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FHA Changes

posted Jul 9, 2015, 10:51 AM by Massey Kouhssari   [ updated Sep 17, 2015, 3:18 PM ]
Topic NEW FHA GUIDELINE Our Program Changes
Gift Funds – Documenting Transfer Requires donor’s bank statement showing withdrawal of funds. X X
Earnest Money Document source of funds if amount exceeds 1% of sales price or appears excessive based on borrower’s savings history. X X
Large Deposit Definition Manual underwriting and TOTAL Scorecard: For recently opened accounts and recent individual deposits of more than 1% of the Adjusted Value (lesser of purchase price minus inducements or the appraised value) the mortgagee must obtain documentation of the deposits. The mortgagee must also verify that no debts were incurred to obtain part, or all, of the minimum required investment. X X
Joint Funds Access Manual underwriting and TOTAL Scorecard:
If the Borrower does not hold the deposit account solely, all non-Borrower parties on the account must provide a written statement that the Borrower has full access and use of the funds.
Retirement Accounts * Most recent monthly or quarterly account statement.
* Use 60% and deduct existing loans unless there is “conclusive” evidence that a higher percentage may be withdrawn.
* Evidence of liquidation is required if any portion is required for funds to close.
Interested Party Credits / Costs Paid Outside Closing / Minimum Required Investment (MRI) On the HUD 1 settlement statement, the lender may apply interested party credits to the closing costs and prepaid items including any items paid outside closing (POC). The refund of the borrower’s POCs may be used toward the borrower’s (MRI) if the lender documents that the POCs were paid with the borrower’s own funds.   X
Real Estate Tax Credits / Minimum Required Investment (MRI) Where real estate taxes are paid in arrears, the seller’s real estate tax credit may be used to meet the MRI, if the lender documents that the borrower had sufficient assets to meet the MRI and the borrower paid closing costs at the time of underwriting. This permits the borrower to bring a portion of their MRI to the closing and combine that portion with the real estate tax credit for their total MRI.   X
Real Estate Commission – Proof of License When commission income is used as funds to close through earnings or gift, lender must document borrower or family member real estate license and entitlement to commission from purchase. X X
Collateralized Loan A collateralized loan is a loan that is fully secured by a financial asset of the borrower, such as deposit accounts, certificates of deposit, investment accounts, or real property. These assets may include stocks, bonds, and real estate other than the property being purchased. Note: Loans against cars, boats, or any other non-financial asset are no longer an acceptable source of funds. X X
Satisfactory Credit A lender may approve a borrower if:
* acceptable payment history and
* no major derogatory credit on revolving accounts in the last 12 months.
“Acceptable payment history” means:
* the borrower made all housing and installment debt payments on time for the previous 12 months, and
* there are no more than two 30-day late mortgage or installment payments in the last 24 months.
“Major derogatory credit” means:
* payments made more than 90 days after the due date, or
* 3 or more payments made more than 60 days after the due date
Derogatory Event Wait Period Definition Defines as ‘from event date (typically BK discharge or transfer of title) to the new loan case number assignment date’. X X
Non-Traditional Mortgage Credit Report (NTMCR) NTMCR is not required.
For borrowers without a credit score, either:
* obtain an NTMCR, or
* develop a credit history using alternative references subject to documentation and verification guidelines, including:
o review of public records to verify the provider’s existence,
o verification of credit information using published addresses and telephone numbers, and
o retention of the most recent 12 months of canceled checks or equivalent proof of payment.
Non-Traditional Mortgage Credit – Authorized User Account as Credit Reference A documented 12 month history of payments on an account where the borrower is an authorized user is an acceptable credit reference. X X
Medical Collections Specifically designated as obligation not considered debt and can be disregarded. X X
Charge Offs Defined as loans or debts written off by the creditor that do not have to be included in DTI. TOTAL Scorecard: If ‘Accept’ then no explanation needed. Manual Underwriting: · The lender must: o determine why they exist; o document reasons for approving the loan; and o obtain a letter of explanation from the borrower and supporting documentation. X X
Age of Documents Existing and new construction: 120 days X X
Handling of Documents Documents can’t be transmitted from or though equipment of interested third parties or unknown parties. X X
Application Signatures All borrowers must sign both the initial and final 1003. X X
Borrower’s Authorization Form Must obtain. X X
Disclosures Single list of required disclosures. X X
CAIVRS VERIFIED delinquent federal debt makes the borrower ineligible. X X
Federal Tax Liens Tax liens may remain unpaid if the borrower has entered into a valid repayment agreement and has made at least 3 months of timely payments. Payments may not be prepaid. X X
Excluded Parties List Check all parties to the transaction including processor, underwriter, appraiser and 203(k) consultant. X X
Re-verification of Employment Required within 10 days of loan note date. X X
Case Number Transfer Timeline Immediately upon borrower request. X X
Appraisal Transfer Timeline Within 5 business days of borrower’s request. X X
Tax Service Fee Not mentioned X X
Prepaids Prepaid items include flood and hazard insurance premiums, MIPs, real estate taxes, and per diem interest. There is no longer a 15-day interest requirement when estimating GFE. X X
Per Diem Interest and Interest Credits Per Diem Interest - May collect from disbursement date to the date amortization begins.
Interest Credit – Lender may begin amortization up to 7 days prior to the disbursement date and provide an interest credit. Per diem interest credit may not be used to meet the borrower’s MRI.
Calculation – Per diem must be computed using 1/365th of annual rate.
Glossary Definitions      
Family Member Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:
• child, parent, or grandparent
o a child is defined as a son, stepson, daughter, or
o a parent or grandparent includes a stepparent /
grandparent or a foster parent / grandparent
• spouse or domestic partner
• legally adopted son or daughter, including a child who is
placed with the borrower by an authorized agency for
legal adoption
• foster child
• brother, stepbrother
• sister, stepsister
• uncle
• aunt
• son-in-law, daughter-in-law, father-in-law, mother-in-
law, brother-in-law, or sister-in-law of the Borrower
Part-Time Employment Income Two years of uninterrupted part-time income is required. * Average the income over the prior 2 years, or * Use a 12-month average of hours at the current pay rate if the lender documents an increase in pay rate. X X
Self-Employed – Declining Income * Income from a business with a greater than 20% decline in income over the analysis period is not acceptable.
o If using an AUS, the lender must downgrade to manual underwriting.
* If there has been a 20% or greater decline, the income is still deemed stable if:
o the reduction was the result of documented extenuating circumstances,
o the income has been stable or increasing for at least 12 months, and
o the borrower qualifies using the reduced income.
Frequent Job Changes If the borrower has changed jobs more than 3 times in the prior 12 months, or has changed lines of work, the lender must obtain: · transcripts of training and education demonstrating qualification for the new position, or · employment documentation evidencing continual increases in income and/or benefits. X X
Hourly Earnings Calculation * If the hours do not vary, use the hourly rate.
* If the hours vary, use a two-year average.
* If the hours vary and there is a documented increase in pay rate, use a 12-month average of hours at the current pay rate.
Overtime and Bonus Income Calculation * General Rule - Overtime or bonus income must have been received for the past 2 years.
* Exception – Periods between 1 and 2 years may be acceptable if consistently earned for at least 1 year and likely to continue.
* How to calculate the income:
o Average over 2 years.
o If the income from the current year decreases by 20% or more from the prior year, use the current year’s income.
Commission Income *Earned for at least 1 year in same or similar line of work and likely to continue.                                    *Calculate by subtracting unreimbursed business expenses from the lesser of: o the average net commission earned over the past 2 years (or however long it’s been earned) and o the average income earned over the prior 1 year. Note: 1 year history is now minimum allowed. X X
Voluntary Alimony or Child Support Payments Allowed If using a voluntary payment agreement, the lender: *obtains 12 months canceled checks, deposit slips, or tax returns, *if there is evidence of receipt for the most recent 6 months, may use the current payment to calculate income, & *if there are not 6 months of consistent payments, may average the income received over the prior 2 years, or less if the income has not been received that long.   X
Rental Income on Retained Primary Residence *Rental income may be counted when relocating and new residence is located at least 100 miles from previous residence AND · If no history of rental income since the last tax filing, borrower must have 25% equity. X X
Non-taxable Income Gross up is using greater of 15% or actual tax rate. If borrower did not file a return use tax rate of 15%. X X
Pension Income Calculation * Use current amount if consistent.
* Fluctuating amounts require use of 2 year (or time of receipt, if less) average
401K Income Calculation * Use current amount if consistent.
* Fluctuating amounts require use of 2 year (or time of receipt, if less) average
Gaps in Employment Manual underwriting and TOTAL Scorecard:
Gaps of less than 6 months require no explanation.
Temporary Income Reduction For borrowers with a temporary reduction of income due to a short-term disability or similar temporary leave, lenders may consider the Borrower’s current income as Effective Income, if it can verify and document that: * the Borrower intends to return to work; * the Borrower has the right to return to work; and * the Borrower qualifies for the mortgage taking into account any reduction of income due to the circumstance. For Borrowers returning to work before or at the time of the first Mortgage Payment due date, the mortgagee may use the Borrower’s pre-leave income. For Borrowers returning to work after the first Mortgage Payment due date, the mortgagee may use the Borrower’s current income plus available surplus liquid asset Reserves, above and beyond any required Reserves, as an income supplement up to the amount of the Borrower’s pre-leave income. The amount of the monthly income supplement is the total amount of surplus Reserves divided by the number of months between the first payment due date and the Borrower’s intended date of return to work.    
Projected/Expected Income Expected income (replaces Projected Income guideline) refers to income from cost-of-living adjustments, performance raises, a new job, or retirement that will be received within 60 days of closing.    
Boarder Income Boarder refers to an individual renting space inside the borrower’s dwelling unit. Rental income from boarders is only acceptable if the borrower has a two-year history of receiving income from boarders that is shown on the tax return and the borrower is currently receiving boarder income.
Note: Boarder no longer has to be related to borrower
Flood Insurance Amount at least equal to the lesser of either:
*The outstanding balance of the mortgage, less estimated land costs; or
* The maximum amount of the NFIP insurance available with response to the property improvements.
Deferred Loans All deferred obligations (including loans in forbearance), regardless of when they will commence, must be included in the qualifying ratios. The lender must obtain evidence of:  *the deferral; *the outstanding balance; * the terms of liability; and * the anticipated monthly payment. For installment debt, the lender must use * the actual monthly payment, or * if the actual payment is unknown                                                            o the terms of the debt or                                                                                                                                                                     o 5% of the outstanding balance.                                                                                                                                                       For a student loan, the lender must use * the actual monthly payment or * if the actual monthly payment is zero or is not available then use 2% of the outstanding balance. X X
Installment Debt <10 Mos Pymts TOTAL Scorecard and Manual UW: May be excluded from ratios only if: * they have remaining cumulative payments of less than or equal to 5% of the borrower’s gross monthly income, and 8· the borrower may not pay the debts down to achieve this percentage. X X
Alimony * May be treated either as reduction from gross income or as a monthly obligation.
* Obtain pay stubs covering at least 28 consecutive days to verify whether the borrower is subject to any order of garnishment.
* Calculate the monthly obligation from the greater of:
o the amount shown on the most recent decree or agreement establishing the obligation, or
o the monthly amount of the garnishment.
Revolving Accounts – Monthly Pymt Calculation * 5% of the outstanding balance or
* payment shown on credit report or statement
30 Day Account
(Accounts requiring payment in full each month.)
* Not included in ratios if borrower has paid in full every month for past 12 months.
* If there were late payments in the last 12 months include 5% of the balance in the ratios.
* Lender must document sufficient funds to pay off the balance and close the loan.
Authorized User Accounts If the primary account holder has made all required payments on the account for the previous 12 months debt does not have to be included in borrower’s ratios. If less than 3 payments have been required on the account in the previous 12 months, the payment must be included in ratios. X X
HUD REO Based on Adjusted Value (lesser of purchase price minus inducements or the appraised value). X X
Multiple FHA Loans Borrower may obtain second FHA loan for new principal residence when relocating for employment and current residence is more than 100 miles from new residence area. X X
Acceptable Mixed Use A minimum of 51% of the entire building square footage is for residential use.    
Inducement to Purchase – Builder-Provided Below Market Rent Below market rent provided by builders who fail to meet construction completion deadlines and provide buyers with temporary housing in other units owned is not considered an inducement to purchase.   X
Prior Ownership Review When Property Sold Within 12 Months Prior ownership must be reviewed for undisclosed identity-of-interest transactions. X X
Shared Well - Feasibility Shared wells allowed only when lender evidences
· Connection to public or community water system is not feasible and
· property is not located in an area where local officials have determined public connection to be feasible.
Well and Septic Inspections Individual Water Supply Systems (Wells): Lender must ensure that the water quality meets the requirements of the health authority with jurisdiction. If there are no local (or state) water quality standards, then water quality must meet the standards set by the EPA.. Sewage System (Septic): Lender must confirm that a connection is made to a public or community sewage disposal system whenever feasible and available at a reasonable cost. If not reasonable, the existing sewage system is acceptable provided it is functioning properly and meets the requirements of the local health department. Note: A lender will have to require well and septic inspections in order to comply. X X
Rate and Term Refinance Types · Rate and Term (refinance any mortgage-requires appraisal) · Simple Refinance (refinance FHA-insured mortgage – requires appraisal) · Streamline Refinance (no appraisal) · Streamline Refinance – Credit Qualifying (no appraisal) X X
Rate and Term Maximum LTV · 97.75% if owner-occupied for previous 12 months or owner-occupied since acquisition if acquired within the last12 months, at case number date. · 85% if borrower has not occupied as principal residence for <12 months prior to case number date or if owned less than 12 months, has not occupied the property for the entire period of ownership. · 85% for all HUD-approved secondary residences. X X
Rate and Term – Short Payoffs Existing note holder must write off remaining debt in short payoff scenario. X X
Cash-Out – Non-Occupant Co-Borrowers Non-occupant co-borrower may not be used to help qualify. (Omission of second sentence is addressed in FAQs and states that a non-occupant co-borrower may be added to note but may not be used to qualify.) X X
Cash-Out LTV/CLTV Owned and occupied as principal residence for 12 months* prior to case number assignment date: 85% of appraised value *exceptions allowed for inheritance X X
Skipped Payments Payments for all mortgages secured by the subject property must have been paid within the month due for the month prior to mortgage disbursement. (This would allow for a skipped payment.) X X
Family Member Secondary Financing – Additional Requirements * Secondary financing must be disclosed at application.
* No costs from secondary financing may be financed into the new first mortgage.
* No balloon payment within 10 yrs.
* Any payments must be level and monthly.
Streamline Refinance Net Tangible Benefit-Term Reduction Reduction in term alone constitutes net tangible benefit if the new rate does not exceed the current rate and payment (Principal + Interest + Monthly-Paid Annual MI) does not increase by more than $50.   X
Streamline Refinance Net Tangible Benefit - Definition A reduced Combined Rate, a reduced term, and/or a change from an ARM to a fixed rate Mortgage that results in a financial benefit to the Borrower. Combined Rate refers to the interest rate on the Mortgage plus the Mortgage Insurance Premium (MIP) rate. (Amount of required reduction to Combined Rate varies. Example: Fixed to Fixed requires .5% lower Combined Rate) NOTE: It is expected that FHA will be revising the Refinance Authorization screen in FHA Connection to include a field containing the current MIP rate for Combined Rate calculation and comparison. X X
Proof of Occupancy * Lender must verify owner occupancy through utility bills or employment documentation.
* Lender must verify second home status by obtaining proof of HOC approval.
* All properties that cannot prove owner occupancy or second home status must be processed as investment properties.
CLTV All streamline refinances – No max CLTV X X
TOTAL Scorecard Manual Downgrade Requirements Manual downgrades are required when:
* Delinquent federal debt is present
* CAIVRS claim is present unless erroneous or qualifies for exception listed below:
o Assumption-loan was current prior to the assumption
o Divorce-home and debt assigned to ex-spouse and mortgage was not in default at the time                             o Bankruptcy-mortgage was included in a bankruptcy due to extenuating circumstances
* Borrower is named on excluded party list
* Foreclosure, short sale, or DIL within 3 years
* BK discharged within 2 years
* Late mortgage payments on purchase or r/t refi
o 3 or more > 30 days or
o 1 or more 60 days plus 1 or more 30 day
o or 1 >90 days
* Any mortgage tradeline (incl 2nd liens) has less than 6 months history
* >$1000 in disputed derogatory accounts
* Cash-out refinance reflects
o delinquent payment in last 12 months or
o currently delinquent or
o non-occupant co-borrower is present
* AUS conditions cannot be met
* Derogatory or any other credit information has not been considered by TOTAL (includes multiple NSF checks on bank statement)
* A borrower or co-borrower has no credit score
* Undisclosed mortgage debt is discovered
* Business Income shows a >20% decline over the analysis period
Manual u/w with debt ratio >43% **At this time L1 is not approviing any manual underwrites >43% die to ATR/QM restircitions ? ?