PHILADELPHIA HOME OWNERSHIP CENTERPHILADELPHIA HOME OWNERSHIP CENTER
WELCOME TO FHAWELCOME TO FHA’’S S LENDER UPDATELENDER UPDATE
110/16/2009
What is FHA?What is FHA?
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3
What is FHA?What is FHA?
nn The programs operate through FHAThe programs operate through FHA--approved approved banks, mortgage companies, and other lending banks, mortgage companies, and other lending institutions.institutions.
nn Lenders process and fund the mortgages, which Lenders process and fund the mortgages, which FHA then insures.FHA then insures.
nn FHA does not directly make loans to help FHA does not directly make loans to help people buy homes or refinance mortgages.people buy homes or refinance mortgages.
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What is FHA?What is FHA?
nn In the event of foreclosure, FHA pays the In the event of foreclosure, FHA pays the lenderlender’’s claim for the unpaid principal balance, s claim for the unpaid principal balance, accrued interest, advances for taxes and accrued interest, advances for taxes and insurance, and foreclosure and maintenance insurance, and foreclosure and maintenance costs.costs.
nn Funded through selfFunded through self--sustaining insurance fund.sustaining insurance fund.nn Insurance fund supported by Up Front and Insurance fund supported by Up Front and
Annual Mortgage Insurance Premiums paid by Annual Mortgage Insurance Premiums paid by FHA borrowers.FHA borrowers.
10/16/2009
What is FHA?What is FHA?
Is FHA getting bailed out by the Is FHA getting bailed out by the taxpayers?taxpayers?
No.No.
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6
What is FHA?What is FHA?nn FHAFHA’’s programs are authorized by laws passed s programs are authorized by laws passed
by Congress and signed by the President.by Congress and signed by the President.nn The Housing and Recovery Act of 2008 The Housing and Recovery Act of 2008
(HERA) significantly changed FHA programs.(HERA) significantly changed FHA programs.nn Also affected by the Economic Growth Act of Also affected by the Economic Growth Act of
2008 (The Stimulus Bill), the Emergency 2008 (The Stimulus Bill), the Emergency Economic Stabilization Act of 2008 (EESA) and Economic Stabilization Act of 2008 (EESA) and the American Recovery and Revitalization Act the American Recovery and Revitalization Act (The Recovery Act). (The Recovery Act).
10/16/2009
Who Can Originate an FHA Who Can Originate an FHA Loan?Loan?
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Not just anyone can make an FHA loan.Not just anyone can make an FHA loan.You need ourYou need our
approval.approval.
10/16/2009
Who Can Originate an FHA Who Can Originate an FHA Loan?Loan?
Two Types of LendersTwo Types of Lendersnn Supervised LendersSupervised Lenders. Depository institutions . Depository institutions
supervised by FDIC or FCUA (banks and credit supervised by FDIC or FCUA (banks and credit unions).unions).
nn NonNon--Supervised LendersSupervised Lenders. Non. Non--depository depository institutions primarily engaged in the mortgage institutions primarily engaged in the mortgage business (mortgage companies). business (mortgage companies).
810/16/2009
Who Can Originate an FHA Who Can Originate an FHA Loan?Loan?
Two Categories of LendersTwo Categories of Lendersnn May be either supervised or nonMay be either supervised or non--supervised.supervised.nn Loan Correspondents Loan Correspondents ((““Mini EagleMini Eagle””). Primary ). Primary
activity is the origination of mortgages. Loans activity is the origination of mortgages. Loans must be underwritten by an FHAmust be underwritten by an FHA--approved approved sponsor lender. sponsor lender.
nn MortgageesMortgagees ((““Full EagleFull Eagle””). May originate and ). May originate and underwrite its own loans, and underwrite those underwrite its own loans, and underwrite those originated by loan correspondents it sponsors.originated by loan correspondents it sponsors.
910/16/2009
Who Can Originate an FHA Who Can Originate an FHA Loan?Loan?
Principal/Authorized Agent RelationshipsPrincipal/Authorized Agent Relationshipsnn Relationships between two mortgagees (Relationships between two mortgagees (““Full Full
EaglesEagles””).).nn Loan must close in the name of the principal.Loan must close in the name of the principal.nn Otherwise, principal and authorized agent may Otherwise, principal and authorized agent may
share duties and fees based on mutual share duties and fees based on mutual agreement.agreement.
1010/16/2009
FHA Business UpdateFHA Business Update
FHAFHA’’s book of business is boomings book of business is booming
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FHA Business UpdateFHA Business Update
FHAFHA--Insured Loans in the United StatesInsured Loans in the United StatesBy Calendar YearBy Calendar Year
YearYear Total Purchase Total Purchase RefiRefi NonNon--FHA HECMFHA HECMto FHAto FHA
20052005 522,884 332,778 141,716 33,936 48,390522,884 332,778 141,716 33,936 48,39020062006 501,587 302,690 113,383 71,987 85,514501,587 302,690 113,383 71,987 85,51420072007 580,813 293,444 179,289 138,677 108,080580,813 293,444 179,289 138,677 108,08020082008 1,467,305 810,592 541,735 431,149 114,9781,467,305 810,592 541,735 431,149 114,978
10/16/2009
FHA Mortgage LimitsFHA Mortgage Limits
Maximum One Unit Limits (Maximum One Unit Limits (““the ceilingthe ceiling””))01/01/0801/01/08 03/06/0803/06/08 01/01/0901/01/09 02/24/0902/24/09$362,790$362,790 $729,750$729,750 $625,500$625,500 $729,750$729,750
Minimum One Unit Limits (Minimum One Unit Limits (““the floorthe floor””))01/01/0801/01/08 03/06/0803/06/08 01/01/0901/01/09 02/24/0902/24/09
$200,160$200,160 $271,050 $271,050 $271,050$271,050 $271,050$271,050
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FHA Mortgage LimitsFHA Mortgage Limits
Where can I find FHAWhere can I find FHA’’s mortgage limits for s mortgage limits for my area?my area?
nn FHA Connection. Click on FHA Connection. Click on Single FamilySingle Family, then , then Single Family OriginationSingle Family Origination, then , then FHA Approval ListsFHA Approval Lists, , then then Mortgage LimitsMortgage Limits..
nn fha.govfha.gov at at https://https://entp.hud.gov/idapp/html/hicostlook.cfmentp.hud.gov/idapp/html/hicostlook.cfm
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Mortgage Insurance PremiumsMortgage Insurance Premiums
Up Front PremiumsUp Front Premiumsnn ML 08ML 08--2222..nn Purchases Purchases 1.75%1.75%
CreditCredit--Qualifying Qualifying RefisRefis 1.75%1.75%Streamline Streamline RefisRefis 1.50%1.50%
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Mortgage Insurance PremiumsMortgage Insurance Premiums
Annual PremiumsAnnual Premiumsnn ML 08ML 08--2222..nn Terms > 15 Years Terms > 15 Years
-- LTV LTV << 95.00%95.00% -- 0.50%0.50%-- LTV > 95.00%LTV > 95.00% -- 0.55%0.55%
nn Terms Terms <<15 Years 15 Years -- LTV LTV << 90.00%90.00% -- 0.00%0.00%-- LTV > 90.00%LTV > 90.00% -- 0.25%0.25%
10/16/2009
Mortgage Insurance PremiumsMortgage Insurance Premiums
UFMIP and EndorsementUFMIP and EndorsementEffective March 13, 2009Effective March 13, 2009nn A loan may not be endorsed until seven business A loan may not be endorsed until seven business
days have passed since FHAdays have passed since FHA’’s receipt of the s receipt of the UFMIP.UFMIP.
nn Loans where this time period has not elapsed Loans where this time period has not elapsed will be will be NORedNORed..
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FHA Loan To Value RatioFHA Loan To Value Ratio
Maximum Maximum LTVsLTVs Not Including UFMIPNot Including UFMIPnn PurchasePurchase 96.50%96.50%nn Rate and Term RefinanceRate and Term Refinance 97.75%97.75%nn Streamline RefinanceStreamline Refinance 97.75%97.75%nn CashCash--Out RefinanceOut Refinance 85.00%85.00%nn ML 08ML 08--2323,, 0808--4040..
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Borrower EligibilityBorrower Eligibility
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Borrower Eligibility Borrower Eligibility
nn HUD Handbook 4155.1 REVHUD Handbook 4155.1 REV--55..nn Must be legal resident of U.S. Citizenship is not Must be legal resident of U.S. Citizenship is not
a requirement. Permanent and nona requirement. Permanent and non--permanent permanent resident aliens are eligible.resident aliens are eligible.
nn All borrowers All borrowers mustmust have a SSN. An ITIN is not have a SSN. An ITIN is not acceptable.acceptable.
nn Borrowers may be occupants or nonBorrowers may be occupants or non--occupants occupants (co(co--signers).signers).
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Borrower EligibilityBorrower Eligibility
nn At least one borrower must be an occupant.At least one borrower must be an occupant.nn No maximum age for borrower.No maximum age for borrower.nn Minimum age is minimum legal age in that state Minimum age is minimum legal age in that state
at which a Note can be enforced.at which a Note can be enforced.nn No income limits. Minimum income required is No income limits. Minimum income required is
that necessary to qualify for payments. that necessary to qualify for payments.
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Borrower EligibilityBorrower Eligibility
nn The property must be the primary borrowerThe property must be the primary borrower’’s s principal residence that is occupied by the principal residence that is occupied by the borrower for the majority of the year.borrower for the majority of the year.
nn Borrower expected to take occupancy within 60 Borrower expected to take occupancy within 60 days and reside there for at least 1 year.days and reside there for at least 1 year.
nn Borrowers may have only one FHA mortgage at Borrowers may have only one FHA mortgage at a time unlessa time unless……
10/16/2009
Borrower EligibilityBorrower Eligibility
Exceptions to one FHA loan at a time policyExceptions to one FHA loan at a time policynn Borrower is relocating outside the commuting Borrower is relocating outside the commuting
area.area.nn BorrowerBorrower’’s family increases in size.s family increases in size.nn One borrower is vacating a jointlyOne borrower is vacating a jointly--owned owned
property. property. nn NonNon--occupying cooccupying co--borrowers.borrowers.
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Automated UnderwritingAutomated Underwriting
Most FHA loans must be scored.Most FHA loans must be scored.
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Automated UnderwritingAutomated Underwriting
nn FHA does not have its own AUS. Lenders use FHA does not have its own AUS. Lenders use Fannie MaeFannie Mae’’s DU, Freddie Macs DU, Freddie Mac’’s LP, or other s LP, or other systems.systems.
nn Within AUS, FHA loans are scored against Within AUS, FHA loans are scored against FHAFHA’’s scorecard (an algorithm developed to s scorecard (an algorithm developed to predict risk) called TOTAL.predict risk) called TOTAL.
nn All FHA loans except streamline refinances All FHA loans except streamline refinances must be scored through an Automated must be scored through an Automated Underwriting System (AUS).Underwriting System (AUS).
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Automated UnderwritingAutomated Underwriting
nn Except for FICO score (pulled directly from Except for FICO score (pulled directly from credit report), data entered in AUS is calculated credit report), data entered in AUS is calculated as it would be under manual underwriting.as it would be under manual underwriting.
nn TOTAL will provide a scoring recommendation TOTAL will provide a scoring recommendation on borrower.on borrower.
nn Score is Accept/Approve or Refer.Score is Accept/Approve or Refer.nn AUS may provide further feedback on other AUS may provide further feedback on other
aspects of loan.aspects of loan.
10/16/2009
Manual UnderwritingManual Underwriting
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Manual UnderwritingManual Underwriting
nn For loans receiving a Refer score from an AUS For loans receiving a Refer score from an AUS or where borrower has no credit score (required or where borrower has no credit score (required to score through AUS).to score through AUS).
nn In Fiscal Year 2008 in the Philadelphia HOC In Fiscal Year 2008 in the Philadelphia HOC 24%24% of endorsed purchase loans and of endorsed purchase loans and 39%39% of of endorsed creditendorsed credit--qualifying refinance loans were qualifying refinance loans were manually underwritten. manually underwritten.
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Manual UnderwritingManual UnderwritingCreditCreditnn No minimum credit score.No minimum credit score.nn Credit pattern more important than single Credit pattern more important than single
incidents. Payment history for previous incidents. Payment history for previous mortgage or rent most important.mortgage or rent most important.
nn Explanations required for significant credit Explanations required for significant credit problems, late payments, inquiries within the last problems, late payments, inquiries within the last 90 days.90 days.
nn NonNon--traditional credit okay.traditional credit okay.10/16/2009
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Manual UnderwritingManual Underwriting
CreditCreditIf bankruptcy on record, must have reIf bankruptcy on record, must have re--established established
credit credit andandnn Chapter 7Chapter 7 –– 2 years must have passed 2 years must have passed since since
discharge, 1 year if bankruptcy due to discharge, 1 year if bankruptcy due to circumstances beyond borrowercircumstances beyond borrower’’s control.s control.
nn Chapter 13Chapter 13 –– 1 year successful payments under 1 year successful payments under plan and permission of court.plan and permission of court.
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Manual UnderwritingManual Underwriting
CreditCreditIf a foreclosure is on record, borrower is not If a foreclosure is on record, borrower is not
eligible for three years unless eligible for three years unless nn NonNon--FHA ForeclosureFHA Foreclosure. There are documented . There are documented
extenuating circumstances.extenuating circumstances.nn FHA ForeclosureFHA Foreclosure. Property was included in . Property was included in
bankruptcy, or divorce with ex responsible for bankruptcy, or divorce with ex responsible for payments, or assumption.payments, or assumption.
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Manual UnderwritingManual Underwriting
Employment/IncomeEmployment/Incomenn Income reasonably expected to continue for 3 Income reasonably expected to continue for 3
years.years.nn Must be documented.Must be documented.nn Must verify employment, income for 2 full years. Must verify employment, income for 2 full years.
Allowances for school, maternity.Allowances for school, maternity.nn Overtime, bonus can be used if documented for Overtime, bonus can be used if documented for
2 years and likely to continue.2 years and likely to continue.
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Manual UnderwritingManual Underwriting
Employment/IncomeEmployment/Incomenn Retirement, Social Security, alimony, child Retirement, Social Security, alimony, child
support can be used.support can be used.nn NonNon--taxable income can be taxable income can be ““grossed up.grossed up.””nn SelfSelf--employment okay. employment okay.
10/16/2009
Manual UnderwritingManual Underwriting
Grossing Up NonGrossing Up Non--Taxable IncomeTaxable Incomenn Percentage of grossPercentage of gross--up may not exceed up may not exceed
borrowerborrower’’s actual tax rate.s actual tax rate.nn No additional allowances for dependents.No additional allowances for dependents.nn Lender must document the percentage used.Lender must document the percentage used.nn If the borrower is not required to file a tax If the borrower is not required to file a tax
return, use a 25% tax rate. return, use a 25% tax rate.
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Manual UnderwritingManual Underwriting
How about another test?How about another test?
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Manual UnderwritingManual Underwriting
““Off the booksOff the books”” or or ““under the counterunder the counter””income can be usedincome can be used……
A.A. For selfFor self--employed borrowers only.employed borrowers only.B.B. Only as a compensating factor.Only as a compensating factor.C.C. Never.Never.
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Manual UnderwritingManual Underwriting
The answer is C. Never.The answer is C. Never.
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Manual UnderwritingManual UnderwritingRental IncomeRental Incomenn Concerns have arisen about borrowers seeking Concerns have arisen about borrowers seeking
FHA loans to purchase a home when they FHA loans to purchase a home when they already own another home. already own another home.
nn Borrower claims that current home will be Borrower claims that current home will be rented. Counts rent as income to qualify for rented. Counts rent as income to qualify for new loan.new loan.
nn Borrower closes on new loan and abandons Borrower closes on new loan and abandons former property.former property.
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Manual UnderwritingManual Underwriting
Rental IncomeRental Incomenn ML 08ML 08--2525..nn Effective for case numbers issued on or after Effective for case numbers issued on or after
September 16, 2008.September 16, 2008.nn Remains in effect until further notice.Remains in effect until further notice.nn Revised criteria for counting rental income.Revised criteria for counting rental income.nn Applies only to situations where borrower Applies only to situations where borrower
intends to rent current principal residence.intends to rent current principal residence.
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Manual UnderwritingManual UnderwritingRental income from former residence may be Rental income from former residence may be
counted only wherecounted only where……nn Borrower is relocating to an area not within Borrower is relocating to an area not within
commuting distance. Rental income may be commuting distance. Rental income may be counted provided there is an executed lease of at counted provided there is an executed lease of at least one year. least one year. OROR
nn LTV on current home does not exceed 75%.LTV on current home does not exceed 75%.nn Philadelphia HOC vacancy factor of 15% must Philadelphia HOC vacancy factor of 15% must
be applied to rental income.be applied to rental income.10/16/2009
Manual UnderwritingManual Underwriting
Just a reminderJust a reminder……nn Self Sufficiency test for 3 and 4 unit properties.Self Sufficiency test for 3 and 4 unit properties.nn Monthly PITI / Net Monthly Income Monthly PITI / Net Monthly Income << 100%.100%.nn Net Monthly Income = market rent for all units Net Monthly Income = market rent for all units
(including unit occupied by borrower) less the (including unit occupied by borrower) less the greater of:greater of:-- appraiserappraiser’’s vacancy allowance , ors vacancy allowance , or-- HOC vacancy allowance (15%). HOC vacancy allowance (15%).
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Manual UnderwritingManual Underwriting
Employment/Income DocumentationEmployment/Income Documentationnn Written Verification of Employment (VOE) Written Verification of Employment (VOE)
from current employer and most recent pay from current employer and most recent pay stub.stub.
nn Additional Additional VOEsVOEs if necessary to document two if necessary to document two year employment history.year employment history.
nn Alternatively, borrower can provide pay stubs Alternatively, borrower can provide pay stubs covering most recent 30 day period, Wcovering most recent 30 day period, W--2s from 2s from the previous two years, and an oral VOE.the previous two years, and an oral VOE.
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Manual UnderwritingManual Underwriting
Employment/Income DocumentationEmployment/Income Documentationnn To document selfTo document self--employment, borrower must employment, borrower must
submit tax returns for last two years.submit tax returns for last two years.nn Where borrower has been selfWhere borrower has been self--employed less employed less
than two years, borrower must document that than two years, borrower must document that selfself--employment is in the same field as previous employment is in the same field as previous employment.employment.
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Manual UnderwritingManual Underwriting
Qualifying RatiosQualifying Ratiosnn ““FrontFront”” ratio ratio –– Housing payment (PITI) / Housing payment (PITI) /
monthly income. Standard is 31%, higher with monthly income. Standard is 31%, higher with compensating factors.compensating factors.
nn ““BackBack”” ratio ratio –– Housing payment plus other Housing payment plus other installment debt / monthly income. Standard is installment debt / monthly income. Standard is 43%, higher with compensating factors.43%, higher with compensating factors.
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Manual UnderwritingManual Underwriting
Qualifying RatiosQualifying Ratiosnn 31% and 43% ratios are guidelines only, not 31% and 43% ratios are guidelines only, not
maximum ratios.maximum ratios.nn Where exceeded, underwriter must cite at least Where exceeded, underwriter must cite at least
one compensating factor.one compensating factor.nn Compensating factors include reserves, large Compensating factors include reserves, large
down payment, minimal increase in housing down payment, minimal increase in housing expense, potential for higher income and others. expense, potential for higher income and others.
10/16/2009
Manual UnderwritingManual Underwriting
ReservesReservesnn Reserves are an important factor in the TOTAL Reserves are an important factor in the TOTAL
Scorecard and may be used as a compensating Scorecard and may be used as a compensating factor on manually underwritten cases.factor on manually underwritten cases.
nn Reserves are not required except for ...Reserves are not required except for ...33--4 unit properties 4 unit properties (3 months PITI).(3 months PITI).Insufficient credit borrowers Insufficient credit borrowers (2 months PITI).(2 months PITI).
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Closing CostsClosing Costs
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What can you charge?What can you charge?
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Closing CostsClosing Costs
nn ML 06ML 06--0404..nn As of January, 2006, list of allowable and As of January, 2006, list of allowable and
unallowable closing costs eliminated.unallowable closing costs eliminated.nn Charges must be incurred, and/or limited to Charges must be incurred, and/or limited to
actual cost.actual cost.nn Surcharges on third party charges are not Surcharges on third party charges are not
permitted. permitted.
10/16/2009
Closing CostsClosing Costs
nn Federal and state disclosure laws apply.Federal and state disclosure laws apply.nn Borrower may be charged any Borrower may be charged any ““customary and customary and
reasonablereasonable”” fee necessary to close the loan.fee necessary to close the loan.nn Point of policy is not to allow unlimited charges Point of policy is not to allow unlimited charges
to borrower.to borrower.
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Closing CostsClosing Costs
Unallowable ChargesUnallowable Chargesnn Origination fee may not exceed 1%.Origination fee may not exceed 1%.nn Tax service fees are not permitted.Tax service fees are not permitted.
5010/16/2009
Interest RatesInterest Rates
nn FHA does not regulate interest rates or discount FHA does not regulate interest rates or discount points.points.
nn Lenders may not violate the tiered pricing rule: Lenders may not violate the tiered pricing rule: disparities of more than two points for the same disparities of more than two points for the same kind of loans within the same geographic area.kind of loans within the same geographic area.
nn Premium pricing to pay for closing costs and Premium pricing to pay for closing costs and prepaidsprepaids, but not down payment, is permissible., but not down payment, is permissible.
nn ML 94ML 94--1616. . ML 94ML 94--4343..
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Property EligibilityProperty Eligibility
Most kinds of homes qualify.Most kinds of homes qualify.
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Property EligibilityProperty Eligibility
nn Property must consist of 1Property must consist of 1--4 units.4 units.nn Detached, semiDetached, semi--detached, attached, condo are detached, attached, condo are
eligible.eligible.nn Existing and new construction (stickExisting and new construction (stick--built and built and
modular) are eligible.modular) are eligible.nn Manufactured homes are eligible.Manufactured homes are eligible.nn CoCo--ops restricted to developments where HUD ops restricted to developments where HUD
insures master mortgage. insures master mortgage.
10/16/2009
Property EligibilityProperty Eligibility
Question: Question: Are mixedAre mixed--use use properties acceptable?properties acceptable?
10/16/2009 54
Property EligibilityProperty Eligibility
Yes they areYes they are..
So long as the commercial space does not exceed So long as the commercial space does not exceed
25% 25% of the gross square footage.of the gross square footage.
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Property EligibilityProperty EligibilityCondominiumsCondominiumsnn Generally, the condo project must be preGenerally, the condo project must be pre--
approved by FHA. approved by FHA. nn Lender can use Lender can use ““spotspot”” loan procedure for units loan procedure for units
in nonin non--approved projects. approved projects. ML 96ML 96--4141. (Oct.1 . (Oct.1 changes)changes)
nn Must be at least 51% ownerMust be at least 51% owner--occupied.occupied.nn Condo maintenance fee included in housing Condo maintenance fee included in housing
payment calculation for qualifying.payment calculation for qualifying.
10/16/2009
Property EligibilityProperty Eligibility
CondominiumsCondominiumsList of approved condos available through List of approved condos available through nn FHA Connection. Click on FHA Connection. Click on Single FamilySingle Family, then , then
Single Family OriginationSingle Family Origination, then , then FHA Approval ListsFHA Approval Lists, , then then CondominiumsCondominiums. .
nn hud.govhud.gov at at https://https://entp.hud.gov/idapp/html/condlook.cfmentp.hud.gov/idapp/html/condlook.cfm
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Property EligibilityProperty Eligibility
Getting a condo project approved.Getting a condo project approved.nn Handbook 4150.1 REVHandbook 4150.1 REV--1, Chapter 111, Chapter 11nn Four basic situations:Four basic situations:
-- Existing Existing –– NonNon--Operating Association.Operating Association.-- Existing Existing –– Operating Association.Operating Association.-- Proposed Construction.Proposed Construction.-- Under Construction.Under Construction.
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Property EligibilityProperty Eligibility
Manufactured HomesManufactured Homesnn At least 400 square feet.At least 400 square feet.nn Certification label as to compliance with Federal Certification label as to compliance with Federal
standards.standards.nn Classified and subject to taxation as real estate.Classified and subject to taxation as real estate.nn Mortgage covers both unit and site.Mortgage covers both unit and site.
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Property EligibilityProperty Eligibility
Manufactured HomesManufactured Homesnn Built and remains on a permanent chassis.Built and remains on a permanent chassis.nn Must be affixed to a permanent foundation that Must be affixed to a permanent foundation that
has been certified by an engineer.has been certified by an engineer.nn Elevation at or above 100 year flood plain.Elevation at or above 100 year flood plain.nn Must be on original site.Must be on original site.
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Property EligibilityProperty Eligibility
CooperativesCooperativesnn Under current regulations not eligible for Direct Under current regulations not eligible for Direct
Endorsement processing.Endorsement processing.nn Eligibility and maximum mortgage calculation Eligibility and maximum mortgage calculation
affected by status of master mortgage.affected by status of master mortgage.nn HERA provides for changes. FHA is working HERA provides for changes. FHA is working
on mortgagee letter to implement legislation.on mortgagee letter to implement legislation.
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Property EligibilityProperty EligibilityFlipping RuleFlipping Rulenn ML 06ML 06--1414..nn Seller must be legal owner of property.Seller must be legal owner of property.nn Seller must have owned property at least 91 days Seller must have owned property at least 91 days
at the time the borrower signs the sales contract.at the time the borrower signs the sales contract.nn If seller owns 91If seller owns 91--180 days 180 days andand new price is new price is
double previous price, 2double previous price, 2ndnd appraisal required.appraisal required.
10/16/2009
Property EligibilityProperty Eligibility
Flipping RuleFlipping Rulenn Exceptions for HUD, VA, USDA REO, Fannie Exceptions for HUD, VA, USDA REO, Fannie
Mae, Freddie Mac, nonprofits, estate sales, and Mae, Freddie Mac, nonprofits, estate sales, and corporate relocations.corporate relocations.
nn Waiver applicable until 6/9/2009 also exempts Waiver applicable until 6/9/2009 also exempts sales by lenders of foreclosed properties, or sales sales by lenders of foreclosed properties, or sales by property disposition firms they hire.by property disposition firms they hire.
nn http://http://portal.hud.gov/portal/page?_pageidportal.hud.gov/portal/page?_pageid=73,3912104&_dad=73,3912104&_dad==portal&_schemaportal&_schema=PORTAL=PORTAL
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Property EligibilityProperty Eligibility
Flipping RuleFlipping Rulenn Does it matter how much the seller spent on Does it matter how much the seller spent on
repairs?repairs?NONO
nn Does it matter how much profit the seller is Does it matter how much profit the seller is earning?earning?NONO
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AppraisalsAppraisals
Who can perform an FHA Appraisal?Who can perform an FHA Appraisal?nn ML 08ML 08--3939. Implements provision of HERA . Implements provision of HERA
regarding certification of appraisers.regarding certification of appraisers.nn Until 10/01/09, any licensed appraiser who was Until 10/01/09, any licensed appraiser who was
on FHAon FHA’’s Appraiser Roster as of 09/31/08 can s Appraiser Roster as of 09/31/08 can perform an FHA appraisal.perform an FHA appraisal.
nn After 09/31/09, all appraisers must be certified After 09/31/09, all appraisers must be certified residential or certified general.residential or certified general.
10/16/2009 65
AppraisalsAppraisals
Who can perform an FHA Appraisal?Who can perform an FHA Appraisal?nn After 09/31/09, only certified residential or After 09/31/09, only certified residential or
certified general appraisers who meet the certified general appraisers who meet the minimum certification criteria issued by the minimum certification criteria issued by the Appraiser Qualifications Board (AQB) of the Appraiser Qualifications Board (AQB) of the Appraisal Foundation may be selected. Appraisal Foundation may be selected.
nn Lender responsible for selecting only certified Lender responsible for selecting only certified appraisers.appraisers.
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AppraisalsAppraisals
nn HUD Handbook 4150.2 CHGHUD Handbook 4150.2 CHG--11nn Determines the value of the property.Determines the value of the property.nn Determines the marketability of the property.Determines the marketability of the property.nn Identifies observable health and safety Identifies observable health and safety
deficiencies.deficiencies.nn Is performed by an FHA Roster Appraiser, Is performed by an FHA Roster Appraiser,
selected by the lender.selected by the lender.
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AppraisalsAppraisals
nn Not a home inspection. Conducted primarily to Not a home inspection. Conducted primarily to determine value for mortgage insurance determine value for mortgage insurance purposes.purposes.
nn Conducted for benefit of lender, not borrower.Conducted for benefit of lender, not borrower.nn Does not guarantee property condition.Does not guarantee property condition.
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AppraisalsAppraisals
One of the following Fannie Mae forms must One of the following Fannie Mae forms must be usedbe used……
nn 1004C1004C Manufactured homes.Manufactured homes.nn 10731073 Individual condominium unitsIndividual condominium unitsnn 10251025 22--4 unit properties.4 unit properties.nn 10041004 All one unit other properties.All one unit other properties.nn PlusPlus……
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AppraisalsAppraisals
RepairsRepairsnn No repairs required for minor items or deferred No repairs required for minor items or deferred
maintenance.maintenance.nn Standard tests not automatically required.Standard tests not automatically required.nn Appraiser reports all property conditions, even Appraiser reports all property conditions, even
minor ones.minor ones.
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AppraisalsAppraisals
RepairsRepairsnn Repairs required only for:Repairs required only for:
-- Major health and safety itemsMajor health and safety items-- Structural problemsStructural problems-- Cracked, peeling paint on preCracked, peeling paint on pre--19781978
homes.homes.nn Repairs must be normally completed before Repairs must be normally completed before
closing.closing.
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AppraisalsAppraisals
Examples of Conditions That Would Not Examples of Conditions That Would Not Normally Require RepairsNormally Require Repairs
nn Missing handrailsMissing handrailsnn Cracked windowsCracked windowsnn Minor plumbing leaksMinor plumbing leaksnn Worn flooring or carpetWorn flooring or carpetnn Cracked sidewalksCracked sidewalks
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AppraisalsAppraisals
Examples of Conditions That Would Normally Examples of Conditions That Would Normally Require RepairsRequire Repairs
nn Inadequate ingress/egress from bedrooms to Inadequate ingress/egress from bedrooms to exterior of home.exterior of home.
nn Leaking, wornLeaking, worn--out roofs.out roofs.nn Obvious evidence of structural problems.Obvious evidence of structural problems.nn Obvious evidence of termite infestation.Obvious evidence of termite infestation.
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AppraisalsAppraisals
Examples of tests that are no longer Examples of tests that are no longer mandatory.mandatory.
nn WoodWood--destroying insects/organisms.destroying insects/organisms.nn Well water.Well water.nn Septic systems.Septic systems.nn Flat or unobservable roof.Flat or unobservable roof.
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AppraisalsAppraisalsExamples of conditions warranting further Examples of conditions warranting further
inspection.inspection.nn Standing water against the foundation and/or Standing water against the foundation and/or
excessively damp basements.excessively damp basements.nn Hazardous materials on site or within the Hazardous materials on site or within the
improvements.improvements.nn Faulty , defective or inoperative systems.Faulty , defective or inoperative systems.nn Evidence of possible structural problems Evidence of possible structural problems
(settlement, bulging walls, etc.(settlement, bulging walls, etc.10/16/2009 75
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AppraisalsAppraisals
Other Property RequirementsOther Property Requirementsnn Certain FHA requirements regarding well and Certain FHA requirements regarding well and
septic distances and other requirements remain septic distances and other requirements remain applicable.applicable.
nn See Valuation Protocol in Revised Appendix D See Valuation Protocol in Revised Appendix D issued with ML 05issued with ML 05--48 and Revised Appendices 48 and Revised Appendices A and C issued in ML 06A and C issued in ML 06--09 for further 09 for further guidance.guidance.
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AppraisalsAppraisals
Declining MarketsDeclining Marketsnn ML 07ML 07--11, ML 0811, ML 08--09, ML 0909, ML 09--08, ML 0908, ML 09--0909..nn FHA does not define this term.FHA does not define this term.nn FHA has not established a list of areas that it FHA has not established a list of areas that it
considers to be declining.considers to be declining.nn FHA has no special down payment, mortgage FHA has no special down payment, mortgage
insurance, or underwriting requirements for insurance, or underwriting requirements for properties in an areas with declining values. properties in an areas with declining values.
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AppraisalsAppraisals
Declining MarketsDeclining Marketsnn Determined by appraiser on a caseDetermined by appraiser on a case--byby--case basis;case basis;
OROR
nn Determined by lender based on data services or Determined by lender based on data services or feedback from LP or DU.feedback from LP or DU.
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AppraisalsAppraisals
Declining MarketsDeclining Marketsnn Appraiser determination.Appraiser determination.nn Recorded by appraiser in Recorded by appraiser in OneOne--Unit Housing TrendsUnit Housing Trends
portion of portion of NeighborhoodNeighborhood section on appraisal.section on appraisal.nn Where the appraiser checks the Where the appraiser checks the Declining Declining box for box for
Property Values, he or she must provide an Property Values, he or she must provide an explanation in the explanation in the Market ConditionsMarket Conditions section.section.
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AppraisalsAppraisals
Declining MarketsDeclining MarketsAppraiser DeterminationAppraiser Determinationnn ML 09ML 09--0909. Appraisals must also include. Appraisals must also include……nn At least 2 comparables that closed within 90 At least 2 comparables that closed within 90
days prior to the appraisal.days prior to the appraisal.nn At least 2 active listings or pending sales.At least 2 active listings or pending sales.nn An absorption rate analysis.An absorption rate analysis.
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AppraisalsAppraisals
Declining MarketsDeclining MarketsWhen is a second appraisal required?When is a second appraisal required?nn Loan amountLoan amount excludingexcluding UFMIP will exceed UFMIP will exceed
$417,000; $417,000; andandnn The LTV equals or exceeds 95% (or loan is The LTV equals or exceeds 95% (or loan is
cashcash--out); out); andandnn Property is determined to be in a declining Property is determined to be in a declining
market.market.
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AppraisalsAppraisals
Declining MarketsDeclining MarketsSecond AppraisalsSecond Appraisalsnn Do not order a new case number.Do not order a new case number.nn Second appraisal must be performed by an FHA Second appraisal must be performed by an FHA
roster appraiser.roster appraiser.nn Must conform with HUD Minimum Property Must conform with HUD Minimum Property
Requirements.Requirements.
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AppraisalsAppraisals
Declining MarketsDeclining MarketsSecond AppraisalsSecond Appraisalsnn If property is a one unit single family home, If property is a one unit single family home,
appraiser may perform exteriorappraiser may perform exterior--only appraisal only appraisal using Fannie Mae Form 2055. using Fannie Mae Form 2055.
nn For 2For 2--4 unit properties, appraiser must perform 4 unit properties, appraiser must perform full appraisal using the appropriate Fannie Mae full appraisal using the appropriate Fannie Mae form.form.
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AppraisalsAppraisals
Declining MarketsDeclining MarketsSecond AppraisalsSecond Appraisalsnn Cost of second appraisal may be passed on to Cost of second appraisal may be passed on to
the borrower only when property is in declining the borrower only when property is in declining area area andand LTV is 95% or more (or loan is cashLTV is 95% or more (or loan is cash--out) out) andand when mortgage amount exceeds when mortgage amount exceeds $417,000.$417,000.
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AppraisalsAppraisals
Declining MarketsDeclining MarketsUsing the Second AppraisalUsing the Second Appraisalnn Use the second appraisal to calculate the Use the second appraisal to calculate the
mortgage amount where the second appraised mortgage amount where the second appraised value is more than 5 per cent below the first value is more than 5 per cent below the first appraised value.appraised value.
nn If second appraisal is used, enter that appraisal If second appraisal is used, enter that appraisal data into FHA Connectiondata into FHA Connection
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AppraisalsAppraisals
Underwriting the AppraisalUnderwriting the AppraisalRules of thumbRules of thumbnn Individual adjustments should not exceed 10%.Individual adjustments should not exceed 10%.nn Net adjustments should not exceed 15%.Net adjustments should not exceed 15%.nn Sum of adjustments should not exceed 25%.Sum of adjustments should not exceed 25%.
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Purchase LoansPurchase Loans
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Purchase LoansPurchase Loans
Minimum Cash InvestmentMinimum Cash Investmentnn ML 08ML 08--2323..nn Under HERA, minimum cash investment = Under HERA, minimum cash investment =
3.5% of 3.5% of lesser of sales price or appraised valuelesser of sales price or appraised value..nn Minimum cash investment is down payment Minimum cash investment is down payment
only. Neither closing costs nor prepaids paid by only. Neither closing costs nor prepaids paid by borrower count towards 3.5% minimum cash borrower count towards 3.5% minimum cash investment.investment.
10/16/2009
FHA Purchase LoansFHA Purchase Loans
RememberRemember……nn There is no minimum cash investment There is no minimum cash investment
requirement on refinance loans. It applies only requirement on refinance loans. It applies only to purchases.to purchases.
nn On REO properties being financed with FHA On REO properties being financed with FHA mortgage insurance, special financing provisions mortgage insurance, special financing provisions may apply, such as $100 down. Where these may apply, such as $100 down. Where these provisions are offered, they supersede the 3.5% provisions are offered, they supersede the 3.5% minimum cash investment requirement. minimum cash investment requirement.
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FHA Purchase LoansFHA Purchase Loans
Seller ContributionsSeller Contributionsnn Seller (or other Seller (or other ““interested partyinterested party””) may ) may
contribute up to 6% of sales price toward contribute up to 6% of sales price toward borrowerborrower’’s closing costs and prepaids.s closing costs and prepaids.
nn Seller may Seller may notnot contribute to borrowercontribute to borrower’’s s minimum cash investment. minimum cash investment.
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FHA Purchase LoansFHA Purchase Loans
Acceptable Sources of BorrowerAcceptable Sources of Borrower’’s Cash s Cash InvestmentInvestment
nn BorrowerBorrower’’s own savingss own savingsnn A gift from a relative, employer or union.A gift from a relative, employer or union.nn A gift, grant or secondary financing from state A gift, grant or secondary financing from state
and local government programs.and local government programs.nn A gift from nonA gift from non--profit organizations not profit organizations not
connected to an interested party.connected to an interested party.
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FHA Purchase LoansFHA Purchase LoansUnacceptable Source of BorrowerUnacceptable Source of Borrower’’s Cash s Cash
InvestmentInvestmentIn no case shall the funds requiredIn no case shall the funds required……consist, in whole or in consist, in whole or in
part, of funds provided by any of the following parties part, of funds provided by any of the following parties before, during, or after closing of the property sale:before, during, or after closing of the property sale:(i) The seller or any other person or entity that financially(i) The seller or any other person or entity that financiallybenefits from the transaction.benefits from the transaction.(ii) Any third party or entity that is reimbursed, directly(ii) Any third party or entity that is reimbursed, directlyor indirectly, by any of the parties described in clause (i).or indirectly, by any of the parties described in clause (i).
10/16/2009
FHA Purchase LoansFHA Purchase Loans
Unacceptable Source of BorrowerUnacceptable Source of Borrower’’s Cash s Cash InvestmentInvestment
nn No mortgagee letter was issued on this subject.No mortgagee letter was issued on this subject.nn Questions and answers about the ban are Questions and answers about the ban are
available at:available at:http://portal.hud.gov/portal/page?_pageid=73,http://portal.hud.gov/portal/page?_pageid=73,7597819&_dad=portal&_schema=PORTAL7597819&_dad=portal&_schema=PORTAL
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FHA Purchase LoansFHA Purchase LoansWhere a gift is providedWhere a gift is provided……nn Gift letter required.Gift letter required.nn Must document transfer of funds.Must document transfer of funds.nn If from a donorIf from a donor’’s account, document withdrawal s account, document withdrawal
from donorfrom donor’’s account and deposit into s account and deposit into borrowerborrower’’s account.s account.
nn If provided at closing, document withdrawal If provided at closing, document withdrawal from donorfrom donor’’s account or other acceptable s account or other acceptable source.source.
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Refinance LoansRefinance Loansnn FHA offers refinances of both FHA and nonFHA offers refinances of both FHA and non--
FHA loans.FHA loans.nn FHA offers both cashFHA offers both cash--out and rate and term out and rate and term
refinances.refinances.nn For existing FHA loans, a special nonFor existing FHA loans, a special non--credit credit
qualifying refinance option is available. qualifying refinance option is available. nn Mortgage calculation worksheets available at Mortgage calculation worksheets available at
http://www.hud.gov/offices/hsg/sfh/trn/training.cfmhttp://www.hud.gov/offices/hsg/sfh/trn/training.cfm
10/16/2009
Rate and Term RefinancesRate and Term Refinances
nn Existing subordinate financing may remain in Existing subordinate financing may remain in place behind the FHA mortgage.place behind the FHA mortgage.
nn New subordinate financing may be placed New subordinate financing may be placed behind the FHA mortgage.behind the FHA mortgage.
nn No CLTV restrictions on new existing No CLTV restrictions on new existing subordinate financing.subordinate financing.
nn Cash back to the borrower at closing may not Cash back to the borrower at closing may not exceed $500. exceed $500.
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Rate and Term RefinancesRate and Term RefinancesSecondary Financing RequirementsSecondary Financing Requirementsnn No prepayment penalty.No prepayment penalty.nn No balloon payment before 10 years.No balloon payment before 10 years.nn Monthly, consistent payments.Monthly, consistent payments.nn 11stst and 2and 2ndnd loan payments cannot exceed loan payments cannot exceed
borrowerborrower’’s ability to repay.s ability to repay.nn EquityEquity--sharing permitted.sharing permitted.
10/16/2009
Rate and Term RefinancesRate and Term Refinances
Mortgage amount Mortgage amount not including UFMIP not including UFMIP may not may not exceed exceed
nn Applicable county maximum.Applicable county maximum.nn Lesser ofLesser of
-- 97.75% of appraised value, or97.75% of appraised value, or……-- the sum of the following:the sum of the following:
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Rate and Term RefinancesRate and Term Refinances
Can be included in new mortgageCan be included in new mortgage……nn Existing first lienExisting first liennn Purchase money second mortgagePurchase money second mortgagenn Junior liens over 12 months oldJunior liens over 12 months oldnn Closing costsClosing costsnn Prepaid expensesPrepaid expensesnn Discount pointsDiscount points
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Rate and Term RefinancesRate and Term Refinances
Calculating Maximum MortgageCalculating Maximum Mortgage
Appraised ValueAppraised Value $212,000$212,000x . 9775x . 9775
Maximum MortgageMaximum Mortgage $207,230$207,230
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Rate and Term RefinancesRate and Term Refinances
Calculating Maximum MortgageCalculating Maximum Mortgage1st Lien Payoff1st Lien Payoff $179,000$179,0002nd Lien Payoff2nd Lien Payoff 19,50019,500Closing CostsClosing Costs 4,0004,000PrePre--PaidsPaids 3,0003,000TotalTotal $205,500$205,500
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Rate and Term RefinancesRate and Term Refinances
Insured Mortgage AmountInsured Mortgage AmountMaximum MortgageMaximum Mortgage $205,500$205,500+ UFMIP (1.75%)+ UFMIP (1.75%) 3,5963,596Insured MortgageInsured Mortgage $209,096$209,096
LTVLTV 98.63%98.63%
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CashCash--Out Refinances Out Refinances nn ML 09ML 09--0808..nn Maximum LTV Maximum LTV 85%85% of appraised value.of appraised value.nn Full creditFull credit--qualifying. Full appraisal.qualifying. Full appraisal.nn Must be current for the month due.Must be current for the month due.nn NonNon--occupying cooccupying co--borrower may borrower may notnot be added.be added.
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CashCash--Out RefinancesOut Refinancesnn New secondary financing may be added, but New secondary financing may be added, but
CLTV for 1CLTV for 1stst mortgage and mortgage and newnew subordinate subordinate financing limited to 85%.financing limited to 85%.
nn No CLTV restrictions on No CLTV restrictions on existingexisting secondary secondary financing.financing.
nn Modified 2nds not considered new 2nds. Modified 2nds not considered new 2nds. nn If located in declining area and mortgage If located in declining area and mortgage
exceeds $417,000, second appraisal required.exceeds $417,000, second appraisal required.
10/16/2009
FHA to FHA StreamlineFHA to FHA Streamline
nn For existing FHA loans only.For existing FHA loans only.nn NonNon--creditcredit--qualifying.qualifying.nn Mortgage must be current for the month due.Mortgage must be current for the month due.nn Cash back to the borrower at closing may not Cash back to the borrower at closing may not
exceed $500.exceed $500.
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FHA to FHA StreamlineFHA to FHA StreamlineNew PaymentsNew Paymentsnn ML 05ML 05--4343..nn Should result in decrease in monthly principal Should result in decrease in monthly principal
and interest payment.and interest payment.nn Mortgage on principal residence may be Mortgage on principal residence may be
refinanced to a shorter term, provided that P&I refinanced to a shorter term, provided that P&I increases by no more than 20%.increases by no more than 20%.
nn Certain other restrictions based on ARM to Certain other restrictions based on ARM to fixed rate or fixed rate to ARM.fixed rate or fixed rate to ARM.
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FHA to FHA StreamlineFHA to FHA Streamline
Maximum Mortgage AmountMaximum Mortgage Amountnn Without AppraisalWithout Appraisal
Lesser ofLesser of principal balance, accrued interest, principal balance, accrued interest, fees, charges and escrows fees, charges and escrows oror original insured original insured mortgage amount.mortgage amount.
nn With AppraisalWith AppraisalLesser ofLesser of principal balance, accrued interest, principal balance, accrued interest, fees, charges and escrows fees, charges and escrows oror 97.75% of 97.75% of appraised value.appraised value.
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FHA to FHA StreamlineFHA to FHA Streamline
Subordinate FinancingSubordinate Financingnn No new subordinate financing.No new subordinate financing.nn Existing subordinate financing may remain in Existing subordinate financing may remain in
place.place.nn No limits on CLTV.No limits on CLTV.
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FHA Rehabilitation ProgramFHA Rehabilitation Program
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FHA Rehabilitation ProgramFHA Rehabilitation Program
What is Section 203k?What is Section 203k?nn One loan to finance both acquisition and rehab One loan to finance both acquisition and rehab
of a property.of a property.nn Mortgage amount is based on projected value of Mortgage amount is based on projected value of
the property with the work completed.the property with the work completed.nn Repair escrow account created and repairs Repair escrow account created and repairs
completed completed afterafter closing.closing.
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FHA Rehabilitation ProgramFHA Rehabilitation Program
Eligible UsesEligible Usesnn To purchase a home and rehab it.To purchase a home and rehab it.nn To refinance a mortgage and rehab a home.To refinance a mortgage and rehab a home.nn To purchase a home on another site, move it To purchase a home on another site, move it
onto a new foundation, and rehab it.onto a new foundation, and rehab it.nn Mortgage calculation worksheet available at Mortgage calculation worksheet available at
http://www.hud.gov/offices/hsg/sfh/trn/training.cfmhttp://www.hud.gov/offices/hsg/sfh/trn/training.cfm
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FHA Rehabilitation ProgramFHA Rehabilitation Program
Regular Section 203kRegular Section 203knn Minimum repairs of $5,000. No maximum on Minimum repairs of $5,000. No maximum on
repairs.repairs.nn Must use 203k Consultant to prepare detailed Must use 203k Consultant to prepare detailed
work writework write--up and to conduct inspections of up and to conduct inspections of work.work.
nn Few limitations on the type of repairs.Few limitations on the type of repairs.
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FHA Rehabilitation ProgramFHA Rehabilitation Program
Streamline 203kStreamline 203knn ML 05ML 05--5050..nn No minimum amount of repairs. Maximum No minimum amount of repairs. Maximum
repairs of $35,000.repairs of $35,000.nn 203k Consultant not required.203k Consultant not required.nn If repair amount under $15,000 no 3If repair amount under $15,000 no 3rdrd party party
inspections required.inspections required.nn No additions or structural repairs.No additions or structural repairs.
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FHA Rehabilitation ProgramFHA Rehabilitation Program
How about commercial space on a 203k?How about commercial space on a 203k?nn 1 Story property1 Story property
25%25%nn 2 Story property2 Story property
49%49%nn 3 Story property3 Story property
33%33%
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FHA Reverse Mortgage ProgramFHA Reverse Mortgage Program
FHA has a special program for senior citizens FHA has a special program for senior citizens who own their home.who own their home.
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FHA Reverse Mortgage ProgramFHA Reverse Mortgage Program
Home Equity Conversion Mortgage (HECM)Home Equity Conversion Mortgage (HECM)nn Allows seniors to tap into the equity in their Allows seniors to tap into the equity in their
homes.homes.nn No payment is ever required of borrower. No payment is ever required of borrower.
Borrower can never be forced from home, or Borrower can never be forced from home, or forced to sell.forced to sell.
nn Only after borrower dies or permanently moves Only after borrower dies or permanently moves must loan be satisfied.must loan be satisfied.
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FHA Reverse Mortgage ProgramFHA Reverse Mortgage Program
HECM Eligibility and QualifyingHECM Eligibility and Qualifyingnn All borrowers must be at least 62 years old.All borrowers must be at least 62 years old.nn No credit underwriting. Amount of loan No credit underwriting. Amount of loan
calculated through a formula using the age of calculated through a formula using the age of the youngest borrower, the value of the home, the youngest borrower, the value of the home, interest rate and anticipated appreciation.interest rate and anticipated appreciation.
nn Rather than a mortgage amount, HECMs are Rather than a mortgage amount, HECMs are based on maximum claim amounts.based on maximum claim amounts.
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FHA Reverse Mortgage ProgramFHA Reverse Mortgage Program
Ways To Receive Loan ProceedsWays To Receive Loan Proceedsnn Lump sum.Lump sum.nn Line of Credit.Line of Credit.nn Regular monthly payments Regular monthly payments toto borrower.borrower.nn Combination of these.Combination of these.
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FHA Reverse Mortgage ProgramFHA Reverse Mortgage Program
Housing CounselingHousing Counselingnn ML 08ML 08--1212, , ML 08ML 08--2828, , ML 09ML 09--1010..nn Borrowers must receive housing counseling Borrowers must receive housing counseling
beforebefore a loan application can be taken.a loan application can be taken.nn Borrowers may be charged by agencies for Borrowers may be charged by agencies for
counseling. Fee may be paid out of loan counseling. Fee may be paid out of loan proceeds if borrower agrees.proceeds if borrower agrees.
10/16/2009
FHA Reverse Mortgage ProgramFHA Reverse Mortgage Program
nn Origination fee may not exceed 2% of Origination fee may not exceed 2% of maximum claim amount up to $200,000, then maximum claim amount up to $200,000, then 1% of maximum claim amount above $200,000, 1% of maximum claim amount above $200,000, but not to exceed $6,000. but not to exceed $6,000. ML 08ML 08--3434..
nn Mortgagee and other parties barred from Mortgagee and other parties barred from requiring, directly or indirectly, the purchase of requiring, directly or indirectly, the purchase of other financial or insurance products as a other financial or insurance products as a condition of HECM approval. condition of HECM approval. ML 08ML 08--2424. .
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Lender MonitoringLender Monitoring
We trust our lenders to do a good job,We trust our lenders to do a good job,but we also checkbut we also checkthem.them.
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Lender MonitoringLender Monitoring
FHA monitors lenders in three principal waysFHA monitors lenders in three principal waysnn Post Endorsement Technical Reviews (PETRs).Post Endorsement Technical Reviews (PETRs).nn OnOn--Site Lender Monitoring Reviews.Site Lender Monitoring Reviews.nn Credit Watch. Credit Watch. nn ML 09ML 09--1212..
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Lender MonitoringLender Monitoring
FHA Can Impose the following sanctionsFHA Can Impose the following sanctionsnn Require indemnification on loan.Require indemnification on loan.nn Suspend Direct Endorsement authority.Suspend Direct Endorsement authority.nn Terminate origination authority within a field Terminate origination authority within a field
office jurisdiction.office jurisdiction.nn Impose civil money penalties. *Impose civil money penalties. *nn Terminate FHA approval. *Terminate FHA approval. *
* * Mortgagee Review Board action only. Mortgagee Review Board action only.
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Lender MonitoringLender Monitoring
Post Endorsement Technical ReviewsPost Endorsement Technical Reviewsnn ML 07ML 07--0202. Loans selected for review using an . Loans selected for review using an
algorithm based on various risk factors as well as algorithm based on various risk factors as well as random sampling.random sampling.
nn About 5% of loans selected for PETR.About 5% of loans selected for PETR.nn Review of credit and valuation underwriting Review of credit and valuation underwriting
results and documentation contained in results and documentation contained in Endorsement case binder.Endorsement case binder.
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Lender MonitoringLender Monitoring
Post Endorsement Technical ReviewsPost Endorsement Technical Reviewsnn Loans assigned one of three ratings:Loans assigned one of three ratings:
-- ConformingConforming. No deficiencies found.. No deficiencies found.-- DeficientDeficient . Deficiencies found but loan still. Deficiencies found but loan still
approvable.approvable.-- UnacceptableUnacceptable. Such serious deficiencies . Such serious deficiencies
that loan should not have been approved.that loan should not have been approved.
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Lender MonitoringLender Monitoring
Post Endorsement Technical ReviewsPost Endorsement Technical Reviewsnn Separate ratings for Mortgage Credit and Separate ratings for Mortgage Credit and
valuation.valuation.nn PETR Reason Codes identify the category of PETR Reason Codes identify the category of
deficiency. Specific issue identified in deficiency. Specific issue identified in accompanying narrative. accompanying narrative.
nn Reason codes are provided in ML 07Reason codes are provided in ML 07--02.02.
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Lender MonitoringLender Monitoring
Post Endorsement Technical ReviewsPost Endorsement Technical Reviewsnn Letter sent to lender for loans rated Letter sent to lender for loans rated
Unacceptable requesting that issues be Unacceptable requesting that issues be addressed, or that Lender indemnify FHA addressed, or that Lender indemnify FHA against possible losses.against possible losses.
nn If issues resolved, rating changed to Mitigated.If issues resolved, rating changed to Mitigated.
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Lender MonitoringLender Monitoring
Post Endorsement Technical ReviewsPost Endorsement Technical Reviewsnn Results of PETRs reviewed on a quarterly basis.Results of PETRs reviewed on a quarterly basis.nn Lenders with higher than average number of Lenders with higher than average number of
Unacceptable cases subject to sanctions.Unacceptable cases subject to sanctions.nn Sanctions may include increasing percentage of Sanctions may include increasing percentage of
cases reviewed, or suspension of DE authority cases reviewed, or suspension of DE authority (i.e., return to test case status).(i.e., return to test case status).
nn PETR results available through FHAC.PETR results available through FHAC.
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Lender MonitoringLender Monitoring
OnOn--Site Lender Monitoring ReviewsSite Lender Monitoring Reviewsnn To ensure that mortgagee practices are in To ensure that mortgagee practices are in
compliance with statutory, regulatory and compliance with statutory, regulatory and administrative loan origination requirements.administrative loan origination requirements.
nn Lenders selected for review using an algorithm Lenders selected for review using an algorithm based on various risk factors as well as random based on various risk factors as well as random sampling.sampling.
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Lender MonitoringLender Monitoring
OnOn--Site Lender Monitoring ReviewsSite Lender Monitoring ReviewsReviews includeReviews include……nn Interviews with mortgagee officials and Interviews with mortgagee officials and
employees.employees.nn Reviews of individual case files, logs and Reviews of individual case files, logs and
computer records.computer records.nn Reviews of the mortgagees policies, procedures, Reviews of the mortgagees policies, procedures,
and Quality Control Program.and Quality Control Program.
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Lender MonitoringLender Monitoring
OnOn--Site Lender Monitoring ReviewsSite Lender Monitoring Reviewsnn Reviews of loan files involve reReviews of loan files involve re--verification of verification of
source documentation.source documentation.nn Results of review, including findings, sent to Results of review, including findings, sent to
lender following review.lender following review.nn Lender is required to respond to any findings.Lender is required to respond to any findings.nn Lender may be required to indemnify FHA on Lender may be required to indemnify FHA on
individual loans.individual loans.
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Lender MonitoringLender Monitoring
OnOn--Site Lender Monitoring ReviewsSite Lender Monitoring Reviewsnn Reviews also conducted by HUDReviews also conducted by HUD’’s Inspector s Inspector
General for Audit.General for Audit.nn Typically targeted based on default rates.Typically targeted based on default rates.nn Reviews focus on internal controls over Reviews focus on internal controls over
processing and on Quality Control Plan.processing and on Quality Control Plan.
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Lender MonitoringLender Monitoring
Credit Watch Termination InitiativeCredit Watch Termination Initiativenn Lenders may not apply for reinstatement of Lenders may not apply for reinstatement of
origination authority for at least six months.origination authority for at least six months.nn Lenders may apply for reinstatement only after Lenders may apply for reinstatement only after
an independent review of its operations.an independent review of its operations.nn Lenders may monitor their claim and default Lenders may monitor their claim and default
rate through Neighborhood Watch.rate through Neighborhood Watch.
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Where to Get More InformationWhere to Get More Information
nn 11--800800--CALLFHACALLFHA (225(225--5342)5342): The source for all : The source for all FHA questions.FHA questions.
nn www.fhaoutreach.gov/FHAFAQwww.fhaoutreach.gov/FHAFAQOver 1,300 onOver 1,300 on--line frequently asked questions.line frequently asked questions.
nn www.fha.govwww.fha.govUpUp--toto--date info about FHA programs and more.date info about FHA programs and more.
nn http://www.hud.gov/offices/adm/hudclips/index.http://www.hud.gov/offices/adm/hudclips/index.cfmcfm. Mortgagee letters, handbooks and more.. Mortgagee letters, handbooks and more.
10/16/2009
HUD Handbooks HUD Handbooks 4155.1 and 4155.24155.1 and 4155.2
nn New onNew on--line version of basic credit underwriting line version of basic credit underwriting and loan processing handbooks.and loan processing handbooks.
nn 4155.2 replaces 4000.2, 4000.4 and 4165.1.4155.2 replaces 4000.2, 4000.4 and 4165.1.nn ML 09ML 09--1414..nn Until May 21, 2009, onUntil May 21, 2009, on--line handbooks are for line handbooks are for
informational purposes only. Until then, they informational purposes only. Until then, they should not be cited as references.should not be cited as references.
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HUD Handbooks HUD Handbooks 4155.1 and 4155.24155.1 and 4155.2
nn Incorporates mortgagee letters issued through Incorporates mortgagee letters issued through 0808--39 (12/18/08).39 (12/18/08).
nn By the time the new handbooks are effective on By the time the new handbooks are effective on May 21, 2009, all applicable MLs through May 21, 2009, all applicable MLs through 12/31/08 will be incorporated.12/31/08 will be incorporated.
nn No new material. No new material. nn http://www.fhaoutreach.gov/FHAHandbook/http://www.fhaoutreach.gov/FHAHandbook/
prod/index.aspprod/index.asp
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ThatThat’’s all. s all.
Questions?Questions?
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