Presenting The FHA Product Workshop

1
PresentingThe FHA Product Workshop

• Fran Wagner
• National Trainer
• 5151 Corporate Drive
• Troy, MI 48098
• 1 [phone]
• Wholesale.Flagstar.Com

2
TODAYS AGENDA  

• 1. Brief Introduction 
• 2. Flagstar Banks Mission and Responsibility
• 3. How To Sell the FHA Product Recent Changes
• 4. Borrowers, Co-borrowers and Citizenship
• 5. Credit, Credit Credit
• 6. Income Sources
• 7. Debts Liabilities
• 8. Excessive Ratio Compensating Factors
• 9. Assets Funds to Close
• 10. Appraisal Updates and Revisions

3

• Flagstars Responsibility to the Borrower
• Eliminate the risk of a future delinquency,
  default or foreclosure
• Flagstars Responsibility to HUD
• Help support community development
• Maintain excellent understanding of products and
  updates
• Protect their insurance fund with quality credit
  and property analysis
• Evaluate credit performance through the
  Neighborhood Watch Credit System
• Flagstars Responsibility to the Lender
• Provide credit and property analysis based on FHA
  guidelines
• Provide training tools with up-to-date changes,
  forms and disclosures
• Provide excellent customer service with quality
  and knowledgeable underwriting staff
• Provide state-of-the-art technology and credit
  decisions in a timely manner
• Provide credit decisions to protect lender from
  being terminated by the Neighborhood Watch System

4
How to Sell the FHA Product

• Low down payment.
• Borrower investment of only 3
• Gifts are permitted for entire 3 borrower
  investment
• Gifts are permitted for all closing costs
  pre-paid items
• Seller paid contributions permitted up to 6 of
  sales price
• Down Payment Assistance (DPA) programs permitted
• Seller-Funded DPA not allowed if base loan amount
  exceeds 362,790.
• Seller-Funded DPA in declining markets Minimum
  Credit Scores for all borrowers 620
• Permits combination of DPA, seller contributions
  and gifts funds
• Mortgage Insurance Premiums based on combined
  risk factors of LTV and Credit Scores
• Up-Front Mortgage Insurance Premium (MIP) can be
  financed
• Base loan amount () Up-Front MIP () Gross Loan
  Amount
• UFMIP and Annual MIP are calculated using the
  base loan amount and the appropriate basis points
• Annual MIP is paid monthly and is lower than many
  conventional and EA programs
• No reserves required unless 3-4 unit property or
  non-traditional credit

5
States with Low and High Average Closing Costs
6
Calculating the Maximum Loan Amountfor an FHA
Purchase

• PART 1
• A. Lesser of Sales Price or Value
  ______________
• B. Appropriate Loan to Value
  X______________
• C. Maximum Base Loan Amount
  ______________
• PART 2
• D. Minimum Cash Investment A (x) 3 Percent
  ______________
• E. Minimum Down Payment A (-) C
  ______________
• F. Minimum Borrower Paid Closing Costs D (-)
  E ______________
• G. Borrowers Minimum Cash Investment E ()
  F ______________

• Maximum Loan-to-Value Percentages
• LOW CLOSING COST STATES
• 98.75 For properties with values/sales prices ?
  50,000
• 97.65 For properties with values/sales prices gt
  50,000 125,000
• 97.15 For properties with values/sales prices gt
  125,000
• HIGH CLOSING COST STATES
• 98.75 For properties with values/sales prices ?
  50,000
• 97.75 For properties with values/sales prices gt
  50,000

7
Risk Based Premiums for FHA Mortgage Insurance
8
Risk Based Premiums for FHA Mortgage Insurance
9
How to Sell the FHA Product

• No income limits
• Permits non-occupying co-borrowers without
  separate qualifying ratios
• Minimum credit score of 580 (620 if located in
  declining market using DPA)
• Credit scores between 550-579 are eligible with a
  Total Scorecard Approve or Accept response -
  Applies to Purchases and Rate Term Refinances
  only
• Minimum credit score of 580 on Cash-Out
  refinances over 85 LTV, regardless of Total
  Scorecard response
• Liberal qualifying ratios of 31/43
• Automated underwriting available through the FHA
  Total Scorecard System
• Provides CREDIT waiver with Accept or Approve
  responses through Total Scorecard
• Provides RATIO waiver with Accept or Approve
  responses through Total Scorecard
• Does not require collections to be paid off as
  condition of approval on Accept or Approve
  responses through Total Scorecard
• Allows Manual underwriting for a Refer
  response. Refer does not mean REJECT !

10
Mortgagee letter 2005-15Total Scorecard
Tolerance Levels

• Does not require rescore when the verified
  reserves are no more than 10 less than amount
  listed on 1003
• Does not require rescore when the verified income
  is no more than 5 less than income listed on
  1003
• Does not require rescore when the ratios do not
  result in more than a 2 ratio increase due to
  estimated taxes insurance vs. the actual taxes
  insurance

11
Mortgagee Letter 08-16Risk-Based Mortgage
Insurance Premiums

• Both UFMIP and Annual MIP are now based on the
  borrowers Decision Credit Score and LTV
  Flagstar Bank score floors remain in effect,
  regardless of the the availability of mortgage
  insurance
• LTV is calculated by dividing base loan amount by
  the lesser of the sales price or appraised value
• Decision Credit Score is calculated using the
  following methodology
• Three available scores middle value is used
• Two available scores lower value is used
• One available score use that score
• Multiple Borrowers use decision credit score
  for borrower with LOWEST decision credit score
• Multiple Borrowers/One Without Credit Score(s)
  use highest UFMIP/Annual Premium Calculations
• If mortgage insurance premiums are higher for
  borrowers using non-traditional scores, use
  non-traditional UFMIP and Annual MIP calculations
• If mortgage insurance premiums are higher for
  borrower that has credit scores, use UFMIP and
  Annual MIP calculations for borrower with credit
  scores
• If one or more borrowers fall into an
  LTV/Decision Credit score category for which MI
  is not available, its acceptable to remove the
  non-qualifying borrower. Remaining borrower must
  qualify for loan on his or her own. UFMIP and
  Annual MIP are determined using remaining
  borrowers decision credit score

12
Mortgagee Letter 08-16Risk-Based Mortgage
Insurance Premiums

• Borrowers without credit scores must provide
  acceptable non-traditional credit references
  according to requirements in ML 08-11
• Borrowers who meet UFMIP/Annual Mortgage
  Insurance requirements but receive a Total
  Scorecard Refer Response must meet all other
  FHA qualifying guidelines related to credit,
  ratios, compensating factors, etc. Loans may
  not be approved solely based on the availability
  of risk-based MI for a decision score/LTV
  combination
• First-time homebuyers
• Borrower has had no homeownership in most recent
  three years prior to purchase agreement execution
  or
• Borrower has only owned a principal residence
  with a former spouse while married or
• Borrower has only owned a principal residence not
  permanently affixed to a permanent foundation or
  a property that was not in compliance with state,
  local, or model building codes and cannot be
  brought into compliance for less than the cost of
  constructing a permanent structure

13
Mortgagee Letter 08-16Risk-Based Mortgage
Insurance Premiums

• Refinance Transactions
• Rate and Term Refinances, including FHA to FHA
  and Conventional mortgages that are current at
  the time of refinance UFMIP/Annual MIP are
  calculated using new decision credit score and
  LTV and Risk-Based Premium Charts in effect at
  time of refi
• Cash-Out Refinances - UFMIP/Annual MIP are
  calculated using new decision credit score and
  LTV and Risk-Based Premium Charts in effect at
  time of refi
• FHA Secure for mortgage loans that are currently
  delinquent
• UFMIP is 225 basis points for all LTVs and credit
  scores
• Annual MIP is 55 basis points for all credit
  scores and LTVs gt 95
• Annual MIP is 50 basis points for all credit
  scores and LTVs 95 or less
• First subsequent refi must be credit qualifying
  UFMIP/Annual MIP will be calculated using new
  credit score and LTV and Risk-Based Premium
  Charts in effect at time of refi
• eligible for Streamline refi after credit
  qualifying refinance
• Streamline Refinances New case number ordered
  before July 14, 2008
• Current Streamline Refi UFMIP is 150 basis
  points and Annual MIP is 50 basis points
• Subsequent Streamline Refis UFMIP will be 100
  basis points and Annual MIP will be 50 basis
  points

14
Mortgagee Letter 08-16Risk-Based Mortgage
Insurance Premiums

• Refinance Transactions, Contd
• Streamline Refinances New case number ordered
  on or after July 14, 2008 but existing case
  number issued prior to July 14, 2008
• Current Streamline Refi UFMIP is 100 basis
  points and Annual MIP is 50 basis points
• Subsequent Streamline Refis UFMP will be 100
  basis points and Annual MIP will be 50 basis
  points
• Streamline Refinances Streamline Refi of
  Purchase or Credit Qualifying Refi where existing
  case number (for loan being refinanced) was
  ordered on or after July 14, 2008
• UFMIP/Annual MIP are calculated using Risk-Based
  Premium Charts in effect at time of refi LTV
  and Credit Scores are based on previous loans
  LTV and Scores and can be found through the Case
  Query screen in FHA Connection

15
Mortgagee Letter 08-16Risk-Based Mortgage
Insurance Premiums

• In order to be eligible for the reduced UFMIP,
  first-time homebuyer pre-purchase counseling must
  meet the following criteria
• Must have been completed within 12 months prior
  to borrower signing purchase contract
• Must be completed one-on-one, in person by a HUD
  approved Housing Counselor
• Must consist of the following minimum components
• Budgeting and credit, including an analysis of
  the households unique financial/credit situation
• Assessing homeownership readiness, including an
  evaluation of home and monthly payment
  affordability
• Development of a written action plan outlining
  the steps the household and the counselor will
  take to help the household meet their goals
• Financing a home, including a discussion of
  alternative types of mortgage loans/features and
  special financing products, common lending
  documents, and steps in the loan application,
  approval, and closing processes
• Shopping for a home, including understanding the
  professionals involved in the process
• Maintaining a home, including preventive
  maintenance, taxes, and insurance

16
Mortgage Letter 08-13FHA Secure Expansion

• Comprehensive re-structuring of FHAs current
  refinance program (Streamline Refinance
  transactions excluded)
• Permits lenders to refinance borrowers who are
  delinquent on existing non-FHA adjustable rate
  mortgages because of a rate reset
• Includes borrowers who experienced some
  delinquencies on non-FHA ARMs in the 12 months
  leading up to the rate reset
• Includes borrowers who have been delinquent on
  non-FHA ARMs due to extenuating circumstances
• Permits qualifying mortgage arrearages to be
  included in refinance

17
FHA Secure Expansion

• FHA Secure
• All non-FHA to FHA Rate and Term Refinances
• Conventional Fixed Rate or ARM loans where the
  mortgage payments are current
• Max Mortgage FHA county limit or appropriate
  LTV calculation
• Max LTV Standard LTV Calculation
• Satisfactory mortgage payment history verified
  through mortgage servicer or canceled checks
• New, existing or modified subordination
  agreements allowed - Max CLTV 100
• Minimum credit score 580 with Total Scorecard
  Refer response
• Minimum credit score 550 with Total Scorecard
  Accept or Approve response
• Ratios 31/43 Ratios may be exceeded with Total
  Scorecard Accept or Approve response or
  compensating factors
• Max Cash-in-hand 500
• UFMIP and monthly MIP based on Risk Based Pricing
  Matrixes in effect at time of refi

18
FHA Secure Expansion

• Delinquent non-FHA ARMS Delinquency was caused
  by ARM reset or extenuating circumstances AND
  meets one of the following criteria delinquent
  non-FHA fixed rate mortgages are not eligible for
  refinance
• Borrower made monthly mortgage payments in the
  month due for the most recent six months prior to
  rate reset or
• No more than one 60-day or two 30-day late
  mortgage payments in the 12 months prior to the
  rate reset or extenuating circumstance that
  caused the delinquency or
• No more than one 90-day or three 30-day late
  mortgage payments in the 12 months prior to the
  rate reset or extenuating circumstance that
  caused the delinquency and LTV is 90 or less
• Borrowers delinquent on interest-only loans or
  payment option ARMS may not have had any 30-day
  lates in the most recent six months prior to rate
  reset
• Borrowers with less than 12 months mortgage
  history must demonstrate that all payments were
  made within the month due for the most recent six
  months prior to rate reset or extenuating
  circumstance
• FHA Secure inclusion of currently delinquent
  mortgages is set to expire with originations on
  or before 12/31/08
• Only FHA refinance for mortgage loans that are
  currently delinquent Current mortgage being
  refinanced must be a non-FHA ARM
• Maximum LTV Standard LTV Calculation

19
FHA Secure Expansion

• FHA Secure Contd
• Maximum CLTV 100
• Loan amount may not exceed the lower of FHAs
  county limit or 500,000
• LTV is calculated using current appraised value,
  regardless of seasoning
• UFMIP is 225 basis points for all currently
  delinquent mortgages
• Annual MIP is 55 basis points for all currently
  delinquent mortgages that exceed 95 LTV and 50
  basis points for LTVs 95 and less
• Qualifying Ratios are 31/43 for borrowers who
  have no more than one 60-day or two 30-day
  mortgage lates in most recent 12 months prior to
  reset. 31/43 ratios may be exceeded with an
  Approve or Accept rating through Total
  Scorecard or a strong compensating factors(s)
• Borrowers with one 90-day or 3 30-day mortgage
  lates in most recent 12 months prior to reset may
  not exceed ratios of 31/43, regardless of Total
  Scorecard response and/or compensating factors
• Non-Occupant Co-Borrowers permitted
• Loan amount may include mortgage arrearages
  incurred after reset or extenuating circumstances
• Loan amount may include 2nd mortgages seasoned at
  least one year. For Home Equity lines of credit,
  there may not have been any draws in excess of
  1000 in the most recent 12 months
• Max cash-in-hand 500

20
FHA Secure Expansion

• FHA to FHA Rate and Term Refinance
• Borrower must be current on existing mortgage
  debts and have acceptable mortgage payment
  histories
• Maximum LTV Standard LTV Calculation
• Maximum CLTV 100
• Loan Amount may not exceed FHA county limit
• LTV is calculated using current appraised value,
  regardless of seasoning
• Qualifying ratios are 31/43 but may be exceeded
  with Accept or Approve response through Total
  Scorecard or with compensating factor(s)
• Non-occupant co-borrowers permitted
• Loan amount may include 2nd mortgages seasoned at
  least one year. For Home Equity lines of credit,
  there may not have been any draws in excess of
  1000 in the most recent 12 months

21
FHA Secure Expansion

• FHA 85.01 - 95 Cash-Out Refinance
• All FHA to FHA or non-FHA to FHA Cash-Out
  Refinances
• Property must have been owned for at least the
  most recent 12 months
• All existing Mortgages must have been current in
  the most recent 12 months
• 1-2 Unit Properties
• Max Loan amount 417,000
• Appraised Value is used to determine LTV
• Max CLTV 100 when re-subordinating or modifying
  existing subordinate financing
• New subordinate financing not allowed
• Ratios 31/43 May be exceeded with Total
  Scorecard Accept or Approve response or
  compensating factors
• Non-Occupant Co-Borrowers not permitted for LTVs
  gt 85
• Minimum Credit Score 580
• Manufactured Home Minimum Score is 580 and
  Total Scorecard Accept or Approve response
• Cash-in-hand limited to 200,000
• If property is located in a declining market, max
  LTV is 90
• Borrowers in arrears on their current mortgage
  are not eligible

22
FHA Secure Expansion

• FHA Cash-Out Refinances with LTVs 85 or Less
• Loan amount may not exceed FHA county limit
• 1-4 unit properties
• No seasoning required
• Non-occupant co-borrowers permitted
• Max CLTV 100 when re-subordinating or modifying
  existing subordinate financing
• New subordinate financing not allowed
• Ratios 31/43 May be exceeded with Total
  Scorecard Accept or Approve response or with
  compensating factors(s)
• Minimum Credit Score 580 for Total Scorecard
  Refer responses
• Minimum Credit Score 550 for Total Scorecard
  Accept or Approve responses
• Maximum cash-in-hand is 200,000
• Borrowers in arrears on their current mortgage
  are not eligible

23
Streamline Refinances

• FHA to FHA Refi Intended to lower monthly P I
  payments
• May be originated with or without appraisal
• Cash back at closing limited to 500.
• A delinquent mortgage is generally not eligible
  for streamline refinancing until the loan is
  brought current. However, if the mortgage is
  delinquent by no more than two monthly payments,
  the re-financing lender may pay the borrowers
  mortgage to bring the payments current provided
  no obligation is placed on the borrower to repay
  the funds used to bring the mortgage current.
• If the mortgage is delinquent by more than two
  months, refer to ML 94-30.
• If the loan is an ARM to fixed rate loan, all
  mortgage payments must have been made within the
  month due for the past twelve months or period of
  time that the loan has been in force if shorter.
• On an ARM-to-fixed rate streamlined refinance, if
  the new fixed-rate mortgage will be at a rate
  lower than the existing rate of the ARM, the 30
  days late, rule is not applicable.
• Flagstar Bank will order and review a credit
  report on all streamline refinances without an
  appraisal minimum credit score 550 unless
  loan is Flagstar Bank to Flagstar Bank streamline
  refinance
• Flagstar Bank will complete a verbal verification
  of employment for all streamline refinances
  without an appraisal
• VOM or other documentation is required which
  includes principal balance, date loan originated,
  names of original borrowers and type of loan

24
Streamline Refinances, Contd

• Max CLTV - Subordinate financing may remain in
  place without regard to the total indebtedness
  (the combined amounts of the first and
  subordinate mortgages may exceed the maximum
  mortgage limit for the area but may not exceed
  100 CLTV)
• Social Security Numbers must be verified for all
  borrowers.
• A pay-off statement from the current lender
  showing the unpaid principal must be included in
  the endorsement binder.
• The amount of the existing first mortgage may not
  include delinquent interest.
• Original principal balance must be verified from
  the Refinance Authorization screen in the FHA
  Connection since this will reflect any principal
  reductions for the previous loan.
• An ARM may by refinanced to another ARM, provided
  that an immediate payment reduction occurs AND
  that the maximum interest rate of the new
  mortgage does not exceed the maximum interest
  rate of the loan thats being refinanced
• An ARM may be refinanced to a fixed-rate
  mortgage, provided the interest rate on the new
  fixed-rate mortgage will be no greater than 2
  percentage points above the current rate of the
  ARM. In addition, all mortgage payments in the
  most recent 12 months must have been made within
  the month due (or for the time the mortgage has
  been in force, if shorter) If the new mortgage
  rate will be lower than the existing ARM rate,
  the within the month due is not applicable

25
Streamline Refinances, Contd

• A Hybrid Arm, (3/1 and 5/1 ARMS) may be
  streamline refinanced to a fixed rate mortgage,
  with or without appraisal, provided that the
  payment will not increase more than 20 and all
  mortgage payments have been made within the month
  due for at least the past 12 months or the period
  the mortgage has been in force, if shorter.
• Any streamline refinance of a 30-year mortgage on
  a principal residence may be refinanced to a
  shorter term mortgage as long as the new monthly
  principal and interest does not increase more
  than 20.
• A fixed-rate mortgage may be refinanced to a
  one-year ARM, provided the interest rate of the
  new mortgage is at least 2 percentage points
  below the interest rate of the current mortgage
• A fixed-rate mortgage or any ARM loan may be
  refinanced to a hybrid (3/1 and 5/1 ARM),
  provided that an immediate payment reduction
  occurs.
• A holding period of six months applies when (1)
  the borrower obtained the loan via non-qualifying
  assumption or (2) when a borrower is deleted due
  to devise or descent of law (e.g., divorce,
  death, etc.) and a quit-claim of interest has
  been executed. Full credit qualifying is required
  if held less than six months and/or if
  due-on-sale clause is triggered (1-12-C)

26
Streamline WITH Appraisal

• Term of the new loan can be up to 30 years.
• If an appraisal is ordered but the borrower
  decides to proceed with a streamline without an
  appraisal, the appraisal may be voided. The case
  type in FHA Connection must be changed to reflect
  that the case number is now a streamline without
  an appraisal

27
Streamline WITHOUT Appraisal

• Term of the new mortgage is the lesser of 30
  years or the un-expired term of the existing
  mortgage plus 12 years
• This is the ONLY type of refinance that can be
  accomplished in condominium projects that are no
  longer approved

28
FHA Secure Delinquent Non-FHA ARM to FHA

• Use the LOWER of the following three
  calculations
•  
• ______________ Appraised Value
•  
• Multiplied by Appropriate LTV Factor
• Low Closing Cost States - 98.75 -
  Property Value 50,000 or less
• 97.65 - Property Value gt 50,000 - 125,000
• 97.15 - Property Value gt 125,000
• High Closing Cost States
• 98.75 - Property Value ? 50,000
• X_______________ 97.75 - Property Value gt
  50,000
•  
• _______________ Maximum Mortgage Before UFMIP
•  
• OR

29
FHA Secure Delinquent Non-FHA ARM to FHA

• _______________ Principal Balance on Existing
  First Lien (includes existing balance,
  pre-payment penalties, late payment charges,
  attorney fees, inspection fees, and other charges
  traditionally associated with servicing
  mortgages.
• _______________ PITI arrearages incurred after
  rate reset or extenuating circumstances (if
  incurred prior to rate reset or extenuating
  circumstance, may not be included)
• _______________ Allowable Borrower-Paid Closing
  Costs
• _______________ Junior liens over 12 months old
  No seasoning requirement for purchase money
  seconds. Equity lines in excess of 1000
  advanced in last 12 months are not eligible
  for inclusion (unless documented for
  repair/renovation of subject property
• _______________ Appraiser-Required Repairs
• _______________ Equity to Ex-Spouse
• _______________ Prepaid Expenses
• _______________ Reasonable Discount Points
•  
• _______________ Maximum Mortgage Before UFMIP
• OR if borrower has one 90-day or three 30-day
  delinquencies prior to rate reset or extenuating
  circumstance

30
FHA Secure Delinquent Non-FHA ARM to FHA

• ________________ Appraised Value
•  
• X________________ 90
•  
• ________________ Maximum Mortgage Before UFMIP

31
FHA SecureNon-FHA to FHA Not Delinquent

• Use the LOWER of the following two calculations
•  
• ______________ Appraised Value
•  
• Multiplied by Appropriate LTV Factor
• Low Closing Cost States
• 98.75 - Property Value 50,000 or less
• 97.65 - Property Value gt 50,000 - 125,000
• 97.15 - Property Value gt 125,000
• High Closing Cost States
• 98.75 - Property Value ? 50,000
• X_______________ 97.75 - Property Value gt
  50,000
•  
• _______________ Maximum Mortgage Before UFMIP
•  
•  OR

32
FHA SecureNon-FHA to FHA Not Delinquent

• _______________ Principal Balance on Existing
  First Lien (includes existing first lien,
  prepayment penalties, late payment charges,
  attorney fees, inspection fees, and those other
  charges traditionally associated with
  servicing mortgages) arrearages may not be
  included
• _______________ Allowable Borrower-Paid Closing
  Costs
• _______________ Junior liens over 12 months old
  No seasoning requirement for purchase money
  seconds. Equity lines in excess of 1000
  advanced in last 12 months are not eligible for
  inclusion (unless documented for
  repair/renovation of subject property)
• _______________ Appraiser-Required Repairs
• _______________ Equity to Ex-Spouse
• _______________ Prepaid Expenses
• _______________ Reasonable Discount Points
• _______________ Maximum Mortgage Before UFMIP
•  

33
FHA FHA Rate and Term Refi

• Use the LOWER of the following two calculations
•  
• ______________ Appraised Value
•  
• Multiplied by Appropriate LTV Factor
• Low Closing Cost States
• 98.75 - Property Value 50,000 or less
• 97.65 - Property Value gt 50,000 - 125,000
• 97.15 - Property Value gt 125,000
• High Closing Cost States
• 98.75 - Property Value ? 50,000
• X_______________ 97.75 - Property Value gt
  50,000
•  
• _______________ Maximum Mortgage Before UFMIP
•  
•  OR

34
FHA FHA Rate and Term Refi

• _______________ Principal Balance on Existing
  First Lien (includes existing first balance,
  prepayment penalty, up to one month monthly
  MIP, the mortgage payment that was due on the
  first if not already paid, up to 30 days
  interest for the current month, late charges, and
  escrow shortages) arrearages may not be
  included
• _______________ Allowable Borrower-Paid Closing
  Costs
• _______________ Junior liens over 12 months old
  No seasoning requirement for purchase money
  seconds. Equity lines in excess of 1000
  advanced in last 12 months are not eligible for
  inclusion (unless documented for
  repair/renovation of subject property)
• _______________ Appraiser-Required Repairs
• _______________ Equity to Ex-Spouse
• _______________ Prepaid Expenses
• _______________ Reasonable Discount Points
• -_______________ MIP Refund, if applicable
• _______________ Maximum Mortgage Before UFMIP

35
Cash-Out Refinances

• Use the appropriate calculation
•  
• _______________ Appraised Value
• X_______________ 95 - if owned gt 1 year prior to
  loan application
•  
• _______________ Maximum Mortgage Before UFMIP
•  
•  
•  
• OR when property is owned lt 1 year prior to loan
  application
•  
•  
• _______________ Appraised Value
•  
• X_______________ 85
• _______________ Maximum Mortgage Before UFMIP 

36
Streamline Refi Without Appraisal

• Use the LOWER of the following two calculations
•  
• ______________ Original Principal Balance (from
  refinance authorization screen in FHA
  Connection)
•  
• OR
•  
• _______________ Principal Balance on Existing
  First Lien (includes existing balance, up to one
  month monthly MIP, the mortgage payment that
  was due on the first if not already paid, up to
  30 days interest for the current month, late
  charges, and escrow shortgages) arrearages
  may not be included
•  
• _______________ Allowable Borrower-paid Closing
  Costs
•  
• _______________ Prepaid Expenses
•  
• _______________ Reasonable Discount Points
•  
• - _______________ MIP Refund, if applicable
•  
• _______________ Maximum Mortgage Before UFMIP

37
Streamline Refi With Appraisal

• Use the LOWER of the following two calculations
•  
• ______________ Appraised Value
•  
• Multiplied by Appropriate LTV Factor
• Low Closing Cost States
• 98.75 - Property Value 50,000 or less
• 97.65 - Property Value gt 50,000 - 125,000
• 97.15 - Property Value gt 125,000
• High Closing Cost States
• 98.75 - Property Value ? 50,000
• X_______________ 97.75 - Property Value gt
  50,000
•  
•  
• _______________ Maximum Mortgage Before UFMIP
•  
•  OR

38
Streamline Refi With Appraisal

• ________________ Principal Balance on Existing
  First Lien (includes existing balance, up to
  one month monthly MIP, the mortgage payment
  that was due on the first if not already
  paid, up to 30 days interest for the current
  month, late charges, and escrow shortgages)
  arrearages may not be included
• _______________ Allowable Borrower-paid Closing
  Costs
• _______________ Prepaid Expenses
• _______________ Reasonable Discount Points
• -_______________ MIP Refund, if applicable
• _______________ Maximum Mortgage Before UFMIP 

39
Mortgagee Letter 2006-04Revised Borrowers
closing costs guidelines

• Lenders may charge and collect fees that are
  reasonable and customary
• These fees may be used as part of the borrowers
  3 investment, excluding discount points
• Borrowers may not pay a Tax Service Fee
• Flagstar Banks tax service fee is 69
• Seller contributions still remain at 6
• Flagstar Bank charges an Admin Fee for all FHA
  loans (commitment fee for properties located in
  New Jersey and North Carolina)
• Broker - 550
• Correspondent - 520
• FHA DE - 150
• When Flagstar Bank prepares closing docs, add
  150

40
Basic Qualifications

• Must be able to afford the mortgage payment
• Must meet FHA credit requirements (Refer Response
  only)
• Must meet Flagstar Banks credit score
  requirements
• Must meet employment requirements
• Must meet required cash investment from own funds
  or other acceptable source
• Must occupy property as primary residence
• Sales price must be supported by appraisal
• Property may not have any visible health or
  safety issues
• Financing available on 1-4 unit properties with
  owner occupancy

41
Products Available

• Fixed rate with 15, 20, 25 30 year terms
• 1 year, 3/1 and 5/1 Adjustable rate loans
• Cash out refinances up to 95 LTV
• Rate Term Refinances, Cash-out Refinances,
  Streamlines with or without appraisals
• Single-family Multi-unit family up to 4 units
  with owner occupancy
• Approved Condos Spot Condos
• Double-Wide Manufactured Homes (Kentucky, New
  York, Puerto Rico and U.S. Virgin Islands
  excluded)
• New Construction
• PUDS
• Disaster Victims Mortgage
• FHASecure Temporary Product

42
Credit Analysis
The purpose of underwriting is to determine the
borrowers ability and willingness to repay the
mortgage debt to eliminate the risk of future
default or foreclosure, and to examine the
property to determine sufficient collateral.
43
Borrowers Credit

• Past credit performance is the most useful guide
  in determining credit attitude
• Timely payments on current past obligations
  represent reduced risk
• Credit history that shows continuous slow pays,
  judgments and/or collections increases the
  overall risk and requires strong compensating
  factors for approval
• A pattern of derogatory credit history increases
  risk
• Isolated occurrences of derogatory credit reduce
  risk
• The Underwriter must determine if poor credit
  performance is based on a disregard for financial
  obligations or by factors beyond the borrowers
  control
• Minor credit issues occurring 2 or more years in
  the past do not require explanation and are not
  considered high risk
• Major credit issues including judgments,
  collections and recent credit problems require
  written explanation and increase the credit
  approval risk

44
Borrowers Credit, Contd

• Credit explanations must make sense and be
  consistent with other file data
• High emphasis is placed on satisfactory histories
  for current housing and/or rent, utilities,
  secured installment debts and then revolving and
  unsecured debts
• Payment history on the borrowers housing
  obligation has significant importance in
  evaluating credit
• Verification of current housing must be obtained
  directly from Mortgage company via VOM or
  included on credit report

45
Borrowers Credit, Contd

• Verification of current rent must be obtained
  directly from an apartment complex or rental
  management agency. In some cases, cancelled
  checks, copies of money order receipts or bank
  statements will be required
• Undisclosed debts must be explained only funds
  from secured debts may be used for borrowers
  down payment, closing costs and pre-paids funds
  from revolving or other unsecured loans are not
  eligible as all or part of borrowers investment
• Credit inquiries in the most recent 90 days must
  be explained
• Read all findings to determine specific
  requirements

46
Judgments

• Court ordered judgments MUST be paid in full,
  regardless of Total Scorecard response
• An exception may be granted if the judgment has
  been in repayment for at least 12 months with an
  acceptable payment arrangement letter,
  satisfactory history and debt included in ratio
• Collections
• FHA DOES NOT REQUIRE COLLECTIONS TO BE PAID OFF
  AS A CONDITION OF MORTGAGE APPROVAL, however,
  collections and judgments indicate the borrowers
  regard for credit obligations and MUST be
  considered in the underwriters overall analysis
  
• All collections judgments, regardless of time
  frame must be explained
• Mortgage Foreclosure
• Unless an Accept or Approve response is
  received from Total Scorecard, borrowers with a
  previous foreclosure or deed-in-lieu of
  foreclosure will not be eligible for FHA
  financing if the foreclosure or deed-in-lieu of
  foreclosure occurred within the past three years

47
Chapter 7 Bankruptcy

• FHA insurable 2 years or more from BK-7 discharge
  date (application date not closing date)
• Must document satisfactory history on any
  re-established trade lines
• Underwriter may require 3 or more satisfactory
  non-traditional trade lines
• Must provide statement from borrower who has
  chosen not to re-establish any trade lines after
  BK 7 or has no non-traditional trade line sources
• Unless an Accept or Approve response is
  received from Total Scorecard, a borrower who has
  a BK-7 discharged less than 2 years will not be
  considered for approval
• No BK 7 discharged less than 12 months from
  application date will be considered
• Unless an Accept or Approve response is
  received from Total Scorecard, borrowers who have
  late payments after a BK7 has been discharged are
  limited to an 85 LTV on a cash-out refinance

48
Chapter 13 Bankruptcy

• Must document at least 1 year into the payout
  period plan has elapsed
• Must document satisfactory payment history
• Must obtain court permission to enter into new
  mortgage
• Must include Chapter 13 payment in the debt ratio
  if the BK is not paid off
• Borrowers currently in a Chapter 13 BK are
  limited to 85 LTV on cash-out refinances,
  regardless of Total Scorecard response
• Consumer Credit Counseling
• Must document that at least 1 year into the
  payout period plan has elapsed
• Must document satisfactory payment performance
  and must document the debts/trade lines included
  in the payment plan
• Must obtain Counseling Agency permission to enter
  into new mortgage

49
Mortgagee Letter 2008-11Non-Traditional Credit -
Borrower With No Credit Score

• 3 credit references required with at least 1 from
  Group I
• Group I Rental history, utility company
  including gas, electricity, water, land-line home
  telephone or cable TV
• Group II Insurance (medical, auto, life,
  renters insurance) if not payroll deducted
  payment to child care providers-made to a
  business school tuition retail stores
  (department, furniture, appliance, specialty,
  rent to own, internet/cell phone) 12 month
  history of savings by regular deposits
  (quarterly/non-payroll) personal loan with
  repayment terms in writing along with cancelled
  checks
• Non-traditional credit must be verified by a
  credit vendor on a NTMCR (non-traditional
  mortgage credit report)
• If a NTMCR is not used, all credit references
  must be documented with the most recent 12 months
  cancelled checks

50
Evaluating Non-Traditional Credit

• No history of delinquency on rental history
• No more than 1x30 on payments to other creditors
• No collections accounts/court records (other than
  medical) filed within the past 12 months

51
Evaluating Non-Traditional Credit

• No Credit References or only Group II References
• 12 months verification
• No more than 1x30 on credit source from Group II
• No collection accounts/court records (other than
  medical) filed within the past 12 months

52
Non-Traditional Underwriting

• Qualifying ratios are to be computed using only
  those occupying the property
• Housing ratio cannot exceed 31 - Debt ratio
  cannot exceed 43 - Compensating factors not
  allowed
• Borrowers must have 2 months reserves from their
  own funds

53
Excessive Ratio Loans (Compensating Factors for
Loans exceeding ratios of 31/43.)
Compensating factors may be used to justify
approval of a mortgage loan that exceeds
guidelines and that receives a refer response.
Underwriters must record the compensating
factor(s) used to support loan approval in the
"remarks" section of the Mortgage Credit Analysis
Worksheet or 92900 LT. Any compensating
factor(s) used to justify mortgage approval must
be supported by documentation
54
Compensating Factors

• The borrower has successfully demonstrated the
  ability to pay a housing expense equal to or
  greater than the proposed monthly housing expense
  for the past 12-24 months
• The borrower makes a large down payment (10 or
  more) toward the purchase of the property
• The borrower has demonstrated the ability to
  accumulate savings and has a conservative
  attitude toward the use of credit
• Previous credit history shows that the borrower
  has the ability to devote a greater portion of
  income to housing expenses is a limited debt
  user
• The borrower receives documented compensation or
  income not reflected in effective income but
  directly affecting the ability to pay the
  mortgage, including food stamps and similar
  public benefits
• There is only a minimal increase in the
  borrower's housing expense
• The borrower has substantial documented cash
  reserves (at least 3 months worth) after closing
  

55
Compensating Factors

• Funds borrowed against these accounts may be used
  for loan closing, but are not to be considered as
  cash reserves Assets such as net equity in
  other properties proceeds from a cash-out
  refinance and funds from gifts, regardless of
  source
• The borrower has substantial non-taxable income
• The borrower has potential for increased earnings
  as indicated by job training or education in the
  borrower's profession
• The home is being purchased as a result of
  relocation of the primary wage-earner, and the
  secondary wage-earner has an established history
  of employment, is expected to return to work, and
  reasonable prospects exist for securing
  employment in a similar occupation in the new
  area. The underwriter must document the
  availability of such possible employment

56
Income Sources and Documentation
The amount of income and the likelihood of its
continuance must be established to determine a
borrower's capacity to repay mortgage debt -
Income may not be used in calculating the
borrower's income ratios if it comes from any
source that cannot be verified, is not stable, or
will not continue
57
Stability of Income

• FHA does not impose a minimum length of time a
  borrower must have held a position of employment
• The lender must verify the borrower's employment
  for the most recent two full years
• Exceptions exist for borrowers who attended
  college or were in the military
• The borrower must provide evidence supporting
  this claim, such as college transcripts, a
  college diploma or discharge papers
• Borrowers who have recently returned to work
  after an absence from the workplace are eligible
  under the following criteria
• The borrower has been employed in the current job
  for six months or more
• Must document 2 year work history prior to the
  gap of employment
• Lenders must examine the borrowers past
  employment record, qualifications for the
  position, previous training and education, and
  the employer's confirmation of continued
  employment
• A borrower who changes jobs frequently within the
  same line of work, but continues to advance in
  income or benefits, should be considered
  favorably
• Income stability takes precedence over job
  stability

58
Salaries, Wages, and Other Forms of Effective
Income

• Income of each borrower to be obligated for the
  mortgage debt must be analyzed to determine
  whether it can reasonably be expected to continue
  through at least the first three years of the
  mortgage loan

59
Overtime and Bonus Income

• Both overtime and bonus income may be used to
  qualify if the borrower has received such income
  for the past two years and it is likely to
  continue
• The lender must develop an average of bonus or
  overtime income for the past two years, and the
  employment verification must not state that such
  income is unlikely to continue
• Periods of less than two years may be acceptable
  provided the lender justifies and documents in
  writing the reason for using the income for
  qualifying purposes
• If either type shows a continual decline, the
  lender must provide a sound rationalization in
  writing for including the income for borrower
  qualification
• If bonus income varies significantly from year to
  year, a period of more than two years must be
  used in calculating the average income

60
Part Time / Second Job Income

• Part-time/second job income, including employment
  in seasonal work, may be used for qualification
  if the lender documents that the borrower has
  worked the part-time job uninterrupted for the
  past two years and will continue to do so
• Income from a part-time position that has been
  received for less than two years may be included
  as effective income, provided the lender
  justifies and documents that the income's
  continuance is likely
• Income from part-time positions not meeting these
  requirements may be considered as a compensating
  factor only
• Seasonal employment may be used for qualification
  if the lender documents that the borrower has
  worked the same type of job for the past two
  years and expects to be rehired during the next
  season

61
Military Income

• In addition to base pay, military personnel may
  be entitled to additional forms of pay
• Income from variable housing allowances, clothing
  allowances, flight or hazard pay, rations, and
  proficiency pay is acceptable, provided its
  probability of continuance is verified in writing
• Commission Income
• Commission income must be averaged over the
  previous two years. The borrower must provide
  copies of signed tax returns for the last two
  years, along with the most recent pay stub.
  (Un-reimbursed business expenses must be
  subtracted from gross income)
• Individuals whose commission income shows a
  decrease from one year to the next require
  significant compensating factors to allow for
  loan approval
• Commissions earned for less than one year are not
  considered effective income. Exceptions may be
  made when the borrower's compensation was changed
  from salaried to commission as long as the
  borrower continues to work in the same or similar
  position with the same employer
• A borrower may also qualify when the portion of
  earnings not attributed to commissions would be
  sufficient to qualify the borrower for the
  mortgage

62
Retirement and Social Security Income

• Retirement and social security income require
  verification from the source (former employer,
  Social Security Administration) or federal tax
  returns. If any benefits expire within the first
  full three years, the income source may be
  considered only as a compensating factor
• Alimony Child Support
• Must document receipt of either 3 or 12 months
  previous history
• Must document 3 year continuance

63
Interest and Dividends

• Interest and dividend income may be used,
  provided that documentation (tax returns or
  account statements) supports a two-year history
  of receipt
• This income must be averaged over the two years
• Any funds derived from these sources and required
  for the cash investment must be subtracted before
  the projected interest or dividend income is
  calculated
• Government Assistance Programs
• Income received from government assistance
  programs is acceptable, subject to documentation
  from the paying agency, provided the income is
  expected to continue at least three years
• Unemployment income must be documented for two
  years. Reasonable assurance of its continuance
  is also required. This requirement applies to
  seasonal employees, such as farm workers, resort
  employees, etc.

64
Income From Other Sources

• Rent received for properties owned by the
  borrower is acceptable if the lender can document
  that the rental income is stable This may
  include a current lease or schedule E from 1040s
• If the borrower is renting out his or her current
  residence and purchasing a new primary residence,
  the borrower must provide a copy of the lease,
  document check for security deposit was
  deposited, and document borrower has 12 months
  reserves
• Examples of stability may include a current
  lease, an agreement to lease, or a rental history
  over the previous 24 months
• Income from roommates in a single-family property
  occupied as the borrower's primary residence is
  not acceptable
• Rental income from boarders is acceptable if the
  boarders are related by blood, marriage, or law.
  The rental income may be considered effective
  income if shown on the borrower's tax returns
• If a property was acquired since the last income
  tax filing and is not shown on Schedule E, a
  current signed lease or other rental agreement
  must be provided
• The gross rental amount must be reduced for
  vacancies and maintenance by the following
  percentages
• Santa Ana HOC 10
• Philadelphia HOC 15
• Atlanta HOC 15
• Denver HOC 10 ( 20 for AR, OK UT)

65
Income From Other Sources, Contd

• Projected Income
• Projected or hypothetical income is not
  acceptable for qualifying purposes. However,
  exceptions are permitted to this rule for income
  from cost-of-living adjustments, performance
  raises, bonuses, etc. that are both verified by
  the employer in writing and scheduled to begin
  within 60 days of loan closing
• If a borrower is about to start a new job and has
  a guaranteed, non-revocable contract for
  employment that will begin within 60 days of loan
  closing, the income is acceptable for qualifying
  purposes
• The lender must verify that the borrower will
  have sufficient income or cash reserves to
  support the mortgage payments and any other
  obligations during the interim between loan
  closing and the start of employment

66
Income From Other Sources, Contd

• Employment By Family Owned Businesses
• Borrowers employed at businesses owned by their
  family member(s) are required to provide
  additional income documentation. These borrowers
  must provide the normal verification of
  employment, pay stubs, and evidence that they are
  not an owner of the business. This evidence may
  include copies of the borrower's signed personal
  tax returns or a signed copy of the corporate tax
  return showing ownership percentages

67
Income From Other Sources, Contd

• Self Employed Borrowers (Borrowers with 25
  percent or greater ownership
• interest in any business are considered
  self-employed)
• Income from self-employment is considered stable
  and effective if the borrower has been
  self-employed for two or more years
• An individual self-employed between one and two
  years must have at least two years of documented
  previous successful employment (or a combination
  of one year of employment and formal education or
  training) in the line of work in which the
  borrower is self-employed or in a related
  occupation
• Income from a borrower self-employed less than
  one year may not be considered effective income

68
4506T

• The 4506T is activated for borrowers who
• Are self-employed
• Receive commission income
• Receive 1099 income
• Work in a family-owned business
• At underwriters discretion

69
Asset Verification

• When the earnest money deposit exceeds 2 of the
  sales price or appears excessive based on the
  borrowers savings pattern, lenders must document
  the source of funds
• For savings and checking account statements,
  follow requirements on findings report
• Source of large deposits must be documented not
  just explained
• Large deposit designation depends on borrowers
  monthly income vs. monthly cash outflow

70
Common Sources of Borrowers Funds for Closing

• Gift funds - Prior-to-close conditions and must
  contain the following documentation
• Completion of the FHA gift letter
• Document to support the transfer from donor to
  borrower
• Copy of the donors cancelled check, executed
  withdrawal slip or copy of donors bank statement
  showing the withdrawal of the gift amount
• Documention the borrower has deposited the gift
  funds in their own account (If borrower has no
  bank accounts, gift funds must be delivered to
  the title company and documented)
• Eligible gift donors are the borrowers relative,
  employer, labor union or a close friend with a
  clearly defined and documented interest in the
  borrower
• Donors may borrow gift funds as long as the
  borrower is not obligated on the note

71
Common Sources of Borrowers Funds for Closing

• Sale of personal property must be supported with
  ownership documentation, value of the item and
  evidence of sale
• Approved Down Payment Assistance Programs
• CASH SAVED AT HOME IS ALLOWED !!!!!!! Borrower
  must be able to demonstrate ability to save that
  amount of cash on hand based on length of time it
  took to save the cash vs. monthly debt cash
  out-flow. These funds must also be deposited to
  a bank account
• Net proceeds from sale of currently owned
  property - HUD-1 Settlement Statement must be
  provided
• Private savings clubs are also allowed. This is
  a non-traditional savings method. The borrower
  must document the amount of assets with the club,
  along with a copy of the account ledger, receipts
  from club, identification of the club and
  verification from the club treasurer
• Loans secured against deposited funds (such as a
  Certificate of Deposit or Money Market Account)
  or withdrawals or loans from a 401(k)

72
Borrowers Debts Liabilities
73
Debts Liabilities

• Liabilities include all installment loans,
  revolving charge accounts, real estate loans,
  alimony, child support and all other continuing
  obligations
• Closed-ended installment debts having fewer than
  10 months remaining may be excluded from the debt
  ratio as long as the debt does not affect the
  borrowers ability to make the mortgage payment
  during the first 3-6 months after closing All
  auto leases must be included in ratios,
  regardless of remaining term
• Substantial reserves are a major compensating
  factor when excluding installment debts with
  fewer than 10 payments remaining
• Debts excluded from ratios because fewer than 10
  payments remain must have a timely payment
  history
• Loans co-signed by borrowers do not have to be
  included in the debt ratio when the lender
  obtains proof that the primary borrower has been
  making timely payments for the most recent 12
  months

74
Debts Liabilities, Contd

• Student loans that are deferred for at least 12
  months from the closing date are not required to
  be included in the debt ratio. First payment due
  date is required
• Loans secured by 401(k)s, union dues, payroll
  deducted savings deposits and/or childcare
  expenses should not be included in the debt ratio

75
Debt to Income Ratios

• Mortgage PITI divided by effective income should
  not exceed 31 of gross effective income unless
  the Total Scorecard response is Approve or
  Accept
• Total liabilities, including mortgage PITI,
  divided by effective income should not exceed 43
  of gross effective income unless the Total
  Scorecard response is Approve or Accept
• Compensating factors must be used to justify
  manual underwriting approval for a Total
  Scorecard Refer response with ratios that
  exceed 31 and 43
• Maximum allowable ratios for the 203(h) Disaster
  Victims Mortgage are 31/45

76
Additional Borrower Information
77
Borrowers Co-Borrowers

• Borrowers and co-borrowers take title to the
  property
• Non-occupant co-borrowers do not take title to
  the property
• All borrowers are obligated on the note and
  security instrument
• Co-borrowers income, assets, liabilities and
  credit history must be considered during the
  u