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. 3/17/2013

Today’s Agenda

Introduction

Eligibility Guidelines

Program Highlights

Underwriting Guidelines

FMC Overlays

Interest Rates, Fees, Closing Costs

FHA Upcoming Changes…

FMC Support

Introduction to FHA Who is Federal Housing Administration?

o The Federal Housing Administration generally known as “FHA” was established in 1934 as a division of the U.S. Department of Housing and Urban Development.

o They provide mortgage insurance on loans made by FHA-approved lenders throughout the US and its territories.

o It is the largest insurer of mortgages in the world insuring over 34 million properties since its inception .

o FHA’s mission is to expand and increase national homeownership opportunities.

Eligible FHA Programso Section 203(b) – Standard FHA Program: MI for One to Four Family Homes Program

• Section 234(c) – Subsection of 203(b): Condominium Housing Program• Section 251 – Subsection of 203(b): Adjustable Rate Mortgage Program (ARM)

What is FHA Mortgage Insurance?o FHA MI protects lenders against loss if homeowner defaults on loan. o The lender bears less risk because FHA will pay the lender should a homeowner defaults on their

loan. o The cost of the insurance is passed along to the borrower and is typically included in the monthly

payment.

How is FHA funded?o FHA operates from self-generated income and costs the taxpayers nothing. o The proceeds from the MI paid by the homeowners is used to operate the program entirely.

BASIC ELIGIBILITY REQUIREMENTS

1. Residency Status Borrower must be a lawful legal resident in the United States U.S. Citizen (not a requirement)

Permanent Resident Alien• Subject to same terms as U.S. Citizen• Must have evidence of permanent residency status

Non Permanent Residents• Occupies property as a principal residence• Have a valid SSN & Eligible to work in the U.S.

2. Social Security # Borrower must have a valid Social Security Number. ITIN not acceptable.•NBS with ITIN results in a downgrade to Manual UW

3. Legal Age Borrower(s) must be 18 years old, or age which state permits a person to sign on a Mortgage/Deed of Trust

No maximum age for borrower

Borrower Eligibility cont’d…

# of FHA loans per borrower

Borrowers may only have ONE (1) FHA mortgage at a time

Exception to one (1) FHA loan at a time policy

1. Borrower is relocating outside the reasonable commuting area; or 2. Borrower’s family increases in size; or3. Borrower is vacating a jointly-owned home; or4. Borrower is a non-occupying co-borrower

Ineligible Borrowers for FHA Financing

A borrower appears on Either HUD Limited Denial of Participation list (LDP); or General Services Administration’s list (GSA)

Presently delinquent on any Federal debt or has a lien placed against his/her property for a debt owed to the US Government Is delinquent on or has had a claim paid on an FHA-insured loan within the last 3 years; unless

He/she sold the property to an individual who assumed the mortgage and subsequently defaulted

He/she was not responsible for payment under a divorce decree or legal separation agreement

The property was included in a BK caused by circumstances beyond his/her Control

Borrower Eligibility cont’d…

Occupancy Property must be borrower’s primary residence for majority of the year

Military Personnel Considered owner occupant as long as an immediate family member

occupies property even if Military person is stationed elsewhere

Co-borrower Take title to the property at settlement Are obligated on the mortgage note Must sign all loan documents INCLUDING the security instruments

Co-Signer Do NOT hold ownership interest in property Are obligated on the mortgage note and liable for repaying the obligation Must complete and sign all loan documents EXCEPT the security

Instruments

Borrower Eligibility cont’d…

Non Occupant Co-Borrower

Allowed on Program …07 ONLY Up to 100% of income to qualify can come from a co-borrower in

some cases

Co-Signer Allowed on Program …07 ONLY Co-Signer’s income or credit cannot be used as the primary

income or credit on the application

Non-Occupying Borrowers and Co-Signers

(FMC Overlay)

Must be related as parents, children or siblings to get maximum FHA financing. Proof of relationships will be required (i.e. birth certificates)

Other blood relatives (aunts, uncles, cousins, etc.) will only be allowed if the occupant borrowers DTI does not exceed 50%

Otherwise, maximum LTV is limited to 75% of value

Down Payment Requirement

Minimum required investment – Down Payment

3.5% of Appraised Value or Sales Price – Whichever is LESS If sales price is greater than appraised value, then also need

to pay the difference

Source of Down Payment

Borrower’s own funds Checking, Savings or other depository account Proceeds from a 401k Cash on Hand (cannot be used as source of gift funds and

must be documented) 100% Gift

Gift from a relative, fiance/fiancee or domestic partner Acceptable secondary financing

NOTE:

•HUD Rule - ALL DAP’s must be funded by the Bond entity; eg., DAP provider•ALL DAP’s must be prior approved by FMC and on the FMC Approved DAP list before use…

Maximum LTV/CLTV

Topic Description

Purchase Up to 96.50% of Appraised Value or Sales Price whichever is less

Excludes UFMIP

Total with UFMIP financed - may not exceed 100%• Eg., 96.5% LTV + 1.75% UFMIP = 98.25% (ok)

Rate & Term Refinance

ML 2010-24

Up to 97.75% excluding UFMIP

•97.75% CLTV max for new and existing subordinate financing

•FHA-to-FHA Streamline Refinances (with or without appraisals)• 125% CLTV max for new and existing subordinate financing

Cash Out Refinance

ML 2010-24

Up to 85% excluding UFMIP

•85% CLTV for new and existing subordinate liens

FHA PROGRAMSFHA PROGRAMSFHA Standard Conforming FHA JumboFHA ARMSFHA 203k – SUSPENDEDFHA Streamline – See separate training

FIRST MORTGAGE

Standard FHA Program Highlights

Topic Description

Program Types • FHA 30 Year Fixed• FHA 15 Year Fixed

Term 30 and 15 years respectively

Maximum loan amount

Loan amount is determined by the County in which the property is located by going online to: https://entp.hud.gov/idapp/html/hicostlook.cfm

Lien Position Must be in 1st Trust Deed

Occupancy Must be primary owner occupied•Borrower must occupy property within 60 days of closing

Loan Purpose Purchases Rate & Term Refinances Cash Out Refinances

FHA Jumbo Program Highlights

Topic Description

Program Types FHA 30 and 15 year Fixed

Maximum loan amount

Up to $729,750 based on County in which the property is located: https://entp.hud.gov/idapp/html/hicostlook.cfm•Temporary ceiling/limits extended for 2012 and expires December 31, 2012 •See ML 2011-39 for more details

Minimum Fico Score Program 07: 600Program FM: 640

Maximum DTI 31/43%

UW Method DU with Approved/Eligible Manual Underwrite available

All other guidelines with the exception of the above follow standard FHA requirements.Refer also to Mortgagee Letter 2008-06.

FHA ARM Program Highlights

Topic Description

Program Types FHA 1 Year T-Bill ARM, 3/1, 5/1, 7/1 For FMC: 5/1 ARM ONLY Available

Term 30 years

Qualifying Rate FHA 1 Year ARM – Qualify at 1% over Note Rate for LTV’s 95% or higher

FHA 5/1, 3/1, 7/1 ARM – Qualify at the Note Rate

Maximum loan amount

Up to $729,750 based on County in which the property is located: https://entp.hud.gov/idapp/html/hicostlook.cfm•Temporary ceiling/limits extended for 2013 up to $729,750 for some counties•Expires December 31, 2013 (reverts to HERA limits)

• Loan must be fully approved•Refer to ML 2011-39 for more details

Maximum DTI 31/43%

All other guidelines with the exception of the above follow standard FHA eligibility guidelines.

GENERAL INFORMATIONGENERAL INFORMATION

Underwriting MethodsGeneral Underwriting Guidelines

FIRST MORTGAGE

Automated UnderwritingTopic DescriptionWhat is TOTAL Scorecard?

Technology Open To Approved Lenders TOTAL is not an Automated Underwriting System (AUS) like DU/LP. It is a scorecard that is used within an AUS, and operates as a system-to-

system connection to an AUS

What is TOTAL recommendations based on?

1. Credit Score2. Monthly Housing Expense3. Loan To Value ratio4. Mortgage Term5. Number of monthly payments in reserve

What do the recommendations mean?

Approve/Accept means that, based on the analysis of the credit and capacity to repay, the loan is eligible for FHA insurance

Refer means that the lender must conduct a manual underwriting review, according to FHA requirements

FMC allowable UW methods

DU Manual UW

Manual Underwriting

Manual UW Allowed at FMC for:• Refer/Eligible recommendations• FHA Streamline Refinances with NO CREDIT Qualifying• See ML 2013-05 for upcoming changes

UW: RatiosTopic Description

Qualifying Ratios

See also FMC overlays

See upcoming

changes on ML 2013-05 effective for

Case #s assigned on

or after 4/1/13

“Front” ratio – Standard is 31%

Housing payments (PITI) / Monthly Income May be exceeded with AUS approval Manual UW loans

Can be stretched to 40% with strong compensating factors

“Back” ratio – Standard is 43%

Housing payment plus other installment debts / Monthly Income May be exceeded with AUS approval Manual UW loans

Can be stretched to 46% with strong compensating factors

***UW must cite at least 2 compensating factors if ratios exceed standard***

UW: Compensating Factors

UW: Reserves

Topic Description

Cash Reserves Purchases:o 1-2 Units Purchase – NONE requiredo 3-4 Units Purchase – 3 Months PITI after closing

Refinances:o 1-4 Unit Refinances – NONE required

Underwriting cont’d…Topic Description

Minimum Cash Investment

3.50% of lesser of sales price or appraised value•Down Payment Only•Closing Costs, prepaids, discount points do not count towards

Seller Contribution

Allowed up to 6%Seller, Real Estate Agent, Builder, Developer, etc., or a combination may contribute up to 6% of the property’s sales price toward the buyer’s actual closing costs, prepaid expenses, discount points, and other financing concessions May not contribute to the borrower’s 3.50% minimum cash investment (down payment)

Gift Funds

(See FMC Gift Fund Policy for more details on documentation, etc.)

Allowed for cash down payment from borrower’s relative, employer, labor union, charitable organization, governmental agency or public entity that has a program to provide homeownership assistance to low-to-moderate income FTHB, or a close friend with a clearly defined and documented interest in the borrower.

“Cash on Hand” is not an acceptable source of the donor’s gift funds Gift funds cannot come from a person or entity with an interest in the

property such as seller, RE agent, broker, builder, etc except if seller is parent or RE agent is relative

Underwriting cont’d…

Topic Description

Temporary Buy-Downs

2/1 and 1/1 Temporary Buy-downs available 30 Year Fixed Terms only Qualify borrower(s) at the Note Rate regardless of LTV Owner Occupied Purchase Only Funds may be provided by the Seller (up to 6%) or via premium

pricing

Permanent Buy-Down

Allowed

Impounds Mandatory and may NOT be waived

Assumability Government loans are assumable

Prepayment Penalty

No Pre-Payment Penalty

CREDITCREDITCredit GuidelinesNon-Traditional Credit vs. Insufficient CreditBankruptcies & ForeclosuresCollections & JudgmentsDisputed AccountsShort Sales & Short Pay Offs90-Day Flip Waiver

FIRST MORTGAGE

FMC Minimum Fico ScoresFMC Credit Score Requirements

Program …FM: 640 Minimum Fico Score

Program… 07: NO MINIMUM FICO SCORE – Follows FHA guidelines below

FMC Fico Score Requirement (Applies to Program ….07 ONLY):

580+: Up to maximum financing

500 – 579: Up to 90% LTV

< 500: Not eligible for FHA-insured mortgage financing.

ZERO Scores: Up to maximum financing Includes borrowers with a non-traditional credit history or insufficient

credit history Must meet the underwriting guidance in HUD 4155.1 4.C.3.

**Overall credit quality must meet FHA guidelines for acceptable credit history**

UW: Non-Traditional vs. Insufficient

Topic Description

Non-Traditional Credit OR Insufficient Credit

(ML 2008-11)

Borrower’s with NO FICO scores or have a score from 1 traditional trade-line (thin-file)

• Program 07: ALLOWED

• Program FM: NOT allowed

Non-Traditional Credit Borrowers

Borrowers with insufficient trade lines to merit a fico score. May also be used to augment “thin-files” or files where a credit score was generated based on just a few trade-lines.

• Has at least one (1) or more Group 1 references

• Nontraditional credit reports may not be used to enhance any poor credit history on a traditional credit report.

Insufficient Credit Borrower

Borrowers with no credit references, or borrower’s who only have non-preferred references (Group 2 references – see next slide)

• See ML 2008-11 for more information

Alternative Credit References

Topic Description

GROUP 1 – Preferred References (Non-Traditional Credit borrower) Rental Housing Payment

VOR from Professional Management Company 12 mos. cancelled checks if using Landlord or renting from family member LOE plus Budget Letter if living with relatives and no rental verification

Utilities – Includes Gas, Electricity, Water, Cable TV, Land line home phone

GROUP 2 – Non-Preferred References (includes Insufficient Credit borrower)1. Insurance Coverage – Includes Auto, Life, Medical, Renters2. Cell Phone3. Internet Services4. Child Care Payments5. School Tuitions6. Retail Stores – Includes Furniture, Rent-to-Own, Appliances, Specialty,

Department Stores7. Personal Loans8. Storage Units9. Auto leases10. 12-months savings by regular deposits with NO NSF’s

Non-Traditional Credit Borrowers

Topic Description

Non Traditional Credit - Borrowers w/ No Fico Scores or Limited Tradelines

Provide at least three (3) credit references rated at least 12 months. At least 1 reference must be from Group 1 (G1 references should be exhausted before using G2 as G1 is more indicative of a borrower’s future housing payment performance.)

Borrower’s with NO G1 references will be looked at as Insufficient Credit borrowers:

Prefer using verification through Credit Bureaus using Nontraditional Mortgage Credit Report (NTMCR). If NTMCR is impractical or unavailable, obtain independent verification of trade references. Use public records from state, county or city records. Use published address or telephone number for that provider/creditor – don’t rely solely on information provided by the applicants

Provide landlord information such as Name, Phone number to verify rental history.

All references from individuals should be backed up with most recent 12 months cancelled checks.

Rental references from management companies may be used in lieu of 12 months cancelled checks.

Various service providers now available who develop bill payment history as well as scoring – FHA allows it for borrowers with no or little traditional credit.

Evaluating Credit for NTB & ISB

Topic Description

Evaluating Non Traditional Credit Borrowers

• A satisfactory credit history, at least 12 months in duration includes:

No history of delinquency on rental housing payments and other credits in last 12 months

No new collection accounts / court records reporting (other than medical) filed within the past 12 months

Evaluating Insufficient Credit Borrower’s

• No new collection accounts / court records reporting (other than medical) filed within the past 12 months

• Allowed 1 30-day late on Group 2 reference in last 12 months

• Max DTI of 31/43% from owner occupant borrower’s only – Comp factors are not applicable for borrowers with insufficient credit - NO EXCEPTION

• 2 months PITI from own funds after closing – Gift Funds not allowed as reserves

UW: Bankruptcy & Foreclosures

Topic Description

Bankruptcy (Chapter 7)

2 year seasoning from the discharge date with re-established credit or with no new credit opened after BK

1 to < 2yr seasoning if extenuating circumstances may be allowed if it was beyond borrower’s control and borrower has demonstrated ability to responsibly manage affairs

• Lender to document that current situation indicates that events that led up to BK will not likely to occur again

Bankruptcy (Chapter 13)

Can remain open with 1 year successful payment plan

Permission of court/counseling agency is required

Foreclosure or Deed-In-Lieu of FC

3 years seasoning from foreclosure completion (Trustee Sale Date) with re-established credit

*** DU Approvals with a Bankruptcy, a Foreclosure, or both… ***

UW: Short Sales & Short Payoffs

Topic Description

Short Sales

(ML 2009-52)

Program …07 - ALLOWED: Must be current on previous loan and all other installment debts for

immediate preceding 12 months from sale Proceeds from short sale serves as payment in full Credit report must show “settled for less than amount owed” or “short

sale”; cannot show Foreclosure

Ineligible if: Trying to take advantage of declining market conditions, and Purchase a similar or superior home at a reduced price within

reasonable distance from previous residence Defaulted on their previous mortgage

If so, they are treated like a foreclosure and must wait 3 years from “date of pre-foreclosure sale” to get new FHA financing

Short Pay Offs

FHA will insure a first mortgage where the note holder writes off an amount that cannot be refinanced into the new mortgage due to declining value or reduction in income

Allowed on Program …07

UW: Collections & Judgments

Topic Description

Collections & Judgments

FHA does not require that collection accounts be paid off as a condition for mortgage approval. FMC’s benchmark is:

• $1,000 for Manually Underwritten loans; $5,000 for DU approved loans with fico scores < 620.

• Higher amounts may be left open at underwriter’s discretion based on LOE and documentation

• Applies to all collections including medical collections

Court-ordered judgments must be paid off before the loan is eligible for FHA endorsement.

• For judgments, exception may be considered if borrower has a repayment plan with 6 mos paid as agreed repayment history (at UW discretion)

Tax lies – may be included in the refinance in some cases.

Explain all collections & judgments in writing

UW: Disputed Accounts

Topic Description

Disputed Accounts

Programs 07 and FM:

If TOTAL Scorecard issues an “Approve/Eligible” finding with one or more disputed accounts, loan doesn’t have to be downgraded to a manual underwrite if:

1. The disputed account has a zero balance2. The disputed account is marked as “Paid in Full” or “Resolved”3. The disputed account is both

a. Less than $500; ANDb. More than 24 months old

Note: If disputed account is more than $500 and > 24 months old, paying it off doesn’t allow the use of the AUS; a new credit report must be generated and uploaded to DU to reflect zero balance and/or paid

A credit supplement cannot be used in any of the above instances.

All other instances involving a disputed account will be downgraded to a manual underwrite

UW: 90-day Flip WaiverTopic Description

90-day Flip Waiver

Temporarily allows FHA financing for properties re-sold within 90 days:

Program 07 ONLY:•Must be arms-length with no identity of interest between buyer, seller and all parties participating in the sales transaction

• Evidence from DOC required if seller is an LLC, Corporation or Trust• 12-month chain of title required on prelim• Appraisal must state property was openly and fairly marketed, etc.

•If property is 20% or more over the seller’s acquisition cost, waiver will only apply if a property inspection is provided as well as lender justification as to the increase in value (eg., repairs)

• ONE Appraisal required at time of UW submission• A 2nd Appraisal is only required if acquisition value exceeds

100% or a the UW discretion• 2nd Appraisal must be paid by Seller/Broker and ordered by FMC

*** Refer to 24 CFR 203.37a(b)(2) for more details &FMC’s Policy on HUD’s 90-day FLIP Waiver for detailed instructions ***

Underwriting cont’d…Topic Description

Consumer Credit Counseling

1 year seasoning with satisfactory payment performance Written permission from Counseling Agency to enter into mortgage

transaction

Inquiries Explain all inquiries within the last 120 days

Housing Obligations

Living at home OK with letter of explanation in file and budget letter Private party VORs acceptable as long as accompanied by 12-mo

cancelled checks If mortgage obligation is not reported on the credit report, a VOM, VOR

from a Professional Management Company or cancelled checks are required

Non Purchasing Spouse

Non purchasing spouse debts and obligations must be included in the borrowers qualifying ratios (unless specified otherwise by state law)

Other All recent (within last 24 months) and/or major derogatory credit items require a written or signed explanation letter

• Letter must come from and be signed directly by the borrower Minor derogatory credit items more than 2 years old do not require an

explanation unless required by the UW

INCOMEINCOMEIncome Guidelines

FIRST MORTGAGE

UW: Income

Topic Description

Employment Income

Must verify employment income for 2 full years• Allowances for school, maternity, etc.

Salaried & Hourly wage

W-2s or VOE’s covering the most recent 2 year history and most recent paystubs (showing borrowers Name, SSN and Year-To-Date gross earnings)

Miscellaneous Income Types

Miscellaneous Income types allowed including child support, alimony or maintenance payments, passive income

• Must show a 12-month history and evidence that the income will continue for 3 years

Rental Income Acceptable with a 2 year history

Self Employed Income

Any borrower with a 25% or greater ownership interest in a business is considered self-employed and additional documentation is required

• Must be stable and a 2 year history is required. • Document with 2 Years Tax Returns and P&L for YTD income

UW: Income cont’d…

Topic Description

Overtime / Bonus Income

May be used to qualify borrower if such income has been received for the last 2 years and is expected to continue

• An average of bonus or OT income for past 2 yrs must be developed & employment verification must indicate its likelihood for continuance

• Less than 2 years may be acceptable if the UW justifies and documents their reasoning for using the income. However an earnings trend must be established

Part Time Income

Part Time (2nd job) income may be used if the borrower has worked the part time job uninterrupted for the past 2 years and will continue to do so

Income received less than 2 years may be used provided it can be determined that its continuance is likely

• Income from part-time jobs not meeting these requirements can be used as compensating factors but cannot be used as qualifying income

Seasonal Part Time

Seasonal part-time income (eg., umpiring baseball games in the summer or working at a department store during the Christmas shopping season) is considered uninterrupted and may be used in qualifying if the borrower has worked the same type of job for 2 years and expects to be re-hired during the next season.

Retirement Income

Acceptable and unless documented to the contrary, retirement income may not be grossed up except some state/federal government retirement income

Projected Income

Not allowed at FMC

UW: Income cont’d…

Topic Description

Commission Income

Commission Income must be averaged over the previous 2 years based upon a signed tax return and recent pay stub

Unreimbursed business expense must be subtracted from gross income Individuals whose gross income shows a decrease from 1 year to next requires

significant compensating factors to allow for loan approval Borrowers with commission income received from 1-2 years may be considered

favorably provided the UW is able to make a sound rationalization for acceptance and can document likelihood of continuance

If its sufficient, base salary without commission may be used to qualify Commissions earned less than 1 year are not considered effective income

• Exceptions may be made in those situations where the borrower’s compensation was changed from a salary to commission within a similar position with the same employer

Non-Taxable Income

Examples of income not subject to Federal Taxes• Social Security or Retirement Income• Disability and public assistance payments• Military allowances• Child Support

Amount of continuing tax savings attributable to the non-taxable income source may be added to the borrowers gross income

• Adjustments made for any non-taxable income source must be documented and supported

• Either the published IRS tax tables may be used for calculating the amount that may be “grossed up” based on borrower’s tax rate or 25%

UW: Income cont’d…

Topic Description

YTD P&L and Balance Sheet

(ML 2012-03)

Effective with Case

Assignment 4/1/2012

Required if more than a calendar quarter has elapsed since date of most recent calendar or fiscal-year end tax return was filed by the borrower – no exceptions

• If income used to qualify borrower exceeds the 2-yr average of tax returns, an audited P&L or signed quarterly tax returns obtained from IRS are required

PROPERTY GUIDELINESPROPERTY GUIDELINESEligible PropertiesAppraisal GuidelinesCondo Approval Guidelines

FIRST MORTGAGE

Eligible Properties

Eligible Properties SFR’s attached and detached

PUDs attached and detached

FHA approved Condominiums – See condo slides in Underwriting section for more information

2-4 family properties

Manufactured Housing (see FMC overlays)

Appraisal Protocol

Appraisal Validity Period - 120 days (Effective with case numbers assigned 1/1/2010):

Regardless of construction type Existing, proposed, under construction

Including HUD REO appraisals

Note: 120 days is NOT 4 months

Inspections no longer mandated but may still be required:

Pest Inspection

Well Cert

Septic Cert

Flat and/or unobservable roof

Items no longer required to be repaired:

Missing handrails

Cracked window glass

Minor plumbing leaks

Poor workmanship

Defective floor coverings

NOTE: Lender and/or Appraiser may required repairs above FHA Minimum Property

Requirements (MPR’s) Health, Safety and Soundness

Condominium Approval Guidelines

Condo Guidelines First Mortgage will only allow financing on a Condo that has the FHA HRAP Approval.

ML 2011-33 replaces ML 2009-46A and B

Provides a single source for the Condo Approval Process Consolidate and clarify existing condo policy Update condo approval procedures

HUD’s list of Approved Condo Projects

https://entp.hud.gov/idapp/html/condlook.cfm

Condo Eligibility guidelines cont’d…

Highlights and

Reminders

Project approvals good for period of 2 years• From when placed on approved list• Lender to recertify occupancy requirements and no adverse

conditions exist each and every time a loan is made – even if project is approved

• May be determined unacceptable for FHA insurance

For projects approved prior to 10/1/2008• Expiration dates that range from 12/31/10 to 9/30/11 based on year

project first approved

ALL condo projects must be in a HUD approved project• Except site-condos

“Spot” approvals eliminated (February 1, 2010)

FHA program code 203(b)• Previous program code 234(c)

Condo Approval ProcessApproval Process 1. DELRAP – Lender to review and process

2. HRAP – HUD to review and process• Currently ____ day processing timeframe

FMC uses the HRAP Process. PLUS Final Review from FMC Selected reviewer required

prior to docs

HUD guidelines Lender’s choice on any given project May be attached, detached, low or high rise, and condo

conversions Minimum of 2 units in a project

Exceptions on lenders choice – HRAP ONLY:• Smaller condo projects (2 or 3 units)• Florida projects• Manufactured homes in condo projects allowed

• HUD approval only• Not treated as a site-condo• Not “stick” built

Condo Approval Process cont’d…

Condo highlights cont’d

1. 50% Owner Occupancy required• REO’s owned by only a foreclosing lender• 2nd Homes are treated as owner-occupied

2. No more than 15% total units in arrears on HOA Dues• Exceptions to maximum 20% - See Page 31 of Guide

3. No one entity can own more than 10% of all units

4. “Walls In” insurance required by borrower when master insurance policy does not cover unit interior improvements or betterment

5. 50% maximum FHA concentration• Projects with 3 or less units cannot have more than 1 unit

encumbered with an FHA insured mortgage • Exceptions may be granted – see guide for details

Condo Approval Process cont’d…

Exceptions Project approval NOT required for:

1.HUD REO to buyer using FHA financing

2.FHA to FHA refinance

3.New construction pre-approval and inspections

• Based on types of jurisdictional inspections• May or may not need Early Start Letter and ten-year HUD

approved warranty plan

FMC OVERLAYSFMC OVERLAYS

FMC Overlays on top of FHA guidelines

1) Manually Underwritten loans 2) Fico scores Less than 620 WITH DU approval Overlay Matrix

FIRST MORTGAGE

MORTGAGE INSURANCEMORTGAGE INSURANCEChanges to FHA Mortgage Insurance Premiums

Join our FHA MIP Training on 3/19/13 for upcoming changes…

FIRST MORTGAGE

Mortgage InsuranceTopic Description

Mortgage Insurance

See ML 2013-04 for upcoming

changes to AMIP

(See FHA MIP Training for more

information)

In most FHA Programs, HUD collects the following:

1.Up Front Mortgage Insurance Premium (UFMIP)• Uses fully amortized calculation• This can be added to the loan amount and financed

over the term of the loan, or it can be paid up front with cash or with seller contribution

• If financed, it does not subject to loan amount limit or LTV limit

2.Annual Mortgage Insurance Premium (AMIP) • Uses Simple Interest Calculation

MI: Sample

SAMPLE CALCULATION

$100,000 Loan Amount, FHA 30 Yr Fixed, 96.50% LTV, 5.50% Interest Rate

Up Front Mortgage Insurance Premium(UFMIP)

Annual Mortgage Insurance Premium(AMIP)

$100,000 x 1.75% = $1,750 @ 5.50% for 30years (fully amortized)

= $9.94 per month

$100,000 x 1.25% = $1,250 / 12 mos

= $104.17 per month

Total Mortgage Insurance Premium = $114.11 per month (9.94 + 104.17)

MI: FAQ

Topic Description

Can a seller pay for the UFMIP?

Yes; it can be paid as cash at closing instead of having it financed through the loan.

However, the 1% will be included in the 6% max seller concession for FHA loans if paid this way.

When can I stop paying for the AMIP?

See ML 2013-04 for upcoming changes

on AMIP

(See FHA MIP Training for more

information)

Loans closed prior to 1/1/01 are not eligible for termination of MIP Loans closed after 1/1/01 will have their FHA MIP automatically

terminated under the following conditions:

1. FHA 30 Year (> 15 year terms) – MIP will be terminated at 78% LTV or after 5 years since borrower has been paying MIP whichever is longer.

2. FHA 15 year terms or less – MIP will be terminated at 78% irrespective of the length of time the borrower has paid MIP

78% LTV will be based on lesser of sales price or appraised value at loan origination

No new appraisal is required

DOWN PAYMENT ASSISTANCEDOWN PAYMENT ASSISTANCE

Down Payment Assistance ProgramsSecondary Financing

FIRST MORTGAGE

DAPS and 2ndary Financing

Topic Description

Down Payment Assistance Programs

ALL Down Payment Assistant Programs must meet HUD FHA guidelines and must be pre-approved and be on FMC’s approved DAP list to be acceptable.

Current allowable Down Payment Assistance Programs @ FMC:1. CHF ACCESS 2nd 2. CHF Platinum Grant – Not available for Wholesale3. CHDAP – check for availability

Family Members

Family members may lend 100% of the borrower’s required cash investment (secured or unsecured) to include:

Down Payment Closing Costs Prepaid Expenses Discount Points

Only the family member provider(s) may be the Note holder if the money

lent is secured against the subject property Donor cannot borrow from an interested party Borrower cannot be a co-obligor on the Note when borrowed from an

acceptable source

FHA RATES & FEESFHA RATES & FEES

Interest RatesFeesClosing Costs

FIRST MORTGAGE

FHA Points & FeesTopic Description

Origination Points

Follow HUD RESPA rules – ML 2009-53 where HUD removed the 1% origination cap

Discount Points Allowed and negotiated between Borrower and Loan Officer

Cannot charge for additional compensation

Premium/Rebate Pricing

May be used to pay normal closing costs and/or prepaid expenses including accrued interest on refinance transactions

Closing costs paid in this manner need not be included as part of the 6% seller contribution

May be used to pay lender funded buy-downs

Must be disclosed on HUD and GFE

FHA Closing Costs

Topic Description

How much can you charge on an FHA loan?

FHA does not regulate or set the interest rate or discount points a lender can charge a borrower. These are negotiated between the borrower and the lender.

Lenders are expected to charge fees that are fair, reasonable, customary and must be fully documented:

Any and all fees must be disclosed Good Faith Estimate

FHA “Non-Allowable Closing Cost Fee Schedule” eliminated (2006). Borrower may pay all fees associated with the loan Except :

Tax Service Fee

Aggregate Charges

Aggregate charges may not violate FHA’s tiered pricing rules. Eg.,

1. Lender is prohibited from charging higher prices (discount points) for low balance loans vs. high balance loans.

2. Lender may not provide a variation of more than 2 discount points charged on its FHA mortgages within a geographic area.

MISCELLANEOUSMISCELLANEOUS

Tips, Upcoming Changes, UpdatesResourcesFMC Support

FIRST MORTGAGE

Upcoming Changes, Updates…

Topic Mortgagee Letter 2013-05

Highlights Ficos < 620 AND DTI >43%•Transactions where the borrower has a “decision credit score” below 620 and the debt-to-income ratio exceeds 43.00% must be manually underwritten.

Exception: • FHA Streamline loans• Loans involving borrowers without credit scores

DU DU has not been updated to stip loans using this new update.Once DU has been updated, it will decision these loans as “Refer/Eligible”

Decision Credit Score

HUD Handbook 4155.1, Section 4.A.1.j

Calculation of Debt Ratio

HUD Handbook 4155.1, Section 4.F.2

Effective Date Effective for case numbers assigned on or after April 1, 2013.

Upcoming Changes, Updates…

Topic Mortgagee Letter 2013-04 – See FHA MIP Training 3/19/13

Highlights Revising period of AMIP assessment and Increased AMIP •Revising the period for assessing the annual MIP;

•Removing the exemption from the annual MIP for loans with terms of 15 years or less and Loan to Value (LTV) ratios of less than or equal to 78 percent at origination; and

•Increasing the annual MIP on all forward mortgages except single family forward streamline refinance transactions that refinance existing FHA loans that were endorsed on or before May 31, 2009 (see ML 2012-4).

Effective Date

Increase of AMIP - Effective for case numbers assigned on or after April 1, 2013. All other AMIP changes – Effective for case numbers assigned on or after May 6, 2013:

Tips to remember…Topic Description

Other things to remember

Layering of Risks

Obtain one valid strong comp factor for each weakness in the file

Seasonal workers shouldn’t close while on unemployment

Required paystubs per month: Monthly = 1; Semi-Monthly=2; Bi-weekly = 4; Weekly = 4 to 5

Include all pages of bank statement even if blank

Court filed separation agreement is equal to divorce decree when it includes both assets and liabilities

LOE’s must be signed and dated

Mortgage lates that include 1x90, 1x60 plus 2x30, or 3x30 cannot be approved even with an AUS approval – requires UW review

Tips to remember…Topic Description

Other things to remember

Short term disability (maternity leave) allowed when you verify they are returning to work and using the lesser amount to qualify.

DO NOT gross up disability

Do not use Total Scorecard for Streamline Refinances; use CHUMS

Tips on Appraisals…Topic Description

FHA Appraisal Tips

Appraiser must report on concessions even if stating could not speak with agents

Plat maps w/out dimensions do not satisfy requirement for dimensions

Neighborhood boundaries should match the comps in most cases

If public utilities are available for 3% of the sales price should be looked into adding

Do not use MLS photos for pictures of comps unless gated community or other prohibitive access

Sketch should include pool or barn or other amenities

Large acreage is ok but must have comps and or be bracketed properly – review appraisal may be warranted

An appraisal update must be done by the same appraiser – prior to expiration

An update will extend an additional 120 days

Underwriter can extend for 30 days if contract signed prior to expiration

FHA Resources…

• HUD Website

• www.hud.gov

• 4155.1 – Mortgage Credit Analysis

• 4000.2 – Application through Process

• Mortgagee Letters

• FHA Loan Limits

• http://entp.hud.gov/idapp/html/hicostlook.cfm

• FHA Approved Condos – • https://entp.hud.gov/idapp/html/condlook.cfm

• FHA FAQ

• www.hud.gov/answers

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Go to our FMC websites for:

1. RATE SHEET

2. TRAINING MATERIALS

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Retail: Contact Loan Help

Wholesale: Contact your A/E

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

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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.