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
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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:
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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
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Lender - ABC Mortgage Company
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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
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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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