Digital Corpora Origination Underwriting Consumer Protection and Systems by jolinmilioncherie


									Origination, Underwriting, Consumer
      Protection, and Systems

           H4H – Topics
• Comparison of FHA Refinance Options
• Origination
• Underwriting
• Appraisal Issues
• Declining Markets
• Consumer Protections
• Determining and Documenting Shared Equity
  and Appreciation
• Data Requirements
• Integrated Tools

                H4H vs. FHA Secure
Criteria              HOPE for Homeowners            FHA Secure
Eligible Loan Types   Fixed-rate or ARM              ARM
for Refi of           Conventional or gov’t          Conventional loans
Delinquent            Loans originated on or         No limit on months of
                      before Jan. 1, 2008            delinquency at time of refinance
                      6 months payments on           Prior to episode of delinquency,
                      loan ever, over life of loan   only two 30-day lates (3X30, 90

Availability          10/01/2008 – 12/31/2011        Ends 12/31/2008
Loan to Value         Maximum 90%                    97.0% (Standard FHA LTV)
                      Cannot include prepay          May include prepay penalties
                      penalties or late fees         and late fees
Property Type         1 unit properties only         1-4 family properties

                   H4H vs. FHA Secure
Criteria           HOPE for Homeowners         FHA Secure
Combined           90%                         Unlimited CLTV for new
Loan to value      No subordinate financing    subordinate financing
                   allowed                     Unlimited CLTV for re-
                                               subordination or modification of
                                               existing subordinate financing
New Mortgage       30-year fixed-rate          15- or 30-year fixed-rate, 1-year
                                               ARM, or hybrid ARM
Upfront Mortgage   3.0% (included in 90% max   Delinquent:    Current:
Insurance          LTV)                        3% UFMIP       1.75% UFMIP
Annual Premium     1.5%                        >95% LTV is .55%
                                               <95% LTV is .50%
Sharing            Equity and Appreciation     None

           H4H – Origination
Determining Borrower Eligibility
• Did not intentionally default
• Did not lie to obtain existing mortgage
• Has not been convicted of fraud
• Made a minimum of 6 full payments during the life
  of the existing mortgage
• Occupies subject property and does not own
  other residential real estate
• Bankruptcy does not preclude participation
• >31% mortgage payment DTI as of March 1, 2008

            H4H – Origination
Determining Prior Mortgage Payment
• Aggregate total monthly mortgage payment DTI is the fully
  indexed, fully amortized PITI payment
   – May also include HOA fees, ground rent, special
     assessments and all subordinate lien payments
• Income: pay stubs for March 2008, W-2s, or tax returns for
  2007 or 2008, VOE
   – Quarterly tax returns, PL Statement for self-employed
• Payment: obtain from servicer, estimate taxes and
  insurance when necessary

         H4H – Origination
Determining Mortgage Eligibility
• Originated on or before January 1, 2008
• Any type mortgage is eligible
• Each lien holder must agree to waive prepayment
  penalties and default fees, and release his/her
  outstanding mortgage liens
Determining Property Eligibility
• Primary and only residence
• Nonoccupant borrowers must quit claim interest
• 1-unit properties

        H4H – Origination

Calculating the Mortgage Amount
• Nationwide Limit of $550,440
• 90 LTV, including 3% UFMIP
• New H4H mortgage extinguishes all
  mortgage-related debt including
   – Advances for taxes and insurance
   – Out-of-pocket legal expenses

          H4H – Origination
Closing Costs and Prepaid Items
• Standard FHA Policy, including 1 percent cap
  on origination fee (ML 2006-4)
• Origination fee cannot be supplemented by
  application or processing fees or broker fees
• Closing costs and prepaids can be paid by
   – Borrower
   – Financing into the mortgage
   – Existing/new lender and/or third party
   – Premium pricing

           H4H – Underwriting
• Must be scored through TOTAL
• Regardless of the risk classification, the underwriter
  – Determine the new H4H monthly mortgage
    payment is less than borrower’s previous payment
  – Document and verify income (standard FHA policy)
  – Review income as reported in previous 2 years tax
  – Determine DTI ratios are at or below 31/43
  – DTI ratios may be exceeded up to 38/50 with a trial

            H4H – Underwriting
Trial Modification
• Borrower demonstrates ability to handle DTI ratios in
  excess of 31/43 but cannot exceed 38/50
• Trial modification period will probably occur prior to loan
• Review trial modification documentation to ensure:
   – Borrower made payments using existing gross
     monthly income
   – Made full and timely payments for 3 consecutive
   – Payments were at least 90 percent of estimated
     payment on new H4H loan

           H4H – Underwriting
Additional Documentation Requirements
•   Prior Mortgage Origination Date
•   Payment History
•   Prior Total Mortgage Payment
•   Primary Residence
•   H4H Consumer Disclosure and Certifications
•   Verification of Lack of Conviction of Fraud
•   Previous 2 Years Tax Returns
•   Trial Modification
•   First Payment Made
•   Lender Certifications

         H4H – Underwriting

• New subordinate financing prohibited for first 5
  years of the loan
   – Except to pay for maintenance of property standards
• Conditions for allowing such liens will be
  discussed in detail during presentation on
  servicing issues

       H4H – Appraisal Issues
Appraisal must be
•   Specifically ordered for H4H
•   No more than 3 months old at closing
Appraiser must be
•   On FHA roster
•   Certified (licensed acceptable under limited
Appraisal ordered by new lender prevails.

    H4H – Declining Markets

• No standard definition exists
• Determined by the appraiser on a case-
  by-case basis
• Determined by the lender based on data
  services or feedback from LP or DU

       H4H – Declining Markets
Appraiser Responsibilities
• Determine if property is in declining market
   – Supply vs. demand, days on market listings,
     listings to sales ratios, financing availability
• Indicate in One-unit Housing Trends portion of
  Neighborhood section of appraisal
• Where Declining box for property values is checked
  provide explanation in Market Conditions section
• Support assertion of declining home values

    H4H – Declining Markets
Appraiser Responsibilities
• Describe impact of sales concessions and
  downpayment assistance for comparables
• Comps should be no more than 6 months old
  unless clear justification is provided
• Make appropriate adjustments to value when
  differences exist among subject and
• Avoid conflicts of interest
• Report instances of undue pressure

        H4H – Declining Markets
Lender Responsibilities
• Review appraisal to determine whether accurate and
  adequately supported
• May use S&P/Case-Schiller Index, OFHEO House Price
  Index (or successor’s index), NAR statistics
• Is equally responsible for integrity, accuracy, and
  thoroughness of the appraisal
• Avoid conflicts of interest and be intolerant of undue
  pressure on appraisers
• Inform appraisers the appraisal will be shared

      H4H – Consumer Protection
• Counseling not required, but strongly encouraged
  – Pre- and post-H4H
• Benefits of H4H
  –   Reduced principal
  –   Affordable payments
  –   Newly created equity
  –   FHA loss mitigation
• Costs of H4H
  – Higher premiums/interest rates
  – Shared equity with FHA
  – Shared appreciation with FHA

   H4H – Consumer Protections

H4H Consumer Disclosure and Certifications
• Counselors are encouraged to explain and discuss
  disclosure and certifications with borrowers
  (emphasize benefits vs. costs)
• Originating lender is responsible for reviewing
  disclosure and certifications with borrower
  – Must be signed and dated by borrower at least 1 day
    prior to initial loan application
  – Must be signed and dated again by the borrower at

H4H – Equity and Appreciation Sharing

Shared Equity Note and Mortgage (SEM)
• Equity = value at origination less H4H loan
• Sliding scale with 100% going to FHA in 1st year
  and a 50/50% split after 5 years
• Originating lender prepares SEM
• SEM executed by borrower
• Recorded in second lien position
• Borrower can extinguish through refinance

H4H – Equity and Appreciation Sharing
Shared Appreciation Note and Mortgage (SAM)
• Appreciation = net proceeds from sale less
  appraised value at origination
   – May subtract allowable capital improvements
• FHA can share its future appreciation entitlement
  with subordinate lien holders
• Originating lender prepares SAM
• SAM executed by borrower
• Recorded in third lien position
• Borrower can extinguish through sale only

H4H – Equity and Appreciation Sharing

 Originating SEMs and SAMs
 • Identify existing lien holders
 • Request pay-off statements
 • Provide copies of pay-off statements to
   borrowers for review, giving them within 5 days
   of receipt to notify the lender of discrepancies
 • Refer borrowers to equity/appreciation sharing
   notes in the Consumer Disclosure
 • Resolve discrepancies identified by borrowers

H4H – Equity and Appreciation Sharing
 Originating SEMs and SAMs
 • Calculate dollar amount of initial equity
 • Use Appreciation Worksheet (Exhibit F in ML 2008-29)
   to calculate maximum appreciation share for
   subordinate lien holders
    – Lenders writing off less than $2,500 cannot share in
      future appreciation
 • Send Appreciation Worksheet to subordinate lien
   holders and obtain signatures
 • Prepare SEM/SAM documents for execution at closing
 • Send copy of Appreciation Worksheet to HUD 10 days
   prior to closing
 • Receive Appreciation Share Certificate from HUD and
   deliver to closing agent with other loan documents

H4H – Equity and Appreciation Sharing

Document Delivery
•   Within 15 days of endorsement send
    – Original recorded SEM/SAM documents
    – Copy of HUD-1 Settlement Statement
    – Copy of H4H Appraisal to

        c/o C&L Service Corporation/Morris-Griffin Corporation
                   2488 East 81st Street, Suite 70
                          Tulsa OK 74137

H4H – Upfront Appreciation Option

• Emergency Economic Stabilization Act of
  2008 authorized payment of upfront
  appreciation shares

• Oversight Board is considering this option

• Subordinate lien holders could choose upfront
  or future appreciation share

  Appreciation Share Calculation
      Amount Owed       1st Lien P&I   2nd Lien P&I   3rd Lien P&I   Total P&I

        Principal (P)    158,500         20,000         40,000       218,500

 Accrued Interest (I)     10,900          2,200          4,400        17,500

           Total P&I     169,400         22,200         44,400       236,000

Cumulative P&I as %       112.9%         127.8%         157.3%
of current appraised
   value of %150,000

 Appreciation Share Percentages

Subordinate Lien   % of unpaid P&I lien    % of unpaid P&I lien
Holder             holder is entitled to   holder is entitled to
                   receive from future       receive upfront
                   appreciation if any        appreciation*
Cumulative LTV             9%                      3%
> 135%

Cumulative LTV            12%                      4%
< 135%

* If authorized

            H4H – Systems

• Demonstration of H4H Data Requirements
  in FHA Connection

• Discussion of integrated tools


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