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Single Family Housing Guaranteed Loan Program Guaranteed Loan Training

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Single Family Housing Guaranteed Loan Program Guaranteed Loan Training FY 2012 – PowerPoint PPT presentation

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Title: Single Family Housing Guaranteed Loan Program Guaranteed Loan Training


1
Single Family Housing Guaranteed Loan
Program Guaranteed Loan Training
FY 2012
2
WELCOME
  • This training is a comprehensive overview of the
    Single Family Housing Guaranteed Loan Program.
  • If you are taking the training as a mandatory
    requirement, it is your responsibility to report
    your completion to your companys contact.
  • Course materials are available to download/print
    for future reference.

3
WELCOME
  • The executor of your companys approved lenders
    agreement (Form RD 1980-16) must sign a master
    attendance sheet (available online at USDA LINC)
    and return it to either the National Office or
    the State Office that sent your company their
    pre-approval letter.

4
WELCOME
  • When all necessary application materials have
    been received and reviewed, Rural Development
    will notify your company of their approval status
    for the Guaranteed Loan Program.

5
Training Tools
  • RD Instruction 1980-D
  • Section references
  • Example 1980.345(d)(1)(i)

6
Training Tools
  • Titles with indicate an Administrative Notice
    was published on this topic.
  • Titles with indicate a ListServ Notice was
    published on this topic.
  • This training is not all inclusive. Please refer
    to RD Instruction 1980-D, Administrative Notices,
    Unnumbered Letters, and all other published
    guidance.

7
Program Mission
  • 1980.301(b)
  • Serve low to moderate income rural homebuyers
  • Adequate, modest, decent, safe and sanitary
    dwellings
  • Guarantee sound loans which otherwise would not
    be made without a guarantee

8
Single Family Housing Guaranteed Loans
  • How can lenders offer Guaranteed Loans?
  • Become an approved lender
  • Form RD 1980-16 Approved Lender Agreement
  • Be an approved lender with Fannie Mae, Freddie
    Mac, HUD, VA, State Housing Finance Agency. Farm
    Credit Service, or participate in other
    guaranteed loan programs (i.e. Rural Business,
    Utilities, and/or Farm Service Agency)
  • Additional eligibility criteria applies
  • National or state approved status available

9
Single Family Housing Guaranteed Loans
  • How can lenders offer Guaranteed Loans?
  • Work with an approved lender
  • Submit originated loan files to an approved
    lender for underwriting
  • Refer to the approved lender for potential
    overlays/guidelines (i.e. minimum FICO scores,
    documentation requirements, property type
    restrictions, etc.)

10
Single Family Housing Guaranteed Loans
  • Who is not eligible to become an approved
    lender?
  • HUD Loan Correspondents
  • VA Agents
  • Freddie Mac Third Party Originators (TPO)
  • Mortgage Brokers
  • These lenders must find an approved lender to
    work with in order to originate Guaranteed loans.

11
Guaranteed Loan Benefits!
  • No downpayment required, 100 financing
  • No pre-determined purchase price limits
  • Expanded qualifying ratios, 29/41
  • Fixed, 30 year interest rates
  • No reserve requirements
  • Nontraditional credit accepted
  • Eligible gift/grant/MCCs/Buydowns allowed
  • Not limited to first time homebuyers

12
Guaranteed Loan Benefits!
  • 90 Loan Note Guarantee!
  • Original principal loan amount 150,000
  • Maximum loss claim payout 135,000
  • 1980.322(a)(2)
  • Any loss sustained by the Lender of an amount up
    to 35 percent of the
  • principal amount actually advanced to the
    borrower, plus 85 percent of any
  • additional loss sustained by the Lender of an
    amount up to the remaining 65
  • percent of the principal amount actually advanced
    to the borrower.

13
  • Applicant
  • Eligibility

14
Applicant Eligibility
  • 1980.346 Other eligibility criteria
  • The applicant must
  • (a) Be a person who does not own a dwelling in
    the local commuting area or owns a dwelling which
    is not structurally sound, functionally adequate.

15
Applicant Eligibility
  • The applicant cannot
  • Own a home in the local commuting area
  • IF a retained home is within local commuting
    area, must be
  • Structurally unsound (documented evidence to
    support)
  • OR
  • Functionally inadequate (handicap
    accessible/Brady Bunch situation, etc.)

16
Applicant Eligibility
  • Reference to 1980.346(a) In regards to the
    applicant
  • Can only retain one dwelling along with new GRH
    loan purchase
  • AND
  • 2. Dwelling retained cannot be financed with a
    Section 502 Direct or Guaranteed loan

17
Applicant Eligibility
  • 1980.346 Other eligibility criteria
  • The applicant must
  • (b) Be without sufficient resources to provide
    the necessary conventional credit without an RD
    guarantee upon terms and conditions which the
    applicant could reasonably be expected to
    fulfill.

18
Conventional Credit Test
  • 20 down available liquid assets (401k not
    considered)
  • Money available to pay closing costs/lender
    fees/etc.
  • Ratios not to exceed 28/36 (with 20 downpayment
    applied)
  • No adverse credit per lender guidelines (i.e.
    BK/FC previous X years, late mtg/rent payments in
    previous X months, etc.)
  • Acceptable credit history exists ( and history
    of tradelines)
  • No private mortgage insurance is required.
  • MUST MEET ALL SIX CRITERIA!
  • FHA and VA are NOT conventional credit.

19
Applicant Eligibility
  • 1980.346 Other eligibility criteria
  • The applicant must
  • (c) Be a natural person who resides as a U.S.
    Citizen, or a noncitizen legally admitted to the
    U.S. for permanent residence or on definite
    parole.
  • SAVE mandatory for non U.S. Citizens.
  • Qualified aliens may qualify.

20
Applicant Eligibility
  • 1980.346 Other eligibility criteria
  • The applicant must
  • (d) Possess legal ability to insure the loan
    obligation and have reached the legal age of
    majority in the State or have had disability of
    minority removed by court action.

21
Applicant Eligibility
  • 1980.346 Other eligibility criteria
  • The applicant must
  • (e) Have the potential ability to personally
    occupy the home on a permanent basisfull time
    college students will not be granted loans
    unless
  • Applicant intends to make home their permanent
    residence and employment prospects are available.
  • An adult member of the household will be
    available to make inspections if the home is
    being constructed.

22
  • ELIGIBLE RURAL
  • PROPERTY
  • SFH residences must be located in an eligible
    rural area.

23
Nationwide Eligibility Web Site
  • http//eligibility.sc.egov.usda.gov
  • Property Eligibility
  • Income Eligibility
  • Income Limit pdf by state
  • State Guaranteed Loan Coordinator Contacts

24
Property Eligibility  
25
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26
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27
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28
Map an exact address Eligible
29
Map an exact address Ineligible
30
Map an exact address Unable to
Determine
31
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32
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33
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34
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35
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37
Eligible Housing
  • Existing homes
  • Must meet HUD Handbooks 4150.2 and 4905.1

38
Eligible Housing
  • Condominiums
  • Eligible units must have evidence they are
    approved by
  • Fannie Mae or
  • Freddie Mac or
  • HUD or
  • VA

39
Eligible Housing
  • Townhouses/(PUDs)
  • All PUDs (attached and detached) are eligible
    for
  • Guaranteed financing

40
Eligible Housing
  • Modular homes
  • New and existing modular homes are eligible

41
Eligible Housing
  • New Construction
  • Evidence Required
  • Certified plans/specs or building permit
  • Inspections throughout construction
  • 1 year builders warranty

42
Eligible Housing
  • Manufactured homes
  • New units 1980.313(i)
  • purchase agreement must be dated within one year
    of the date displayed on the manufacture date of
    the unit
  • Built by an approved dealer-contractor (each
    state maintains a list)
  • Existing units 1980.313(i)(2)(i)
  • Must be originally built and financed
  • with a Direct or Guaranteed loan
  • Original owner must be seller

43
No Income Producing Property
  • Rental Homes/Second Homes
  • Guaranteed loans are for single family
    primary residences only.
  • Large farm service buildings, grain bins, silos,
    dairy farms, hog barns, equestrian stables/riding
    arenas, cell phone towers, wind turbines
  • Large farm service buildings are
    non-essential for RD purposes. Appurtenances
    that have specific income producing
    abilities/purposes are ineligible.
    1980.311(a)(4) and 1980.313(a).

44
No Income Producing Property
  • Acreage non-tillable (farm), no limit,
    30 site value
  • 30 or more If typical for area (as verified by
    appraisal and comps) and the
  • site cannot be subdivided into two or more sites,
    the 30 limitation may be
  • exceeded. 1980.313(e)
  • 30 and below with no income producing properties
    no issue.

45
In-Ground Swimming Pools
  • States may approve requests
  • No loan funds for contributory value of pool
  • Appraiser must provide accurate value
  • Above ground pools are personal property, no
    issues

46
Example Maximum Loan Amount Calculation w/
In-Ground Pool
  • Appraised Value 175,000
  • Pool Value - 2,500
  • Maximum loan amount 172,500 g fee
  • 172,500 .98 176,020.41 loan amount w/
    upfront guarantee fee

47
  • Income Eligibility
  • Adjusted household income must not exceed the
  • applicable limitation for the state/county where
    the
  • property is located.

48
Income Eligibility
49
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50
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51
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52
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53
Income Limit pdf
54
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55
Income Calculations
  • THREE DISTINCT INCOME CALCULATIONS
  • 1 Annual Income one time calculation, all
    income received by
  • adult household members residing in the
    home (including family
  • assets)
  • 2 Adjusted Income one time calculation based
    on household size
  • to determine household eligibility for a
    GRH loan. Annual income
  • minus eligible deductions equals adjusted
    annual income
  • 3 Repayment Income calculation of stable and
    dependable
  • income of the applicants that will be on
    the mortgage loan.

Income Worksheet EXCELLENT TOOL!!
56
Income Documentation
  • All adult household members
  • 1 Written VOE (including 3rd party
    verifications/The Work Number) one recent
    paystub with YTD figure
  • 2 30 days of paystubs (originals or electronic
    printouts from employer intranet sites) with YTD
    figures two years W-2s telephone VOE

57
Income Documentation
  • All adult household members
  • Self Employed
  • 2 years tax returns (signed, dated, all
    schedules, originals or IRS transcripts accepted)
  • YTD Profit and Loss (PL) statement with balance
    sheet
  • YTD Income Expense statement
  • Items are not required to be audited

58
Income Documentation
  • Self Employed recommend use of the following
    forms to
  • arrive at income
  • Fannie Mae form 1084 Cash Flow Analysis
  • Fannie Mae form 1088 Comparative Income
    Analysis
  • Freddie Mac form 91 Income Analysis

59
Income Documentation
  • OPTIONAL QUALITY CONTROL MEASURE
  • Lender Discretion
  • All adult household members sign at loan
    application
  • IRS Form 4506-T
  • Previous two tax years
  • Optional tool to validate income verification
    documents provided by adult household members.
  • OPTIONAL NOT A REQUIREMENT OPTIONAL

60
Income Calculations
  • Suggested calculation methods
  • Straight-based the benefit or wage amount is
    converted to the annual earnings.
  • Base pay 10.50 per hour x 40 hours x 52 weeks
    21,840
  • Salary 34,450 12 months 2,870.83 (monthly
    income )

61
Income Calculations
  • Suggested calculation methods
  • Average year to date (YTD) income reported on
    the most recent earnings statements is averaged
    and then converted to the annual equivalent.
  • YTD earnings as of 4/28/2011 19,875.64
  • 19,875.64 4 months 4,968.91 x 12 months
    59,626.92

62
Income Calculations
  • Suggested calculation methods
  • Historical review the YTD calculations along
    with W-2s and/or tax returns from previous years
    to estimate annual earnings.
  • YTD earnings as of 3/18/2011 13,762.32
  • 2010 W-2 53,459.26
  • 2009 W-2 50,619.33
  • YTD 13,762.32 53,459.26 67,221.58 14.5
    months 4,635.97
  • 4,635.97 x 12 months 55,631.65

63
Income Calculations
  • Suggested calculation methods
  • 4. Year to Date YTD gross earnings are divided
    by the YTD interval, the of calendar days
    elapsed between January 1 and the last date
    covered by the most recent paystub, multiplied by
    365
  • YTD earnings as of 5/27/2011 17,554.32
  • 147 days between Jan. 1 and May 27
  • 17,554.32 147 119.41 x 365 43,587.25

64
Income Calculations
  • YTD Method Tool

65
Income Calculations
  • Applicant Example
  • Sean has worked for Technisource for 3 years.
  • Base pay 14.50 per hour / 40 hours per week
  • Overtime pay 21.75 per hour / VOE 5 hours
    per week
  • YTD Earnings 5/13/2011 14,437.48
  • 2010 W-2 35,970.73
  • 2009 W-2 33,656.42

66
Income Calculations
  • Straight Based
  • Base Pay 14.50 hr x 40 hrs x 52 wks 30,160
  • Overtime 21.75 hr x 260 hrs per yr 5,655
  • 30,160 5,655 35,815
  • Average
  • 14,437.48 4.5 months 3,208.32 x 12 months
    38,499.94

67
Income Calculations
  • Year to Date
  • 14, 437.48 133 days 108.55 x 365 days
    39,621.65
  • Historical
  • 2010 W-2 35,970.73 YTD 14,437.48
    50,408.21
  • 50,408.21 16.5 months 3,055.04 x 12 months
    36,660.51

68
Income Calculations
  • Straight-Based 35,815 (-105)
  • Average 38,499.94 (2,579.21)
  • Year to Date 39,621.65 (3,700.92)
  • Historical 36,660.51 (739.78)
  • 2010 W-2 35,920.73 (2,264.31)
  • 2009 W-2 33,656.42

69
Income Calculations
  • Review all of the income documentation
  • Consider the types of income earned
    (Salary/Hourly/Overtime/Bonus/Commission/Self
    Employed)
  • Consider the history of each earning type
  • Consider the time of year the applicant applies
  • Determine the evidence based logical calculation
  • DOCUMENT THE CALCULATIONS!!
  • Income Worksheet Available for Lender Use!

70
Annual Income
  • 1980.347 Annual income
  • Annual income determinations will be thoroughly
    documented in
  • the Lenders case file. Historical data based on
    the past 12 months or
  • previous fiscal year may be used if a
    determination cannot logically be
  • made.

71
Annual Income
  • 1980.347 Annual income
  • Annual income determinations will be thoroughly
    documented in the
  • Lenders case file. Historical data based on
    the past 12 months or
  • previous fiscal year may be used if a
    determination cannot logically
  • be made.

72
Annual Income
  • 1980.347 Annual income
  • Current verified income, either part time or full
    time, received by the applicant and all adult
    household members of the household, including any
    co-applicant.
  • If any other adult member of the household is not
    presently employed but there is a recent history
    of such employment, that persons income will be
    considered unless the applicant and the person
    involved sign a statement that the person is not
    presently employed and does not intend to resume
    employment in the foreseeable future, or if
    interest assistance is involved, during the term
    of the Interest Assistance Agreement. The
    statement will be filed in the applicants loan
    file.

73
Annual Income
  • Income from such sources as seasonal type work of
    less than 12 months duration, commissions,
    overtime, bonuses, and unemployment compensation
    must be computed as the estimated annual amount
    of such income for the upcoming 12 months.
    Consideration should be given to whether the
    income is dependable based on verification by the
    employer and the applicants history of such
    income over the previous 24 months.

74
Annual Income
  • (d) The following are included in annual income
  • The gross amount before any payroll deductions,
    of wages and
  • salaries, overtime pay, commissions,
    fees, tips, bonuses, and
  • other compensation for personal services
    of all adult members of
  • the household.

75
Annual Income
  • (d)(2) The net income from operation of a farm,
    business, or
  • profession. Consider the following
  • (i) Expenditures for business or farm expansion
    and payments of principal on capital indebtedness
    shall not be used as deductions in determining
    income. A deduction is allowed in the manner
    prescribed by IRS regulations only for interest
    paid in amortizing capital indebtedness.
  • (ii)Farm and non farm business losses are
    considered zero in determining annual income.

76
Annual Income
  • (d)(2) The net income from operation of a farm,
    business, or
  • profession. Consider the following
  • (iii) A deduction, based on straight line
    depreciation, is allowed in the manner prescribed
    by IRS regulations for the exhaustion, wear and
    tear, and obsolescence of depreciable property
    used in the operation of a trade, farm, or
    business by a member of the household. The
    deduction must be based on an itemized schedule
    showing the amount of straight line depreciation
    that could be claimed for Federal income tax
    purposes.

77
Annual Income
  • (d)(2) The net income from operation of a farm,
    business, or
  • profession. Consider the following
  • (iv) Any withdrawal of cash or assets from the
    operation of a farm, business, or profession will
    be included in income, except to the extent the
    withdrawal is reimbursement of cash or assets
    invested in the operation by a member of the
    household
  • (v) A deduction for verified business expenses,
    such as for lodging, meals, or fuel, for
    overnight business trips made by salaried
    employees, such as long-distance truck drivers,
    who must meet these expenses without
    reimbursement.

78
Annual Income
  • (d)(3) Interest, dividends, and other net income
    of any kind from real or personal property,
    including
  • (i) The share received by adult members of the
    household from income distributed from a trust
    fund.
  • (ii) Any withdrawal of cash or assets from an
    investment except to the extent the withdrawal is
    a reimbursement of cash of assets invested by a
    member of the household.
  • (iii) Where the household has net family
    assets, as defined in section 1980.302(a) of this
    subpart, in excess of 5,000, the greater of the
    actual income derived from all net family assets
    or a percentage of the value of such assets based
    on the current passbook savings rate.

79
Net Family Assets Annual Income
  • 1980.302(a) Net family assets
  • The value of equity in real property, savings,
    individual retirement accounts (IRA), demand
    deposits, and the market value of stocks, bonds,
    and other forms of capital investments, but
    exclude
  • Interests in Indian Trust Land
  • The value of the dwelling and a minimum adequate
    site,
  • Cash on hand which will be used to reduce the
    amount of the loan,
  • The value of necessary items of personal property
    such as furniture and automobiles and the debts
    against them,
  • The assets that are a part of the business,
    trade, or farming operation in the case of any
    member of the household who is actively engaged
    in such operation, and
  • The value of a trust fund that has been
    established and the trust is not revocable by, or
    under the control of, any member of the
    household, so long as the funds continue to be
    held in trust
  • continued on next slide

80
Net Family Assets Annual Income
  • 1980.302(a) Net family assets
  • The value of equity in real property, savings,
    individual retirement accounts (IRA), demand
    deposits, and the market value of stocks, bonds,
    and other forms of capital investments, but
    exclude
  • Interests in Indian Trust Land
  • The value of the dwelling and a minimum adequate
    site,
  • Cash on hand which will be used to reduce the
    amount of the loan,
  • The value of necessary items of personal property
    such as furniture and automobiles and the debts
    against them,
  • The assets that are a part of the business,
    trade, or farming operation in the case of any
    member of the household who is actively engaged
    in such operation, and
  • The value of a trust fund that has been
    established and the trust is not revocable by, or
    under the control of, any member of the
    household, so long as the funds continue to be
    held in trust
  • continued on next slide

81
Net Family Assets Annual Income
  • 1980.302(a) Net family assets
  • (2) The value of any business or household
    assets disposed of by a member of the household
    for less than fair market value (including
    disposition in trust, but not in a foreclosure or
    bankruptcy sale) during the 2 years preceding the
    date of application, in excess of the
    consideration received therefore. In the case of
    a disposition as part of a separation or divorce
    settlement, the disposition shall not be
    considered to be less than fair market value if
    household member receives important consideration
    not measurable in dollar terms.

82
Asset Recap
  • The following non-retirement assets must be
    considered
  • Checking/Savings accounts
  • CDs/ stocks/bonds/money markets/investment
    accounts, etc.
  • Equity in real property or other capital
    investments
  • Revocable trust funds available to the household
  • Remember
  • All Adult Household Members Income/Assets Must Be
    Considered.
  • The cumulative amount of all assets in the
    household applies.

83
Asset Recap
  • The following retirement assets must be
    considered
  • Amounts in Individual Retirements Accounts
    (IRAs)

84
Asset Recap
  • The following assets are not considered
  • Value of personal items (furniture, clothing,
    cars, etc.)
  • Business assets
  • Lump sum additions to assets, inheritances,
    lottery winnings, settlement payouts, etc.
  • Irrevocable trust funds which no household member
    has control
  • Interests in American Indian trust land
  • Assets on hand that will be used to reduce the
    amount of loan and/or pay for closing costs

85
Calculating Income from assets
  • Eligible assets of 5,000 (cumulative) or more,
    include the
  • greater of these calculations in annual income.
  • Actual income derived from asset OR
  • Asset value x passbook savings rate
  • Deduct any funds utilized for downpayment,
    closing costs, pre-paids,
  • etc. in the home purchase transaction PRIOR to
    calculating income.

86
Calculating Income from assets
  • Actual income derived from asset
  • 12,500 held in a money market savings account
  • 2.5 interest rate
  • 12,500 x 2.5 312.50
  • 312.50 / 12 26.04 monthly income.

87
Calculating Income from assets
  • Asset value X passbook savings rate
  • 12,500 eligible liquid asset
  • 1 current passbook savings rate
  • 12,500 x 1 125
  • 125 / 12 10.41 monthly income.

88
Calculating Income from assets
  • Actual income derived from asset OR
  • Asset value x passbook savings rate
  • Select the GREATER of the two calculations
  • 312.50 or 26.04 monthly
  • 125 or 10.42 monthly

89
Annual Income
  • 1980.347(d)
  • The full amount of periodic payments received
    from social security (including social security
    received by adults on behalf of minors or by
    minors intended for their own support),
    annuities, insurance policies, retirement funds,
    pensions, disability or death benefits, and other
    similar types of periodic receipts.
  • Payments in lieu of earnings such as
    unemployment, disability and workers
    compensation, and severance pay.
  • Public assistance except as indicated in
    paragraph (e)(2) of this section.

90
Annual Income
  • (d)(7) Periodic allowances, such as
  • (i) Alimony and/or child support awarded in a
    divorce decree or separation agreement, unless
    the payments are not received and a reasonable
    effort has been made to collect them through the
    official entity responsible for enforcing such
    payments and they are not received as ordered or
  • (ii) Recurring monetary gifts or contributions
    from someone who is not a member of the
    household.

91
Annual Income
  • 1980.347(d)
  • Any amount of educational grants or scholarships
    or VA benefits available for subsistence after
    deducting expenses for tuition, fees, books, and
    equipment.
  • All regular pay, special pay (except for persons
    exposed to hostile fire), and allowances of a
    member of the armed forces who is the applicant
    or co-applicant, whether or not that family
    member lives in the unit.
  • The income of an applicants spouse, unless the
    spouse has been living apart from the applicant
    for at least 3 months (for reasons other than
    military or work assignment), or court
    proceedings for divorce or legal separation have
    been commenced.

92
Annual Income
  • The following are not included in annual income
    but MAY be considered in determining repayment
    ability
  • (2) The value of the allotment provided to an
    eligible household under the Food Stamp Act of
    1977.
  • (3) Payments received for the care of foster
    children.
  • (4) Casual, sporadic, or irregular cash gifts.

93
Annual Income
  • The following are not included in annual income
    but MAY be considered in determining repayment
    ability
  • (5) Lump-sum additions to family assets such as
    inheritances capital gains insurance payments
    from health, accident, hazard, or workers
    compensation policies and settlements for
    personal or property losses (except as provided
    in paragraph (d)(5) of this section.)
  • (6) Amounts which are granted specifically for,
    or in reimbursement of, the cost of medical
    expenses.

94
Annual Income
  • The following are not included in annual income
    but MAY be considered in determining repayment
    ability
  • (7) Amounts of education scholarships paid
    directly to the student or to the educational
    institution and amounts paid by the Government
    to a veteran for use in meeting the costs of
    tuition, fees, books, and equipment. Any amounts
    of such scholarships or veterans payments, which
    are not used for the aforementioned purposes and
    are available for subsistence, are considered to
    be income. Student loans are not considered
    income.

95
Annual Income
  • The following are not included in annual income
    but MAY be considered in determining repayment
    ability
  • (8) The hazardous duty pay to a service person
    applicant or spouse away from home and exposed to
    hostile fire.
  • (9) Any funds that a Federal statute specifies
    must not be used as the basis for denying or
    reducing Federal financial assistance or
    benefits. (Listed in exhibit F of RD Instruction
    1980-D, available in any RD office.)

96
Annual Income
  • (f) Income of live-in-aides who are not
    relatives of the applicant or members of the
    household will not be counted in calculating
    annual income and will not be considered in
    determination of repayment ability.

97
Adjusted Income
  • 1980.348 Dependents
  • Adjusted annual income is annual income less the
    following
  • 480 for each member of the family residing in
    the household, other than the applicant, spouse,
    or co-applicant, who is
  • (1) Under 18 years of age
  • (2) 18 years of age or older and is disabled as
    defined in 1980.302(a) or
  • (3) a full-time student aged 18 or older.

98
Adjusted Income
  • 1980.348 Elderly Family
  • Adjusted annual income is annual income less the
    following
  • (b) A deduction of 400 for any elderly family
    as defined in 1980.302(a)

99
Adjusted Income
  • 1980.348 Childcare Expenses
  • Adjusted annual income is annual income less the
    following
  • (c) A deduction for the care of minors age 12
    years of age or under, to the extent necessary to
    enable a member of the applicant/borrowers
    family to be gainfully employed or to further his
    or her education. The deduction will be based
    only on monies reasonably anticipated to be paid
    for care services and, if caused by employment,
    must not exceed the amount of income received
    from such employment. Payments for these
    services may not be made to persons whom the
    applicant/borrower is entitled to claim as
    dependents for income tax purposes. Full
    justification for such deduction must be recorded
    in detail in the loan docket.

100
Adjusted Income
  • 1980.348 Medical Deductions (Elderly/Disabled
    Only)
  • Adjusted annual income is annual income less the
    following
  • A deduction of the amount by which the aggregate
    of the following expenses of the household
    exceeds 3 percent of the gross annual income
  • (1) Medical expenses for any elderly family
    see 1980.302(a) anticipated to incur over the
    ensuing 12 months and which are not covered by
    insurance (e.g., dental expenses, prescription
    medicines, medical insurance premiums,
    eyeglasses, hearing aids and batteries, home
    nursing care, monthly payments on accumulated
    major medical bills, and full-time nursing or
    institutional care which cannot be provided in
    the home for a member of the household and

101
Adjusted Income
  • 1980.348 Disability Expenses
  • Adjusted annual income is annual income less the
    following
  • A deduction of the amount by which the aggregate
    of the following expenses of the household
    exceeds 3 percent of the gross annual income
  • (2) Reasonable attendant care and auxiliary
    apparatus expenses for each disabled member of
    the household to the extent necessary to enable
    any member of such household (including such
    disabled member) to be employed.

102
Adjusted Income
  • Example Calculations
  • 2 dependents x 480 960
  • 500 /month daycare x 12 months 6,000
  • Elderly family 400
  • Annual Income 76,500 Medical expenses
    13,500
  • 76,500 x 3 2,295
  • 13,500 - 2,295 11,205 deduction allowed

103
Repayment Income
  • LOAN APPLICANT(S) ONLY
  • Applicant
  • Co-Applicant(s)
  • Adequate (stable) and dependable income to
    repayment the mortgage debt

104
Repayment Income
  • 1980.345(b) Adequate and dependable income
  • The applicant (and co-applicant, if applicable)
    has adequate and
  • dependably available income. The applicants
    history of income and
  • the history of the typical annual income of
    others in the area with
  • similar types of employment will be considered
    in determining whether
  • the applicants income is adequate and
    dependable.

105
Repayment Income
  • 1980.345(b) Adequate and dependable income
  • A farm or non farm business loss must be
    considered in determining repayment ability.
    Include as a monthly liability.
  • A loss may not be used to offset other income in
    order to qualify for or increase the amount of RD
    assistance.

106
Repayment Income
  • 1980.345(c)
  • Income, for the purpose of determining the total
    debt ratio, includes, the total qualifying income
    of the applicant, co-applicant, and any other
    member of the household who will be a party to
    the note.

107
Co-Signors
  • No co-signors!
  • Only applicants who will make the dwelling their
    primary residence can be on the loan.
  • Non-occupant co-borrowers are not allowed!
  • 1980.345(c)(2) and (4)

108
Repayment Income
  • 1980.345(c)(2)
  • (i) An applicants qualifying income may be
    different than the adjusted annual income which
    is used to determine program eligibility. In
    considering qualifying income, the Lender must
    determine whether there is a historical basis to
    conclude that the income is likely to continue.
    Typically, income of less than 24 months duration
    should not be included in qualifying income. If
    the applicant is obligated to pay child care
    costs, the amount of any Federal tax credit for
    which the applicant is eligible may be added to
    the applicants qualifying income.

109
Repayment Income
  • 1980.345(c)(2)
  • (i) An applicants qualifying income may be
    different than the adjusted annual income which
    is used to determine program eligibility. In
    considering qualifying income, the Lender must
    determine whether there is a historical basis to
    conclude that the income is likely to continue.
    Typically, income of less than 24 months duration
    should not be included in qualifying income. If
    the applicant is obligated to pay child care
    costs, the amount of any Federal tax credit for
    which the applicant is eligible may be added to
    the applicants qualifying income.

110
Repayment Income
  • 1980.345(c)(2)
  • (ii) In considering income that is not subject
    to Federal income tax, the amount of tax savings
    attributable to the nontaxable income may be
    added for use with the repayment ratios.
    Adjustments for other than the applicable tax
    rate are not authorized. The Lender must verify
    that the income is not subject to Federal income
    tax and that the income (and its nontax status)
    is likely to continue. The Lender must fully
    document and support any adjustment made.

111
Repayment Income Tax Exempt
Single applicant 32,000 salary 500 monthly
child support received (6,000/year) The 10 tax
bracket applies. 500 x 10 50 may be used
for monthly repayment income Add 500 to monthly
annual income.
112
Repayment Income
  • 1980.347(e) Income that is not considered for
    annual
  • income, but MAY be considered for repayment
  • Value of allotment of food stamps
  • Payments received for care of foster children
  • Lump-sum additions to assets such as
    inheritances, capital gains, insurance payments,
    etc.
  • Reimbursements of medical expenses
  • Remainder of funds from VA/educational benefits
    (minus books tuition, fees, and equipment.)
    Student loans are not income.
  • Hazardous duty pay for exposure to hostile fire
  • Federal benefits received as assistance

113
Repayment Income MCC
  • 1980.392(a) Mortgage Credit Certificates
  • Amount of tax credit is repayment income, when
    the credit is taken on a monthly basis
  • Lenders submit MCC and Form IRS W-4
  • MCC must show the rate of tax credit allowed
  • W-4 must reflect the tax credit is taken on a
    monthly basis
  • Lender must certify MCC is effective

114
Repayment Income
  • Overtime, Commission, Bonus, Seasonal, Part-time
  • Income
  • Income earned for previous 2 years with
    same/present employer
  • Income earned less than one year should not be
    used without significant compensating factors or
    employer verification it is likely to continue
  • Significant variances from year to year may
    result in utilizing a period of more than 2 years
    for calculations.
  • Include in annual income if history of receipt
    and employer verification of continuance

115
Repayment Income
  • Child Support, Alimony, Social Security, Eligible
  • Retirement payments
  • Receipt of payments for 12 months documented
  • Receipt less than 12 months acceptable if lender
    can document justification
  • Verify three year continuance into mortgage
  • Unable to verify payments received via third
    party, signed affidavit allowed per
    1980.353(e)(1)(iv)
  • Consider tax exempt status if applicable
  • Include amounts received in annual income

116
Repayment Income
  • Automobile Allowance Expense Account Income
  • Amount that exceeds actual expenditure may be
    used for repayment income
  • Receipt for two years and verification from
    employer for continuance
  • Include the debt the allowance is provided
  • Allowance/reimbursements that appear as gross
    income on the paystub/ W-2, must be included as
    annual income.

117
Repayment Income
  • Employee Differential Payments
  • Housing allowances
  • Include in repayment income IF verified to
    continue for first three years of the mortgage
  • Do not offset the PITI by allowance amount
  • Include in annual income

118
Repayment Income
  • Section 8 Vouchers
  • 1. Add to Repayment Income may be grossed up
    25 or
  • 2. Offset PITI (only if benefit is paid directly
    to lender)
  • Do not include in annual income.

119
Repayment Income
  • Rental Income
  • Must meet 1980.346(a) to retain one dwelling
  • 24 months documented receipt of rent required for
    use in repayment
  • Rent x 75 - PITI Net rental income
  • Less then 24 months rented count full mortgage
    liability in debt ratios, no income considered.
  • Repayment Income Include positive rental income
    (24 mo ), negative rental income
    monthly liability
  • Annual Income Include positive rental income,
    negative rental
    income 0

120
Repayment Income
  • Unreimbursed Employee Expenses
  • IRS Form 2106 and 2106EZ
  • Deduct from repayment income
  • Deduct from annual income, 1980.347(2)(v)

121
Income Worksheet
Page 1 of 2
122
Income Worksheet
Page 2 of 2
123
Liquid Asset Documentation
  • Depository (checking, savings, etc.)
  • Earnest Money
  • Gift funds
  • Sale proceeds from currently owned property
  • 401k/retirement accounts
  • Stocks and bonds
  • Cash on hand

124
Liquid Asset Documentation
  • Depository (checking, savings, etc.)
  • Verification of deposit with the average 2 month
    balance OR
  • Two consecutive monthly bank statements dated
    within 45 days of the initial loan application
    date

125
Liquid Asset Documentation
  • Earnest Money
  • Ensure it is not reflected in a liquid asset
    account (i.e. checking or savings)
  • If the funds cleared borrowers account as
    verified by lender Enter as Other Credit in
    Section VII of the 1004

126
Liquid Asset Documentation
  • Gift Funds
  • Should not be reflected in depository accounts
    verified.
  • May assist with available funds for closing
    costs, voluntary downpayments or guarantee fees
  • Do not consider as cash reserves for compensating
    factors
  • Document the origin of funds along with a gift
    letter singed by donor and applicant
  • May not come from a household member, must be
    disinterested party

127
Liquid Asset Documentation
  • Sale Proceeds from Currently Owned Property
  • Final HUD-1 Settlement Statement documenting
    actual cash proceeds
  • Proceeds may be reflected in a liquid asset (i.e.
    checking or savings)

128
Liquid Asset Documentation
  • Retirement Accounts, IRAs, Thrift Savings, etc.
  • Only 60 of vested amount may be used
  • Obtain the most recent statement
  • Withdrawl currently allowed, not due to actual
    retirement, separation of employment, death, etc.

129
Liquid Asset Documentation
  • Stocks and Bonds
  • Monthly or quarterly statement balance

130
Liquid Asset Documentation
  • Cash on Hand
  • Cash accumulated outside of a depository account
  • Explanation in writing accumulation of funds
    and timeframe
  • Lender determines reasonableness based upon
    borrowers income and timeframe
  • Cannot be used as a compensating factor for
    credit or debt ratio waivers

131
Credit
  • Selecting the FICO score for underwriting
  • Tri-merged credit report
  • 3 scores middle
  • 2 scores lowest
  • 1 score can not use, must prepare
    non-traditional credit report
  • No score non-traditional credit report
  • Repeating score may be selected 750, 750, 732

132
Credit
  • Review each applicants credit history separately
  • Review the credit of the applicants (those on the
    loan)
  • Community Property States Non-Purchasing Spouse
    debts
  • Applicant or property purchased resides in a CP
    state
  • NPS credit report must be obtained
  • Include NPS debts, except those excluded by state
    law
  • NPS credit history is not a reason to deny a loan

133
Credit
  • 1980.345
  • Credit history
  • The applicant must have a credit history
    which indicates a reasonable ability and
    willingness to meet obligations as they become
    due.

134
Credit
  • 1980.345(d)(1) Indicators of unacceptable
    credit
  • (i) More than one debt payment(s) more than 30
    days late in the last 12 months.
  • (ii) Foreclosure within the last 36 months.
  • (iii) Outstanding tax liens or delinquent
    Government debts, no payment arrangements,
    regardless of age.
  • (iv) Judgment(s) caused by nonpayment currently
    due or outstanding within the last 12 months.
  • FEDERAL debts/judgments MUST be paid in
    full/satisfied! U.S. Tax Court excluded
  • 1980.345(f)

135
Credit
  • 1980.345(d)(1) Indicators of unacceptable credit
  • (v) Two or more rent payments paid 30 days or
    more past due within the last 3 years.
  • (vi) Collections within the last 12 months
    (utility bills, hospital bills, etc.)
  • (vii) Outstanding collection accounts, no
    payment arrangements, still due/payable,
    regardless of age.
  • (viii) Any debts written off within the last 36
    months.
  • Short sales are considered pre-foreclosure
    activity and must be
  • considered as adverse credit.

136
Credit Waiver
  • 1980.345(d)(3) Credit Waivers
  • UNDERWRITER DISCRETION
  • Can the applicant provide documentation
  • (i) The circumstances were of a temporary
    nature, were beyond the applicants control, and
    have been removed (e.g. loss of job delay or
    reduction in government benefits, or other loss
    of income increased expenses due to illness,
    death, etc.) or
  • (ii) The adverse action or delinquency was the
    result of a refusal to make full payment because
    of defective goods or services or as a result of
    some other justifiable dispute relating to the
    goods or services purchased or contracted for.

137
Credit Waiver
  • The adverse credit was temporary in nature,
    beyond the applicants
  • control, and is unlikely to occur again in the
    future.

138
Credit Waiver
  • The applicant lost their job in August 2009.
    Two weeks later they
  • broke their leg . The COBRA coverage they paid
    for has been slow to
  • pay submitted claims, resulting in the
    collection accounts that are in
  • dispute (see dispute letters provided). The
    applicant has been
  • employed with Cub Foods for the previous 18
    months and has
  • insurance coverage, therefore the adverse credit
    is unlikely to occur
  • again in the future.

139
Credit Waiver Documentation
  • Issued by Approved Lender
  • Documented by Approved Lender
  • Approved by Approved Lender
  • Approved lender is responsible for documenting
    their rationale and
  • compensating factors to support the waiver of
    adverse credit.

140
Credit Waiver Documentation
141
Nontraditional Credit
  • Applicants with one or no FICO score.
  • Rent/Housing history available
  • 3 tradelines (including rent/housing) with a 12
    month history
  • Rent/Housing history not available
  • 4 tradelines, 12 month history
  • All tradelines must have a recent 12 month
    history (i.e. account
  • from 2004 with 12 month history now closed is not
    acceptable.)

142
Nontraditional Credit
  • CANNNOT be used to offset derogatory references
    found in traditional credit information (i.e.
    late pays, collections, and judgments)
  • Reported derogatory credit (collections/judgments)
    must be paid or otherwise resolved for the
    applicant to be eligible.
  • Payments on accounts to relatives are not
    considered.
  • Additional layers of risk are not advised
    (payment shock, debt ratio waivers, credit
    waivers, etc.)

143
Nontraditional Credit
  • 12 month payment record /Acceptable sources
  • Utility payment records (if not included in
    rent/housing) including gas, electricity, water,
    land line home telephone service, cable TV, etc.
  • Insurance payments (excluding those paid through
    payroll deductions) including medical,
    automobile, life, household, or renters
    insurance
  • School tuition
  • Payments to retail stores (i.e. department,
    furniture, appliance stores, specialty stores,
    etc.)

144
Nontraditional Credit
  • Acceptable verification and proof
  • Canceled Checks or Money Order Receipts over 12
    months
  • Written verification from management companies
    must include
  • Creditor Name
  • Date account was opened
  • Balance of account
  • Monthly payment amount
  • Payment history 0x30, 0x60, 0x90 format
  • No Satisfactory or Acceptable
    comments

145
Nontraditional Credit
  • Alternate tradeline
  • Steady periodic savings deposits over 12 month
    period
  • to accumulate a cash reserve of 2 months
    PITI

146
Nontraditional Credit
  • Only one 30 day DQ on one nontraditional credit
    reference within the last 12 months
  • 60 and 90 day DQ, and reports of disconnect
    notices are not allowed

147
Liabilities
  • Installment debts
  • 6 months or less underwriter does not have to
    count
  • in debt ratios
  • Underwriter may include any debts regardless of
    months left to
  • pay if the debt is considered to have an impact
    on repayment
  • ability per RD Instruction 1980-D, section
    1980.345(c)(1).

148
Liabilities
  • Revolving debts Balance is reported, but no
    payment listed
  • on credit report
  • 5 of balance reported on credit report
  • OR
  • Payment from current statement showing lower
  • monthly payment due

149
Liabilities
  • Child Support / Alimony /Garnishments
  • Must be included in debt ratios unless official
    release of liability issued

150
Liabilities
  • 401k loans/loans against personal liquid assets
  • Not counted in monthly liabilities or ratios

151
Deferred Student Loans
  • 1980.345(c)(1)
  • Include payment listed on credit report OR
  • Include payment verified through loan servicer
    OR
  • Estimate payment as 1 of loan balance shown on
    credit report
  • Income Based Repayments not allowed.

152
Business Debts/Personal Credit Report
  • Debt may be omitted from the loan application and
    ratios IF
  • Documentation is provided to prove the debt is
    paid by the business
  • 12 months of canceled checks/bank statements from
    business account are provided

153
Co-Signed Liabilities
  • 1980.345(c)(1)(i)
  • Lender must include in debt ratios unless
  • Evidence payments have been made on time by other
    party for 12 months (canceled checks, money order
    receipts, or bank statements , etc.)
  • Late payments in the last 12 months? Debt must
    be counted
  • Credit reports showing 12 months paid as agreed
    is not acceptable evidence to exclude a debt

154
Previous Mtg./Court Assignment of Debts
  • 1980.345(c)(1)(ii)
  • Lenders must include in debt ratios unless
  • Evidence payments have been made on time by other
    party for 12 months (canceled checks, money order
    receipts, or bank statements, etc.)
  • OR
  • Lender can secure documented evidence applicant
    has received an official release of liability
    from creditor

155
Previous Agency Loan
  • 1980.345(d)(e)
  • Applicant suffered a loss on a previous RD loan
    that is settled
  • or is subject to settlement
  • RD must determine that the loss was beyond the
    applicants control, and any identifiable reasons
    for the loss no longer exist.
  • Applicant must provide Lender with evidence to
    support the extenuating circumstances for RDs
    review.

156
Federal Debts
  • 1980.345(f)
  • All Federal debts and Federal judgments must be
    satisfied (paid in full) or otherwise resolved
    with supporting documentation
  • CAIVRS claims Applicant must provide the lender
    with official documentation that the delinquency
    has been paid in full or otherwise resolved, then
    processing of the application will continue.

157
Lender Charges Fees
  • 1980.342(a)
  • Lenders may establish the charges and fees for
    the loan, provided they are the same as those
    charged other applicants for similar types of
    transactions
  • Similar transactions include FHA and VA (fellow
    government loans)

158
Ratios
  • 1980.345(c)(5)
  • PITI 29
  • Total Debt 41
  • Ratios may be exceeded with strong documented
    compensating factors by the lender in a debt
    ratio waiver request.


159
Debt Ratio Waivers
  • No minimum FICO to request debt ratio waiver
  • Lender must request in writing (1008) w/
    documented compensating factors
  • RD must concur, issue approval in writing
    (issuance of Form 1980-18 Conditional Commitment)

160
Debt Ratio Waivers
  • Compensating factors may include but are not
    limited to
  • 680 FICO can standalone IF no additional risk
    layers are present (credit waivers or debt ratio
    waivers)
  • Historical ability to devote a higher percentage
    of income to housing expense/minimal increase in
    housing expense
  • Cash reserves available post loan closing
  • Verified income not considered in the ratios by
    the underwriter (overtime, bonus, commissions,
    etc.)
  • LENDER IS RESPONSIBLE TO DOCUMENT AND RETAIN
  • SUPPORTING EVIDENCE!

161
Debt Ratio Waiver Request Documentation
  • Issued by Approved Lender
  • Documented by Approved Lender
  • Approved by Rural Development
  • Approved lender is responsible for documenting
    the compensating
  • factors to support the debt ratio waiver request.

162
Debt Ratio Waiver Request Documentation
163
Payment Shock
  • Payment Shock as a risk layer IF
  • PITI ratio is above 29
  • AND
  • Payment shock exceeds 100 or no previous
    history of paying rent or housing
  • Payment Shock is approved by the LENDER.

164
Temporary Buydowns
  • 1980.392(b)
  • Qualify applicant at the full note interest rate
  • Only seller, builder, or other third party may
    contribute
  • Funds must be escrowed with a state or federally
    funded supervised lender

165
Permanent Buydowns
  • Permanent buydowns are forever!
  • Borrower or other third party may contribute
  • 1980.310(d) Low income applicants only 80
    HUD Median Income and below
  • Maximum of two discount points may be financed
    into the loan for a permanent buydown only
  • Appraised value must provide room to include the
    discount points

166
Interest Rate
  • 1980.320
  • Interest rate agreed upon by applicant and lender
  • Maximum rate allowed is determined on the day the
    rate is locked
  • Maximum not to exceed the Fannie Mae 90 day
    delivery, plus 60 basis points, rounded up to the
    nearest quarter of one
  • percent.

167
Maximum Interest Rate Example https//www.efanniem
ae.com/sf/refmaterials/hrny/
  • October 3, 2011 example
  • 90 day delivery 3.57 60 bp 4.17 rounded to
    nearest ¼ 4.25
  • Maximum Rate for 10/3/2011 4.25

168
Appraisals
  • 1980.334
  • Completed within 6 months of the date the request
    for a conditional commitment is submitted to RD
  • Licensed or certified residential appraiser or a
    HUD Roster Appraiser
  • Use appropriate appraisal forms for property type
  • Clear photographs of front, rear, and street
    scene of subject and front view of each
    comparable. (color photographs are not required)
  • 1004 MC Market Conditions Addendum required

169
Appraisals
  • Inspections 1980.341(b)(1)
  • Existing homes HUD Handbooks 4150.2 and 4905.1
  • HUD Handbook determinations may be made by a
  • HUD Roster appraiser OR
  • Lender certified appraiser deemed qualified to
    complete HUD Handbook determinations or provide a
    home inspection
  • Appraiser must note on the appraisal (page 3,
    addendum, etc.)
  • that the home meets HUD Handbook standards.

170
Appraisals
  • REO Appraisals
  • Not accepted for GRH purchase transactions
  • Transferring Appraisals
  • Letter required from original lender that ordered
    the appraisal
  • Retain in permanent loan file
  • Appraisal must be completed 6 months or less

171
Additional Inspections
  • Septic Inspection Only if the appraiser or
    inspector requests an additional inspection
    1980.341(c)
  • Well Water ALWAYS test well water county/state
    health dept. or lab 1980.341(c)
  • Termite Inspection Only if appraiser or
    inspector requests inspection, or state law
    requirement

172
Repairs
  • Repairs may be included in the loan amount IF
    there is room between the purchase price and the
    appraised value
  • HUD Handbook noted repairs must be completed
  • Additional repairs may also be included
  • Repairs must be completed prior to issuance of
    the Loan Note Guarantee request, unless exterior
    weather delayed
  • All repairs that effect the safety, soundness, or
    sanitation of the home must be completed prior to
    loan closing and occupancy

173
Exterior Weather Delayed Repairs
  • 1980.315
  • Signed contract/bid documentation is in the file
  • Completion within 120 days (discuss with RD)
  • Lender obtains a final inspection, alerts RD of
    completion
  • Escrow account is established Recommend 150 of
    the cost of repairs, or higher amount as
    determined by lender
  • Loan Note Guarantee will be issued without
    repairs completed if these items are documented
    per 1980.360(2)(ii)

174
Manufactured Homes HUD Code
  • New units 1980.313(i)
  • Purchase agreement must be dated within one year
    of the date displayed on the manufacture date of
    the unit
  • Built by an approved dealer-contractor (each
    state maintains a list)
  • Existing units 1980.313(i)(2)(i)
  • Must be originally built and financed with a
    Direct or Guaranteed loan
  • Original owner must be seller
  • Sold from REO inventory when lender holds LNG

175
New Construction
  • 1980.341(b)(2)
  • Lender must retain evidence in permanent
  • case file of
  • Certified Plans and Specs
  • Construction Inspections
  • B
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