FHA Underwriting - Bradley Arant Boult Cummings
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Transcript FHA Underwriting - Bradley Arant Boult Cummings
AllRegs Academy Welcomes you to
Servicing FHA Loans
The session will begin at 2:00 PM EST
AllRegs Customer Service: (800) 848-4904
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Welcome to this training event hosted by
AllRegs Academy
www.allregs.com or http://academy.allregs.com
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Your Instructors
Robert Maddox, Esq., CMB®
Mortgages & Title Insurance
Bradley Arant Boult Cummings LLP
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Servicing FHA Loans
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Course Objectives
By the end of the course participants will be able to:
– Discuss FHA requirements, systems and terms
involved in servicing FHA loans
– Ensure all servicing processes and procedures are
in compliance with FHA requirements
– Recognize the trends in loan administration and
loss mitigation
– Analyze the five (5) approved loss mitigation
options
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Session One
Introduction and FHA Basics
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Session One Topics
FHA Basics
FHA Terms
FHA Mortgage Facts
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Loan Limits
Mortgage Insurance Premium
Mortgage Insurance Fund
Fees
FHA Connection
Neighborhood Watch
TOTAL Scorecard
FHA Lending Programs
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FHA Basics
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The Federal Housing Administration
Established in 1934 by the National
Housing Act
Currently a part of the Department of
Housing and Urban Development (HUD)
FHA programs help people who could
not otherwise afford to own a home
become homeowners
Operates entirely from self-generated
income
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The History of the FHA
When FHA created, the housing industry was
struggling
During the 1940s, FHA programs helped
finance military housing and homes for
returning veterans
In the 1950s through 1970s, the FHA helped
the production of privately-owned apartments
for elderly, handicapped and lower income
individuals
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The History of the FHA
In the 1980s, FHA made it possible
for potential homebuyers to get
financing when recession prompted
private mortgage insurers to pull out
of oil producing states
By 2001, the nation's homeownership
rate had soared to an all time high
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Prevalence of FHA
Insured over 35 million home mortgages
Insured over 47,205 multifamily projects
Currently has 4.8 million insured singlefamily mortgages and 13,000 insured
multifamily projects
Insured $30 billion in mortgages for 367
hospitals and over 4,000 long term care
facilities
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What is a FHA-Insured Loan?
FHA Loan is a mortgage loan insured by the
FHA and made by a bank, savings and loan
association, mortgage company, credit
union, or other FHA-approved lender
In the event of a default, the lender can seek
recourse from the FHA
Lowers the lender’s risk and allows more
liberal mortgage terms to individuals who
could not otherwise afford a home
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Borrower Eligibility
Valid Social Security Number
Be a legal resident of the United States
Be of legal age to obtain a mortgage in your state
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Borrower Eligibility
Have ability to afford mortgage
payments
Money for down payment
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Home Eligibility
Usually must be applicant’s primary
home, including condominiums,
manufactured homes, and mobile
homes
FHA loans cannot be used to acquire
business or commercial properties
Applicant may purchase multi-family
property (up to four units) if one of units
is primary home
Home must be in the United States,
Virgin Islands or Guam
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Benefits for Homeowners
Low down payment
Low closing costs
Easier qualifying
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Benefits for Homeowners
Lower overall costs
Avoiding foreclosure
Close faster
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Benefits for Lenders
More security and less risk
More qualified buyers
Foreclosure less likely
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FHA Terms
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Acronyms
A43C – HUD’s Single Family Claims System
EDI – Electronic Data Interchange
SFDMS/F42D – HUD’s Single Family Default Monitoring
System
SFIS/A43 – HUD’s Single Family Insurance in Force
System
OUI – Oldest Unpaid Installment
DDS – Default Status Code
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Failure to Engage in Loss Mitigation
HUD defines failure to engage in loss mitigation as:
– A servicing lender's failure to: evaluate a loan for loss mitigation
before four full monthly mortgage installments are due and
unpaid; determine which, if any, loss-mitigation techniques are
appropriate; and take appropriate loss-mitigation actions
TRS - Tier Ranking System
– Measures a lender's loss mitigation efforts on a portfolio-wide
basis and ranks the lender based on ratio of loss-mitigation
actions to foreclosure actions
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Questions
Know
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FHA Mortgage Facts
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Loan Limits
Limit on the maximum mortgage
FHA will insure
Determined by geographical
location
To counteract housing crisis,
Economic Stimulus Act of 2008
temporarily increased FHA loan
limits
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2009 Loan Limits
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Loan Limits
Currently, loan limits for single-family homes range
anywhere from $271,050 to $625,500
FHA’s loan limits for a particular area can be found
at https://entp.hud.gov/idapp/html/hicostlook.cfm/
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Mortgage Insurance
FHA loans require mortgage
insurance
Lender collects Mortgage
Insurance Premium (MIP) at
closing and sends to FHA
MIP can be rolled into the
mortgage
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Mortgage Insurance
MIP is usually 1.75% for purchases
MIP is used to assist FHA in covering losses in
event of default
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Termination of Mortgage Insurance
Mortgages with 15 year terms and less that have a LTV
of 90% and greater, annual premiums cancel when LTV
reaches 78%
Mortgages with more than 15 year terms, annual
premiums cancel with LTV reaches 78%, provided the
mortgagor has paid annual premium for at least 5 years
Mortgages with 15 year terms and less and with LTV of
89.99% and less, no annual mortgage insurance
premium will be charged
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FHA Insurance Fund
One-time payment to help bring
FHA mortgage up to date
Mortgage loan must be at least
4 months, but no more than oneyear, delinquent
Borrower must show ability to
make full payments after
assistance from fund
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FHA Loan Fees
Origination fee (capped at 1%)
Loan discount
Appraisal fee
Credit report fee
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Prohibited Loan Fees
Certain fees are prohibited by the FHA in
an effort to keep closing costs fair and
reasonable to the borrowers
“Unearned fees” are prohibited
Borrowers and lenders need to be
conscious of any potentially prohibited
fees
Contact attorney with specific questions
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Active Duty Military
Service Members Civil Relief Act
passed in 1940s
Allows active military people to
qualify for interest rate
reduction up to 6%
Applies to FHA mortgages
Borrowers must actively request
relief
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FHA Connection
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FHA Connection
Provides FHA-approved lenders with free online
access to HUD computer systems for:
– FHA-approved lenders to originate loans
– FHA-approved servicers to service loans
– HUD personnel and other FHA-approved business partners
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Neighborhood Watch
https://entp.hud.gov/sfnw/public/
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Neighborhood Watch
Available through FHA Connection
– Is a web-based software application that displays loan
performance data for lenders and appraisers, by loan types and
geographic areas using FHA-insured single family loan
information
Internet site: https://entp.hud.gov/sfnw/public/
The loan information is displayed for a two-year
origination period and is updated on a monthly basis
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Neighborhood Watch
The default data includes current defaults, and
defaults within the first year and first two years from
endorsement
Loans that go delinquent after ninety days within the
first three years are trackable
Users generate reports that identify problems and
unusual patterns of behavior in FHA insured singlefamily loans
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Neighborhood Watch Compare Ratios
A lender’s compare ratio is a percentage value that
compares a lender to a group of lenders
– A compare ratio of 100 is average performance
– For example, if a lender has a 10% default rate in Florida and
the average default rate for all lenders in Florida is 5%, then
the lenders compare ratio is 200
A lender is subject to termination if their ratio is
200 or greater
– Based on default performance for the preceding 24 months
compared to all lenders in the same geographic area
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TOTAL Scorecard
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FHA TOTAL Scorecard
Technology Open to Approved Lenders Scorecard:
– Makes this process easier
– Evaluates the overall credit risk of FHA loans that are submitted to an
automated underwriting system (AUS)
– Insures that each applicant is reviewed with the identical process
– It provides real-time responses to evaluations of mortgage credit and
makes recommendations of “Accept/Approve” or “Refer”
– It also provides FHA with useful data to analyze trends in the industry
– It is FHA’s policy that no borrower is denied a FHA-insured mortgage
solely on the basis of a risk assessment generated by the TOTAL
Mortgage Scorecard
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What TOTAL does not do…
Reject any applications
Review property eligibility
Review maximum mortgage
amounts
Review LTV
Review the loan for
compliance with other FHA
program requirements
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FHA Programs
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FHA Lending Programs
Programs identified by
section numbers
Regulations in Code of
Federal Regulations
Handbook and Mortgagee
letters provide instructions
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Various Programs
Section 203(b) – Home Mortgage Insurance
Section 234(c) – Single-Family Mortgage Insurance
for Condos
Section 203(k) – Rehabilitation Home Mortgage
Insurance
Section 245 – Graduated Payment Mortgage
Program
Section 251 – Adjustable Rate Mortgage Program
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FHA General Programs
Section 203(b)
Section 234(c)
Section 251
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Program Details
The program parameters of these three programs
are identical when considering:
Borrower eligibility
Maximum insurable mortgage
Minimum investment
Mortgage term
Mortgage insurance premium
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Program Details
203(b)
– Purchase and refinance transactions
– Existing 1- to 4-family dwelling
– Home proposed or under construction
234(c)
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– Purchase and refinance transactions
– Condominium unit
251 – Adjustable Rate Mortgage (ARM)
– Purchase and refinance transactions
– Existing 1- to 4-family dwelling, condominiums, proposed homes
and homes under construction
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Adjustable Rate Product Information
Adjustable-Rate Mortgage (ARM) products
1% annual interest rate adjustment with 5% lifetime
cap:
– 1 year
– 3 year
– 5 year
2% annual interest rate adjustment with 6% lifetime
cap:
– 7 year
– 10 year
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Adjustable Rate Product Information
Adjustable-Rate Mortgage (ARM) products
Indexes used - U.S. Treasury Security and the LIBOR
– Negotiated initial interest rate and margin
– Margin is constant for the entire term
Used in conjunction with Sections 203(b), 234(c), and
203(k)
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Adjustable Rate Product Structure
ARM components:
Index
Margin
Interest rate cap structure
Initial interest rate period
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ARM Qualifying Rate
One-year ARM
– Borrowers must qualify for payments based on the contract or
initial rate plus one percentage point (1%)
Three-, five-, seven- and ten-year ARM
– Borrowers are to be qualified at the entry level (note) rate
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Section 203(k) Program
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Section 203(k) Program
To accomplish rehabilitation and/or improvement of
an existing 1- to 4-four unit dwelling in one of three
ways:
– To purchase a dwelling and the land on which the dwelling is
located and rehabilitate it
– To purchase a dwelling on another site, move it onto a new
foundation on the mortgaged property and rehabilitate it
– To refinance existing indebtedness and rehabilitate a dwelling
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Eligible Properties
1-4 family dwellings completed
for at least one year
Demolished homes – with some
foundation remaining in place
Properties increasing or
decreasing in unit size
Existing home being moved to
the mortgage property
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Section 203(k) Streamline Program
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203(k) Streamline Program
Mortgagee Letter 2005-19 announced program
Modification of the 203(k) program
Property in need of minor rehab
– With basic repairs costing between $5,000 and $15,000
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Good Neighbor Next Door Program
(GNND)
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Good Neighbor Next Door Program
(GNND)
Commitment to improving neighborhoods
– 50% discount from the listing prices
– Properties located in HUD-designated revitalization areas
To find the listing of HUD homes visit:
http://www.hud.gov/homes/index.cfm
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Officer of the Law Requirements
Officer of the Law
– Employed full-time
– Employer is a law enforcement agency of:
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The federal government
A state
A unit of general local government
An Indian tribal government
– Must be sworn to uphold, and make arrests for violations of,
federal, state, tribal, county, township, or municipal laws
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Teacher Requirements
Teacher
– Employed full-time by a:
• State-accredited public school
• Private school
– Provides direct services to students in pre-kindergarten through
12th grade serving the area where the home is located
– Neither the teacher nor his/her spouse may not have
• Owned residential real property
• Purchased a home under the:
– Good Neighbor Next Door
– Officer Next Door
– Teacher Next Door
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Firefighter and EMT Requirements
Firefighter
Emergency Medical Technician
– Employed full-time
– Firefighter or emergency medical technician
serving the area where the home is located
and employed by:
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A fire department
Federal government
State government
Local government
Indian tribal government
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Reverse Mortgage
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Home Equity Conversion Mortgage
Available since 1989
– 90% of the reverse mortgage market
Low rates
Many fees are capped by FHA
Maximum loan amount varies based on:
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Borrower’s age
Home appraised value
Current interest rates
Location of home
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Home Equity Conversion Mortgage
Equity distribution features:
Growing line of credit
Flexible payment options:
– Lump sum
– Term
– Tenure
– Line of credit
– Combo
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Home Equity Conversion Mortgage
Features:
2% UFMIP added to loan
.50% added monthly for MIP
Available for home purchases
HUD approved third-party counseling required for all
borrowers
If the lender is unable to service the loan or administer the
distributions, HUD will step in and take over the loan
Offers a non-recourse feature protecting the borrower
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Other FHA Mortgage Programs
Energy Efficient Mortgages
203(h) Mortgage Insurance for Disaster Victims
203(i) Mortgage Insurance for Outlying Area Properties
245 Graduated Payment Mortgages
184 Indian Home Loan Guarantee Program
184(a) Native Hawaiian Housing Program
248 Indian Reservation and Restricted Lands
238(c) Mortgage Insurance in Military Impacted Area
245(a) Growing Equity Mortgages
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Session Objectives
As the first session concludes, you are now able to:
Identify FHA Basics
Recognize FHA Terms
Analyze and interpret FHA Mortgage Facts
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Loan Limits
Mortgage Insurance Premium
Mortgage Insurance Fund
Fees
FHA Connection
Neighborhood Watch
TOTAL Scorecard
FHA Lending Programs
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Homework
Assignment 1:
Review the Case Study on John Doe and
answer the questions regarding the
scenario
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Case Study 1
Lender - ABC Mortgage Company
Customer – John Doe
1. What are the basic terms and characteristics of a FHA loan?
2. What are the benefits of a FHA loan?
3. What are the basic eligibility requirements?
4. What are some potential FHA loan programs that could provide
him the funds to purchase his very first home?
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Case Study Discussion
How would you respond?
1. Basic terms and characteristics of a FHA loan
2. Benefits of a FHA loan
3. Basic eligibility requirements
4. Potential FHA loan programs
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Questions
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Thanks for your participation!
Looking forward Session Two
Session Two Topics:
– General Info
– Objectives of Servicing
– HUD approval and monitoring
– Record retention
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Ginnie Mae Specific Requirements
Homeownership Counseling
Administration of Mortgage Loans
Delinquency and Default
– Relief
– Loss Mitigation Issues
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