Presenting The FHA Product Workshop

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Presenting The FHA Product Workshop

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Title: Presenting The FHA Product Workshop


1
PresentingThe FHA Product Workshop
  • Fran Wagner
  • National Trainer
  • 5151 Corporate Drive
  • Troy, MI 48098
  • 1 (800) 945-7700
  • 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