FHA Essentials Training Presented by: SecurityNational Mortgage Company FHA Mission o Help people realize the American Dream of homeownership o Stabilize and revitalize communities o Promote economic growth o Reduce defaults and preserve neighborhoods FHA Goals o Create an educated Consumer that can make well-informed choices o Enable every American to own y and build equity in their homes o Provide homeownership opportunities to the underserved population (first time homebuyers, minorities, and the elderly) FHA Mortgage Insurance Premium Protects lenders against mortgage loss, this encouraging lender fl ibilit in loan approval flexibility i l l o Upfront MIP of 1.50% can be financed into the mortgage fi d i t th t amount Monthly ( k P i di o M thl (aka: Periodic or Annual) MIP must be paid for thee greater of 5 years or until the loan is paid down to 78% Loan To Value Loan-To-Value (LTV) Benefits of FHA o No minimum credit score o Alternative credit history allowed o No credit history required o Qualifying ratios are 31/43 Q y g / o Interest rates below sub-prime y and many conventional loans o Automated Underwriting Systems y may be used to p process FHA loans (using the TOTAL Scorecard) Benefits of FHA Low Down Payments and Flexible Sources 3% minimum cash investment o Flexible Source of Funds o 100% gift funds o Family – can use to pay off debts Non profit o Non-profit – use ONLY for down payment and costs o Secondary financing o Instrumentality of government o Family o Seller or third party (i.e. realtor or lender) can contribute up to 6% of the sales price borrower’s towards borrower s financing costs o Down Payment is not required for Disaster Victim 203(h) loans Benefits of FHA FHA is Flexible and Accessible o loans are assumable FHA l bl o No seasoning on listed properties o No t N prepayment penaltieslti o MIP protects lenders against mortgage loss o Upfront MIP can be financed into the mortgage o Closing costs paid by the borrower: those that are reasonable and customary for property location area Benefits of FHA o Free Housing Counseling available to borrowers from an FHA approved Housing Counseling Agency o Loss Mitigation (LM) tools are available to serve borrowers in difficulty and danger of foreclosure o Mandatory: Lender must use LM before foreclosing o Financial incentives increased for servicing lenders to use LM o Special Forbearance, Loan Modification, Partial Claim o Deed-in-Lieu, Pre-Foreclosure Claim FHA Changes and Innovations Revised Appraisal Protocol o FHA has adopted Fannie Mae appraisal forms and instructions app a sa s performed exactly e o FHA appraisals pe o ed e ac y like conventional appraisals, with emphasis on MPS Sheet Homebuyer s o VA Sheet, Homebuyer’s Summary eliminated o Can switch from conventional to FHA loans without another appraisal required (unless appraiser is NOT on roster with FHA) o Reduced repair requirements o Less expensive o Faster closings Revised Appraisal Protocol Cont’d o Eliminated requirements for minor repairs and deferred maintenance i o Handrails o Cracked windows, doors o Tripping hazards o Minor plumbing leaks o Eliminated automatic standard tests/certifications o Flat or unobservable roof o Water quality o Termite and pest infestation Revised Appraisal Protocol Cont’d o Repairs still required for the following: o Safety: Major health and safety items o Soundness: Structural problems o Security: Value must be sufficient to support mortgage o Cracked, peeling paint for pre-1978 homes o Well/septic distance requirements still apply o Appraiser is NOT required to include location and distance of well/septic on the sketch or the appraisal o Appraiser is to include any concerns noted relative to well and septic d ill bt i d o Lender will obtain a survey, if necessary, and address/resolve concerns noted by the appraiser. Property Flipping Rules Overview of Eligibility for FHA O i f Eli ibilit f (ML 2006-14) – cont’d o re-sales 91-180 days, If re sales occur within 91 180 days and exceeded original price by 100% or more, then a second appraisal is required o Seller’s date of acquisition is defined as the date of settlement on the seller’s purchase of the property o Resale Date is the date of execution of the sales contract by the buyer that will result in an FHA insured mortgage o Does not apply to new construction Modified Closing Costs Protocol o FHA rescinded list of allowable/unallowable closing costs effective January 27, 2006 (Mortgagee Letter 2006-04) o Only remaining restrictions are on amount of loan origination fee and tax service fee apply, o Customary and reasonable test still apply as do other Federal and state disclosure laws, including other applicable laws and regulations o Commitment/lock-in fee is now considered a closing cost (lock-in agreement if i t t till b t db specifying terms must still be executed by borrower at least 15 days prior to closing) FHA Connection SecurityNational FHA Loan Products Regular – 203(b) o FHA most popular program o Fixed Rate o Adjustable year o 1 year: 1% per year, 5% cap o 3 year Hybrid: 1% per year, 5% cap 5, 7 o 5 7, and 10 year Hybrid: 2% per year, 6% cap o Works will with local homeownership programs Condominiums – 234(c) o Available for apartment units converted to condos (restrictions) o At least 4 units in the project o Units can be detached, row-house, two or more floors t fl o Project must be HUD approved o Entire complex by HUD staff (list available at: http://hud.gov/hoc/sna/snatsear.html) p // g / / / ) o Individual unit spot approval by SecurityNational Veterans o 3% cash investment not required o May benefit veterans who: y o Have less than full eligibility for VA loan o Are co-borrower with someone other than spouse o Have eligibility tied to another loan g g y (MIP may be o Are re-using eligibility ( y less than VA funding fee) Refinances General G l o Repayment of an existing real estate debt from the d f t th t h th proceeds of a new mortgage that has the same borrower(s) and the same property o The borrower does not have to be on the current loan g to be eligible for an FHA refinance; does have to have legal title. o A valid SSN is required o Borrower cannot be found on LDP or GSA lists tb h k d d o CAIVRS must be checked and, if necessary, resolvedl d (Exception: Streamline Refinance) o Base loan amount cannot exceed the maximum ( y) g g (statutory) mortgage limit o Delinquent mortgages may be refinanced per guidelines in Mortgagee Letter 94-30 Refinances Cont’d General (cont’d) G l( t’d) p y q o Current payoff statement is required for each loan to be paid from the proceeds of the refinance, and for all types of refinances (including Cash-Out) Only h ll id b h b o O l the costs actually paid by the borrower can be financed into the loan (cost paid via premium pricing or by the lender must be excluded) o HUD-92900-WE is used to underwrite refinance loans Address mismatch issues (FHA-to-FHA l o Add i t hi (FHA t FHA loans) ) are to be resolved at case number assignment. Refinances Cont’d CASH-OUT d (G l) CASH OUT and NO CASH OUT (General) o y May be conventional-to-FHA refinance o Full document, qualifying loans o CAVIRS, LDP, and GSA must be checked o May use AUS/TOTAL Scorecard (data must be supported by file documentation) o Interest Rate, Discount Points, higher fees cannot be used to offset poor credit or lower mortgage amount o Owner occupied properties only o Up-front and Monthly MIP applies o Required repairs must be completed prior to closing Refinances Cont’d CASH-OUT and NO CASH-OUT (General) o Loans acquired less than 1 year prior to the refinance transaction have an dditi l t l l ti additional mortgage calculation. Base mortgage amount is the lesser of the calculations o Non-occupying co-borrower not permitted o Same qualification criteria as a purchase transaction. Refinances Cont’d CASH-OUT CASH OUT g g (base) is o Maximum allowable mortgage ( ) lesser of: o Statutory limit o 85% of the appraised value o If owned less than one year, 85% of original sales price o Junior liens may be subordinated if the Combined Loan-to-Value (CLTV) does not exceed 85% of the i d l appraised value o 95% of the appraised value (ML 05-43) o Must have owned property at least one year o doesn’t CLTV doesn t apply to subordinated loans o Must be 1 or 2 unit property o Must have made all payments within month due during the last 12 months (programmatic requirement – applies to AUS files) Refinances Cont’d CASH-OUT (cont’d) o Up-front MIP refund credit (FHA-to-FHA refinance loans) does not have to be subtracted to determine mortgage amount HUD-1 o HUD 1 must reflect the refund credit on page 1 for the borrower to receive it o MIP is paid as an FHA-to-FHA refinance to the refunded will be netted to the new loan e u ded e ed o e e oa o Borrower’s letter of purpose for the cash-out is required exceeded, cash out o Ratios should not be exceeded as cash-out refinances represent a higher risk to the insurance fund Refinances Cont’d NO CASH-OUT d d ff i i o Proceeds are used to pay off existing seasoned liens ( y o Junior (2nd) liens may be subordinated if the CLTV does not exceed the appropriate LTV o May be used to buy out a co-mortgagor’s documented equity if adequately documented. Borrower cannot receive cash back. o Delinquent taxes/escrow shortfall and late fees MAY be financed into the new loan Refinances Cont’d NO CASH-OUT (cont’d) o Maximum (base) mortgage amount is the lesser of: o Maximum (statutory) mortgage limit o Appropriate LTV for property area applied to appraised value o Allowable payoff amount, plus borrower paid closing costs and prepaids, and reasonable discount points. o If owned less than one year, appropriate price. LTV applied to the original sales price Refinances Cont’d STREAMLINE – GENERAL o Refinance of a currently insured FHA loan for the purpose of lowering the principal and interest (P&I) payment oP d dt Proceeds are used to pay off theff th existing first (FHA insured) lien, along with the costs associated with the transaction o Can be with or without an appraisal o May sill be able to finance some/all of financing costs even without an appraisal o Junior (2nd) liens must be subordinated without regard to CLTV Refinances Cont’d STREAMLINE – GENERAL (Cont’d) o Repairs may not be included in the loan o CAIVRS does not have to be checked o LDP and GSA lists do have to be checked o (i e Fixed Certain loan types (i.e. ARM to Fixed, Fixed to ARM, etc.) have additional requirements/instructions o Can add additional borrower without qualifying o Generally cannot delete a borrower without qualifying o May use AUS/TOTAL Scorecard (data must be supported by file documentation) Refinances Cont’d STREAMLINE With APPRAISAL Evidence condomini m appro al req ired o E idence of condominium approval required o Investors cannot participate o The purchase appraisal (even if less than 6 months old) cannot be reused o Transaction, with the added expense of an appraisal, must actually benefit the borrower o ALWAYS start without an appraisal; if necessary, the later. appraisal can be ordered later o Maximum (base) mortgage amount is the lesser of: o Maximum (statutory) mortgage limit o Appropriate LTV applied to the appraised value o Allowable payoff amount, plus borrower paid closing costs and pre-paids, and reasonable discount points. Refinances Cont’d STREAMLINE – NO APPRAISAL o Maximum (base) mortgage amount is the lesser of: o Maximum (statutory) mortgage limit Original i d t o O i i l insured mortgage amount t o Allowable payoff amount, plus borrower paid closing costs and prepaids, and reasonable discount points. Refinances Cont’d Credit Q lif i STREAMLINE – C dit Qualifying o May be done with or without an appraisal o Must be done when a reduction of term results in more than 20% per month increase to the P&I o Deletion of a borrower will trigger the due-on-sale clause o Following an assumption that occurred less than 6 months previously. [Handbook 4155.1 REV 5, Paragraph 1-12 D. 9.] o Must document credit and capacity (willingness and ability) of the remaining borrowers. Required documentation and qualification review included Verification of Income (VOE or verbal), credit report, payment to computation of acceptable mortgage payment-to- income and debt-to-income ratios. o The maximum mortgage amount is calculated in accordance with appraisal status Refinances Cont’d Allowable Payoff Calculation (No Cash-Out and Streamline Refinance Loans) o From the payoff statement: o Add: Unpaid Principal Balance (UPB), Total Interest due, Pre-Payment Penalty (if applicable), and 2 months of monthly MIP pp ), y o Subtract any remaining (unused) portion of buydown funds, if applicable The resulting sum is the “allowable payoff amount” and is noted in #10a of the MCAW FHA Jumbo FHA Jumbo Check FHA Website for Maximum County Loan Amount o 1-4 Units o FHA Approved Condos (including spot approvals) o Minimum 620 FICO o Down Payment Assistance Programs allowed o 30 Year fixed rate o All loans are manually underwritten o All borrowers must have a FICO score FHA Jumbo Declining Markets D li i M k t $417,000 o If the loan amount is > $417 000 and the home is in a declining market, two full appraisals must be provided and the lowest appraised value should be used to determine value. The second appraisal must be an FHA i l b t dditi l appraisal, but an additional case number should not be ordered e p ope y s so /dec g o If the property is in a soft/declining market, an LTV reduction is NOT necessary! Single Family Basic Loan Requirements Borrower o Must be owner-occupants of property as primary residence. May have non-occupying co-borrower or co-signers (some limitations) o May not be investors (except HUD REO sales) o Must be legally able to work in U.S. (citizenship not required) o Must have valid Social Security Number o Must qualify for the mortgage (no minimum income limits) o No minimum FICO o Can have only one FHA insured mortgage (some exceptions) y pp p o May be HUD-approved non-profit or g governmental agency Property o May be one to four units oM b d d i i May be an approved condominium o HUD approved, or o Lender (spot) approval o Must meet Minimum Property Requirements (MPR) o May be existing or new construction o Appraisal valid for 6 months (existing) o Appraisal valid for 12 months (new construction) Down Payment oB t k Borrower must make a 3% cash h investment into the purchase o The 3% required investment is based on the sales price (SP) o A portion of the required 3% 75%) investment (approximately .75%) can be satisfied by borrower paid closing costs EXAMPLE $150,000; $149 000 o SP is $150 000; AV is $149,000. 3% is applied to the SP of $150,000. The required investment amount is $4,500. Borrower Qualifications Liabilities d bt t b id d All debts to be considered: g g Recurring obligations o Installment loans o Revolving charge accounts o Continuing obligations o Debts <10 months that may impact borrower ability to pay mortgage Contingent liabilities o Co-signed obligations (Borrower can be held ibl f t f d bt th h ld responsible for payment of debt if other party defaults) o Good 12 month pay history from other party may offset this obligation Liabilities – cont’d y Some debts may be excluded from ratios: o 401k/IRA loan payments Payment o Pa ment deferred for at least 12 months from closing date (such as student loans) Liabilities – Cont’d o All debts reflected on the credit report, unless documented as paid in full from an acceptable source of funds y o Debts owned by borrower, but not reported to the credit bureau o Child support or alimony o Rental properties loss (negative rent after mortgage payment and maintenance/vacancy factors) o Housing payment for a non- occupying co-borrower py g Qualifying Ratios o Are the best available indicator of borrower’s ability to afford the mortgage 3 % ous g e pe se o gross co e o 31% - housing expense to g oss income (front) Divide total housing payment – including HOA fees, y gross effective income taxes, and insurance – by g o 43% - total debt to gross income (back) Divide total monthly payments – total housing pay e p us o a o y deb a d c d payment plus total monthly debt and child support/alimony payment – by gross effective income g o Can be exceeded with strong compensating factors Compensating factor: Something that mitigates the risk indicated by the excessive ratio(s) Assets o Funds needed to close the loan o Must be verified prior to approval of loan o Reserves not required o No “stated” assets. Source must be verifiable Assets Must f t bl o M t come from an acceptable source: g/ g / o Borrower’s checking/savings/money y market accounts o 60% of 401, IRA, etc. o Gifts or loans from family members (Must document ultimate source) o Gifts from non-profit organizations o Secondary financing from government entities o Cash from stocks, bonds, investments, etc. etc o Real estate commission (may be gifted from relative) Example o Basic Mortgage Calculation o Lesser of Sales Price (SP) or Appraised Value (AV) V l o Less any inducement or excessive concessions o Sum multiplied by appropriate LTV (based on property location area) $50,000 SP/AV – use 98.75% o Less than $ o High Closing Cost States – use 97.75% o Low Closing Cost States o SP/AV between $50,000 and $125,000 – use 97.65% o SP/AV over $125,000 – use 97.15% Low Closing Cost States Arizona California Colorado Guam Idaho Illinois Indiana New Mexico Nevada Oregon Utah Virgin Islands Washington g Wisconsin Wyoming Web Sites HUD’s home page: www.fha.gov HUD s HUD’s Homeownership Centers: www.hud.gov/offices/hsg/sfh/hoc/hsghocs.cfm FHA Resource Center www.answers.hud.gov HOC Reference Guide www.hud.gov/offices/hsg/sfh/ref/hsgrcont.cfm HUD forms, handbooks, mortgagee letters: h d li / i/i d i www.hudclips.org/cgi/index.cgi Contact Information FHA Resource Center 1-800-CALLFHA (800-225-5342) firstname.lastname@example.org HUD-Approved Housing Counseling Agencies 1-800-569-4287 HUD’s Loss Mitigation Center 1-888-297-8685 Thank You!