VA Guaranteed Home Loans Training Serve the mortgage lending needs of borrowers who serve our...

VA Guaranteed Home Loans Training

Serve the mortgage lending needs of borrowers who serve our

country…

Desktop Underwriter is a registered trademark of Fannie Mae. Loan Prospector is a registered trademark of Freddie Mac. This presentation is a summary and is not complete. This information is for mortgage professionals only and should not be distributed to or used by consumers or other third-parties. Information is accurate as of the date shown below and is subject to change without notice. 05/13/2014

Offered by… FIRST MORTGAGE CORPORATION

May 13, 2014

Understanding VA Guaranteed Home Loans

Introduction – VA History

Highlights of the Program 7 Step Process

General Eligibility Guidelines Borrower Eligibility CAIVRS Certificate of Eligibility VA Funding Fee

Program Guidelines Interest Rate Reduction Refinance Loans

Underwriting Guidelines Income Assets Debts & Obligations Credit Property

VA Fees & Charges

Resources, Tools, Training, Support

TOPICS FOR DISCUSSION

VA Guaranteed Home VA Guaranteed Home LoansLoans

VA HistoryHighlights of the ProgramCommon VA TermsWhat the VA Loan Offers7 Step Process to a VA Loans


Established in 1930 to provide federal benefits to veterans and their families, including health care, financial assistance, and burial benefits.

In 1944, the Servicemen’s Readjustment Act (known as the “G.I. Bill” was signed into law and provided a variety of benefit programs to facilitate the adjustment of returning veterans to civilian life, including federally insured home loans with no down payment.

In 1989, the Veterans Administration was renamed the Department of Veterans Affairs.


Veterans Administration (VA)HISTORY

COE (Certificate of Eligibility): Certificate provided by VA to evidence a Veteran’s entitlement to participate

in the VA Home Loan Guarantee Program. A COE is the only reliable Proof of Eligibility for the Lender

In order to get a COE, lenders can access the ACE (Automated Certificate of Eligibility) System on the internet to prove eligibility

CRV (Certificate of Reasonable Value): The VA certifies the fair market value of the property once the home is

appraised

Entitlement: Dollar amount of loan guarantee that the Veteran’s Benefit Administration

(VA) provides to each eligible veteran

Funding Fee: The fee that VA charges when a veteran uses its Home Loan Guarantee

Program This fee is generally rounded to 2% to 3% depending on whether its your 1st

VA loan; disabled veterans may be exempt from this fee

NOV (Notice of Value): This form is issued to the borrower in conjunction with an appraisal Every NOV must include an estimated reasonable value of the property,

estimated economic life of the property, and list of any property related conditions and requirements necessary for VA loan guaranty


Common VA Terms

VA guaranteed loans are loans made by private lenders such as banks, savings and loans, or mortgage companies to eligible veterans for the purchase of a home THAT MUST BE FOR THEIR OWN PERSONAL OCCUPANCY.

A veteran applies with a lender and once approved, VA will guarantee a portion of it to the lender. This guarantee protects lenders against loss in the event of foreclosure, up to the amount of the guaranty, and allows a veteran favorable financing terms.

The Veterans Benefit Act of 2004 changed the maximum guaranty amount to 25% of the Freddie Mac Conforming loan limit.

Example: The Freddie Mac Conforming loan limit is $417,000. $417,000 x 25% = $104,250 Therefore, the maximum guaranty amount is $104,250

6Understanding VA Guaranteed Home Loans

What is a VA Guaranteed Loan?

Benefits of a VA Loan:

NO DOWN PAYMENT

NO MONTHLY MORTGAGE INSURANCE PREMIUMS

NO RESERVE REQUIREMENTS – Conforming 1 unit only (Own no other real estate)

100% GIFT FUNDS ALLOWED

Ability to finance the funding fee (plus reduced funding fee depending on down payment, and the exemptions for veterans receiving compensation)

Fully Assumable to qualified borrowers

VA does NOT do the following: Guaranty that the property is free of defects. VA guarantees only the loan. It is

the veterans responsibility to assure that they are satisfied with the property being purchased. The VA appraisal is not intended to be an “inspection” of the property. A veteran should seek expert advice (a qualified residential service) as necessary BEFORE legally committing to a purchase contract.

If you have a home built, VA cannot compel the builder to correct construction defects although VA does have the authority to suspend a builder from further participation in the home loan program.

VA can’t guarantee the veteran is making a good investment.


What the VA Loan Offers

Understanding Manufactured HomesUnderstanding VA Guaranteed Home Loans

7 STEPS to a VA Loan

http://firstmortgage.lpx.com/v40/BuildPage.aspx

Basic Veteran EligibilityOccupancyCAIVRSCertificate of Eligibility (COE)VA GuaranteeLoan Limits

ELIGIBILITY GUIDELINESELIGIBILITY GUIDELINES


Topic Description Active duty Veterans or Veterans discharged other than

dishonorable condition• 90 days (181 during peacetime). • No time requirement if discharged because of service-related

disabilities.

Service disabled Veterans

National Guard and Reserves• At least 6 yrs in selected reserves with Honorable Discharge

Unmarried Surviving Spouses – widows who have not re-married

• No time requirement. • Veteran must have died on active duty or from a service-

connected disability

Spouses of MIAs / POWs • Veteran must have been MIA or POW for at least 90 days


Who is ELIGIBLE?

Active Duty DD form 214 (Member 4 copy)

www.nara.gov Statement of Service

Reserve/Guard Members NGB Form 22 Retirement Points Statement

Unmarried Surviving Spouse Report of Casualty DD Form 1300 Death Certificate


Proof of Service

Army

Navy

Air Force

Marine Corps

Coast Guard


Eligible Branches of Service

Only the spouse of a Veteran is eligible to co-borrow with the Veteran on VA Home Loan. No other person may co-borrow, i.e. brother, sister, parent,

uncle, aunt, significant other, etc.

Non purchasing spouse is acceptable in community property states. Provide current credit report on non-purchasing spouse Obligations will be used against Veteran AND non-

purchasing spouse’s credit history will be analyzed

Two Veterans or VA eligible borrower’s can purchase together. Must be submitted directly to VA for approval


Eligibility Continues…

Basic Occupancy Requirements

14

OCCUPANCYOCCUPANCY


Primary Residence – Veteran to certify: Personally live in the property as his/her home, or Intent to occupy property upon completion of loan

Veteran must occupy within 60 days after loan closing

Exceptions: IRRRLs – previously occupied Active duty service person on temporary status

Spouse or Dependent Child satisfies occupancy requirement Spouse occupancy also satisfy requirement if due to distant

employment of veteran other than military service Specific future event

Refer to Chapter 3.05 for more details


Occupancy

Credit Alert Interactive Voice Response System

16

CAIVRSCAIVRS


CAIVRS (Credit Alert Interactive Voice Response System) is a HUD-maintained system to determine if the borrower has defaulted on any federally-assisted loan.

A CAIVRS inquiry must be performed on all borrowers.

HUD offers online access for CAIVRS to current FHA lenders, and to VA lenders with registration. https://vip.vba.va.gov (Veterans Information Portal)

Consider any obligations appearing in CAIVRS when qualifying.

Any delinquent or default disqualifies the borrower from obtaining the loan, unless brought current or to satisfactory status with the Federal Agency and a clear CAIVRS is received.


CAIVRS

Certificate of Eligibility

18

COECOE


Topic Description

Eligibility A COE is the veteran’s entitlement to VA home loan benefits under the law based on military service.

An eligible veteran must still meet credit and income standards in order to qualify for a VA-guaranteed loan.

A lender cannot make a VA-guaranteed loan to an ineligible applicant under any circumstances.

What is a COE?

A Certificate of Eligibility is the ONLY reliable Proof of Eligibility

for the Lender. There are actually 3 types of COE’s:• Regular / Full Time / Active Duty - VA Form 26-8320, COE

for Loan Guaranty Benefits, or• Reservist / National Guard – VA Form 26-8320a, COE for

Loan Guaranty Benefits (Reserves/National Guard)• Annotated for Unmarried Surviving Spouse

What does theCOE show?

It shows the amount of available entitlement which is found atthe center of the COE.


Certificate of Eligibility (COE)

Topic Description

Basic Entitlemen

t

Maximum amount that can be shown on the COE is $36,000

Exception for higher entitlement is available for certain loans greater than $144,000

May be reduced due to an active loan or prior VA loan termination

Bonus Entitlement

Is only applied to guaranty on loans over $144,000

Varies by county based on median home price

Subject to annual changes based on changes to median home prices

Can be used even if veteran has $0 in basic entitlement (provided loan is over $144,000)


Certificate of Eligibility (COE)


22

Topic DescriptionWho orders the

COE?The Veteran provides the COE.

How can you get the COE?

If the Veteran does not have his/her COE, you can order it through ACE (Automated Certificate of Eligibility) which can be found at http://vip.vba.va.gov

Scroll down the left-hand side of the page until you see ‘Application’ and ‘WebLGY’. Click this and choose ‘Eligibility’ from the main menu.

Chose Automated Certificate of Eligibility

Follow Instructions

Input Veterans name as it appears on DD214 (discharge papers)


FYI – Ordering an Electronic COE


FYI – Ordering an Electronic COECont’d…


FYI – Ordering an Electronic COECont’d…

25

Topic DescriptionACE willnot process:

• Persons whose service was or is in the Reserves/National Guard

• Persons who may have had prior VA loan(s) that went into foreclosure

• Persons who did not serve the minimum required length of service and were not discharged for an authorized exception

• Persons who were discharged under conditions other than honorable

• Persons seeking restoration of previously used entitlement

• Unmarried surviving spouseUnderstanding VA Guaranteed Home Loans

FYI – Ordering an Electronic COE

26

A COE does not expire. It can be re-used again and again if it’s properly restored

If a Veteran holds a valid COE, you can assume he/she has the appropriate length and character of service. Sometimes, the COE is annotated for individuals currently serving in active duty

It is possible for the COE to show an amount that is less than $36,000.

Refer to the VA Lender Handbook Chapter 2 on How to apply for a COE and more details on this issue.


COE continues…

27

Full Restoration requires Payoff Transfer of Title

Must apply for a new COE

One-Time Restoration (Still owns home)

Provide documentation


Restorations of Entitlement

VA Entitlement Codes

01 World War 2

02 Korean War

04 Viet Nam

05 Entitlement Restored

06 Un-remarried Surviving Spouse

07 Spouse of POW / MIA

08 Post World War 2

09 Post Viet Nam

10 Persian Gulf War

11 Selected Reserves

28

VA GUARANTEEVA GUARANTEE


The VA guarantee is the amount VA may pay a lender in the event of loss due to a Foreclosure

The VA guaranty or a combination of the VA guaranty plus the borrower’s down payment and/or equity, must be equal to at least 25% of the subject property’s estimated reasonable value as documented in the Notice of Value (NOV)

The maximum guaranty on a VA loan is the lesser of the veteran’s available entitlement or the maximum potential guaranty amount indicated

The percentage and amount of guaranty is based on the loan amount including the funding fee portion when the fee is paid from loan proceeds.


Maximum Guaranty


Maximum Guaranty

Loan Amount Maximum Potential Guaranty(Assumes Veteran has FULL entitlement)

Up to $45,000 50% of the loan amount

$45,001 to $56,250 $22,500

$56,251 to $144,00040% of the loan amount, with a maximum of

$36,000

$144,001 to $417,000 25% of the loan amount

Greater than $417,000The lesser of:•25% of the VA County loan limit, or•25% of the loan amount

Example 1: Veteran has full entitlement available and is purchasing a home for

$300,000 where the county loan limit is $417,000.

$417,000 x 25% = $104,250 Maximum Guaranty and Available Entitlement $300,000 x 25% = $75,000 Guaranty and Down Payment Combination Required

Since VA’s guaranty is limited to the lesser of 25% of the county loan limit or 25% of the loan amount, VA will guaranty $75,000 on Veteran’s $300,000 loan in this county.

A down payment should not be required.

Example 2: Veteran has used $48,000 of entitlement on a prior loan, which may not be

restored, and is purchasing a home for $320,000 where the county loan limit is $625,000.

$625,000 x 25% = $156,250 Maximum Guaranty and Available Entitlement $156,250 - $48,000 = $108,250 Entitlement Available $108,250 x 4 = $433,000 Maximum Loan Amount with 25% Guaranty

Since the proposed loan amount will be less than $433,000, the lender will receive 25% VA Guaranty on the loan of $320,000.

A down payment should not be required.31Understanding VA Guaranteed Home Loans

VA GuarantySamples Calculations…

Example 3: Veteran has used $104,250 of entitlement on a prior loan, which may not

be restored and is purchasing a home for $380,000, where the county loan limit is $815,000.

$815,000 x 25% = $203,750 Maximum Guaranty $203,750 - $104,250 = $99,500 Entitlement Available $99,500 x 4 = $398,000 Maximum Loan Amount with 25% Guaranty

Since the proposed loan amount will be less than $398,000, the lender will receive 25% VA Guaranty on the loan of $380,000.

A down payment should not be required.

Example 4: Veteran has full entitlement available and is purchasing a home for

$800,000 where the county loan limit is $729,750.

$729,750 x 25% = $182,437.50 Maximum Guaranty and Available Entitlement $182,437.50 / $800,000 = 22.81% Guaranty $800,000 x 25% = $200,000 Guaranty and Down Payment Combination Required $200,000 - $182,437.50 = $17,562.50 Down Payment

A down payment of $17,562.50 is required.


VA GuarantySamples Calculations…

VA 2014 Loan Limits

33

LOAN LIMITSLOAN LIMITS


Loan limits: VA has no specified dollar amount(s) for the “maximum loan”. It depends on:

The NOV – reasonable value of the property, AND Lenders needs in terms of Secondary Market requirements

The maximum guaranty amount (available for loans over $144,000) is 25 percent of the 2014 VA Limit shown.

A veteran with full entitlement available may borrow up to the limit shown and VA will guarantee 25 percent of the loan amount.

If a veteran has previously used entitlement that has not been restored, the maximum guaranty amount available to that veteran is reduced accordingly.


VA 2014 Loan Limits

Published on VA website:

http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp

Based on a guaranty of 25%

Loans may exceed this amount, however may require a down payment to meet investor requirements

May need to adjust loan limit based on un-restored entitlement


VA County Loan Limits

Basic Program Guidelines

Interest Rate Reduction Refinance Loans (IRRRLs)

36

PROGRAM GUIDELINESPROGRAM GUIDELINES


Topic Description

Eligible Product Types

• 30 Year Fixed Mortgage – Conforming & Jumbo• 15 Year Fixed Mortgage (Programs FM and FG only) – Conforming• ARMS not available at this time

Eligible Properties

Loan amounts up to $417,000 SFRs PUDs VA Approved Condos 2-4 units Manufactured Homes up to 90% LTV/CLTV (Program 07 only)

Loan amounts > $417,000 SFRs PUDs VA Approved Condos

Eligible Transactions

Purchase IRRRL (Program 07 only) Cash out refinances up to 90% Max LTV (80% for Jumbo)

VA does not have a rate/term refinance program other than the VA IRRRL, so all refinance loans are designated as cash-out


Program Guidelines

38

Topic Description

Cash Out Refinance

• Max 90% LTV of the VA reasonable value (no seasoning), PLUS

• VA Funding Fee, PLUS

• Cost of any energy efficiency improvements up to $6,000• Cash Out may be used to pay off existing liens on the property,

allowable fees, charges, and discount points• Cash Out to the borrower only under the following circumstances

• Cash Out Refinance loan• Refund of items that the borrower paid cash for and were subsequently

included in the loan amount

Occupancy Owner Occupied only except:

IRRRL’s (Interest Rate Reduction Refinance Loans) NOO or 2nd Home allowed if veteran can attest that he/she once occupied property as primary residence

Occupancy by Veteran’s spouse in the case when a Veteran is stationed elsewhere satisfies the occupancy requirement



39

Topic Description

Down Payment No down payment is required by VA since VA loans can be for the full reasonable value of the property, unless:

The purchase price exceeds the reasonable value of the property, or

Down Payments is required per investor requirements. Eg., when veteran has less than full entitlement available in which case

a down payment may be required

Down payment cannot be gifted

2nd Mortgages may not be used for down payment

“Rule of Thump” for GNMA: The VA guaranty or a combination of VA guaranty plus down payment and/or equity must cover at least 25% of the loan.

Secondary Financing

• Allowed and must be simultaneously with the 1st Mortgage• Must submit documentation as to source, amount, repayment terms• Veteran must qualify for the 2nd as additional recurring monthly obligation• Cannot be used towards DP required by VA; OK for excess down payment• Can be used to pay closing costs



Topic Description

Purchase 100% up to $417,000 (Including Funding Fee) Conforming

FMC overlay for Jumbo VA loans in High Cost Areas:

100% up to $650,000

75% for greater than $650,000 up to County Limit

Cash Out Cash out refinance is 90% of the appraised value (base amount) PLUS the VA Funding Fee, PLUS cost of the energy efficient improvements up to $6,000

Jumbo VA caps at 80% LTV for cash out

IRRRL See IRRRL sheet

See next slide for more details


Maximum Loan Amount

Processing an IRRRL

IRRRL loan limits

41

VA IRRRLVA IRRRL


IRRRL is a VA loan to refinance an existing VA loan at a lower interest rate and monthly payments with streamlined documentation

Loan Limit Maximum: $417,000

Interest Rate: Interest Rate and PITI must be lower than rate on current VA loan (unless previous loan is an ARM)

Term: Lesser of 30 years, or original VA term 10 years

Payment: The P&I must be less than the P&I on the current loan, unless the IRRRL is refinancing an ARM, or the term of the IRRRL is shorter than the term of the current loan, or Energy Efficient Improvements are included in the IRRRL

If the PITI increases by more than 20%, the Veteran must credit qualify

42Understanding Manufactured HomesUnderstanding VA Guaranteed Home Loans

Interest Rate ReductionRefinance Loans (IRRRL’s)

FMC VA IRRRL Highlights (07 Program only):

NO Credit Report required

NO Fico Score required

12-Month Mortgage Rating on Subject Property Only

Drive-by (2055) appraisal required on non-FMC IRRRL’s only

VA loan must be current

No Mortgage lates in last 12 months

Finance up to 2 discount points

No Cash Back to borrower

Refer to Chapter 6 for change in obligors – depends on Veteran on loan


VA IRRRL

44

Maximum Loan Amount =

The amount of the existing VA loan balance, PLUS

Allowable fees and closing costs, PLUS

VA funding fee, PLUS

Up to 2 discount points, PLUS

Cost of any energy efficient improvements up to $6,000



45

Initial Computation

Preliminary Loan Amount Provides initial

computation of fees and charges

Final Computation Adjusts for discount

and funding fee




Order a VA IRRRL Case

47

Feature IRRRL Cash-Out Refinance

Purpose Refinance an existing VA loan to a lower interest rate Pay off lien(s) of any type – can also provide cash to the borrower

Rate & Payment Must be lower than existing VA loan No requirement – any negotiated rate

Maximum Loan Existing VA balance, plus allowable fees & charges, plus up to 2% discount points, plus cost of any energy efficiency improvements, plus VA funding fee

90% of reasonable value of property on NOV, plus cost of energy efficiency improvements, plus VA funding fee

Discount Points Reasonable points can be paid – only 2% can be financed in loan amount

No Reasonable points can be paid – if paid from loan proceeds

Maximum Guaranty Guaranty is at least 25% in all cases Maximum guaranty same as for purchases

Entitlement Veteran re-uses entitlement used on the existing VA loan – IRRRL doesn’t impact amount the veteran has in use

Must have sufficient available entitlement – can be restored if loan is for same property

Fees & Charges All allowable fees & charges including up to 2% discount points, may be included in loan

Allowable fees & charges & points may be paid from loan proceeds

Cash to borrower Not permitted Cash to borrower allowed for any purpose

Refinance other lien Cannot refinance other liens, only existing VA Can refinance any type of lien(s)

Maximum Term Existing VA loan term + 10 yrs not to exceed 30 years + 32 days

30 years + 32 days

Appraisal No appraisal required (FMC requires drive-by on non FMC to FMC loans)

Appraisal is required

Credit Underwriting Not required except in certain cases Full credit information & underwriting required


VA IRRRL vs Cash Out)

Underwriting MethodsGeneral Underwriting GuidelinesCredit UW Standards (Income, Assets, Debts & Obligations)Property Guidelines

48

UNDERWRITING GUIDELINESUNDERWRITING GUIDELINES


Two Basic Underwriting Questions…

1. Can the applicant pay?

2. Will the applicant pay?

Uses flexibility and sound judgment

Make sense, case by case basis – not an exact science

FMC Overlays


Underwriting Philosophy

Underwriting Method Eligible Acceptable AUS Result

Manual (Program 07 only) Yes N/A

Desktop Underwriter® (DU®) Yes Approve/Eligible

UW follows standard VA guidelines and regulationsRefer to VA Handbook – Chapter 4

(DU Automated Underwriting Engine incorporates VA’s credit standards)


Underwriting Methods

A finding of “Approve/Eligible” can reduce the amount of documentation requirements, and underwriting time of a loan file

Garbage In = Garbage Out Data Integrity Follow Feedback Certification Downgrade to a Refer when necessary

Risk Calculator Reduced Documentation Refer does NOT equal denial

Absence of the above findings does not provide a basis for denying a loan application. Manual UW is permitted on Program 07 only.


Underwriting Methods

Topic Description

Co-Borrowers Allowed only if co-borrower is a veteran Must consider all income and debt Non-married borrowers or 2 veterans / active service

personnel borrowers must be UW by VA as a prior approval

Non-Borrowing Spouse

Acceptable on Purchases only. Community Prop State rules: Credit report ordered AND consider credit

history in analysis Debts are counted in ratio calculation

Non Occupant Co-Borrower

Allowed

Co-Signers Permitted (Program 07 only)

Resident Alien & Non Permanent Resident Alien

Allowed as long as primary occupying applicant is a Veteran


UW:General Guidelines

Topic Description

Funds to Close

Gift from relative: provide acceptable gift letter to evidence withdrawal from donor and transfer to borrower If given by seller, realtor, builder, must be considered in

4% contribution calculation Not allowed from non-profit agencies

Funds from Seller Contribution

Borrowers own funds On jumbo loan amounts where veteran has to come in

with down payment on a purchase, it cannot be gifted funds

Borrower Contribution

No Minimum Required

Reserves • NO RESERVES for loan amounts up to $417,000

• 2 Months PITI for loan amounts exceeding conforming limit



Topic Description

Seller Contribution

Up to 4% Limit - Lesser of sales price or appraised value and above any discount points paid by seller.

Do not include: Payment of the buyer’s closing costs Payment of discount points applicable to the market

Include: Payment of the VA funding Fee Prepayment of property taxes and insurance Buy-down funds – temporary or extra point for permanent

buy-down Payoff credit balances or judgments on behalf of the

borrower Gifts such as TV, Lawnmower, Microwave, etc.


UW:Seller Concessions

Topic Description

Repairs Repairs required by VA generally performed by seller or veteran

Not required for minor or cosmetic defects or normal wear & tear

# of VA loans Limited only by amount of available entitlement (New loan - O/O)

Temporary Buy-downs

Allowed on 30 Year Fixed product only

Survey Requirements

Required on all property types except condominiums In areas where surveys are not customary, the title

insurance policy must insure over matters of survey

Termite inspection

Required for all properties located in areas prone to termite infestation

Escrow Waivers Not allowed – all VA loans must have Impounds.

Assumable Yes

Prepayments NONE



Stable, Reliable & Anticipated to Continue

2 Year History – Consider: Type Training/Education/Special Qualifications Past history Explain gaps

Less than 12 month history: Generally not considered stable and reliable Carefully consider special circumstances, employers

probability of continued employment Explain why you are using


UW:Income

VOE – VA Form 26-8497

Employment Verification Services

Alternative Documentation: Verbal Verification Pay stubs for most recent 30 days W-2’s for previous 2 years


UW INCOME:Verification

Topic Description

Wages • Regular, predictable and likely to continue• Verified for at least 2 years• Less than 2 years considered on a case by case

basis at UW discretion

Overtime Income & 2nd Job Income

• Regular, predictable and likely to continue• Verified for at least 2 years• Less than 2 years; use to offset debts (10-24

months)

Seasonal jobs & Unemployment

• May be averaged 24 month history for both, if it is considered “normal” for the field the borrower is in

Alimony/Child Support

• Must be verified and stable


UW INCOME:Non-Military Employment

Topic Description

Commission Income

• 2 year history • YTD payments• Basis of Payment – eg., Salary plus commission,

straight commission, draws against commission, etc.

• When paid – monthly, quarterly, semiannually, annually

• 1040’s required (watch for 2106 expenses)• Less than 2 years not eligible unless previous related

employment or extensive specialized training

Self Employed Borrowers

• 25% or greater ownership interest in a business• 2 year history • Income Tax Returns plus all applicable schedules• YTD Profit and Loss• Balance Sheet


UW:Non-Military Employment


UW INCOME:Active Duty Income

61

Active Military income – consider base pay as stable & reliable unless applicant is within 12 months of release of active duty.

Leave and Earnings Statement is required (LES) instead of a VOE and must be no more than (120 days old -180 for new construction) 90 days for FMC. If re-enlisting, letter from commanding officer & the veteran stating may/will reenlist.

Military quarters allowance and Basic Allowance Subsistence (BAS) can be considered income. Both non-taxable.

Other Military allowances – obtain verification of type and amount and length of receipt.

Income from Reserves or National Guard can be considered if the length of total service indicates a strong probability of continuance.


UW INCOME:Active Duty Income

Topic Description

Rental Income

Program 07 has no equity requirement on departing residence

Multi-Unit Property (Security Loan)•Veteran must occupy one of the units•6 months PITI required•Must have prior experience managing properties & rental experience•May use 75% as effective income

Other Investment Properties owned by Borrower•3 Months PITI reserves required•Obtain 2 years individual tax returns documenting rental income •Must be verified as stable and reliable

Previous Owner Occupied Property – Departing Residence•Provide lease•Minus 75% vacancy factor•May be used to offset mortgage payment (of the other property) if qualify•Cannot be used as income•NO reserves requiredUnderstanding VA Guaranteed Home Loans

UW INCOME:Rental Income

Topic DescriptionNon Taxable Income

• Allowed • Includes Disability, Public Assistance, Military Allowances,

etc.• Does not apply to residual income

Retirement Income

• Allowed • Only non-taxable income may be grossed up for ratio

Projected Income

• Generally not acceptable. Exceptions on a case by case at UW discretion. Eg., Bonuses, Performance raises, etc. to begin within 60

days of closing and verified by employer New jobs with non-revocable contract if borrower can

support PITI & other obligations during the interim period

Other Income • Other Income, Pension, Retirement, Disability, MCC, etc. must be verified. Document per AUS

Not allowed • VA Educational allowances• Unemployment compensation unless part applicant’s income due

to nature of his/her employment (eg., seasonal work)


UW INCOME:Other Income

64

Determine the appropriate deductions for Federal income tax and Social Security/Medicare by using “Employer’s Tax Guide” charts.

Determine the appropriate deductions for state and local taxes. Social Security/Medicare is 7.65% of gross monthly income;

OR

Log on to www.paycheckcity.com and select “Personal Calculators”, then “Paycheck Calculator” to determine all types of taxes.


UW INCOME:Income Tax Calculator

Sufficient in amount

Verification of Deposit (26-8497a) Alt docs: Last 2 months Bank Statements

Large Deposits

Gift Letters

Reserves not required, however, helpful when determining overall credit analysis


UW ASSETS:Assets

66

Consider:Alimony / Child Support – Must verifyChildcareAllotments or Loan Pay advances (primarily seen on LES/Pay stubs of in-service veterans)Any debt with significant payments

Installment debts with less than 10 months remaining do not necessarily need to be included in credit qualifying. Large payments should be considered. Do not omit these debts in the AUS system.

Disregard:Student loans deferred 12+ months. Student loans scheduled to begin within 12 months of the Note Date will be counted.401k loans - Loans secured by deposited funds (do not include in assets)Insignificant debts < 10 monthsCo-obligor on another’s loan if:

Evidence payments made by someone else No reason to believe the borrower will need to make payments in the future

Always “populate” liabilities in AUS.


UW:Debts and Obligation


UW CREDIT:Fico Scores

Topic Description

Minimum Fico Scores

Program …07 NO minimum Fico required

Program …FG Minimum 640

Alternative Credit

Allowed with Program 07 only Use non-traditional

*** FOLLOW FMC OVERLAYS AS APPLICABLE ***


UW: CREDITBankruptcy

Topic Description

Bankruptcy (Chapter 7)

Discharged over 24 month – disregardo Reason must be documented and not likely to

reoccur.

Discharged over 12 months – 24 months o Credit has been re-established for that period of

timeo Was caused by circumstances beyond

borrower’s control ando Evidence the applicants have demonstrated

their ability to handle their credit affairs

Bankruptcy (Chapter 13)

Acceptable with 12 month payment history Borrower’s effort to repay 1 Year seasoning with satisfactory payment

performance Approval of trustee or agency - Permission from

court to enter into new obligation


UW CREDIT:Foreclosures / Short Sales

Topic Description

Foreclosure / Short Sale

Treat same as Chapter 7 BK.

Develop facts / circumstances

Re-established credit since

If it was a VA loan, check if any amount of entitlement was forfeited Ensure no debt to government Entitlement restoration

Includes Deed in Lieu of Foreclosure and Short Sales


UW CREDIT:Reestablished Credit/Collections

Topic Description

Reestablished Credit(Not involving a Bankruptcy)

Satisfactory reestablished credit required for 12 months after date of last derogatory item was satisfied.

Eg., Assume borrower with multiple unpaid collections some outs for several years. Once all have been satisfied, make timely payments on subsequent obligations for 12 months, satisfactory credit is re-established.

Collection Payoff is not required for approval

Unpaid collections are considered “Open, Recent Derogatory Credit” regardless of age

No lates in last 12 months on manually UW loans

Obtain credit explanation even if not required by AUS


UW CREDIT:Judgments/CCCs/Disputed Accts

Topic DescriptionJudgments Must be paid in full or a satisfactory payment plan is in

effect at time of application with no late payments

Consumer Credit Counseling

Permitted with 12 months satisfactory repayments and counseling agency approves new credit

Disputed Accounts

VA (product code 07): Follow the DU findings for accounts in dispute.

If the accounts in dispute are reflecting a balance, the disputed account with the balance must be paid off and reflect a zero balance via credit supplement.

If an Approved/Eligible is obtained, follow the findings as long as all disputed accounts have zero balances or a supplement has been provided to show each account with a zero balance.

Topic Description

Compensating Factors

• Valid compensating factors should logically be able to compensate for the identified weakness in the loan. Should represent unusual strength rather than mere satisfaction of basic program requirements.

• Eg., Sufficient assets for closing or meets residual income guidelines is not a compensating factor.

• Eg., Significant liquid assets may compensate for a residual income shortfall whereas long term employment would not.

Sample Compensating Factors

• Excellent credit history• Conservative use of consumer credit• Minimal consumer debt• Long-term employment• Significant liquid assets• Sizable down payment• Existence of equity in a refinance loan• Military benefits• High residual income• Low DTI• Tax credits for child care• Tax benefits of home ownership


UW:Compensating Factors

73

Topic Description

Max DTI 41% - VA uses a single ratio

Ratios may be exceeded with: DU approval, or Existence of tax-free income (notate file of tax free income

OR gross up tax-free income to bring ratios down income)

Manually underwritten loans – May be stretched to 46% if veteran meets residual requirement with strong compensating factors (such as high residual income – greater than 20%)

Residual Income

VA uses Residual Income – veteran should have at least the minimum residual income remaining to qualify

When the DTI > 41%, the residual income should be at least 20% over stated guideline. Otherwise, a 2nd UW signature is required

Residual Income is calculated based on the “total” number of dependents and the number of persons residing in the household


Ratios, Residual Income


Residual Income by RegionTABLE


FMC VA Overlays


FMC VA OverlaysCont’d…





Property Requirements

79

THE PROPERTYTHE PROPERTY


Minimum Property Requirements Safe, Sanitary, Sound

Condominiums approved by VA HUD/FHA/USDA approvals OK prior to 12/7/09

Foreclosed Properties MPRs paid for by Seller


Property Requirements

Follow FMC’s guideline on ordering VA Appraisals – Bulletin 10-30 Ordered by FMC Corporate via the VA Portal – WebLGY

Need a copy of the purchase contract Provide copies of home and pest inspections if completed

Appraiser completes report Within 10 business days Electronic copy uploaded to WebLGY

Lender Appraisal Processing Program (LAPP) Lender Staff Appraiser Reviewer (SAR) reviews and issues a

Notice of Value (NOV) to the Veteran SAR has authority to adjust value up to 5%


The Appraisal Process

Loan Amount Appraisal Requirement

$417,001 - $650,000 VA-required appraisal

$650,001 - $1 million VA-required appraisal and LARA

$1 million (Exception basis)

VA-required appraisal and field review

• Appraisals are ordered via The Appraisal System (TAS) by the FMC Vendor Support Department

• See FMC Bulletin 12-04 for the most current guidelines for ordering VA Appraisals


Appraisal Requirements forLoans > $417,000 ($625,000 in AK & HI)

VA Funding Fee

Sample Calculations

83

VA FUNDING FEEVA FUNDING FEE


What is a VA Funding Fee? This is a charge that most Veterans pay to use the VA Loan Guaranty

Program (similar to the FHA UFMIP) A National Guard/Reservist member who has been on active duty under

USC Title 10 for 90+ days will be considered “Regular Military” for funding fee purposes

Required at time of closing. Helps defray the cost of the VA Home Loan Program.

Calculated on the full loan amount. Fee can be paid in cash, financed or paid from proceeds Can be paid by veteran, seller or via premium pricing. For loan amounts greater than $417,000, the Funding Fee can only be

financed if the loan amount + funding fee are less than the maximum loan amount for the MSA.

Amount varies by: Type of veteran Down payment amount Transaction type Type of loan Use of the VA home loan program


VA Funding Fee

Certain Veteran/borrowers are exempt from paying the fee

Veterans receiving service-connected compensation (for service-connected disabilities)

Veterans who would be receiving compensation for service-connected compensation, if they did not receive retirement pay

Veterans rated by VA as eligible due to pre-discharge disability examination

Veterans entitled to receive compensation, but who are presently in receipt because they’re on active duty

Surviving spouses of veterans who died in service or from service-connected causes


Who is EXEMPT from theVA Funding Fee?

How to verify exempt status:

Verify exempt status by obtaining:

• A properly completed and signed VA Form 26-8937, Verification of VA Benefits Form, sent to and processed by VA

• For a Veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and documentation of the Veteran’s service retirement income, along with the 26-8937 form completed

OR

• Indications on the COE that the borrower is entitled as an unmarried surviving spouse. Examine the COE for notations regarding Funding Fee exemptions!


VA Funding FeeCont’d…

Purchase & Construction Loans

Effective 11/22/2011

Down Payment

First Time Use

Subsequent Use

Regular Military / Active Duty

None-4.99%

2.15% 3.30%

5%-9.99% 1.50% 1.50%

10% or more

1.25% 1.25%

Reserves/ National

Guard

None-4.99%

2.40% 3.30%

5%-9.99% 1.75% 1.75%

10% or more

1.50% 1.50%

Other Loan Types

Type of LoanFirst Time

UseSubsequent

Use

IRRRL .50% .50%

Loan Assumptions .50% .50%


Purchase, Cash Out, ConstructionLoans – VA Funding Fee

Cash Out Refinance

Effective 11/22/2011

First Time Use

Subsequent Use

Regular Military 2.15% 3.30%

Reserves/ National Guard 2.40% 3.30%

Example 1 – Funding Fee Financed: Veteran has full entitlement available and is purchasing a home for

$600,000, where the county limit is $625,500

Veteran is eligible for 100% financing and is putting no money down Funding Fee is $600,000 x 2.15% = $12,900 $600,000 + $12,900 = $612,900

Since the combined loan amount plus funding fee is less than the county maximum of $625,500, the funding fee can be financed into the loan amount.

The final LTV for this transaction including the funding fee is 102.15%

Example 2 – Funding Fee NOT Financed: Veteran has full entitlement available and is purchasing a home for

$625,500, where the county loan limit is $625,500.

Veteran is eligible for 100% financing and is putting no money down Funding Fee is $625,500 x 2.15% = $13,448.25 $625,500 + $13,448.25 = $638,948.25

Since the combined loan amount plus funding fee is more than the county maximum of $625,500, the funding fee cannot be financed into the loan amount and must be paid in cash

The final LTV for this transaction including the funding fee is 100%88Understanding Manufactured HomesUnderstanding VA Guaranteed Home Loans

VA Funding FeeSample Calculations

Veteran Allowable Fees & Charges

Veteran Non-Allowable Fees & Charges

89

VA FEES & CHARGESVA FEES & CHARGES


Topic DescriptionInterest Rates

• Interest rate is fixed and the payment is fully amortized over the entire term of the loan.

Points (Origination & Discount)

Points are negotiated between LO and Veteran: 1% Max Origination Point Reasonable Discount Points (based on loan amount plus

funding fee if financed) Points may be financed into the loan on refinances

(IRRRLs caps 2% financed)

Closing Costs

Chapter 8.2 of VA Lender Handbook

Those payable by the veteran are limited by regulation to a specific list of

items plus a 1% flat fee charge by the lender (See Fee Section for more information)

• Reasonable & customary amounts for “Itemized Fees and Charges

• Any other party, including seller, can pay any costs on behalf of the veteran.

• Closing costs cannot be financed in the loan except on certain refinancing loans Can be borrowed but must be included in DTI

calculationUnderstanding VA Guaranteed Home Loans

VA Rates & Fees

91

Itemized Fees & Charges: Veteran can pay any or all of the itemized fees and charges listed below in amounts that are reasonable and customary. If service is performed by a 3rd party, Veteran cannot pay any amount that exceeds the actual charge by the 3rd party.• VA Appraisal, including 2nd appraisals requested by the Veteran for reconsideration of

value• Recording fees and Recording Taxes or other charges incident to recordation• Credit report or on AUS-decisioned loans, up to $50 evaluation fee charged in lieu of

credit report• Prepaid items such as taxes, assessments, initial deposit for the tax and insurance

account, etc.• Hazard insurance premium including flood insurance, if required• Flood Insurance Determination• Survey• Pest Inspection fees for refinances only• Title Insurance & Title examination• Special mailing fees such as fed-ex, express mail, etc. for refinance loans only• MERS


FYI – Veteran Fees & Charges

Veteran CAN also pay Veterans CANNOT pay

1% Origination Fee (Borrower Paid)

Reasonable Discount Points (Max 2% financed on IRRRL)

VA Funding Fee

1% Flat Lender Fee to cover all un-reimbursable itemized fees & charges (See FMC’s Fee Sheet for FMC fees)

Escrow Fees Termite Pest Inspection and Repairs, Tax Service Fees Notary Fees Appraisals requested by FMC or Seller

for reconsideration of value Appraisals requested by parties other

than FMC or the Veteran Lender Attorneys Fees Real Estate Brokerage/Commission

Fees Prepayment Penalties HUD/FHA Inspection Fees for Builders Unreasonable Discount Points Processing, Document, Underwriting Duplicate fee – fees paid by another

party Pest inspection fees


Fees & ChargesAllowable & Non-Allowables

VA Processing StepsOrdering a COELoan Analysis WorksheetVA Forms & Disclosures

93

OTHER INFORMATIONOTHER INFORMATION



VA Processing Steps


Loan Analysis Worksheet

Loan Analysis Worksheet (VA Form 26-6393). This is where everything comes together. There are 6 sections:

Loan Data

Borrower’s Personal and Financial Status

Estimated Monthly Shelter Expenses

Debts and Obligations

Monthly Income and Deductions

Disposition of Application and Underwriter


Loan Analysis Worksheet


Loan Analysis WorksheetSections A & B


Loan Analysis WorksheetSections C& D


Loan Analysis WorksheetSections E


Loan Analysis WorksheetSections E Cont’d…


VA Cash Out Refinance Worksheet


VA Jumbo Loans


VA Forms & Disclosures


VA Forms & DisclosuresCont’d…


FYI - Reserve Guard Certification

Important TIPS / Hot Buttons

Resources

Trainings, Tools, Marketing & Support

106

MISCELLANEOUSMISCELLANEOUS


Veterans purchasing loans with a non-veteran is OK but VA will only guaranty that portion of the loan attributed to the veteran and a spouse. Eg., Non-married borrower’s or two veterans may be OK; must be submitted directly to VA for approval.

If two veterans are purchasing a home together, the use of 2 certificates does not mean you can double the guaranty or loan amount.

We cannot issue a loan approval prior to an appraisal being ordered.

A veteran can re-use VA benefits multiple times as long as there is sufficient entitlement to cover the new loan and the new loan is for a Primary Residence.

A Veteran may still do a IRRRL on a property they no longer occupy.

401k loans may be disregarded


FYI – TIPS to rememberHot Buttons

Credit standards are a lot more stricter on VA loans compared to FHA loans especially when there are unpaid open collection accounts.

Review paystub for deductions that are required to be reflected as a debt such as union dues or other job expenses reflected.

List number of dependent’s once on DU. Eg., for husband and wife, list # of dependents under the first borrower only and list zero under the other.

If the veteran states he/she will be living in military quarters at no cost and his/her spouse will be living in the subject property, you do not have to consider separate household expenses.



Income should be predictable

Documents should support calculations used

Part time income for borrowers with a full time job is considered overtime income

Non taxable income can be grossed up for determining the ratio only. VA allows grossing up 125%

Reconcile any discrepancies

List compensating factors

Complete and include all necessary forms and certifications

DOCUMENT, DOCUMENT, DOCUMENT!!!



VA Lender Handbook: http://www.warms.vba.va.gov/pam26_7.html

VA Circulars: http://www.homeloans.va.gov/new.htm

VA 2014 Loan Limits: http://www.homeloans.va.gov/docs/2009_county_loan_limits.pdf

VA Approved Condominium list: http://condopudbuilder.vba.va.gov/2.2/frames.html

DU User Guide on VA Loans: https://www.efanniemae.com/sf/guides/duguides/pdf/vaduug.pdf

ACE system (obtain Case Numbers): https://vip.vba.va.gov/portal/VBAH/Home

Paycheck deduction calculator: www.paycheckcity.com/netpaycalc/netpaycalculator.asp


VA Resources

FMC SUPPORT

WEB SITE

FMC websites:

1. RATE SHEET

2. TRAINING MATERIALS

3. GUIDELINES

4. FORMS

5. CALCULATORS

6. TOOLS

7. MARKETING

SUPPORT

Retail: Contact Loan Help

Wholesale/Correspondent:

Contact your FMC A/E

For help with your:• Scenarios• Pricing / Fees• Guidelines• Loan

Submissions• Trainings


On behalf of First Mortgage, thank you for joining today’s training and we hope the

information provided will help you build your business!

The main purpose of First Mortgage Corporation’s (FMC) training documents is to assist real estate and mortgage professionals in developing entry-level competence with loan programs.

While FMC staff, employees, contractors and contributors take care to ensure the accuracy of the content of training documents, FMC makes no warranties as to the accuracy of the information contained within these materials. Furthermore, every user of this material uses it understanding that he or she must still conduct his or her own original legal research, analysis and drafting. In addition, every user must refer to the relevant legislation, case law, administrative guidelines, rules and other primary sources.

FMC specifically disclaims any liability for any loss or damage any user may suffer as a result of information contained within this training material.

While the information contained in FMC’s training material addresses guidelines and issues surrounding mortgage programs, these materials do not constitute legal advice. All non-legal professionals are urged to seek legal advice from a lawyer.

THANK YOU FOR YOUR BUSINESS…


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