Mortgage Processing Blog :

Fraud-Why We are Scared!

noreply@blogger.com (Editor in Chief) — Fri, 12 Mar 2010 17:31:00 +0000

Written By: Jane Harford, FHA DE Underwriter

Did you hear about the settlement of a lawsuit that Lifelock was involved in? FTC was involved due to “overstated claims of how they would avoid ID fraud” for their customers. Here is a link to the story of the lawsuit being settled and what Lifelock has agreed to for the next 20 years that will result in a better, fairer and more accurate reflection of what Lifelock’s program actually does…..
http://www.informationweek.com/news/security/storage/showArticle.jhtml?articleID=223400055

This is part #1 of several installments that will be done to update you on the emphasis that lenders are placing on the huge problem of fraud in our business-both from a pre production and a post closing, servicing and REO point of view. Fraud schemes exist in all areas of the mortgage business. There are many different schemes that start with the taking of the initial 1003 through settlement and for up to 24 month after the loan closes. Although, there are now numerous tools and technologies that exist to help fraud investigations, often it is a combination of the technologies and human efforts

That closes the cases, document the schemes and get the folks that do this convicted and behind bars or banned from doing business. Real estate fraud is complicated, unique and often difficult to detect. As often as the rest of this business changes, so does the type of fraud and how it is conducted. Many lenders are now developing zero tolerance policies towards fraud. Fannie Mae, Freddie Mac, FHA/VA and the MI companies have had teams in place for years to audit REO loans after they go into default.

The emphasis that these agencies are now placing on this has resulted in huge changes in how these loans are audited, how many are done and how the results are used to make changes in current and future program changes. Each of these groups is looking at their own book of REO problems, looking hard at the details that come out of these audits and finally sharing their findings internally with production departments of these agencies. Hopefully, these agencies will also share their findings with each other as well.

We will take the time this week to briefly identify the initial areas in which fraud can start. Since most initial applications now take place over the phone or via the internet, most loan officers do not meet their loan applicants in person. Often, the loan officers have established their sources of business via phone or other methods. Thus, there is room for information and documentation to be provided that is false or changed in some fashion to support income, assets, credit and collateral that is not what it will be once good solid investigation uncovers the truth.

The simplest forms of fraud start with the following areas-
-Occupancy issues often happen when occupancy status is misstated. For instance, if an application is taken stating that the property will be owner occupied when the borrowers fully intend to rent it out is considered to be fraud. There are often small hints along the way that give clues as to the fact that this is not what it appears to be.

Something as simple as when parents jump and want to help out a child by buying them a home can turn into a fraudulent situation. If the child’s credit doesn’t qualify for a mortgage under stricter standards, that person is often removed from the application. Often these loans then do become investment properties and are considered to be fraudulent under the misstated occupancy intentions. The simplest changes to a mortgage loan application may not always be caught by the processor or underwriter when submitted for an initial underwrite. these loans often close without the corrections made by decreasing the loan amount, increasing an interest rate and accounting for the correct change in occupancy status. And since most loan business is now conducted by phone/via electronic means and not in person, it is not possible to meet, get to know and learn about the true intentions of the parties on this loan.

Another form of misstated occupancy intentions has happened in the past few years as family members attempt to help out other family or friends if they are about to lose their home to foreclosure. There has been a huge increase in the numbers of non arms length transaction-the technical term we use for family members purchasing property from another family member for less than fair market value.

Many times, the folks that are selling the property are getting a payoff from the person purchasing it in order to start a new life some place else. The intent is to help out the family member, but it can often turn into a potential misstated occupancy issue or a property flipping issue. The best advice that can be given to first line production folks is to get to know the clients as much as you can even by phone or email. Ask those good questions and get good answers to your detailed questions. If there is something that doesn’t sit well in your gut, let a manager now that you have concerns about the loan applicants, the sellers or the agents involved.

Agents can often dictate or sway how a transaction is handled. Alert, intelligent and wary loan officers and processors can often get an idea that the loan package they have is not the loan closing that will take place.

In the next several weeks, we will cover all aspects of the mortgage loan process. In every step of the process, technology and good detailed detective work can stop loan fraud. It is a huge problem and now is the time that we can learn the basics of what to do and how to stop it.

Have a good productive week-free of fraud.

About the Writer. As one of NAMP's volunteer writers, Jane brings 30 years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Good Faith Estimate Changes - Part 3

noreply@blogger.com (Editor in Chief) — Fri, 05 Mar 2010 19:22:00 +0000

Written By: Jane Harford, FHA DE Underwriter

In today’s blog we will see, how the changes to the RESPA laws have affected the GFE and the HUD1, we will quickly review the changes that have taken place so far and how these changes have affected the work flow, fees that can be charged and the timeframes required to maintain compliance.

As you will remember from the previous blog posts, the purpose of the new forms is to have borrowers better understand and shop for mortgages. This will ultimately result in more stable more products, lower rates and lower settlement charges for borrowers.

Page #1 of the revised GFE gives greater detail of the loan terms, including the initial rate and monthly payment, details on rate and if principal balance can increase( showing the maximums) and if there is a balloon payment or prepayment penalty.

YSP to brokers is shown as part of the Loan Origination fee in Block A on page #2. The GFE also consolidates settlement charges into various categories in Block B to simplify disclosure of charges. Total estimated settlement charges carried from page #2 to bottom of page #1 become the closing costs for a particular loan that the borrower can compare to other GFE’s that the borrower may obtain.

There have also been major changes to the HUD 1 settlement statement. The itemized final settlement charges on page #2 reference the HUD 1 lines so that the borrower can track closing costs fees from one document to the other.

As an example, lines #801, #802, #803 and #1203 from the GFE move directly to the HUD1. These fees are not allowed to change from the GFE to the HUD1.

There is a new page #3 of the HUD1. Top portion of the page compares costs in each of the sections “cannot change”, “total cannot increase more than 10%” and the “can change” sections of the GFE. These fees are reviewed and borrowers can then determine if tolerances have been violated. The loan officer is required under the new RESPA rule to provide the info necessary to complete page #3 of the HUD 1 to the closing officer.

In order to keep the fees from the GFE the same when transitioning to the HUD! Loan officers are working very closely with title companies to ensure the compliance of these fees. Many title companies are offering new online services to loan officers to provide accurate and correct title/closing fees.

If a lender uses this system to prepare a GFE for a borrower and the title company winds up needing to adjust the fees after the initial costs are provided, the title company will pay the difference between initial quote and final HUD 1 costs. This covers sections #1100 and #1200 costs-title charges and government recording/transfer charges. This section does not allow for any tolerances from the GFE to the HUD1.

When the request for an initial GFE comes to the loan officer, they are now using title estimates that come from title company’s web sites. The title company’s staff must be able to provide the correct estimates based on the preliminary information provided by the loan officer at the beginning of the process. In most cases, the sensible thing to do is to overestimate the costs.

But, this then defeats the purpose of the new RESPA law. Loan officers/processors are providing a copy of their GFE when ordering the title work. This gives the title company a heads up as to what the borrower has already accepted in the way of fees.

When estimating these fees at a higher cost, the loan officer does take a risk in dealing with competition from other lenders. RESPA does not regulate lenders from underestimating fees and then re-stating them later. (Only if there are changed circumstances). It does seem that the new RESPA regulations place a greater emphasis on the settlement costs over the APR annual percentage rate, which was the comparison that was required by RESPA to be reviewed carefully in the past.

These new changes do require that loan officers complete a very accurate GFE at the initial application. In the thought patterns that were used to make these historic changes to GFE regulations, there are two very basic things that are no longer considered when completing and reviewing a GFE. 1) With all origination costs appearing in a single box, this increases the amount that the borrower can consider deducting on his tax returns when filing 1040’s with the IRS. Previously, only origination fees could be deducted on Schedule A when borrowers filed their 1040’s.

The other issue is that the revised GFE does not provide for a borrower’s signature line on the form. It is often difficult to determine that the borrower has accepted these costs when no signature line on the form. When underwriting these files, an underwriter cannot determine if the borrowers have acknowledged the costs and total cash to close. No final cash to close figures appear on the new GFE. There is no spot on the form to show bottom line details of the cash to close, less any fees already paid by the borrower, seller/lender credits etc.

Many lenders feel that they must provide this documentation to their borrowers to show that they have provided full disclosure including the cash to close for the borrower’s edification. This has forced lenders to invent “cash to close worksheets”. Using these worksheets, the loan officer is then able to clearly document all costs to close by breaking out the closing costs, escrows, any credits provided by seller/lender and the bottom line figure of cash needed to close. This is the rest of the information that used to appear on the bottom of the old GFE form. For full disclosure, lenders feel that the borrowers do need to be provided all of this information.

Lastly, the 180 day leniency period recognized by HUD ends on 4/30/2010. Lenders may or may not recognize this leniency period based on their own underwriting/closing policies. It is important to determine what the lender’s policies are when processing/submitting a loan to the lender’s office. Each office/branch may interpret the policies a bit differently. For purposes of compliance and clarity, it recommended that you check these policies in advance when working with new clients. This will come in handy, especially when the cash to close is very tight. There may be changes in the overall loan package that will need to be revised upon approval of the loan. Upfront and open discussion will ensure a smooth process from the initial GFE being issued to the closing papers being signed by the buyers/sellers.

As always, please be sure that your forms are signed and dated by all parties. The smallest details are often the ones that will hold up a smooth transition from loan application to loan closing.

About the Writer. As one of NAMP's volunteer writers, Jane brings 30years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Good Faith Estimate Changes - Part 2

noreply@blogger.com (Editor in Chief) — Fri, 26 Feb 2010 17:14:00 +0000

Written By: Jane Harford, FHA DE Underwriter

Today’s blog post will deal with more details on the new GFE and the issues that are being raised. Due to the numerous laws and system changes the lenders, brokers and correspondents have to complete to remain in compliance with the new RESPA laws.

In this post, we will cover the details of “changed circumstances” and how lenders are allowed to make fee changes to the initial GFE provided. To recap, loan officers are required to provide a detailed and accurate cost estimate to their client within three days of taking a loan application. Many changes have been made to the GFE form; several areas of cost estimates are subject to absolutely no tolerance if changed. Loan officers or the brokers must absorb these cost changes. If a revised GFE is issued, HUD detailed the reasons that a change would be allowed. This is the term known as “changed circumstances”.

A “changed circumstance” is defined by HUD as follows: 1) Acts of God, war, disaster or other emergency 2) changed situation or inaccurate information provided by borrowers after issuance of the GFE. Only those fees impacted by the changed circumstances can be changed (note-this is just for increases in fees). Any decreased changes in fees are acceptable and not subject to the RESPA regs.

If pricing changes due to a changed circumstance or a borrower requested pricing change, only the interest rate related charges and terms may change. Lenders are requesting very strictly signed and dated disclosures from the borrowers stating that they have requested and accept these changes. If the loan is locked from a float status, only the rate related charges and terms can change. In either case, Block #1 fees cannot be changed-even with a documented “changed circumstance”. Also, the important dates section must be updated to reflect final lock dates, etc.

The auditors and investors are following the HUD guidelines very strictly, even though HUD stated that there would be a 120 day grace period. There are several documented stories from the various industry blogs, websites and industry forums that report stories similar to this one……

“A loan closed initiated on the new GFE. Seller’s county transfer taxes were not disclosed to buyer on the GFE. Seller typically pays the transfer tax. The subject property was located in a city with no city transfer tax. GFE issued did not have these Costs disclosed to buyer. Prelim HUD1 also did not show these costs.

The closing was scheduled on the loan. Lender docs and title work done for closing. The investor is not accepting the 120 day leniency policy. $737 was the cost for a tolerance cure. This credit went back to seller, not the buyer. There was no opportunity to redisclose (had no affect on borrower’s bottom line cash to close). The lender had to cough up the tolerance cure and the seller got the benefit of that credit.”

Other stories talk about investors not allowing for a third party credit report to be charged or for guarantee of an appraisal fee (when the appraisal was not yet ordered-due to the four day rule)…….

My initial reaction is –how does this strict enforcement benefit the borrower if these charges are unknown or if the seller is benefiting from the tolerance cure…..these are just some of the many pondering questions that will be dealt with as the industry gets further and further into understanding HUD’s full intent of these changes and investor’s policies in following them.

The following is a list of the “Top Errors of GFE’s” which came out in a recent posting from the Mortgage Daily News-this list was provided by U. S. Bank’s wholesale division….some food for thought….

1) Adjusted origination charges need to be completed correctly-Page #2 and box #1 should reflect all income broker/lender expects to receive, except for discount points. This includes origination fees, broker fees, broker comp(typically earned from YSP) and investor commitment fee.
Only 1 box may be checked and only 1 dollar amount may appear in block #2.

2) Block #11-hazard insurance must be completed-purchases require it.

3) The important dates section must be completed correctly. Many times this is not completed.

4) Owner title insurance must be completed.

5) Trade off table must be completed. Many times it is left blank.

6) Lender information must be completed.

7) Escrow account information must be completed accurately.

8) Upfront MIP/VA FF must be listed correctly.

9) GFE completion date must appear on the disclosure.

10) Originator’s email address must be completely provided.

These are basic items, but do require completion. Consider them when you are reviewing a GFE and need to determine if the GFE is truly compliant. In my next blog, we will review the transition of the GFE to the new HUD1 and the HUD1A. Also, we will cover some of the ways that lenders are dealing with the fact that the GFE does not disclose total cash needed to close-like the old GFE did.

Please stay warm and dry wherever you are. All areas of the country are having some funky weather this winter.

About the Writer. As one of NAMP's volunteer writers, Jane brings 30 years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Good Faith Estimate Changes

noreply@blogger.com (Editor in Chief) — Thu, 18 Feb 2010 23:23:00 +0000

Written By: Jane Harford, FHA DE Underwriter

Hello to all! My name is Jane Harford. I am a new blogger for NAMP. My 30 years in the mortgage business have provided much experience - great and awful. As we know, the business cycles in this business are feast or famine. Business is either very good or very bad.

Changes are usually quickly put into place and then we take the time to learn what we are supposed to be doing differently. Change is often done for the better, but the implementation of it can be very painful.

The changes required on the new good faith estimate for loan applications date 1/1/2010 or later are now in place. It is obvious from the news, communication from HUD to the lenders, lenders to their LO’s and staff, from the sales force to the vendors and finally to the loan applicants that these changes have been difficult for all to understand and put into effect. We will take a few minutes to clarify the reasons that this law was passed by Congress and then clarify some of the basics on the new Good Faith Estimate.

When the housing market started to decline in 2006-2007 due to many economic factors, liberal underwriting guidelines, subprime loans and overvalued housing finally crashing, many borrowers had been steered into mortgage programs that they didn’t understand.

It has been clearly documented as to what the issues were and why borrowers either walked away from homes, lost their home in foreclosure, sold their homes via short sale and why values started crashing in all markets in the U. S. The citizens were angry and got that message to their representatives in Washington, DC. Congress started to debate these issues. FHA and other mortgage agencies had their input. Clearly, there were many things that needed to be corrected; updated RESPA laws were a large part of changes to be made.

Most of the changes on the new GFE deal with binding fees, changes in how the origination fees/discount points are determined, how these are disclosed and what can and cannot be changed. We will clarify the delivery of the Good Faith Estimate, important dates that must be met (to be in compliance), disclosing fees and explaining “changed circumstances” (to allow for changes to the GFE and terms of the loan).

http://www.hud.gov/content/releases/goodfaithestimate.pdf shows a copy of the new Good Faith Estimate Form.

There are changes regarding the “delivery” of the GFE form. The initial GFE provided to the borrower becomes the binding GFE unless there is a “changed circumstance. We will define that term in a bit. On the new GFE, lenders are required to provide lists of service providers for all fees incurred. The fees that will be charged at closing cannot exceed what is shown on the GFE. There are very stringent cost requirements that must be met or the loan is not in RESPA compliance.

Block #1 of the GFE will include disclosure of the lender/broker origination fees, points, processing and administrative fees. This will now include all points, and the origination costs will exceed. Mortgagee Letter 09-53 lifts the 1% maximum cap. If there are additional fees to be broken out and disclosed, they will appear in section #800 blank lines. Look at boxes #1-3 in the disclosing Fees section. This section is very specific as to how it must be completed. Only 1 of the boxes may be checked.

The fees disclosed on the new GFE have very limited tolerances that can be shown and approved on the final HUD 1. Required services chosen by the lender have a maximum 10% tolerance between what is disclosed on the initial GFE and what is charged on the final HUD1. It is required that the lender disclose at least 1 service provider for all items in blocks in sections #3, 4, 5, and 6. Sections 7-8 have limited tolerances of less than 10%.

There is no tolerance on the transfer taxes disclosed. If they are calculated incorrectly, the differences are not passed on to the borrower. Loan officers must also be very careful about disclosing an interest rate. The rate that appears on the GFE shows a rate and date for which that rate will be good. There is an important dates section on top of the form. The rate cannot change or deviate unless there is some “changed circumstances” that occur.
We will cover the changed circumstances topic in the next blog. The term “changed circumstances” is defined as an act of God, war, disaster or other emergency or a changed situation based on inaccurate information provided by the borrower after the issuance of the GFE.

Stay warm during this warm winter and we will be back soon to unravel the mysteries of the new RESPA laws.

About the Writer. As one of NAMP's volunteer writers, Jane brings 30years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

First time Homebuyers - preparing for the American Dream

noreply@blogger.com (Editor in Chief) — Fri, 12 Feb 2010 21:49:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody - While I was thinking of a topic for this week’s blog, I could not dismiss in my mind the news reports of how many foreclosed homes are being sold at rock bottom prices. I think it is an absolute tragedy that so many people are losing their homes. And their lender could not help them save their home in the wake of all the stimulus money that has been poured into the system. Having said that and then I reflected back on the previous three years when housing prices were skyrocketing and houses were being sold for many thousands of dollars over the asking price - perhaps this is really a market adjustment at the cost of thousands of homeowners who are losing their homes.

Relating back to the news reports on buyers in the current market - could these buyers be those that were priced out of the market the previous three years. I think they may well be. Housing prices in Florida, Nevada, Arizona and California have plummeted. As an underwriter, I have seen houses in California that sold for $750,000 now under contract for $250,000. I have friends who paid $350,000 for a home in Naples, Florida, their current housing development is now 75% in foreclosure and they just got an offer for their home at $89,000. Their lender has agreed to a short-sale; but they put $100,000 down of their own money when they purchased the property. You can do the math.

The foreclosure crisis has opened up housing opportunities to many new borrowers, who could not afford to get into the bidding market of years past. I feel the market is doing a 180 - we are back to verifying employment; asking for pay stubs; asking for bank statements. Qualifying borrowers - it gives lenders a more secure feeling, a feeling of knowing their borrowers.

While there is no shortage of buyers in this market, I feel everyone is still a little shy to buy because of the job market. However, once the market opens to buyers, the choices of properties should be really good.

If you know anyone who will be looking to buy, help them along now. Suggest they get a copy of their credit report; go over the report very carefully - make sure everything is accurate. If there are any discrepancies now would be the time to notify the credit bureau and have the errors corrected. One is under enough stress when you buy a home - one does not need the added stress of an incorrect credit report.

Then - there is a very good probability that the mortgage payment is going to be higher then the current rent; and if they are not paying rent - it is especially important to start saving every month. As a non-profit housing counselor, many years ago, I would always recommended that first time buyers save the difference between their current rent and their new mortgage payment; if they were not paying rent - I would recommend they save their entire mortgage payment for at least three months before purchasing a home. How else were they able to know if they can really afford to buy or what sacrifices they might need to make. There are also the added costs of gas, electric, water, sewage and other utilities that may have been included with the rent - which are not included with the mortgage payment.

Purchasers should also be required to set up a “capital spending account” of X dollars per month - so they have the resources to repair a roof, fix a leak to keep the property in good condition.

With the new pricing of houses many more first time homebuyers will be able to purchase. However, care must be taken with these first time buyers so they understand the responsibilities of homeownership. I do not believe everyone should own a home, even though it is the “American Dream”. Purchasing a house is a huge responsibility which should not be taken lightly.

In conclusion - I want to say - Happy Homeownership to everyone who wants to own a home. Keep processing. More Later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

HUD Secretary Donovan Moving Forward With RESPA Reform

noreply@blogger.com (Editor in Chief) — Fri, 12 Feb 2010 16:20:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody - I hope everybody is doing well and keeping busy. I sure am busy.

I have been following the changes going through the House of Representatives and the changes being made by HUD Secretary Shaun Donovan with much interest. Recently there have been lots of changes proposed, many of which will probably come to fruition. The latest changed - announced Monday, May 11th - you heard it hear first!! is the intent of the RESPA Reform. You can view the new docs on the hud.gov/news/release web site.

The new changes are scheduled to take effect on January 1, 2010 (only 6 months away). These changes will update the mortgage rules for the first time in more than 30 years. These changes will assist the consumers to show for the lowest cost mortgage and avoid costly and potentially harmful loan offers. These changes could save the consumer an average of $700.

“This administration is committed to proving consumers with clear and transparent information when they make the biggest purchase of their lives,” said Donovan. The RESPA changes are part of a bigger reform to the mortgage process.

There is one change that has been tabled for now in order that the bigger scope of the beginning of the RESPA changes could begin. The change that has been tabled for the now is the definition of “required use”. HUD is working on a clearer and more effective definition that protects borrowers from being forced to use affiliated business of the lender.

I have reviewed the new Good Faith Estimate (GFE) and Settlement Statement (HUD1) and the two forms should leave little doubt in the mind of the consumers what was disclosed at the time of application.

Starting with the GFE, which is now three (3) pages, the form is very personal to the borrower, i.e., in the Summary of Your Loan the questions begin with “Your” loan amount; “Your” loan term. Very specific - as to the amount, terms etc. Questions that the Loan Office will need to complete and answer with their borrower. There is also a “Shopping Cart” on the form which will allow borrowers to easily compare loans.

More interesting is the HUD1 Statement, which is also three (3) pages. The lines of the HUD1 now reference the numbers of the GFE. Any borrower going to closing will only need to take the GFE and easily find the numbers that were disclosed and what the actual numbers they are paying at closing. Again the form is very specific i.e., Line 801 of the HUD 1 - Our origination change (from GFE #l) these forms are also a protection to the lenders as much as to the borrowers - there will not be an “I was told” one thing by the LO and was charged something else. If this happens - everything will hopefully be specific enough to avoid any problems.

More changes will be coming to the mortgage industry, in part of because of the disastrous crisis that we have been muddled in for the past year and a half; I am sure those of us in the mortgage industry will like some of the changes and will not like other changes. However, once we get experienced in the new forms and procedures, it will be like we never knew any other way. We must remember that without borrowers, we have no jobs. Huge numbers of jobs were lost and many of our co-workers are still looking for jobs, so as a personal aside, if these changes increase consumer confidence and increase mortgage sales - I can live with them.

Well - this is all for this week. Keep busy. Keep Processing - More Later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Plain Vanilla Home Loans

noreply@blogger.com (Editor in Chief) — Fri, 05 Feb 2010 16:40:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody - Hope everyone is keeping busy. These days the mortgage business never ceases to amaze me. When perusing the newspapers and internet this week for a topic - I came across “Vanilla Home Loans” - I thought what next? While I have felt all along that there needed to be some regulations for the unscrupulous - I am not sure about these Vanilla Home Loans.

Just what is a Plain Vanilla Home Loan? As released by the Associated Press - According to President Barack Obama, if he gets his way - consumers who take out mortgages would automatically get a “plain vanilla” loan. A plain vanilla loan is considered a traditional 30 year fixed rate loan. Now - perhaps if consumers would like sprinkles on the loan that may include an adjustable rate or a loan that was riskier.

President Obama would like to revamp financial regulations to product borrowers from confusing and high-risk mortgages.

Government officials want to make the process of getting a mortgage as simple and abuse-free as signing up for a retirement savings plan. This I absolutely do not understand - the mortgage process is not that simple. If in fact the Vanilla Home Loan is implemented - I could see where less people would qualify for a mortgage. I feel it could actually backfire.

The questions that would arise would be - what loan-to-value; what DTI would lenders require for the Plain Vanilla Mortgage. Approximately 30-40 years ago, I think you could say the Plain Vanilla Mortgage existed; since most mortgages were given by loan Savings and Loans Institutions. You could go in talk to the bank manager - give him a pay stub; run a credit report and Congratulations you have a home mortgage.

If the Obama plan for simplifying the mortgage process is approved - here’s how it might work:

The government would give its seal of approval to a handful of mortgage types - a standard 30 year fixed rate mortgage and perhaps a few varieties of adjustable rate mortgage. For a loan to get the “vanilla” label, the lender would have to verify income and have the borrowers set aside money for property tax and insurance. (I am assuming they mean escrow for taxes and insurance).

To get an “unapproved government loan” the borrowers be warned about the risks - which would be a good thing. I am personally having a hard time wrapping my head around these “vanilla mortgages”.

In reading the documents that have so far been released regarding the “vanilla mortgage” - it is really for the protection of the consumers - who have expressed they did not understand the loans they signed up for during the housing boom. Many expressed concern they were not aware when their rates adjusted their mortgage payment would be much higher.

The Obama plan also calls for fees that brokers and lenders receive tied to inflated mortgage rates.

Brokers have already seen their market share dwindle – brokers currently only account for 20 percent of new loans. If these mortgage fees were eliminated that would be the kiss of death for mortgage brokers.

I will continue to follow this issue of the regulations of the mortgage loan/process and whether the “Vanilla Home Loan” will pass the test of time.

In closing - let me say - I hope every body is staying busy. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Shipping Containers Used for Housing

noreply@blogger.com (Editor in Chief) — Tue, 26 Jan 2010 15:46:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello everybody - This week’s blog is going to be a little different, while it is very interesting, it is not exactly relating to FHA financing - although perhaps we will see FHA finance these types of housing someday. I found a very interesting article regarding shipping containers on the USA Today website.

I am sure everyone is familiar with the large tractor trailer boxes that travel on the back of semis - well there is a new use!!!! How does affordable housing sound? Thinking outside-the-box some architects and home-buyers are turning the 8-by-40 foot steel containers often left vacant at seaports into housing.

Although it is only experimental at this time - it makes sense and a great housing alternative. Not only are the containers economical at $2,000-$3,000 each they also are recycled containers and eco-friendly. For the most part the homes use anywhere from 4-8 containers. They are stacked and/or put side by side. There is a company that modifies the containers at 17 locations and there is currently about 75 homes nationwide whose purchases have found the “American Dream”.

The company that modifies these containers was founded in 2006 and plans to modify more than 1,000 containers next year. Interestingly these containers can be used for multi-family; multi-storied and cost at least 20% less than traditional building materials.

With the rising costs of construction materials and the demand for affordable housing in high cost areas such as California it only makes sense to get the best use from recyclable material - as long as it works.

There is one couple in Redondo Beach California who has a 3,200 square foot home on an 8,860 square foot lot. There house stands out in the neighborhood and is made of six containers which have been painted beige; the inside has high ceilings, and recycled materials. Since the buyers have retained many features of the containers, there will be little maintenance.

The builder of these homes is stating the cost of these homes start at approximately $150 per square foot compared to $225 to $250 per square foot.

In addition to affordability, the containers strength makes it a valuable source in the construction industry. Look for container housing at the 2010 Winter Olympics in Canada.

There are many companies currently looking into container housing. Builders of condominium projects are looking how they could be used and the safety of the buildings. While for the most part container housing is in the infancy stages - It will probably not be long before we see them popping up, particularly where affordable housing is needed.

Hope everyone enjoyed this tid-bit of information.

Until next week - keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

HOPE for Homeowners

noreply@blogger.com (Editor in Chief) — Fri, 22 Jan 2010 17:25:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello All - I understand that most persons who read this blog are loan processors, loan originators and others in the mortgage industry. This blog is not necessarily directed to loan processors or originators but rather to those who might know someone who may be facing foreclosure. The HUD.gov site is just a wealth of information.

Congress created the HOPE for Homeowners (H4H) program for those at risk of default and foreclosure refinance into more affordable loans. H4H is an additional mortgage option designed to keep borrowers from losing their home.

The program went into effect October 1, 2008 and continues until September 30, 2011.

It is estimated that 400,000 homeowners could avoid foreclosure through this program. If you know anybody that is having problems making their mortgage payments; perhaps refinancing under this program into a new mortgage is the answer.

Borrowers may contact their present lender and/or they may contact a new lender to discuss how to qualify for eligibility for this program.

Let’s look at what the lender will consider when they are contacted by a borrower. Every lender will be assessing each loan very carefully and will perform a cost-benefit analysis to determine the feasibility of offering this program to homeowners. Of course, everyone will not qualify so if you are talking to struggling homeowners regarding this program, it is important that you not build their hopes.

The lenders will be looking at the difference between existing obligations and the new loan, which is set at 96.5% of current appraised value. The lender may choose between a loan modification of the current mortgage or accept the losses associated with declining values.

Lenders who determine that the H4H program is a feasible option will then assess the borrowers’ eligibility for the program. The borrower must meet criteria such as - existing mortgage was originated before January 1, 2008; Existing mortgage payments must exceed 31% of gross monthly income - as of March 1, 2008; the homeowner did not intentionally go into default and must not have been convicted of fraud in the last 10 years and Federal and state law; and lastly that the homeowner did not give false information to obtain their current mortgage.

The borrower must be made aware of the 3% upfront mortgage insurance payment and the 1.5% annual premium. The borrower must also realize their will be an Equity and appreciation sharing with the Federal Government (we will discuss in a later blog). And there can be no second mortgages added to the property.

Then there needs to be negotiations between borrowers and lien holders - The lender must negotiate with the existing lien holder to waive all prepayment penalties, existing late fees and agree to accept the loan proceeds of the new loan as total repayment of the existing mortgage. If there is currently a second mortgage on the property, there must be negotiations to participate in the loan modification. FHA could offer to the 2nd mortgage holder that they would share in the future appreciation.

After all of the pre-qualifications, the lender will then qualify the borrower for the new H4H mortgage using established guidelines.

During the underwriting the lender will calculate future appreciation for each subordinate lien holder. At settlement the subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment as calculated by HUD’s appreciation schedule.

Following closing, the lender will record, all documents for the 1st mortgage and, a shared equity note mortgage. These mortgages will be serviced by FHA.

Upon sale of the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages.

If the homeowner fails to make the first payment on their new H4H mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding the mortgages.

While some of these procedures may seem confusing and will require a lot of work - it is important to remember it may save thousands of homeowners from losing their home. We will monitor the success of the program as the year progresses.

Until next time - Keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Reforms For American Homeowners and Consumers

noreply@blogger.com (Editor in Chief) — Fri, 15 Jan 2010 16:48:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody - Hope you are keeping busy. With interest rates up and down, depending on the day and hour of the week - refinances have been fluctuating as often. However, there seems to be a trend that home sales are on the rise and many lenders are keeping busy.

We are going to outline the fact sheets on both pieces of legislation:

The Helping Families Save Their Homes Act - The deep housing market recession has created devastating consequences for homeowners and communities throughout the nation. However, by reducing the number of foreclosures, the average homeowner could see their house price bolstered and as many as 9 million may increase the affordability of their mortgages and prevent foreclosures.

New guidelines have been introduced for loan modifications which will establish a new standard practice for affordable modifications. Services covering more than 75% of loans in the country have now begun modifications and refinancing under the Making Homes Affordable Act. - Also please check out the government’s website –MakingHomeAffordable.gov which is a consumer website for the program.

There has been improvement to Hope for Homeowners which should significantly improve the ability of borrowers to benefit from the opportunities provided in the Administration’s housing plan. Incentive payments will be available for successful Hope for Homeowners refinances and services will be required to evaluate ALL applicants for eligibility for Hope for Homeowners and Home Affordability Modification Program.

Hope for Homeowners targets help to borrowers who are faced with the risks of foreclosure. The help would entail the write down of the principal amount to help homeowners increase the equity they have in their home. This program will ease restrictions on eligibility and enable refinancing of mortgages with no equity for a greater number of borrowers.

Increasing Consumer Protections Related to Housing

Consumers who are renters living in foreclosed homes is a very big problem which has not gotten a lot of attention. The problem exists when a property is foreclosed that renters reside. Tenants, who are being forced out of their homes with no notice, will require that in the event of foreclosure - existing leases must be honored, except if the lease is month-to-month; in that case the tenant must be given a 90 day notice to vacate the property.

This will also gives the homeowner the right to know who owns their mortgage. Many times mortgages are sold and then sold again and borrowers do not know who owns their mortgage or who to contact when there is problem. This legislation requires that borrowers be informed whenever their loan is sold or transferred. I also feel it is the homeowner’s responsibility to read all information that is sent by the service of their mortgage.

There seems to be much more legislation before the Senate regarding the rights of the homeowners and renters and what type of assistance will be available. I am doing my best to try and keep up with this legislation because I feel all homeowners and renters need to know their rights. If just one person is helped by this topic, I will have done my job.

In closing - if anyone has any ideas for a topic, please do not hesitate to contact me. - Till next week - More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Summary of H.R. 1728 - Part 2 of 2

noreply@blogger.com (Editor in Chief) — Fri, 08 Jan 2010 14:57:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody - I hope everyone found the information contained in Part 1 of HR 1728 as interesting as I did. As I stated I cannot image all the changes in the House Bill actually becoming law; I feel by the time it is chopped up and amended, we probably will not recognize it as it reads today.

The HR 1728 bill also provides protection for tenants who are renting when the homes they rent go into foreclosure. Under the proposed Bill the tenants with a lease have a right to remain in the property until the end of the existing lease. However, if the purchase intends to use the property as the primary residence, the lease may be terminated with giving the tenant 90 days to vacate. Tenants without a lease or a month-to-month lease must receive 90 days to vacate.

Section 8 Housing Assistance - If a tenant is currently receiving Section 8 assistance; the purchasers of the property are subject to the existing lease and housing assistance payments for Section 8. While foreclosure does not constitute good cause for termination of Section 8 if the property is unmarketable while occupied of if the new owner will use the property as his primary residence the lease may be terminated.

Additional standards also fall under this Bill to protect consumers. They are – prohibiting certain prepayment penalties; prohibiting the credit from directly or indirectly financing a single-premium credit insurance; prohibiting mandatory arbitration and requiring specific disclosures for loans that include negative amortization features.

In the case of an adjustable rate mortgage, a notice at least six months before the expiration of a fixed introductory rate must be sent to the borrower. The notice must explain the rate adjustment process and the consumer’s alternatives and they must be given an annual notice regarding interest rate terms.

With regard to Title III (High-Cost Mortgages) there will be changes to enhance the consumer protection. Some recommended changes are: lowering the points and fee trigger from 8% to 5% for transaction of $20,000 or more and including additional costs and fees in the trigger. Prohibiting the financing of points and fees; charging excessive fees for payoff information, modifications or late payments; prohibiting practices that increase the risk of foreclosures, such as balloon payments, encouraging a borrower to default and call provisions. The Bill is also requiring pre-loan counseling.

Title IV – (Office of Housing Counseling) - The Office of Housing Counseling at HUD will be charged with carrying out and coordinating homeownership and rental housing counseling programs. The public will be informed of Housing Counseling through public service announcements, multimedia campaigns to promote housing counseling. In addition – HUD will be required to update the Mortgage Information Booklet to provide consumers with a greater understanding of the terms and purchasing a house.

Title V – (Mortgage Servicing) - This title requires borrowers with higher-cost and subprime loans to have accounts established to provide protection again tax liens and force placement of homeowners insurance.

If borrowers waive the right to have their taxes and insurance paid by the servicer, written disclosure must be given by the lender that explains the need to pay property taxes and homeowners insurance. RESPA will also be updated to create safeguards so the borrower understands when the servicer may impose force-placed hazard insurance. There will also be a mandate for swifter responses to consumer written inquiries, increasing penalties for abuses and requiring the prompt crediting of payments.

Title VI (Appraisal Activities) - Establishes strong, enforceable Federal standards with tough penalties, which allow appraisers to act as independent referees to verify the value of the property for buyer, the seller, the lender and the investor. This new Bill will also strengthen the appraiser licensing and education standards and a Federal grant program to assist States in their regulatory activities.

WOW – all these changes really get my mind racing. I am not sure how all these new regulations will be set into place. I can only image it could take years for any of these new regulations to take effect.

If anyone has any ideas for a Blog, please let me know. Until next week – keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Summary of H.R. 1728 - Part 1 of 2

noreply@blogger.com (Editor in Chief) — Mon, 04 Jan 2010 16:59:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody - What is this Blog title you ask - Well it got your attention, now I will explain. The Blog Title is referring to the Summary of House of Representatives Bill Number 1728, which was introduced on March 26, 2009 by House Financial Services Committee Chairman Barney Frank, Rep. Brad Miller (D-NC) and Rep. Mel Watt - (D-NC). This House Bill, if passed, will change the mortgage industry as we know it today. Because of the length of the bill which is 155 pages in the original form - I will report on the summary of the bill.

First in the long list of changes is - All mortgage originators (including individuals as well as companies and banks that originate mortgages) will be subject to a federal duty of care that requires, licensing and registration under State or Federal law. All originals must present consumers with appropriate mortgages loans (i.e., loans that a consumer has a reasonable ability to repay and for which he/she receives a net tangible benefit (for refinancing) and that do not have predatory characteristics). The originators will make full disclosures to consumers, certifying to lenders compliance with origination requirements and including a mortgage originator’s unique identifier in loan documents.

Yield Spring premiums and other compensation that could cause mortgage originators to “steer” applicants toward more costly mortgages are banned for all mortgage loans. The total direct and indirect compensation from all sources permitted to the mortgage originator may not vary with the terms of the mortgage loan.

It gets more interesting. A mortgage originator that violates the duty of care will be liable to a consumer for the greater of actual damages or an amount equal to three times broker fees plus costs, including attorney’s fees.

Title II - Minimum Standards for ALL Mortgages - Ability to repay/net tangible benefits. Every residential mortgage loan will be subject to two new Federal standards that apply to creditors, assignees and securitizes.

At the time the mortgage is entered into, the creditor must make a reasonable good faith determination that the consumer has a reasonable ability to repay the loan at a fully indexed fully amortizing rate, based on verified and documented information including the consumer’s credit history, current and expect income debt-to-income ratios.

For refinancing - the will loan must provide a net tangible benefit to the consumer, based on information known or obtained in good faith by the credit. The Federal banking agencies shall prescribe relations that define “net tangible benefit” and loans for which the cost of refinancing exceeds the newly principal specifically do not provide a net tangible benefit.

Qualified Mortgage - Safe Harbor is a mortgage that provides prime, fully documented 30 year fixed-rate mortgage that have no negative am or interest-only features are presume to the meet the ability to repay and net tangible benefits standards. However, this presume is rebuttable. Qualified mortgages are defined as such - the APR does not exceed an average prime offer rate (i.e. 1.5 percentage points for a first lien and 3.5 percentage points for a subordinator lien); the income and financial resources have been verified; the underwriting process is based on a fully indexed rate; the loan meetings a combined debt-to-income test prescribed by the Federal banking agencies and the loan has a fixed rate of not less than or more than 30 years.

If this Bill passes as presented the consumer will have other remedies against the creditor under the Truth in Lending Act. If the creditor violates the ability to repay or net tangible benefit standards they will be liable to the consumer for recession plus the consumer’s costs for the recession unless the creditor provides a cure within 90 days after receiving notice from the consumer.

What is the cure? A no-cost modification or refinancing of the loan to provide terms that would have satisfied the minimum standards if the loan had contained terms as of the original date, as well as the payment of costs the consumer incurred as a result of the violation.

Is this enough information for this week? I think so. Every time I read this Bill, my head starts to swim. So I will save some for next week - however, it is a start and it will be very interesting to see if this Bill passes as introduced.

So until next week - keep processing. More Later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Self-Employment Made Easy – Part 2 of 2

noreply@blogger.com (Editor in Chief) — Mon, 28 Dec 2009 18:29:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello All – I hope the blog on Self-Employment is informative and it is helping to answer questions you may have. This week we will discuss Corporate Tax Returns, “S” Corp Tax Returns and Partnerships.

Corporate Tax Returns seem to be the most frightening to everyone. I do not know one processor or underwriter who likes Corporate Tax Returns. Many borrowers set up a Corporation to protect their personal assets in case of bankruptcy or lawsuits. A Corporation is a state-chartered business that is owned by the shareholders. The shareholders could be as few as 1 or as many as millions. Compensations to the officers of the corporation are based on the percentage of ownership and are reflected on the shareholder’s personal tax return. If the percentage of ownership of is not shown on the tax returns, this information must be obtained from the corporation’s accountant. After the adjusted business income is obtained, it should be multiplied by the borrower’s percentage of ownership.

When analyzing the corporate tax returns, the following adjustments must be made:

1. Depreciation and Depletion – must be added back to after-tax income.

2. Taxable Income – is the corporation’s net income before federal taxes. The income must be reduced by the tax liability.

If the corporation operates on a fiscal year rather than a calendar year, an adjustment must be made to relate corporate income to the individual’s tax return.

In order that the corporation does not suffer from the negative impact of the withdrawal of cash – an accountant’s letter should be obtained stating the withdrawal of cash from the corporation will not have a negative impact.

“S” Corp Tax Returns – An “S” Corp is generally a small start-up business with gains and looses passed on the stockholder in proportion to each stockholder’s percentage of business. The owners receive a W-2 form for the income and it is taxed as personal income.

The compensation of officers line on the IRS 1120S is transferred to the borrower’s IRS form 1040. Both depreciation and depletion may be added back to the income in proportion of ownership. Again ask for verification from the accountant that the withdrawal of cash from the corporation will not have a negative impact on the corporation.

Partnership Tax Returns - A partnership is formed when two or more individuals form a business and share in the profits, losses and responsibility for running the business. Each partner pays taxes on the share of the partnership’s net income.

General and Limited Partnerships report income on IRS Form 1065; this form must be reviewed by the lender to ascertain the strength of the business. The partners share is report on Schedule E of the 1040. Depreciation and depletion may be added back to income in proportion of ownership. However, losses in the business must also be proportionally subtracted from the income. In order to assess the impact of taking cash out of the business – again ask for an accountant’s letter as to strength of the business.

So – that is all there is to Self-Employment. I have been receiving many questions from processors, former underwriters and those who want to start underwriting. The questions range from how do I get started to I need to hone my skills – so next week, I will be discussing how I feel you can get started as an underwriter. Of course, it will be my opinion; however, I feel it will give you a good starting point.

Till next week – keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Self-Employment Made Easy – Part 1 of 2

noreply@blogger.com (Editor in Chief) — Fri, 18 Dec 2009 16:46:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello- I hope everyone is getting ready for the volcanoes of refinances when the new guidelines are finalized. I am actually looking forward to being busy, busy, busy – I will begin to feel hopeful.

Many processors and just as many underwriters that I know, start to panic, get heart palpitations and sweaty hands when they see a self-employed applicant. I cannot tell you how many processors have run into my office screaming for help – how do I qualify the borrower? I hope I can make your life a little easier by covering some steps for self-employment.

Important to remember - Any borrower who owns 25% or more of a business is considered self-employed for FHA mortgage loan underwriting.

Working for Relatives or Family Owned Business - Many times borrowers may say, I work for my father, my uncle owns the business, etc. Well that is fine – however, they must submit additional documentation to show they do not own a part of the business. In additional to paystubs and W2’s – they must also provide copies of their personal signed tax returns or a signed copy of the corporate tax return showing ownership percentages. The ownership percentage is located on the K-1 form.

What is the minimum length of employment of Self-Employment? If a borrower has been self-employed for two years or more – it is considered stable income. If an applicant is self-employed LESS than one year – the income may not be considered effective. Between ONE and TWO years – the income may be considered effective if the borrower has had at least two years documented successful employment or formal education in the field.

All self-employed borrowers must provide signed and dated individual tax returns, plus ALL applicable schedules for the most recent two years. If all schedules have not been filed – you cannot accept the income on page 1 for qualifying.

In addition – you need signed copies of federal business tax returns for the past two years with ALL applicable schedules, if the business is an “S” Corp or partnership. A year to date profit and loss statement and business credit report on corporations and “S” Corps.

OK – we have all the forms we need, let’s start analyzing the income. Two years is the magic number; however, the income may be averaged over three years. If the tax returns show an increase in earnings, use the two most recent years; however, if there is a decrease in earnings the income may not be used for qualifying. Let’s first look at the borrower’s Individual Tax Returns.

Wages, etc. Many times a borrower may pay him/herself a salary with a W2; in addition a spouse may also be working for the corporation and receiving a W2, in which case the income must be subtracted from the adjusted gross income in the analysis.

Schedule C – Business Income or Loss – The sole proprietorship income is calculated on Schedule C – and Depreciation and Depletion may be added back to the adjusted income.

Schedule E – Rents, Partnership Income – Any income received from rental properties may be used as income after adding back any depreciation – shown on Schedule E.

Schedule D – Capital Gain or Loss – Since most of the time this transaction generally occurs only once a year – it is not used for determining income. However, if the borrower is a housing developer or someone who buys and sells throughout the year, the income may be included in the income. The borrower would need to provide three years tax returns to show he has a history of Capital Gain income.

Schedule B – Interest and Dividend Income – This income which is taxable and tax-exempt, may be added back to the adjusted gross income only if it has been received for the past two years and is expected to continue.

Schedule F – Farm Income – Depreciation may be added to the adjusted gross income.

IRA Distribution, Pensions, Annuities and Social Security Benefits – Only the non-taxable portion of these incomes may be included and added to the adjusted gross income. Of course, you need to verify the income will continue for at least three years.

Employee Business Expenses – are expenses associated with the job the borrower is performing and must be deducted from the borrower’s adjusted gross income. When a borrower has a history of business expenses, you must also make an adjustment on the current YTD income by taking the percentage of last year’s expenses and deducting it from this year’s income.

Well – I hope this was not TMI (too much information) at one time. Next week, we will go over Corporate Tax returns.

Until next week – keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Mortgage Fraud Awareness - Part 5 of 5

noreply@blogger.com (Editor in Chief) — Fri, 11 Dec 2009 18:27:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello to everybody and sorry for the mix-up of last week’s blog, I missed the deadline because my mind was still on a holiday mode. Well this will be the final blog for this series on Mortgage Fraud and Red Flags.

This week, I feel it is important to review some issues and emphasize those items that should always be looked into and immediately suspect to fraud.

In recent years, the number of borrowers who have stated they are purchasing a primary residence when in fact, they were purchasing a rental property has been on the rise. And – this is one area that lender’s have cracked down on because of the fraud in this area; I will outline some Red Flags.

On page 1 of the 1003 (Mortgage Application), it is important to check the borrower’s current address and employment location - if the borrower is stating he will be using the property as a Primary Residence. If the borrower will be traveling a significant or unrealistic number of miles to work, and this varies in different parts of the country, question the borrower as to why and how he will making his trek to work everyday. If you are not sure about mileage and are not familiar with the area of the property vs. work location – Google it!!

If a borrower has purchased his current primary residence within the past year or two and is currently purchasing another primary residence, ask for a letter of explanation as to why he is purchasing another primary residence. If the borrower has rental properties in the area, chances are he is purchasing another rental property. If the underwriter is not satisfied with the explanation, the reason of the purchase could be changed to investment property.

Is the borrower purchasing a smaller or less expensive home than their current home? A little of explanation is needed.

Another red flag which is needed to be considered is the appraisal. It is important to check the seller’s name on the appraisal against the contract of sale. If they are different, it must be questioned. Verify the person signing the contract of sale has the authority to sell the property; verify the information against your State’s Assessment and Taxation Records. If there is any discrepancy – it must be worked out prior to loan approval.

Are the seller and borrower’s name the same? Is a relative selling this property, is this an arm’s length transaction? Some lender’s now reduce loan-to-value on non-arms length transactions. This is another item which needs to be addressed.

In addition to checking the seller and borrower’s name on the appraisal, it is important to look at the comparable properties and the number of miles to the subject property. If you are in doubt about the number of miles to comparables used by the appraiser – Google IT!!!!

Is the property being sold “Fee Simple” or with“Leasehold” – check the Contract of Sale against the Appraisal. If there is a discrepancy – it needs to be resolved prior to closing. The Title Company who is closing the property should be able to resolve this issue.

In closing this series, I would like to say – there are many Red Flags from Application to Closing a Mortgage. Look at any discrepancy as a Red Flag – Question – why is there a discrepancy? Is there an explanation – does it make sense? If you are not convinced – question it again. If you answer can be obtained from a third party – question the third party. Fraud is on the rise – protect your lender and broker, they will Thank You!!!

I hope you have enjoyed this series and I look forward to sharing more information with you. If anyone has a topic they would like to see in this space – please e-mail me – I am always looking for topics that will help you with processing. More Later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Mortgage Fraud Awareness – PART 4 OF 5

noreply@blogger.com (Editor in Chief) — Fri, 04 Dec 2009 16:04:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello - I am starting to hear that the real estate market is getting to its “slow” time of the year!! In my opinion if this entire year would have been any slower there would virtually be no one left in the industry. As it is – the downturn of the market has caused brokers and lenders to flea in massive numbers. Those remaining are the die hards and they are working hard for their deals; which is all the more reason to do our due diligence prior to sending a package to the investor. It is easier to turn a borrower down prior to closing – then it is for a branch or broker to buy back an early default.

In the past several weeks we have talked about the 1003 (application); credit reports, employment verifications and what to look at for possible red flags. This week – let’s go over the Bank Statements and Declarations (Part VIII) on the 1003.

We have all seen large deposits on the VOD or bank statements and I am sure everyone has heard stories about how the money was obtained. It was a gift, cash under the mattress, my cousin gave it to me, my boss gave it to me etc. The problem arises when the source of the large deposit cannot be verified. When the loan officer takes an application, it is important that all accounts be included on the 1003 as well as very close estimates (if the bank statements are not readily available) of the balance in the account. Large deposits are an immediate Red Flag!!!

If you are looking at bank statements – and the borrowers pay bills writing checks, I always verify the sequence of the checks that have cleared. If you have two months statements, verify the sequence of all checks cleared and that the same check number has not cleared more than once. I have personally seen the same check numbers clear two separate bank statements with different dates – since this is one of personal experiences; it is sometime I am always tuned into. If you are dealing with a VOD, you do not have the luxury of verifying check numbers. However, if there is a large deposit on a VOD the source of funds must be verified. Many times the borrower will state, it was a paycheck. Well then I verify the net amount of the borrower’s pay check and determine if it could be reasonable that the borrower deposited his full paycheck and it makes sense. If the deposit is over the borrower’s pay check amount – you must question the borrower further as to the source of funds.

It is also important to note the date the bank account was opened on the VOD – if the account has been opened in the past 60-90 days with a large balance, it is important to verify the source of funds for opening the account.

If the borrower has given Earnest Deposit Money with the Contract of Sale, ask for a copy of the cancelled check. If the check has not yet cleared the bank and is being held by the broker – ask the broker for a copy of the check. Verify the bank account actually belongs to the borrower and that there are sufficient funds for the check to clear, since it has not been deposited.

If there is a sale of residence, verify funds with HUD1; if it is a personal loan repayment, ask for a copy of the promissory note; if it is a sale of a car, ask for a copy of the contract, copy of check received and deposit slip.

Verify that there will be sufficient funds to close on the transaction after deducting the amount of the Earnest Deposit Money. If a borrower prints a copy of his bank statement from the internet – it must contain the borrower’s name and account number; if the print out does not contain this information, it must be signed by the manager of the bank.

It is important to remember – never leave a question in your mind where the borrowers are obtaining funds for the closing on their property. Some times one answer to a question, will lead to 20 more questions. That’s OK!! Keep asking until you are satisfied with the answers.

Moving on to the Declarations section of the 10034 - I feel the question most often answered incorrectly in the Declarations section of the 1003 is – Are you obligated to pay child support or alimony? More times than not – the question is answered NO, no child support or alimony is paid. As an underwriter – I always go back to the borrower’s age; is the borrower married or unmarried; are their any dependents listed on page 1.

If the borrower is unmarried and has dependents listed - ask for an explanation of why there is no child support being paid. If the borrower is separated from the spouse, always ask for a copy for a copy of the separation agreement, if one does not exist you must determine the borrower is not paying child support, double check the borrower’s pay stub, maybe it is being deducted by his employer. If a borrower states there is no child support and has under- aged children – ask for a letter from the attorney or ask for a letter of explanation from the spouse who has custody of the children as to the child support.

It is just as important if a borrower is receiving child support and it is used for qualifying income and verification of three years continuance is absolutely necessary.

I hope some of these Red Flags will raise questions in your mind while processing. Keep asking questions.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Mortgage Fraud Awareness - Part 3 of 5

noreply@blogger.com (Editor in Chief) — Wed, 25 Nov 2009 16:46:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello – I hope everyone is holding on to their job. In this economy it is frightening to say the least with the downturn of the real estate market. As the market gets tighter and banks are again tightening guidelines, it is important that good quality loans be submitted for underwriting and even more important that the borrowers are qualified to purchase and given instructions not to make any changes in their job or credit report prior to closing.

In my opinion, the one issue that is not needed is for the lender to pick up discrepancies in the file between submission and audit closing – your borrowers could be packed with the moving van parked at the settlement office and the loan is not being funded because the investor ran an updated credit report and there is more debt or the borrower quit their job the day before. EEKKK!!!!!

I just happened to think of the above ways to kill your loan and thought I would share those thoughts with you. Now – back to the series on RED FLAGS during processing. This is the 3rd Part and as stated last week – I will discuss what to look for and the Red Flags on Tax Returns.

Regarding the income of the borrower – determine the type of work the borrower performs Does the borrower receive a 1040 or 1099 from his employer? When calculating income, in addition to base pay, does the borrower receive any bonus, commission or “other” income? If the borrower receives bonus or commission or “other” income – there must be a two year history of receiving this income. My philosophy underwriting a file is simple – if a borrower is receiving a base pay and you do not need the bonus or commission income for qualifying – do not use it!!!! Use only the income that is needed for the borrower to qualify, since bonus and commission income must be averaged and could open up more questions.

What types of income should be suspect of receiving salary and bonus income and when should you request the 1040’s or better yet – the 4506, then you can order the tax returns yourself directly from the IRS.

In addition to obvious occupations that receive salary and bonus and/or commission income – sales, cosmetology field, bartender, and waiting tables – you must also look at the title of the occupation. Is the borrower a “Manager” on the 1003 – verify that the borrower is not the owner. Is the telephone number for the borrower and employer the same? Is the borrower working for a family member? Red flags should be popping up.

Any time there are red flags you need to do your due diligence to preserve the integrity of the loan.

When looking at the tax returns – determine; are the returns signed; was the returns prepared by borrower or independent tax company. If the borrower receives bonus or commission is there a copy of “Unreimbursed Employee Expenses” attached? If so – the percentage of expenses must be deducted from the current year’s income. If the tax returns are signed, what date is the signature? Are the tax returns handwritten? If you have W2’s – verify the income on the W2 compared with the income on the tax returns. Whenever you have a question regarding taxes – use the 4506 that will confirm or alleviate your suspicions.

If you suspect a borrower is working for a family member or owns the business – check with your State Assessment and Taxation Office. The state where I live we can obtain (read only mode) the corporation papers; if the borrower is president, resident agent, any officer of the company. Check with your State Assessments or Licensing Bureau for specific information for your state.

There are many issues involved with tax returns; however, they can tell a story. The information supplied here is very general because every form means something different and if you have an accountant friend – I am sure he/she could answer your questions more in depth than outlined here.

So until next week – Keep Processing. More Later. Happy Thanksgiving with near and dear ones!!

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Mortgage Fraud Awareness - Part 2 of 5

noreply@blogger.com (Editor in Chief) — Fri, 20 Nov 2009 16:11:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello – This is the 2nd part of a series of 5 that will alert all loan processors, as well as loan officers and underwriters to “RED FLAGS” on the original application (1003). This week we will cover the income/employment section of the 1003.

The employment section of the 1003 must MAKE SENSE. First the age of the borrower must coincide with the number of years the borrower states he has been working. If the borrower is 22 years old has been working 8 years – that must be questioned. I have had borrowers who have worked in a family business since they have been 14 years old; however, that could open up another can of worms, and we will get into that later. The occupation of the borrower must also align with the number of years of schooling the person disclosed, which was in last week’s article.

Let’s start – the borrower has been working for ABC Company for 2 years (which always seems to be the magic number). You need two pay stubs, 2 years W2’s and a verbal VOE or written VOE. When verifying an employment verbally – it is important to independently obtain the telephone number from Superpages.com; 411; Google, etc. Do not use the telephone number supplied by the borrower on the 1003 and never verify using a cell telephone number. It is always suggested that you verify the employment through Human Resources, or an Office Manager and not the borrower’s direct supervisor, since they would not necessarily have the date of employment and salary.

I would like to state at this point it is important to be aware if the borrower is, or could be, working and receiving commission or bonus income. Also, any borrower working for a school system, whether it is a teacher, bus driver, crossing guard, and secretary or maintenance person – chances are, they get paid 20 pay periods per year – not 26. I always request a written VOE. This could dramatically affect the annual income.

Some red flags to look for when looking at pay stubs and determining income should be – Are the pay stubs consistent? Are they prepared by a payroll company or in-house by the employer? Hand written pay stubs are never acceptable – you will need a copy of the payroll ledger from the company and docs to support appropriate taxes were withheld. If no taxes were withheld from the check – you must get tax returns because the borrower would be considered self-employed.

When obtaining a written VOE check for white-outs or alterations on the verification – I know most companies now fax or e-mail verifications, however, if there is any doubt about the content, I always condition for the original.

It is important to verify the information on the pay stub, for example, verify that the year-to-date income matches with the hourly/monthly rate paid by employer. Recently, I was underwriting a file – the borrower was employed by a hospital, paid bi-monthly ($2000) so it should not have been a problem. However, when checking the year-to-date income – the numbers did not add up to the current salary. For example, the ytd income was $22,000; instead of the current ytd being $24,000 – the pay stub shows $22,300 – I have checked for any non-taxable income, flex spending, etc. and there were no non-taxable items. RED FLAG – Why wouldn’t a hospital calculate correct income? The file was suspended until the issues could be resolved.

If a borrower is working in sales, cosmetology field (including, nails, waxing, etc.) it is known in the industry - the borrower works on commission or tips – Recently I have been instances where an employer, in order to help the employee – states the borrower has been promoted to a salary job and no longer receives commission or even tips. This is of great concern to me, considering where the market has been recently. If a borrower has received a “promotion” and no longer receives tips or commission, I ask for two most recent pay stubs – a written VOE will not suffice. I will most likely also ask for a letter on employer letterhead – explaining the promotion, when it was effective and what duties the borrower has undertaken differently, i.e., supervises other sales persons, etc.

Another red flag is income, taxes, deductions, with no cents, only whole dollars. I would suggest asking for a letter from the employer. Numbers that look squeezed in on pay stubs, W2’s – anything that looks suspicious should be questioned.

Fraud is getting harder to detect since just about all forms can be generated on the computer – therefore, it is important to verify any and all information that is questionable.

In closing this week – I would like to say – The fewer conditions the underwriter requests – the sooner the loan closes. The Loan Officer and Processor are the first point to making the loan close on time. ‘Til next week – Keep Processing. Next week, we will cover looking at the tax returns for borrowers receiving commission, bonus and tip income.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Mortgage Fraud Awareness - Part I of 5

noreply@blogger.com (Editor in Chief) — Thu, 12 Nov 2009 16:18:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Readers! I would like to say that I am most anxious to share with you some of my experiences in the real estate industry. As an FHA DE Underwriter for the past 15 years, there has been instances when an initial 1003 and the final 1003 had so many discrepancies, I was not sure it was the same person. As the loan processor, you are the first person after the loan officer to review the 1003. Review the information to verify it makes sense. Question the loan officer. The fewer questions (conditions) the underwriter has the quicker your loan will be approved.

Let’s look at some potential red flags on the initial 1003, which should be questioned prior to underwriting. It is important that the following fields of information be completed. In addition to the obvious such as name, address and previous address – it is imperative that the borrowers – date of birth; years of school; time at present residence and current and former employer with correct dates. Let’s discuss why these areas of information are important:

Date of birth – How old is the borrower. In most states a borrower must be 18 years of age to purchase a house. I have seen parents who try to use an underage child’s income in order to qualify. This is not acceptable, unless it is social security with a guaranteed three years of continuance.

Years of school – Does the years of school match the occupation of the borrower? If a borrower is stating he is a teacher and has 12 years of education, chances are the borrower may be a substitute teacher or a teaching assistant.

Time at present residence and previous – Again is the borrower 25 years old and states he “owns” his residence for 12 years. Chances are, he is living with his parents and not paying rent.

What makes these areas so important on the 1003? These initial areas on the 1003 are the start of the picture of the applicant. They can be reviewed rather quickly and you know immediately if there are any potential problems. When reviewing a 1003, as I do when underwriting, rather than asking 10 different questions – 10 different times, write notes and ask all questions of your LO at the same time or e-mail the questions. He in return can get back to his borrowers with one telephone call.

We will cover the employment and verification of deposit in another blog; if you have any ideas you would like me to address in a blog, please let me know. See you soon.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

FHA’S Reverse Mortgages for Seniors – Part 2 of 2

noreply@blogger.com (Editor in Chief) — Fri, 06 Nov 2009 15:44:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello All – Last week I covered the basic guidelines for the HECMs (Home Equity Conversion Mortgage). As outlined the guidelines are very basic since there is no credit qualifying; and could make an excellent source of additional income for seniors on fixed income. However, there are many questions that seniors as well as their heirs need answered before deciding to commit to the HECM.

First, I will re-iterate there are no asset or income limitations of borrowers nor is there a limit on the value of homes qualifying for the FHA Reverse Mortgage. However, the amount borrowed is limited to the maximum loan amount for the area of the property. The amount of loan allowable by area, in addition to the maximum loan amount by FHA, is based on the age of the borrower.

What are some of the most common questions asked by borrowers and their heirs?

The first questions usually asked is – What is a Reverse Mortgage and how is it different than a Home Equity Loan?

A reverse mortgage allows homeowners to convert the equity in their present primary residence into cash that does not need to be repaid until the property is sold. A Home Equity Loan on the other hand, is a loan that must be repaid monthly. If the borrower can qualify for a Home Equity Loan, they still must decide if they want to make a payment every month, which will reduce their spending allowance; whereas a Reverse Mortgage will increase their spendable cash.

How do I know if I can qualify for a FHA Insured Reverse Mortgage? To be eligible – the borrower must be 62 years old or older; own their own home either outright or with a small mortgage balance. You must receive consumer counseling from an approved HUD counseling agency who can also give you information on lenders who can process your mortgage application.

Why must a 62 year old person attend HUD Counseling? FHA wants to make sure that the person obtaining the Reverse Mortgage thoroughly understands all phases of the mortgage. If the borrower would like, it might be a good idea for the borrower to bring along a son or daughter or even accountant who can understand and explain the process to the borrower – also to feel confident the borrower is getting the type of loan that will get the results wanted.

What types of homes are eligible for a Reverse Mortgage? Your home must be a single family or 2-4 unit property that you own and occupy. Townhouses are eligible as well as detached homes. Condominiums are eligible if they are in an FHA approved project. Manufactured homes built after June 15, 1976 which are attached to a permanent foundation are also eligible.

Can the borrower lose their home if they outlive the loan? Absolutely NO!!! – As long as the borrower continues to occupy the property as their primary residence and all property taxes and insurances are current, and as long as the borrower meets the criteria of the Reverse Mortgage, they may continue to reside in the property.

Should I choose a lender who is recommended by my accountant or estate planner? That will be fine – if you are not charged a fee for the referral. However, if a fee is charged to you for a recommendation; keep in mind HUD provides this service free through the FHA counselors. There is also a listing of HUD approved lenders on line or you can call - - - - - - - 1-800-569-4287 – this telephone number also provides a list of HUD-approved counseling agencies near you.

After my loan is approved – how do I receive my payments? There are five different options for receiving payments:

1. You may receive equal monthly payments as long as one borrower lives and continues to occupy the property as a principal residence.

2. You may receive equal monthly payments for a fixed number of months.

3. Line of credit - You request payments when you need them, until you reach your loan amount.

4. You may receive payments for a number of months then decide you only want payments when you request them.

5. You may modify the term of the loan with the combination of line of credit and monthly payments for a fixed number of months.

It is important to remember that whichever option you choose for your payments – the loan does not get repaid until the property is sold or the borrowers no longer live in the property.

Reverse mortgages are becoming extremely popular for seniors. FHA’s reverse mortgage is a federally-insured private loan and it’s a safe plan that gives older Americans greater financial stability in this uncertain economy. You can use it to your advantage as long as you live in the property.

Until next week – Keep Processing. More Later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

FHA’S Reverse Mortgages for Seniors – Part 1 of 2

noreply@blogger.com (Editor in Chief) — Fri, 30 Oct 2009 14:59:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello All – I am sure that once President Obama has had time to digest all his duties, there will be changes in the mortgage industry; however, until then everything is pretty much status quo.

As everyone is aware, the declining stock market has affected the income of many seniors receiving IRA distributions and stock dividends. In this market of decline house prices in some markets – a Reverse Mortgage could still be the answer for seniors who need additional income.

The FHA Reverse Mortgage known as HECM (Home Equity Conversion Mortgage) is with a lending institution such as a bank, credit union or savings and loan company. Seniors homeowners who are age 62 and older can use the FHA program. The program will enable seniors with equity in their homes to convert this equity to additional income. Homeowners who feel this stream of income is for them must attend consumer education and counseling by a HUD approved counselor to determine this program meets their needs.

HECM counselors will discuss program eligibility, financial implications and other types of financing instead of obtaining a HECM plus provisions for the mortgage becoming due and payable. Upon the completion of the HECM the consumer should be able to determine if this program is for them.

Of course, homeowners must meet the eligibility criteria and must complete an application through an FHA approved lender.

The basic borrower requirements for the HECM program are: The homeowner must be 62 years old; the homeowner must own the property and living in the property as a primary residence. And the housing counseling mentioned above must be completed.

What determines the amount of mortgage the borrower will be entitled? The age of the youngest borrower will be taken into account; the current interest rate and the lesser of the appraised value or the FHA limit for the area the property is located.

Does the borrower need good credit? There is no income or credit qualification associated with this program. There is no repayment as long as the property is the primary residence and the closing costs may be financial into the mortgage.

The property can be a single family home or 2-4 unit home with one unit occupied by the borrower. The property must also meet FHA property standards and flood requirements.

Homeowners 62 and older who have paid off their mortgages and have only a small balance remaining and are currently living in their home are eligible to participate in this program. Now – how are the payments repaid? I know I said above no payments were required on the loan – that is true, however, the loan must be repaid at some point.

The borrower may receive monthly payments from FHA as additional income – or they can make their loan a line of credit and draw down the same as any credit line. The borrowers may also choose to make monthly payments on their loan. In addition – if the borrower’s circumstances change they can restructure their payment options for a nominal fee of $20.

Since lenders recover the principal, plus interest when the house is sold – FHA does not require monthly payments be made. If any home equity remains after the sale of the property, the remaining value goes to the homeowner, estate or heirs. The really criteria with this loan program is – you can NEVER owe more than your home’s value when sold.

If the sales proceeds are insufficient to pay the amount owed to the lender, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage.

Next week – we will get into examples of the amount borrowers could borrow and what criteria is used for determining the amount borrowed. We will also review frequently asked questions about this program.

So – until next week – keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Back to Understanding Basics – Part 3 of 3

noreply@blogger.com (Editor in Chief) — Thu, 22 Oct 2009 19:56:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody – As an underwriter, I cannot tell you how many discussions I have had over whether or not income can be included for qualifying. Before I start – the most important issue is to read the pay stub very carefully. If you remember nothing else about this blog – remember this.

If the borrower is getting paid 80 hours per pay period – he is receiving 26 pays per year. If the borrower is getting paid 86.67 hours per pay period – he is receiving 24 pays per year.

If you use the wrong number of pays per year when figuring income – chances are, your borrower may not qualify for the mortgage. With all the mistakes that can be made – this is one that is inexcusable, as far as I am concerned.

OK – now that I have gotten that pet peeve off my chest; let’s move on. In this wavering economy there are going to many more questions regarding stability of income. FHA requires that two years of employment be verified with the borrower explaining any gaps over one month. If the borrower indicates he was in the military or in school, the borrower must provide evidence with military discharge papers or school transcripts.

A borrower who changes jobs frequently within the same line of work but continues to advance should be considered favorable.

If a borrower has recently returned to work after an extended absence the borrower’s income may be considered effective and stable if the borrower has been employed in their current job for six months or more and the borrower can document a two-year work history prior to the absence from the work force. You may accept traditional VOE’s – however, if the company is out of business you may accept W2’s or old pay stubs.

Bonus and Overtime Income. If a borrower is receiving bonus or overtime income and they need it to qualify for the mortgage – it must have been received for the past two years and it is likely to continue. You must also average two years of overtime and/or bonus income.

Part time Income. Part time and Seasonal income may be used for qualifying if the borrower has had this type of income for past two years. Examples that would be acceptable, if the borrower has worked at Christmas time for the past two years or has mowed lawns for two years and the income can be documented through W2’s or tax returns, the income may be used. If a borrower states they mow lawns every summer and the income is not on their tax return – it cannot be used. However, if it is – remember to back out the expenses of mowing lawns.

Military Income. In addition to base pay, military personnel may be entitled to additional forms of income. Income from housing allowances, clothing allowance, flight or hazard pay, ratios and proficiency pay is acceptable, provided its continuance is verified in writing.

Child Support. Income from child support may be used to qualify the borrower IF it is likely to continue for three years. The borrower must provide a copy of the final divorce decree, legal separation or voluntary payment agreement and well as evidence that payments have been received during the last twelve months. Copies of cancelled checks are acceptable, bank statements showing the deposit for 12 months or court records showing receipt of payment may be acceptable.

Automobile Allowances and Expense Account Payments. Only the amount by which the borrower’s automobile allowance or expense account payments EXCEED actual expenditures may be considered income. The borrower must provide IRS Form 2106, Employee Business Expenses, for the previous two years to establish the amount of income that may be added to gross income. It must also be verified that this income will continue. The borrower’s monthly car payment must be treated as a recurring debt – it may not be offset by the car allowance.

I feel I have outlined the most common types of income that are questioned when process or underwriting a loan. Believe there are many more types, Trust Income, Interest Income, Rental Income, and Government Program Income. The list goes on – however, I feel we have covered the most common.

If anyone has a blog idea, please feel free to let me know and I will do my best to cover it.

So until next week – keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Back to Understanding Basics – Part 2 of 3

noreply@blogger.com (Editor in Chief) — Fri, 16 Oct 2009 16:02:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody – Cannot believe 2009 is going by so fast. As I stated last week – not much is really going on with changing guidelines, etc. with FHA, which is why I am going back to basics for a few weeks. Sometimes it is the basic that can be the most confusing.

So this week- we are going to cover Credit History. To start – let’s say - Past credit performance serves as the best guide for future credit performance. That is why the credit history of a borrower is so important. And as I always say – every borrower has a story, and just when I think I have heard them all – there is a new circumstance surrounding late payments, bankruptcies and late rent payments.

There are many different borrowers that run the gambit of, borrowers feel because they have declared bankruptcy, they will never be able to own a home; then some borrowers will call when they leave bankruptcy court and want to apply for a mortgage.

Let’s go over several areas of credit history that will need to be analyzed prior to getting loan approval:

Rent or Mortgage Payment History – This is probably the area that holds the most significant importance. The payment history must be verified through the credit report or independently receiving a verification from a management company. If the rent is paid to an individual, the borrower must product cancelled checks; no other form of verification is acceptable.

Recent Debts or Undisclosed Debts on Application. When the Loan Officer completes an application for a borrower, it is important that all debts be disclosed, this is the only way the loan officer can really qualify the borrower. If after the application, the credit report is run and there is additional debt, chances are, the borrower will not qualify for the mortgage. Once a credit report has been ordered, it is equally important to review the debts listed on the original application with those with balances on the credit report.

Review all inquires. Have any new accounts been open? Ask the borrower to address each inquiry separately and given an explanation of why the inquiry exists. Chances are, if the borrower has been shopping for a mortgage, they will be explainable. Pay close attention to any inquiries from retail companies and automobile dealers. Has the borrower bought a new car or a big retail purchase (computer, TV) that has not yet appeared on credit report? An explanation is necessary for all inquiries.

Collections and Judgments – All court ordered judgments must be paid off before the loan is eligible for FHA insurance. If the borrower has made arrangements to pay off a judgment and has been making payments for at least 12 months and can provide cancelled checks to support the payments, the judgment may not need to be paid off. An acceptable letter of explanation for the judgments must be provided by the borrower. A letter of explanation is needed for the collections; however, they do not need to be paid off.

Previous Mortgage Foreclosure. If a borrower has had a previous foreclosure for a primary residence or other property foreclosed within the previous three (3) years, a deed in lieu of foreclosed – the borrower will generally not be eligible for a new FHA insured mortgage. However, if there were extenuating circumstances, that were beyond the control of the borrower and the borrower has re-established food credit since the foreclosure, the lender may grant an exception to the three-year requirement. Extenuating circumstances include serious illness or death of a wage earner and docs would be required to support these circumstances. However, extenuating circumstances, DO NOT include the inability sell the house because of job transfer or relocation to another area.

Bankruptcy – A Chapter 7 bankruptcy does not disqualify a borrower from obtaining a FHA insured mortgage if at least two years have passed since the date of discharge. However, the borrower must have re-established good credit or chosen not to incur any new credit obligations. An elapsed time of less than two years, but NOT less than 12 months may be acceptable if the borrower can document extenuating circumstances beyond his or her control and has establish an ability to manage their financial affairs in a responsible manner. The lender must document the borrower’s situation causing the bankruptcy will not like re-occur.

Chapter 13 – does not disqualify a borrower from obtaining an FHA-insured mortgage. However, the lender must document one year of the payout period under the bankruptcy and the borrower’s payment performance under the plan must be satisfactory, (i.e. all required payments on time). The borrowers must receive permission from the court to enter into the mortgage transaction.

Consumer Counseling Payment Plans – Participation in a consumer counseling payment plan does not disqualify a borrower from obtaining a FHA-insured mortgage. However, the borrower must provide documentation that they have satisfactorily paid all payments under the plan for 12 consecutive months. Less than 12 months of payments is not acceptable. In addition, the borrower must receive written permission from the counseling agency to enter into the mortgage transaction.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Back to Understanding Basics – Part 1 of 3

noreply@blogger.com (Editor in Chief) — Fri, 09 Oct 2009 15:34:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody – I hope everybody is keeping busy these days. The refi market is definitely picking up and I see many more processor and underwriting jobs on CareerBuilder and Monster. In fact, I received calls from four headhunters in the past week asking if I were interested in a FHA Underwriting job; however, since I am currently employed and I am currently happy in my job, I decided to pass; however, I asked they please keep me in mind – because you never know. Those of you who know processors looking for jobs might suggest they post their resume on CareerBuilder and Monster.

Since I have been unable to find any new earth-shattering news regarding FHA, I thought it might be a good idea to go over some basic processing that I have found there are always questions. We will only cover the different statuses of borrowers in the transaction today.

Borrowers, Co-Borrowers and Co-Signers – Usually there are no questions regarding a borrower and co-borrower; the confusion usually is associated with co-signers on a mortgage. Let’s try and set this straight –Borrowers and co-borrowers take title to the property and are obligated on the mortgage note. All income, assets, liabilities and credit history are taken into account to determine if the borrowers meet the guidelines.

Co-signers – do NOT hold ownership interest in the property. However, they are responsible for repaying the mortgage should the borrower and co-borrower not meet their obligation. The co-signer’s income, assets, liabilities and credit history are considered in determining whether to give the borrowers the mortgage. The co-signer must also complete and sign the loan application.

FHA does not permit anyone to take an ownership interest in the property at settlement without signing the note and security instruments.

Another area that always raises questions is whether a Non-Permanent Resident Alien may purchase a property. According to FHA if the non-permanent resident alien is purchasing a primary residence and has a valid Social Security Card and the borrower is eligible to work in the USA, the borrower may purchase a property.

However, if the authorization for temporary residency expires within one year and a history of residency renewals exists, we may assume continuation of living in the USA will continue. If there are no prior renewals, the lender must determine the likelihood of renewal, based on information received from Immigration Services.
Non-US Citizens with no lawful residency in the US are NOT eligible for an FHA loan.

Questions seem to arise when an applicant is married and the spouse is not on the mortgage nor will be on title. This area of concern is dictated by State law. Some states in order to perfect a valid and enforceable first lien, the non-purchasing may be required to sign either the security instrument or docs stating that he or she is relinquishing all rights to the property. If these documents are executed by the non-purchasing spouse they are not considered a borrower and need not sign the application. However, in all other states, the non-purchasing spouse is not to appear on the deed or otherwise take title to the property.

Spouses who sign relinquishing their rights to the property, pursuant to applicable state laws, do not need to sign the mortgage note.

Unless specifically excluded by state law, the debts of the non-purchasing spouse must be included in the borrower’s qualifying ratios if the borrower resides in a community property state or the property to be purchased is located in a community property state. The non-purchasing spouse credit history is not to be considered for credit denial; the non-purchasing spouse’s debts must be included in the debt-to-income ratio.

I hope this recap of some basic information has been helpful – next week, I will continue with other “basic” information.

Till next week – Keep processing. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)

Plain Vanilla Home Loans

noreply@blogger.com (Editor in Chief) — Thu, 01 Oct 2009 16:22:00 +0000

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello Everybody – Hope everyone is keeping busy. These days the mortgage business never ceases to amaze me. When perusing the newspapers and internet this week for a topic – I came across “Vanilla Home Loans” – I thought what next? While I have felt all along that there needed to be some regulations for the unscrupulous – I am not sure about these Vanilla Home Loans.

Just what is a Plain Vanilla Home Loan? As released by the Associated Press - According to President Barack Obama, if he gets his way – consumers who take out mortgages would automatically get a “plain vanilla” loan. A plain vanilla loan is considered a traditional 30 year fixed rate loan. Now – perhaps if consumers would like sprinkles on the loan that may include an adjustable rate or a loan that was riskier.

President Obama would like to revamp financial regulations to product borrowers from confusing and high-risk mortgages.

Government officials want to make the process of getting a mortgage as simple and abuse-free as signing up for a retirement savings plan. This I absolutely do not understand – the mortgage process is not that simple. If in fact the Vanilla Home Loan is implemented – I could see where less people would qualify for a mortgage. I feel it could actually backfire.

The questions that would arise would be – what loan-to-value; what DTI would lenders require for the Plain Vanilla Mortgage. Approximately 30-40 years ago, I think you could say the Plain Vanilla Mortgage existed; since most mortgages were given by loan Savings and Loans Institutions. You could go in talk to the bank manager – give him a pay stub; run a credit report and Congratulations you have a home mortgage.

If the Obama plan for simplifying the mortgage process is approved – here’s how it might work:

The government would give its seal of approval to a handful of mortgage types – a standard 30 year fixed rate mortgage and perhaps a few varieties of adjustable rate mortgage. For a loan to get the “vanilla” label, the lender would have to verify income and have the borrowers set aside money for property tax and insurance. (I am assuming they mean escrow for taxes and insurance).

To get an “unapproved government loan” the borrowers be warned about the risks – which would be a good thing. I am personally having a hard time wrapping my head around these “vanilla mortgages”.

In reading the documents that have so far been released regarding the “vanilla mortgage” – it is really for the protection of the consumers – who have expressed they did not understand the loans they signed up for during the housing boom. Many expressed concern they were not aware when their rates adjusted their mortgage payment would be much higher.

The Obama plan also calls for fees that brokers and lenders receive tied to inflated mortgage rates.

Brokers have already seen their market share dwindle – brokers currently only account for 20 percent of new loans. If these mortgage fees were eliminated that would be the kiss of death for mortgage brokers.

I will continue to follow this issue of the regulations of the mortgage loan/process and whether the “Vanilla Home Loan” will pass the test of time.

In closing – let me say – I hope every body is staying busy. More later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

SOURCE: Published by NAMP Publishing Group, a division of the National Association of Mortgage Processors (http://www.MortgageProcessor.org)