP Setup- Loan Program Screen
Continued-
Study guide page: 22
35
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen MIP Setup- Upfront MIP Calculations and Dates
Continued-
Study guide page: 23
36
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen MIP Setup- Upfront MIP Calculations and Dates
Continued-
Study guide page: 24
37
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen MIP Setup- 3.50% Down Payment Rule
Effective for Case Numbers originated after January 1, 2009 the borrower will have to have a down payment of 3.50%. What does this mean?
Maximum LTV w/out UFMIP is 96.5%. There will be only one loan amount calculation.
FYI: If there is no seller, realtor, or lender assist, the borrower will have to pay for closings costs, discount points, and pre-paids out
of pocket. Reference: HUD Mortgagee Letter 2008-23
Continued-
Study guide page: 25
38
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen MIP Setup- 3.50% Down Payment Rule
Continued-
Study guide page: 26
39
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen - Seller Closing Costs - Seller Credit Entry Fields
Continued-
Study guide page: 27
40
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen - Applicant/Seller Closing Cost Splits Dropdown Box
Continued-
Study guide page: 28
41
BYTE File Setup, LTV, MIP & FHA
Specific Fields & Screens
Byte Loan Program Screen - Informed Consumer Choice Screen
In this disclosure set up, a side-by-side comparison is shown between a similar structured (LTV)
Conventional with mortgage insurance and the proposed FHA financing mortgage.
Study guide page: 29
42
FHA Products, TBI FHA
Investors & Secondary
Marketing





FHA Fixed Product Types
FHA Adjustable Product Types
203(b) Fixed Rate Loan
203(b) Adjustable Rate Mortgage
Most commonly used loan program
Purchase or refinance of 1-4 owner
occupied
Existing & new construction
Terms of 15-30 years
Temporary buy-downs allowed


Mortgagee Letter 04-10 issued March 10, 2004







*ARMS not offered by TBI due to current
note rates available
Continued-
1-year (Caps 1/5) Qualifies at Start Rate +
1%
New hybrid fixed/ARM


Allows fixed rate first 3, 5, 7 or 10 years
3/1 (Caps 1/5) Qualifies at Start Rate
5/1 (Caps 1/5) Qualifies at Start Rate
7/1 (Caps 2/6) Qualifies at Start Rate
10/1 (Caps 2/6) Qualifies at Start Rate
Ratios may only be exceeded with AUS
approval
Purchase or refinance of 1-4 owner
occupied
Existing & new construction
Terms of 15-30 year
Study guide page: 31
43
FHA Products, TBI FHA
Investors & Secondary
Marketing
TBI FHA Investors and Long-Term Locks
Current FHA investors are- 33, Wells & 53, Countrywide. FHA locks are allowed at the point of
issuance of a commitment. All FHA loans originated with a closing date at least 30 days out (non
QDH’s) will be handled as test cases. All FHA loans are registered and locked using the ELRS form
emailed to Rate Locks.
While both offer long-term lock-in options, they differ. Also, both do not offer long term locks on
“Jumbo FHA’s”.

53 offers the best long term options as they allow for a traditional float down within 45 days
of closing under the Builder Rate Cap Program with locks up to 345 days

33 offers long term locks up to 345 days, however, there is no float down available. This is a
“hard lock”
NOTE:
Remember we currently price all FHA loans with a .500% Origination Fee quoted on the GFE. If the published rates do
not allow a .500% Origination Fee to be collected without incurring excessive overage, quote a rate/point structure
accordingly. Additionally, if for competitive comparison a zero points / Origination fee quote is requested by the
customer, build the .500% Origination Fee into the rate quoted.
Continued-
Study guide page: 30
44
FHA Products, TBI FHA
Investors & Secondary
Marketing
Investor 33 Sample Rate Sheet
Sample quotes- Red cells for a Maryland property with TAP Pricing quoting the required .500% on
the GFE
Continued-
Study guide page: 31
45
FHA Products, TBI FHA
Investors & Secondary
Marketing
Investor 53 Sample Rate Sheet
Builder Rate Cap Program- FHA view only
Study guide page: 32
46
Reference
HUD provides manuals to guide lenders through their programs. All are available on HUD’s website
and are valuable references to anyone originating an FHA mortgage. The following sites are the most
common used in originating FHA mortgages-
•
•
•
•
•
•
•
•
•
•
•
Headquarters Web-site
www.hud.gov/
FHA Homepage http://portal.hud.gov/portal/page?_pageid=73,1&_dad=portal&_schema=PORTAL
Mortgagee Letters http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm
Maximum Mortgage Limits https://entp.hud.gov/idapp/html/hicostlook.cfm or
http://www.fhaoutreach.gov/
Condominium Lookup
https://entp.hud.gov/idapp/html/condlook.cfm
FHA Connection https://entp.hud.gov/clas/index.cfm
Handbooks & Forms http://hudclips.org/cgi/index.cgi
Atlanta HOC http://hudclips.org/
Philadelphia HOC www.hud.gov/local/philhoc.html
Denver HOC www.hud.gov/local/denhoc.html
Santa Ana HOC www.hud.gov/local/sanhoc.html
Study guide page: 33
47