Transcript View Document - RHF Wholesale

Welcome to our FHA
OPEN HOUSE!
WWW.THINKFHA.NET
Why learn FHA?
►Reason
# 1: Close more loans.
Many borrowers who no longer qualify for
prime, sub-prime or Alt-A products can be
approved and closed.
RHF’s manual underwriting uses common
sense to make a decision, not a matrix.
Why Learn FHA?
►Reason
# 2: Make more money.
Many borrowers who close in a subprime
product could have closed as an FHA loan
with a lower interest rate and a higher YSP
(we usually offer between three and four
points YSP, depending on market
conditions).
Why Learn FHA?
►Reason
# 3: Survive Market
Changes.
As sub-prime and Alt-A LTVs drop and
minimum credit score requirements
increase, FHA has re-emerged as the loan of
choice for the “non-creampuff” borrower.
Whenever an environment changes
radically, failure to adapt results in a failure
to survive.
Credit Analysis
►Common
Sense
Unlike sub-prime and Alt-A, there is no
matrix, no max mortgage lates, no
maximum dollar amount of collections, no
“box” to fit into. FHA handles every
borrower with damaged credit differently,
depending on the circumstances
surrounding the credit history. Common
sense prevails.
An FHA Loan Defined
What is an FHA Loan?
►A
mortgage loan funded by a lending
institution and insured by HUD
Loan Limits
“High cost” area.: (Make sure you check your county limits!)
► One-Unit
$729,750
► Two-Unit $934,200
► Three-Unit $1,129,250
► Four-Unit $1,403,400
► https://entp.hud.gov/idapp/html/hicostlook.cfm
What do we offer a borrower under the FHA
umbrella?
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Fixed Rate Loans
Adjustable Rate Loans
2-1 Buydowns
Streamline Refinances
95% Cash out refinances
Condominiums
Manufactured Housing
FHA Secure (Temporarily suspended.)
203(k) Rehab loans
Good Neighbor Next Door program
How FHA Compares to other Financing
Options
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Up to 97.75% financing
Borrower can finance Upfront Mortgage Insurance
Premium (UFMIP) into mortgage
Eligible properties are 1-4 unit dwellings. condominiums,
PUD, Manufactured housing
Seller Contributions
Maximum Seller Contribution
6%
All LTVs, 1-4 Units
Minimum Investment
Minimum Investment Requirement
3%
All LTVs, 1-4 Units
Minimum Investment
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borrower must contribute at least 3%
of their own funds. The borrower’s own
funds are defined as either savings, gift or
grant. There is no requirement for any
borrower savings; the entire 3%
requirement can be a gift or grant.
Features of FHA Loans
The ease of AUS possibly resulting in reduced
documentation
► AUS approval is not a requirement
► No minimum credit score with AUS approval.
► Non-traditional credit is acceptable
► Non-Occupant co-borrowers are permitted
► Lower monthly MI premiums (.50%)
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How the Scorecard Works
The TOTAL Scorecard is internet based and provides a real
time response
AUS (LP or DU)
“calls” FHA’s TOTAL
Scorecard
TOTAL evaluates the
data, makes a
recommendation to
the AUS.
What is FHA TOTAL Scorecard?
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The FHA TOTAL Scorecard evaluates the credit risk of FHA
loans that are submitted to an automated underwriting
system
There are two risk classifications: Accept/Approve or Refer
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An Accept/Approve indicates that FHA will insure the borrower’s loan
with reduced documentation
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A Refer classification indicates that the lender will be required to
manually underwrite the loan
Manual Underwriting
Files may be manually underwritten when there is an AUS
refer or when lack of credit makes a loan AUS ineligible
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580 Minimum Credit Score
Ratio Requirements = 31% & 43% (Guideline-Can be
exceeded with compensating factors)
Ratios
► Compensating
Factors
Some examples of compensating factors are:
- 3 months PITI reserves
- 10% down payment
- housing payment increasing by less than 10%
Once again, if the loan makes sense, the loan can
be approved.
“Non-Traditional Credit”
Borrowers with a limited or undeveloped credit profile and/or
no credit score are eligible for FHA financing with “nontraditional” credit references.
Third party verifications
► Minimum three references with 12 month acceptable history
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Rent checks or Management VOR
Utilities (Electric, gas, oil, phone, cable, etc.)
Car insurance
Cell phone
House accounts (drug stores, clothing boutiques, etc)
An ALTERNATIVE RMCR SHOULD BE OBTAINED
Credit History
Chapter 7 Bankruptcy: Two (2) years since date of discharge; Acceptable reestablished credit; Evidence of acceptable financial management since
bankruptcy. We do not like to see lates on any accounts after a BK, however
case by case exceptions may be made.
Chapter 13 Bankruptcy: One (1) year Acceptable payout since bankruptcy filing;
Permission from court to enter transaction.
Mortgage Foreclosure: Three (3) years since date of foreclosure COMPLETION;
Acceptable re-established credit; Evidence of acceptable financial management
since foreclosure.
Other Credit History Factors
Consumer Credit Counseling: One (1) year acceptable payment history; Written
permission from the agency to enter into the transaction. Underwriting
focuses on overall credit history-participation alone is not a negative factor.
Collections & Judgments: Judgments must be paid in full. A judgment with a
payment plan already in place, in writing, with 12 months payments on time
MAY be able to be left open (U/W discretion); FHA doesn’t require collection
accounts to be paid in full, however, the U/W may require payment in full
based on the borrower’s overall creditworthiness and layers of risk.
Debts & Obligations
Debts-Less Than 10 Months: May be discounted from total debt if payment
amount will not affect borrower’s ability to make the mortgage payment
Deferred Loans: Debt payments deferred at least 12 months from the date of
closing may be discounted from total debt.
Contingent Liability on Mortgage Debt: Mortgage liability that has been transferred
due to divorce, may be discounted from qualifying ratios IF the mortgage has
been current during the previous 12 months* AND we obtain a copy of the
divorce decree ordering the other party to make payments.
* There is no 12-month payment history requirement with AUS approval
Income & Asset Processing
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Income calculations and guidelines mirror conventional rules
Asset documentation also mirrors conventional rules
Retirement accounts are considered based on 60% of the vested
balance
Gift funds may account for the entire 3% cash investment
Income and Asset documents may only be faxed from the direct
source(employer, bank, etc.) and we must be able to identify the
sender by the fax banner at the top and/or bottom of the page.
Gifts
► Gift
Documentation
The simplest gift to document is a gift directly into
the settlement agent’s escrow account. If done
this way, and if the gift is large enough, no bank
statements are required from the borrower:
(1) FHA Gift Letter (available on our website)
(2) Copy of bank check payable to escrow account
(3) Evidence bank check was drawn on donor’s
account
(withdrawal slip, interim printout, letter, etc.)
(4) Escrow Letter from settlement agent
confirming receipt of the gift check into escrow
account
Non-Occupying Co-borrowers
Two or more borrowers, or co-borrowers, can finance a
house under the FHA program at the maximum allowable
LTV limits. These co- borrowers need not be related, but
they must have a family type relationship if one of these
co-borrowers does not occupy the house. In this case the
co-borrower is defined as a non-owner occupant coborrower.
The maximum LTV is 75% if the non-occupant coborrowers
are unrelated as indicated above.
Non-occupying co-borrowers are
limited to only 1-unit properties if the
LTV exceeds 75%!
Lenders will review non-occupant coborrowers very carefully to insure that the
Borrowers is not acting as a “straw-buyer”
The Appraisal Process
► Appraiser
must me an FHA Approved appraiser
► Appraisal is reported on the same forms as FNMA
► Repairs will only be required for items that affect
health, safety or structural integrity (203k
possible)
► Well, Septic, Termite inspections required if visible
evidence of a problem or if required by the state
or local authority. Well and Septic distance
certifications are always necessary.
Property Flipping Rules
FHA has specific property flipping guidelines. The seller must
always be the owner of record. the following timeframe
guidelines apply:
Ineligible if resale is 90 or fewer days from last sale
► If resale is between 91 & 180 days and the sales price is 100% or more over
the last sale price, a second appraisal is required.
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Resale dates are based on the date of settlement on the seller’s purchase of the
property and the date of execution of the sales contract by the buyer.
Manufactured Housing
What is a manufactured home?
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A structure that is factory built and transportable in one or more sections.
Each section displays a certification label on the exterior of the unit. This label
is REQUIRED.
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Manufactured Homes were previously referred to as mobile homes.
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Often, manufactured homes and modular homes are confused. While modular
homes are also factory built, for lending purposes they are treated the same as
stick-built housing.
Manufactured Home Requirements for FHA Financing
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Must be built after June 15, 1976, and bear an affixed certification label on
each section. Label numbers can be found on a data plate in one of three
locations: on or near the main electrical panel, in a kitchen cabinet, in a
bedroom closet;
Was designed to be used as a dwelling on a permanent foundation. The
towing hitch and running gear must be removed;
Must have a floor area of no less than 400 square feet;
Must be classified and taxed as real estate;
May not be located within a Flood Hazard Area (new and existing homes)
All foundation systems must meet HUD guidelines (new and existing homes).
Certification from licensed professional engineer is required. Exception: Does
not apply for FHA to FHA refinances.
Condominium Review Requirements
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Condominium projects must be approved by FHA
For unapproved projects a “spot” condo review process
may be completed. (Spot approval form may be found on
our website.)
Link for FHA Approved:
https://entp.hud.gov/idapp/html/condlook.cfm
For more detailed information you can visit FHA’s condo Q&A page at:
http://www.hud.gov/offices/hsg/sfh/faqs/atl1val.cfm
203(k) Rehab loans
► Traditional
203(k) loan
HUD inspector does a cost write up to determine construction costs. All
rehab monies held in escrow account and drawn down with “work in
place”. No maximum rehab cost, must stay within loan limits however.
► Streamline
203(k) loan
Maximum of $35,000 in repairs, nothing structural. No Hud inspector is
needed. Half rehab monies paid at closing and balance upon receipts
of completion
No self help allowed. Need licensed contractor.
Maximum loan limits apply
► Property can be in disrepair
► Maximum financing allowed (up to 97.75% LTV)
► Can borrow funds to purchase home and all rehab costs
► Repairs must be made within 6 months
► Regular credit qualifying applies
► Mixed use properties may be eligible
► Can roll up to 6 months mortgage payments into loan
► Minimum of $5000 worth of repairs needed
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FHA Streamline Refinance
A streamline refinance is an FHA refinance loan that
is used to payoff an existing FHA lien AND which
results in lowering the borrower’s monthly
principal and interest payment. There is no
employment, income, credit* or asset processing.
*Mortgage rating is required.
Features of a Streamline Refinance
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The mortgage being refinanced must be current for the month due and must
have zero late payments during the last 12 months. On a case by case basis,
late payments in the last 12 months may be considered.
No cash out is allowed ($500 cushion for error)
May “roll-in” closing costs and prepaid items if equity is sufficient. You can go
back up to the original mortgage amount initially financed.
May refinance to a shorter term, provided that the monthly P&I increases by
no more than 20%.
ARM may be streamline refinanced to a fixed rate mortgage provided that the
monthly P&I increases by no more than 20%
Lender can pay closing costs from earned premium in rate.
UFMIP will be netted out from original mortgage
We need original note to show case # and deed is needed to show ownership
Streamline Checklist
Items Needed at time of submission:
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1003 completed in full
All disclosures including all FHA disclosures
Copy of Note with previous case number
Copy of deed
Copy of current loan statement or coupon
Credit report with mortgage only rating OR canceled checks for the lesser of 12
months or inception
Copy of Hazard insurance declaration page
If removing person from loan, twelve months checks evidencing our borrower
pays
FHA Product Details
ARMS
1/1, 3/1 available
Qualifying:
► 1/1 ARM at initial rate + 1% if the LTV is =/> 95%
► 3/1 ARM at Start Rate
2-1 Buy-downs
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Eligible for purchase transactions only with a fixed rate product
May be funded by the borrower, seller, lender, or ANY interested party
Must qualify at the full note rate for all loans
Good Neighbor Next Door Program
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Objective: The revitalization of cities
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Who: Eligible law enforcement officers, teachers,
firefighters, and EMT’s
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Goal: To live in the low and moderate income
neighborhoods where they work
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Benefit: Eligible individuals may purchase HUD acquired
homes located in designated areas at a 50% discount from
list prices
Understanding MIP
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Borrower’s are charged a one time, up-front premium (UFMIP) AND a
monthly premium in most cases
Applicable for all property types and programs
Monthly premiums will be paid for the greater of five years* or until
the amortized LTV reaches 78%. Cancellation is automatic once this
criteria is met
Upon refinance (FHA to FHA only) a borrower will be eligible for a
refund of the UFMIP if the refinance is within 3 years of the original
loan
*The 5 yr rule doesn’t apply to mortgages with terms of 15 years or less. Cancellation will occur based solely on LTV
The MIP Factors
Cash Out Refinances
► Standard:
Maximum LTV/CLTV is 85% of appraised value and closing costs
► If owned less than 1 year, maximum loan is based on the lesser of value +
closing costs or original sales price
► Standard underwriting criteria applies
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Expanded:
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Maximum LTV is 95% of the appraised value 1-2 unit dwellings only
Maximum loan amount amount of $417,000.00
Property has been owned as a primary residence for at least 12 months
preceding the date of the application
Satisfactory mortgage payment history for the prior 12 months (0x30)-NO
EXCEPTIONS
Non-occupant co-borrowers not permitted (> 85% on 1-unit; > 75% on multi)
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Closing Costs
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of January 2006, FHA regulations on fees were
revised to cancel most restrictions. FHA’s new
guideline states: “fees should be reasonable &
customary”, with few specific requirements:
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Must be in compliance with federal & State laws
May only charge actual costs for third party fees
Tax service fee may not be charged
Origination fee may not exceed 1%
Multi-Family Properties
Three and Four unit properties are subject to additional requirements:
1. Property MUST be self-sufficient (i.e., the maximum mortgage is limited so that
the ratio of the monthly mortgage payment, divided by the monthly net rental
income, does not exceed 100 percent).
2. The monthly payment is the principal, interest, taxes, and insurance (PITI),
including mortgage insurance, plus any homeowners' association dues,
computed at the note rate (no consideration for buydowns may be given).
3. Net rental income is the appraiser’s estimate of fair market rent from all units,
including the unit chosen by the borrower for occupancy, less the appraiser’s
estimate for vacancies or the vacancy factor used by the jurisdictional HOC,
whichever is greater.
4. Borrowers must still qualify for the mortgage based on income, credit, cash to
close, and the projected rents received from the remaining units.
5. The projected rent may only be considered as gross income for qualifying
purposes; it may not be used to offset the monthly mortgage payment.
6. The borrower must have reserves equivalent to three months' PITI after
closing on purchase transactions. Reserves cannot be derived from a gift.
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Resources
www.fha.gov
http://www.fha.gov/sf/lenders/index.cfm (FHA for Lenders
Q&A Page)
http://www.hud.gov/offices/hsg/sfh/hsgsingle.cfm (FHA
Single Family Housing Page)
http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-09.cfm
(Manufactured Housing Webpage)
https://entp.hud.gov/idapp/html/hicostlook.cfm (County Loan
Limits for all States)
Recap: Why FHA?
Close more
loans.
Recap: Why FHA?
Make more
money.
Recap: Why FHA?
Survive
market
changes.
Pre Quals/Pre Flights
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Need complete 1003
Credit report
Credit explanations/story
Strengths of file
Email your Account Executive!
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We will do our best to get back to you within 24 hours
Not a guaranteed approval
Questions?