Loan Processor Blog :

FHA Condos & Right of First Refusal

noreply@blogger.com (Editor in Chief) — Fri, 21 Nov 2008 18:35:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I had a great question come in yesterday that I thought would make a great topic for this week’s article. An originator asked- “How does HUD define a homeowner association’s “right of first refusal” regarding condominium project review for approval or for spot loan review for approval? What does that term mean?”

The reason this question is an important one regarding FHA financing is because it is a HUD requirement that the subject condominium association not maintain a right of first refusal within the association’s decs and bylaws.

A right of first refusal places a restriction on conveyance of the seller’s title and in short, allows the HOA the right to buy a unit at the price and terms the owner might negotiate with an eligible buyer. Often the association elects to include a right of first refusal clause in their decs and bylaws because they do not want to allow one of the unit owners to sell at a discounted sales price because they fear that their own market values would be adversely affected.

HUD, however, views a right of first refusal as having the potential to negatively impact the marketability of the property because potential buyers may not be so thrilled about proposing an offer only for it to possibly be refused because of the HOA’s right to override the offer and thus purchase the property themselves. HUD views the right of first refusal as a restriction and thus, an added risk for the property itself.

HUD wants to make sure that the unit owner has the right to sell, transfer, or otherwise convey his/her condominium unit to an eligible buyer without the association having the right to first review and approve or refuse the buyer.

I realize that right now out there, this simple little requirement is cause for a LOT of loan denials for units in condominium projects that indeed do maintain a right of first refusal among their HOAs. Unfortunately, there is not a lot that can be done about it aside from the association electing to record an amendment to their decs and bylaws removing the right of first refusal.

I often see and hear the question or proposal that the HOA will simply waive the right of first refusal so that a particular unit can meet spot loan requirements and be approved. Such is not allowed by HUD, however. HUD expects the association’s decs and bylaws to clearly state that a unit owner may transfer his or her unit without regard to restrictions of any kind. They want to assure that any right of first refusal in the condo project’s documents do not have the potential to impact the rights of a mortgagee (the lender) or its assignee.

For more information on FHA spot loan condominium requirements, refer to Mortgagee Letter 1996-41 and the spot loan checklist included within.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Let’s Talk about the HERA Tax Credit

noreply@blogger.com (Editor in Chief) — Fri, 14 Nov 2008 19:24:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

The recent passage of the Housing and Economic Recovery Act brought forth big buzz in regards to the $7500 tax credit that will be provided to homebuyers. Let’s review this subject in a bit more detail since January 31 is just around the corner!

First, in order to claim and receive the tax credit, the filer(s) must be first-time homebuyers and they must close on the purchase of the home between April 9, 2008 and July 1, 2009. The actual tax credit will equal 10 percent of the purchase price for a maximum amount of $7500. If the return is filed for married persons, each spouse will receive up to $3750 credit.

A first-time homebuyer is defined as a person who has not had ownership in real property as a primary residence for the previous three-year period prior to settlement on the purchase. For a married couple, both histories are taken into consideration. If either borrower owns or has owned a second home, vacation home or investment property in the prior three years, they are still eligible as long as they did not own a primary residence.

Sounds like a great deal, right? Sounds like a great incentive to stimulate our crumbling housing market and keep realtors employed? Well yes if you or your borrower qualifies to receive it!

First off, the credit isn’t just free money. It’s actually an interest-free loan that is repayable over the following 15 years. So for a credit totaling $7500, you would need to deduct $500 from each of your tax return filings for the following 15 years.

Second, if the homebuyers purchase the home using any home loan program connected with state-revenue bond funding, they are not eligible to receive the tax credit whatsoever. With the cease of seller-funded downpayment assistance programs, many borrowers are purchasing homes utilizing special state-specific programs that offer grant funding for downpayment assistance and closing cost credits.

Third, if the single borrower’s gross adjusted income exceeds $75000 or joint borrowers’ gross adjusted income exceeds $150,000 total, the amount of tax credit starts to phase out and the amount lowers. For single borrowers whose gross adjusted income exceeds $95000 and joint borrowers whose gross adjusted income exceeds $170,000, the tax credit eligibility no longer applies.

A few other notes of importance:

• A borrower who constructs a home on land he/she already owns is eligible for the credit as long as he/she has not owned any other real property as a primary residence in the prior three year period. The borrower must take occupancy of the newly constructed property between April 9, 2008 and up until July 1, 2009.

• Single family detached, attached, condominiums, manufactured homes and houseboats qualify

• There is no special claim form or application process. The tax credit is something the qualifying party will be able to claim within their federal tax return when they file in 2008 or 2009.

• For purchasers in the District of Columbia, only one tax credit may be claimed for first-time homebuyers. They may not claim the existing DC credit in addition to the HERA tax credit.

• Permanent and non-resident aliens are eligible in addition to U.S. Citizens as long as they meet the definitions explained in IRS Publication 519.

So for realtors and originators, it’s important to know and understand the various provisions associated with the HERA tax credit. For those buyers who meet the eligibility criteria, this tax credit could be a great benefit.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Moving “Back to the Future”

noreply@blogger.com (Editor in Chief) — Fri, 07 Nov 2008 18:22:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

For those of you like myself who are industry veterans, perhaps you remember the “good ol’ days” back when we had to hand-type all of our loan application forms, verifications, settlement documents, truth-in-lending, good faith estimates, … And do you remember those old fashioned perforated HUD and VA forms that we had to hand-type and separate? It sure seems like a lifetime ago doesn’t it?

I’ve been hanging out for so many years in this business that I even remember what it was like before automated underwriting came along and spoiled everybody! I remember how EVERYTHING used to require full documentation for underwriting submission. Those were the days when all files and all loan types required 30 full days of paystubs, two years W2s, two years tax returns for self-employed borrowers, three months bank statements, … there were no documentation waivers, no limited documentation options, and no such thing as stated or no documentation-type loan programs. All files had to be sorted, acco-clipped, copied and overnighted. We spent a great deal of time “pushing paper” whereas so much of that has since gone by the wayside. (And let me tell you- I will forever feel a personal sense of guilt for killing so many helpless forests due to all the paper I have seen in all my mortgage years!)

I recall the very first test stages of automated underwriting. I was fortunate to have worked for a lender who was allowed to test Desktop Underwriter and Loan Prospector in the early stages. I remember how shocking it was that we could really get away with submitting only one paystub and on occasion a W2 or a full VOE instead of gathering numerous paystubs and added documentation. It took quite awhile to get used to those major changes but holy cow did it make loan processing move a lot speedier once those AUS systems were rolled out! We no longer had to wait for so many borrowers to dig up their documentation and closings started happening a lot more timely. Rush files suddenly didn’t seem like far-fetched fairy tales! We could really close loans in just a matter of days if all of our factors fell into place!

But looking at the industry today, I have to wonder if the automated underwriting systems have helped us or hurt us. And even more importantly, have those same AUS systems helped or hurt the major population of mortgage consumers out there? It would certainly seem to me that somebody somewhere along the way was a bit off in their research regarding the majority of factors that contribute to an increased potential for loan default. I am still blown away even today when I see borrowers with average fico scores in the low 600 or high 500 range receiving approve/eligible or accept findings with DTI ratios close to or above 50%. How on earth can we justify these things in today’s market? How can we go to bed at night knowing that even though a computer tells us the loan is approvable, our gut tells us there’s a pretty darn good chance the borrowers will default on their loan in the near future?

Nowadays, nothing with automated underwriting can be taken as a guarantee. I am seeing many lenders hammering the automated underwriting systems by creating their own more stringent guidelines and in my opinion, that’s a good thing. I realize that comment probably “stirs things up” with a lot of originators who would like to disagree but the bottom line is this- we need to go back to the old days. We need to get ourselves back to requesting and reviewing full loan documentation for each and every borrower. We need to be validating and verifying every single source of income being used to qualify, we need to verify that the reserves the borrower says they have really do exist, we need to analyze the debt-to-income ratios to make sure that the overall credit risk to each borrower is warranted for approval, we need to make sure that the borrower is financially stable and can handle the responsibility of homeownership. We need to get back to requiring first-time homebuyer education for all of our first time homebuyers. We ALL need to take advantage of the industry tools and resources that have always been out there and available.

Unfortunately, Desktop Underwriter and Loan Prospector created a fictitious sense of security for the entire industry and we are now paying the price for those assumptions. It’s time we take a step forward by taking a step back to the future.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

The importance of Red Flags

noreply@blogger.com (Editor in Chief) — Fri, 31 Oct 2008 21:02:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This week I dealt with something I never thought I would see with my own eyes. I’ve heard the stories, I’ve read the articles, I’ve done the research, I’ve been involved with auditing and still, I never thought I’d see it. This week I uncovered a fraud ring which involved straw buyers and interested-party connections that started with the referral source and ended with the settlement agent. And it may sound silly, but I feel violated.

It angers me to pieces that someone had the nerve to try and run these loans through our system- the system that we all work so darn hard to build and protect. It infuriates me that people have become so greedy, so hungry for money that they would take such risks to commit fraud with no regard for what it does to our business.

I’m angry not just for me, but for the founder of the company I work for who has spent so many years building his dream organization, for the hundreds of hard-working employees who slave and grind every day and deal with the demands and the stress of our business, I’m upset on behalf of the trainers and the organizations whose main focus is to educate all of us, I am absolutely livid for the legitimate homebuyers and homeowners whose property values are affected by these fraudulent borrowers, properties and values. I am frustrated that something I never thought I would see was right there in front of me! But I am damn proud to be a person who was able to recognize the red flags, pose the questions and stop these loans from getting through our system!

I cannot stress enough the importance of paying close attention to detail in each and every loan file that crosses your desk. A few things I try to watch for on every loan so I am able to catch potential misrepresentation:

• Always pay attention to the detail within the credit report. Don’t just go straight to the fico scores and tradelines. Take a look at the reported address history, the employment history and the inquiries. If the address history doesn’t make sense with the address history the borrower has listed on the 1003, take a look at the pay stubs, W2s and bank statements in the file. Are there inconsistencies? What about the address on the drivers license? If you have any concern, try doing a reverse address search at www.411.com. If that doesn’t confirm that the borrower resides at the stated address, try validating the address with www.usps.com.

On one particular loan file, I suspected an immediate straw buyer when I noticed the address listed on the 1003 where the borrower indicated living for 4 years wasn’t listed in the address history on the credit report. I immediately went to www.411.com and tried a reverse address search. When I entered the address, I received a message validating the address wasn’t found. Next I moved on to www.usps.com and attempted to verify the address there. I found that the street existed but that all house numbers on the street contained 5 digits. The 1003 residence address and the borrower mailing address that appeared on all bank statements and pay stubs contained only 4 digits. It was at that point I suspected that I had a potential straw borrower along with manufactured pay stubs, W2s and bank statements.

In addition, this particular borrower had provided an illegible photo in the copy of his identification. And the id provided was from a state where the address history showed the borrower has never been reported to live. This furthered my suspicions.

• This file also included a relocation letter stating that the borrower was being relocation with his employer from one state to another. It didn’t mention any starting salary and there were grammatical errors within the letter. I also compared the type in the letter and found it to be very consistent with the type of the supposed pay stubs and the offer to purchase for the subject property. I turned again to www.411.com And tried to find a listing for the business in the city the relocation letter stated the borrower was being transferred to. No listing was found.

• Another clue was the offer to purchase agreement. It was not on a standard state realtor association form but rather a created form. The signature of the seller was not legible and there was no individual’s name typed or printed to provide identification. The seller was an LLC. I was able to confirm the LLC was registered with the state, but was not able to confirm who signed on behalf of that LLC.

The amazing thing on this situation was the blatant nerve of this perpetrator. I recognized the name of the LLC as soon as I identified the selling party- I’d seen it before. When I traced back I was able to identify that a borrower with the exact same name has applied for a loan to purchase the exact same property only a few short months before this attempt. How stupid, right?

I immediately requested this loan be stopped and took a list of my questions and concerns back to the processor and originator. I informed them there was absolutely no way we were allowing this loan but I wanted to see the reaction I would get from my list. As I anticipated, as soon as the list of questions was presented to the parties involved, the originator received an email sent from one of the parties on behalf of the borrower that he was no longer interested in doing business with us.

In the meantime, I had requested that the processor use the signed 4506-t to request tax transcripts from the IRS. As I had suspected they would, they came back validating that no tax returns had been filed under that social security number or borrower in the previous two years. It was then that I was 100% certain I had uncovered a straw buyer and a ring of fraudulent parties. I had all the evidence we needed to officially declare misrepresentation and fraud.

I am hoping my story might help some of you to pay close attention to the details within each loan file and to take the additional time to validate and verify exactly who you are dealing with on each transaction. The four deals I went on to tie to this ring saved our company close to $500,000 in fraudulent loans. To me, it’s been a week of work well-spent!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

The Importance of Validating the Seller’s Identity

noreply@blogger.com (Editor in Chief) — Fri, 24 Oct 2008 18:13:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

With the challenges in our industry today, it’s more important than ever to verify and validate data within each loan application file. Many investors are no longer even honoring limited documentation options offered with AUS approvals and instead are requiring minimum documentation standards for verifying and validating income and assets.

Another component of managing risk within your organization is identifying and validating all of the interested parties associated with each purchase transaction. You may know your borrower, but are you clear on who the seller is?

One of the first things you as a processor need to do on each purchase is thoroughly review the purchase agreement to identify the important transaction details and also to identify all parties involved with the deal. Some states have much more organized and well-communicated sections for printed or typed names of the realtors, sellers, attorney etc. If yours is a state like Wisconsin which usually does not print out each name so it can be read clearly, you need to make sure you know who the seller is. Sometimes that may mean making a phone call to the listing agent to identify that person or more importantly, that entity.

When you identify that the seller is a non-individual or that the seller is signing on behalf of a partnership, LLC, or trust, further details should be sought out to validate who that person really is, if indeed he or she really is an active owner of the business entity and if indeed he or she has the right to be signing on behalf of that business.

Property flipping has become a major problem in our industry and with the challenges of today’s market, you can bet people are more anxious than ever before to dump portfolios of properties that aren’t selling. It’s common for an LLC, partnership or trust to move properties back and forth between their members and various businesses simply to skim the profits from the sales and absorb the tax benefits. The major problems come in when the realtor and in some cases, the attorney or settlement agent are all involved in the business entity relations. Often they collaborate to inflate the true values of the properties which obviously increase the profit margins for the business entities.

When you identify that the seller is involved with an LLC, partnership or trust, be prepared to seek out additional information such as full disclosure of all members of the business and something in writing from the business allowing permission to the person signing on its behalf. In extreme cases, underwriters will use their discretion and might require additional documentation to validate the seller’s identity as it relates to the transaction.

And remember, by law any parties involved in a transaction that are related to each other either by blood or through business are obligated to disclosure their mutual relationship in writing. Be on the lookout for those types of disclosures within the purchase agreements as well.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

The Importance of Credit

noreply@blogger.com (Editor in Chief) — Fri, 17 Oct 2008 15:31:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

There is no question about it- fico scores and credit requirements have moved to the forefront of lending guidelines. And unfortunately, time and time again I’ve learned how little consumers really know and understand about credit. I personally think our government and our educators do a pretty crappy job of teaching consumers what is really important to know about their credit history and about credit reporting in general. But there are so many great tools out there that we have opportunity to share with our families, our friends, our neighbors and our communities. Today’s article will teach you how to find and utilize the tools I’ve made use of over the years.

First off, I want every single one of you to do the following: Go to www.annualcreditreport.com and request your free credit report from each of the three major credit bureaus. There is no charge for this service and in fact, it is your legal right. A federal law called the Fair Credit Reporting Act (FCRA) provides that every consumer is entitled to request and receive a copy of his/her free credit report at least once annually from each of the three major credit reporting companies. If you’ve never heard of this, refer to the Federal Trade Commission’s bulletin called Your Access to Free Credit Reports which explains in further detail.

When you play the role of consumer, it gives you an advantage out in the market because you’re able to take what you learn and use it to help educate others. This is what I did many years ago when I accidentally stumbled upon a lot of important credit information at the FTC website. I’ve used the information to help many borrowers monitor and repair their outdated, duplicated and erroneous credit reports at absolutely no cost to them. I’ve even used this process to keep my own credit report up-to-date and free of the errors that can cause fico score depletion.

Beware of other credit companies that advertise and try to sell you “free” credit reports. The ONLY federally approved website appointed to comply with the Fair Credit Reporting Act is www.annnualcreditreport.com. Upon requesting and receiving your report from each of the three major bureaus, Experian, Equifax and TransUnion, you will want to review the data for accuracy and make notes of those tradelines that are not reflecting correct and current data. If you find that any of the data is duplicated, inaccurate, not rated current, or that doesn’t even belong to you, you have the ability to dispute those tradelines and to request an investigation. These procedures are clearly outlined in the FTC bulletin called How to Dispute Credit Report Errors. The bureaus have 30 days in which to complete their investigation and you will be notified of their findings when the investigation is complete.

The entire process is simple, secure and most importantly, it is absolutely FREE to you as the consumer! Ignore all of those other credit companies that offer you their services with fees and charges. They are NOT offering you anything that you cannot accomplish yourself without cost! Anyone can handle these processes and will be much wiser as a result. In addition, corrections to the reported data may render improved higher fico scores in many cases.

The FTC also provides other bulletins that provide additional pointers and information such as the booklet Building a Better Credit Report,Getting Credit: What you Need to Know About Credit, Credit and Divorce, and Need Credit or Insurance? Your Credit Score Determines What You’ll Pay. I have used these resources many times over the years to assist family members, friends and borrowers learn more about their credit reports and repair their erroneous credit.

The FTC also offers opportunity for you to request large quantities of the consumer booklets, bulletins and brochures through their bulk orders website and many allow you up to 100 quantity at no charge! These are wonderful marketing materials and can be used to distribute at seminars and conferences.

Take this opportunity to read up and educate yourself on credit and be sure to pass the information on to others who may benefit as well!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Hope for Homeowners- Does it give US any hope?

noreply@blogger.com (Editor in Chief) — Fri, 10 Oct 2008 16:44:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This past week or so, I’ve had many people asking for my advice and overview of Hope for Homeowners. Unfortunately, there seems to be a lot of info out there on the program from HUD, but no word as far as I’m aware of as far as a single lender that is offering the program out for brokering. I’ll be honest, I don’t expect we’ll see many if any.

It sounds like a great option on paper and seems to be enough to peak the interest of many originators who are looking for any possible signs of life out in the housing market but let’s look at this from a business perspective - what lender out there wants to take in any more risky loans at this point? Their portfolios are already overflowing with defaults and late payments. I suspect that H4H will be utilized mostly by those lenders that service their own loans as a way to assist homeowners in trouble so that they can avoid costly foreclosure and legal fees.

I don’t know about anyone else out there but I am still just absolutely dumbfounded that what is happening in our country was ever allowed to happen in the first place and quite frankly, I’m really angry about it. I am furious that people with Harvard and Princeton degrees who grew up with silver spoons in their mouths were allowed to make decisions to create and offer loan products to people who clearly never came close to qualifying for a mortgage.

It was all about the mighty dollar to them and nothing about common sense. They didn’t give a damn about consumers. That these people in these high-ranking positions were allowed to taint the image of the industry that so many of us dedicate our time and our lives to makes me absolutely livid. I don’t know about you, but I want answers and I demand that people be held accountable for their bad decisions and mismanagement. It shouldn’t have required rocket scientists to realize that people with no money in the bank, 60/80 ratios and ridiculously bad credit probably shouldn’t be approved for a 100% LTV mortgage.

I ran across a few opportunities in the past few years where I could have placed borrowers in sub-prime loans but I flat out refused to do it. Today, looking at the state of our economy it makes me really proud that I stuck to my morals and that I maintained my integrity. There is one couple that I am still communicating with who actually valued my opinion back when they approached me to buy a home in 2006. I could have stuck them in a sub-prime loan and made a bundle but I chose to take the high road, explain to them why I couldn’t do it to them and I offered to allow them to seek out the lender down the street I knew would jump at the chance.

Fortunately for them, they listened to my advice and I thank my lucky stars for them every single day that they did. Their lifestyle at that time would surely have lead them to the default and foreclosure status so many others are seeing right now. I just knew it wasn’t right for them and their credit and family financial status were worth more to me than a paycheck. They have followed along with me for this past year and a half and are working toward reaching the goals we set for them back in 2006. Eventually, I will get them into a home but only when I am 100% certain it’s financially smart for them and their family.

The one good thing to come out of all this crisis is the “changing of the guards” along with a serious “house cleaning” across the industry. I am guessing that many of the originators who jumped into our industry when “the getting was good” are long gone and that we’re left with those of us who take things seriously and maintain our stance on common sense no matter the price.

Even if you’re not able to assist troubled homeowners by offering them the Hope for Homeowners program, please do what is best for them and point them in the right direction. Be sure to visit the list of resources that HUD offers at www.fha.gov and suggest that they visit the site as well. HUD is expected to issue a list of participating lenders in the very near future and you will find the list there when it’s posted.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Standard FHA Processor Duties-GSA checks

noreply@blogger.com (Editor in Chief) — Fri, 03 Oct 2008 16:33:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

One of the standard FHA processor responsibilities is obtaining GSA checks on all FHA loans. But what on earth are these things and what do they mean? Let’s take a closer look at these lists.

GSA stands for General Services Administration which is the federal agency that provides the EPLS listing. EPLS stands for Excluded Parties Listing System. The Excluded Parties Listing System (EPLS) is the electronic version of the lists of parties excluded from federal procurement and non-procurement programs which identifies those parties excluded throughout the U.S. Government (unless otherwise noted) from receiving Federal contracts or certain subcontracts and from certain types of Federal financial and nonfinancial assistance and benefits.

EPLS suspensions are imposed for criminal and/or serious HUD program violations which can include use of false documents to originate FHA-insured mortgages, diversion of project assets, embezzlement, theft, forgery, false statements; false claims and bribery. Persons found on the list have been added from such occupations as landlords, loan officers, builders and developers, real estate brokers and agents, management agents, appraisers, inspectors and contractors.

As a processor, your responsibility is to conduct a name search for each borrower, seller, loan originator, real estate broker/agent and appraiser to assure that none of the parties to the FHA transaction are found on the EPLS list.

To conduct GSA checks you will need to follow these steps:

1. Go to http://www.epls.gov/
2. Click on Multiple Names which can be found in the left hand column of the page
3. Enter the name of each borrower, seller, real estate agent, appraiser and loan originator (last name, first name) in the data fields
4. Make sure that Exact Match is the search method selected and click Search
5. Print out each search result screen and add it to the FHA loan file
6. Add comments in section 16 of HUD 92900 Mortgage Credit Analysis Worksheet in your software system to confirm each check has returned no results.

The goal of the search is to receive a message indicating “Your Search Returned No Results.” However, if the search does return a result, you must first determine if the party identified in the result is the actual party associated with the FHA transaction. Often this may require that you complete additional search methods. If after conducting a more specific search you indeed do determine that an individual is the same person associated with the FHA transaction, you would need to contact the federal agency that took the listed action against the party. Agency contact information will be available with a link included with the search result.

You will find helpful search tips at http://www.epls.gov/epls/jsp/searchHelp.jsp,

Frequently asked questions at http://www.epls.gov/epls/jsp/FAQ.jsp

You’ll find further explanation of Government Debarment and Suspension in Part 24 of Title 24 at http://www.access.gpo.gov/nara/cfr/waisidx_06/24cfr24_06.html.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Keeping Positive amidst a Negative Marketplace

noreply@blogger.com (Editor in Chief) — Fri, 26 Sep 2008 19:58:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I’ve never seen panic in the industry the way I’m seeing it this past week. It seems the news media is loving every minute of the negative publicity they’re able to apply to our industry nowadays. With the bailouts of Fannie Mae, Freddie Mac, AIG and the shutdowns of some pretty major banks, these are crazy times - no question about it.

But I’m here to tell you that it’s not all bad news out there. I want to share with you that there are still success stories out there and that there are still opportunities for every single person that can find the positives in this negative market. In my opinion, there has NEVER been a better opportunity for you to shine! All it takes is knowledge because as the old saying goes, “knowledge IS power and power IS success!”

If you monitor the Mortgage implode website, you know how many banks, brokers and lenders are going down on a daily basis. But not all of them are failing. As a perfect example, I am fortunate enough to belong to a company who is finding better success today than we’ve ever seen! Our numbers are up 55% from last year, we are so busy in underwriting that we can hardly keep up and our recruiting is bringing in many of the biggest producing originators who are out there looking for jobs! So how is it that Fairway Independent Mortgage is succeeding where others fail? It’s because we never stop pointing out the positive opportunities to our sales force. Their motivation is what drives our profit margin.

I’m not an originator but I’ll tell you exactly what I would do if I were one - I’d get up off my chair. These past few years have created some bad habits, some lazy habits that have to be corrected if you are to succeed in these challenging times. These days, customers aren’t going to just bang down your door unless you give them a reason to. Get out there and use this time to re-establish relationships, to get in front of realtors, to build relations with new builders, and put yourself in positions that involve you with the uneducated consumers in your communities. All of these people are potential customers and referral sources and right now, they can benefit from YOUR reassurance!

Here are some suggestions:

• Guidelines have tightened and they will continue to tighten. Lending is not as easy as it has been. Credit quality is becoming more and more important. How about using the following consumer resources to offer free consumer information seminars in your community?

• Federal Trade Commission Consumer website provides printable pamphlets, brochures, recorded education information, all by specific topic. They also allow bulk orders of consumer pamphlets.

I LOVE this information. I have utilized many of these resources myself over the years to help educate borrowers, originators, processors and managers. There are some absolutely wonderful materials on the FTC website that can help you help others!

• Many realtors, builders and consumers barely know how to spell FHA much less do they understand HERA or other changes and updates sent out by HUD. How about blasting out informative news bulletins, newsletters or mailers to your entire database of existing contacts to generate interest and to re-connect with them? When you show an interest and provide benefit to them, I think you’ll be amazed at how much they will appreciate your efforts. Gaining their trust will earn you potential business.

• Mortgage Bankers Association provides a great HERA Resource Center where you’ll find helpful explanations and “plain English” analysis of the many sections of the H.R. 3221 that are of interest to everyone in our industry and to the consumers it may affect.

The most important thing to do in this market is to allow yourself the determination to stay positive. Surround yourself with positive resources, positive influences and positive people. Make it your ongoing goal to seek out the positives among all of the negativity out there. I believe in each and every one of you. Believe in yourself because YOU can do it!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Analyzing Risk when a “Loophole” is Present

noreply@blogger.com (Editor in Chief) — Fri, 19 Sep 2008 17:39:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This past week I jumped in to assist our underwriting department with FHA scenario reviews and to monitor incoming questions. I’ve always respected underwriters for the tremendous amount of pressures they have to deal with but I realized flat-out without question why I never took that path on a permanent basis. It always seemed to be the natural career path up the ladder for me with my many years of processing and compliance experience but after manning that desk for an entire week I concluded once again that I just don’t have that kind of patience! God bless them all for what they do every day and especially right now with this DPA crunch going on!

I noticed something last week that brought forth some real concerns. I felt strongly enough about the issue to mention it with our national underwriting manager and our Chief Operating Officer. What I noticed was an unprecedented number of situations with borrowers wanting to purchase FHA-secured homes without selling their existing homes. In some cases the existing homes were secured with FHA financing and in others FHA wasn’t involved with the existing homes. In 16 years I’ve never seen so many of these cases.

Unfortunately HUD has a pretty major “loophole” sitting there with a bulls eye on it for these situations. Take a look at HUD Handbook 4155.1 chapter one, paragraph 1-2A which stands out to me like a bloody thumb screaming “take advantage of me, take advantage of me! “

A. Relocations. If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance from the current principal residence, the borrower may obtain another mortgage using FHA insured financing and is not required to sell the existing property covered by a FHA-insured mortgage. The relocation need not be employer mandated to qualify for this exception. Further, if the borrower returns to an area where he or she owns a property with an FHA-insured mortgage, it is not required that the borrower re-establish primary residency in that property in order to be eligible for another FHA insured mortgage.

Now in today’s market, it shouldn’t take a rocket scientist to figure out how open and inviting that door can be to millions of
homeowners and how much fraudulent activity it can lead to. I mean seriously, what’s to stop someone from using this
loophole to purchase an FHA-secured residence with the full-intention of dumping their existing residence because it
lies in a declining market area and no money is to be made on selling it? What’s to stop a person from using FHA to seek
out a second home or investment property using this loophole?

These are situations that you as an originator or processor need to be thorough with. Not only do you need to provide a
valid explanation for the borrower wanting to purchase a home without selling a current home but you need to evaluate
and analyze the risk associated with allowing the borrower to maintain and be responsible for two mortgage payments on
two properties located some distance away from each other.

These are the things I took a close look at when reviewing these situations:

• Is there indeed a distance between the two properties?
• How long has the borrower owned the existing residence?
• Is the existing residence in a declining market area?
• Has the existing residence been listed recently but not sold? How long on the market?
• Does the borrower’s explanation for relocating make sense and can it be supported in any way with backup documentation?
• Does the borrower qualify easily with both PITI payments on both properties or are they presenting a new lease for tenants and rental income to offset the PITI on the existing home?
• Is it reasonable to expect the borrower will be able to manage and keep up with a rental property? Does the borrower have prior experience with maintaining an investment property?
• Does the borrower’s credit history provide credibility to the proposal?
• Is the new home bigger or smaller than the existing home?
• How far is the new property from the place of employment versus the commuting distance from the existing home?
• Are the reserves in place to protect the borrower if tenants should vacate or stop making rental payments?

A lot of risk evaluation SHOULD go into these situations where borrowers won’t sell their existing home prior to closing on their new home. As an originator or processor, these are all questions you will want to consider when putting the file together and presenting to underwriting for a decision. Be sure to clearly address the compensating factors that offset risk concerns in these situations.

Do yourself and the borrower a favor- make sure there is certainty that the borrower’s intention is true and do NOT stick a borrower in a risky situation that their overall history shows they aren’t likely to succeed with. And lastly, if you suspect that the borrower is attempting to take advantage of the loophole and has no real intention of occupying the property they wish to purchase with FHA financing, find a reason to turn them away. If you look hard enough, you’ll find one.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

FHA- Busy New Week!

noreply@blogger.com (Editor in Chief) — Mon, 15 Sep 2008 15:44:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This week brought forth lots of action on the FHA-front once again. Let’s take a close look at all the news this week and how it may and will affect the origination and processing of FHA loans.

By now you’ve likely heard that the future of downpayment assistance is gaining favorable momentum and there just might be some sort of negotiation between HUD and Capitol Hill to bring it back to life in the future. I spoke directly with a representative with Nehemiah on Thursday to get first hand opinion on what we might expect and how soon we might expect any official action. I was told that they are hopeful that an agreement will be made to breathe life back into DPA but that it’s not likely to happen before the October 1st deadline.

The future of DPA is completely unclear at this point. But experience tells me that we shouldn’t expect the proposal to clear the House and Senate in time to meet the September 30th expiration date for use of DPA. It’s more likely that a bill could pass to take affect in 2009. I personally don’t expect this will be resolved within the next two weeks but then again, I’ve seen miracles like this happen before so we can never be certain. Bottom line is that right now, negotiations are underway for a compromise but there are no guarantees.
We’ll just have to keep our eyes on our news alerts!

To support the future of downpayment assistance, I strongly suggest you visit the DPA websites which provide direct links and instructions to contact your state representatives so you can voice your support. I’d suggest visiting Nehemiah’s site, Ameridream’s site and the Genesis Preferred program site for additional information.

Also this week, HUD tossed us another tidbit by way of Mortgagee Letter 2008-23 which finally clarifies future down payment requirements for FHA lending. The new downpayment of 3.5% will be effective for cases assigned on and after January 1st of 2009.

A couple of very important notes on the changes: There will no longer be such a thing as “financed” or allowable closing costs that will be counted toward the borrower’s minimum investment requirement. Maximum mortgage will simply be the lower of the purchase price or appraised value – 3.5% + the up-front MIP. The total LTV including the financed MIP cannot exceed 100%. Sellers can still contribute up to 6% toward buyer costs but if there is no seller credit, the buyer will need to be prepared to bring their closing costs and prepaids to the closing table.

And lastly on FHA this week, have you noticed the HUGE dip in interest rates? Another refinance spurt is officially “open for business!” Opportunities abound out there right now to refinance existing FHA borrowers to lower interest rates via streamline refinances, FHASecure refinances and even for cash out refinances so don’t miss this window of opportunity! If you’re not up to speed on your FHA refis, now is the time to get yourself signed up for training! NAMP offers FHA/VA Government training through its partnership with FHA Online University and I highly suggest you take the time to educate yourself to cash in on these refi opportunities while they’re in front of you!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

FHA Mortgage Insurance "Cheat Sheet" for Originators, Processors and Underwriters

noreply@blogger.com (Editor in Chief) — Sat, 06 Sep 2008 17:30:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

HUD finally “threw us a bone” on Wednesday when they posted their Moratorium on Risk Based Premiums at the FHA website. According to the Moratorium, the new premiums will be required for cases assigned on and after October 1st, 2008 through September 20th of 2009. (I’ll be honest, I think these premiums are quite fair. I expected much higher across the board).

The new premium structure looks like this: Click Here>>

Effective for cases assigned during the period July 14th, 2008 through September 30th 2008, the following risk based premium structure must be applied as was announced in Mortgagee Letter 2008-16.

To see the Upfront and Annual Mortgage Insurance Premium: Click Here>>

And finally, for loans closed on and after January 1st of 2001 through cases assigned July 13th 2008, the following mortgage insurance premium chart applies: Click Here>>

The following rules apply to the cancellation of FHA mortgage insurance:

On loans closed on or after January 1, 2001, FHA's annual mortgage insurance premium will automatically be canceled-once the unpaid principal balance, excluding the upfront premium, reaches 78% of the lower of the initial sales price or appraised value. The 78% is based on the initial amortization schedule, and does not take account of extra payments. This cancellation rule applies only to FHA's mainstream insurance program.

Borrowers who have made additional payments to principal must take the initiative, through their lender, to have the insurance terminated using the 78% rule. The insurance must be in force for at least 5 years.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

VA Training Tips

noreply@blogger.com (Editor in Chief) — Fri, 29 Aug 2008 18:04:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I’ve been writing so much lately about FHA that I decided to "switch things up a bit" this week and provide some quality tips and information that I think you’ll find helpful for VA processing.

VA training is hard to come by as many of you have probably found. It’s not out there all over the place on the web like FHA training is. The thing is it actually is out there. You probably just haven’t run across it because you’re not a “psycho website searcher” like I am. Below I’ll share some of the “secret hiding places” where I’ve found VA training is actually readily available- most directly right from VA!

In my opinion, VA actually does the best job organizing and presenting their home loan program guidelines. The Lenders Handbook is well put together, organized by subject and is very easy to read and follow. You won’t need a fancy law degree or 67 years in the industry to understand the program guidelines and requirements. You’ll find the handbook at http://www.warms.vba.va.gov/pam26_7.html. The best thing is that unlike HUD and their handbooks, VA actually DOES update their guidelines with changes at the point when they issue a Circular announcing the actual changes.

You’ll find the DU Guide for VA Loans at https://www.efanniemae.com/sf/guides/duguides/pdf/vaduug.pdf. This guide is also a must-read for those processing VA files through Desktop Originator or Desktop Underwriter.

Freddie Mac Loan Prospector offers a great FHA/VA Documentation Matrix at http://www.freddiemac.com/learn/pdfs/uw/total_matrix.pdf that is a must have for all VA Processors. Add that to the FHA/VA Processing Worksheet that you’ll find at http://www.freddiemac.com/learn/pdfs/uw/total_pw.pdf
and it won’t take you long at all to become a VA processing expert.

VA has an actual training page on their federal website which you can access at http://www.homeloans.va.gov/train.htm. There you will find a link that opens to a list of upcoming live training broadcasts and a list of prior broadcasts with training materials available to download or print. I highly recommend printing and saving the student materials from prior broadcasts because they serve as very helpful tools and resources for training. As example, you will find student materials from the December 5, 2007 broadcast called “The A to Z of the COE” provides a short 17 page reference guide that explains all you as a processor might need to know about the VA Certificate of Eligibility (COE).

VA also offers an online training self-paced course called Hometown USA: VA Credit Standards for which you’ll find information at http://www.homeloans.va.gov/train.htm. The course is provided in modules by subject and includes questions and activities totaling 20 hours.

Several of the VA Regional Loan Centers offer their own VA training information.

Atlanta RLC covers the states of GA, NC, SC, and TN and unfortunately doesn’t appear to offer any specific training information at their website. http://www.vba.va.gov/ro/atlanta/rlc/index.htm.
You can contact Atlanta’s Loan Production Department at 888-768-2132 with questions you aren’t able to find answers to after referring to the VA Lenders Handbook.

Cleveland RLC covers the states of DE, IN, MI, NJ, OH and PA and hosts a Training Page at http://www.vba.va.gov/ro/cleveland/training.htm. On that Training Page you will find their Lender Training Guide most recently updated January 2008. Go to http://www.vba.va.gov/ro/cleveland/Training_Guide_Cleveland_January_2008.pdf to access the guide. The staff at Cleveland RLC is also happy to accommodate training requests and suggestions. They provide a training request form which you can find at http://www.vba.va.gov/ro/cleveland/VA_Loan_Training.pdf.

Denver RLC covers the states of AL, CO, ID, MT, OR, UT, WA and WY and offers a list of PowerPoint presentations covering a range of subjects. Go to the Lender Training Page at http://www.vba.va.gov/ro/denver/loan/lendertraining.htm where you can access them. Denver also offers an Excel prequalification worksheet at http://www.vba.va.gov/ro/denver/loan/docs/prequal-04.xls.

Houston RLC covers the states of TX, LA, AR and OK and provides a Lender Training Guide for access at
http://www.vba.va.gov/ro/houston/lgy/Documents/Lender%20Training%20Guide%20Jan%202008.pdf. Houston also provides a training request form that you will find at http://www.vba.va.gov/ro/houston/lgy/Documents/Outreach.pdf.

Manchester RLC covers the states of CT, MA, ME, NH, NY, RI and VT and provides their own Lender Training Guide at http://www.vba.va.gov/ro/manchester/lgymain/lp/2006%20Training%20Guide%20Web%20Version.doc.
They also offer a Realtor Training Guide at http://www.vba.va.gov/ro/manchester/lgymain/lp/2006%20realtor%20guide.doc. You can email training requests and suggestions to NH_LP@vba.va.gov. You’ll find a schedule of live training opportunities which includes some great training sessions for originators, processors and underwriters at http://www.vba.va.gov/ro/manchester/lgymain/lp/loanprocessing.htm and the registration form at http://www.vba.va.gov/ro/manchester/lgymain/lp/registration%20form.doc.

Phoenix RLC covers the states of AZ, CA, NM and NV. You can subscribe to their free mailing list which will keep you up-to-date with news and events that affect the four-state RLC jurisdiction. Simply go to http://mailman.listserve.com/listmanager/listinfo/phoenixrlc. Phoenix RLC also has their own training page which you can find at http://www.vba.va.gov/ro/phoenixlgy/VA%20Training.htm. The Phoenix office offers live training for originators, processors, underwriters and appraisers.

Roanoke RLC covers the District of Columbia, KY, MD, VA and WV. They do not list any training information on their website at this time but rather defer to the Fed VA training website.

St. Paul RLC covers the states of IL, IA, KS, MN, MO, NE, ND, SD and WI and provides a Lender Training Guide at http://www.vba.va.gov/ro/central/stpau/PDFs/November%2007%20Complete%20Guide.pdf. You may also email training requests and suggestions to RLCTT@va.gov.

St. Petersburg RLC covers the states of AL, FL, MS, Puerto Rico and the US Virgin Islands. You can subscribe to the free quarterly newsletter at http://www.vba.va.gov/ro/south/spete/rlc/index.htm. St. Pete accepts email training requests at LENDERTRAINING@VBA.VA.GOV.

FHA Online University offers two options for their FHA/VA Processor training session. You can participate in the six hour class by listening for two hours on three consecutive evenings or you can listen in for three hours on two consecutive days. Go to http://www.shop.loanprocessortraining.org/product.sc?productId=5 for more information. Note that NAMP members receive discounted pricing on the training sessions.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Resolving Failed Borrower Validations

noreply@blogger.com (Editor in Chief) — Fri, 22 Aug 2008 18:47:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This week I had a situation come up that I myself have never encountered before in the 16 years I’ve been processing but I suspect it’s an issue we will see more of in these trying times. Often fraud will be involved but sometimes, such as in the case I dealt with this week, there may simply be error on the part of Social Security Administration that causes this occurrence.

What do you do when a Borrower Validation fails in FHA Connection?

Your first step is to double-check your data entry to make sure that the borrower name, birth date and social security number have all been entered correctly based on the DOCUMENTATION you have within the loan file. If you receive a failed validation, it’s best not to rely on the verbal information that may have been given for the loan application. Make sure you verify the data to other documentation in the loan file such as copy of the borrower’s photo id, paystubs, W2s, etc.

If you determine that you indeed mistyped your data when you initiated the FHA case request, you will need to edit your data in FHA Connection and resubmit the borrower data for validation. To accomplish this, follow these instructions:

• Log on to FHA Connection
• Choose Single Family FHA
• Choose Single Family Origination
• Choose Case Processing
• Choose Borrower/Address Change and enter the FHA Case Number
• Next, simply re-enter or edit the borrower data field(s) that you entered incorrectly.
• Click Send.

You will receive a message indicating the borrower validation data has been resent to HOC Processing and to check Holds Tracking in one business day.
Be sure to create a reminder to pull the update from Holds Tracking in FHA Connection the following business day.

If you retrieve the re-submitted Borrower Validation from Holds Tracking and the message still indicates “Borrower Failed Validation,” you must utilize other third party resources to validate the borrower’s identity data.

HUD recognizes several national third party vendors to accomplish identity verification:

• Inco-Check- ICheck-ID product
• Rapid Reporting- DirectChek
• FraudGUARD by Interthinx/ Sysdome- SSN Direct

Your organization would need an account set up with any of the recognized vendors and you would need to obtain ID verification through their product sources. I would expect most often that obtaining one of those verifications would resolve the issue and will confirm the identity for the borrower is a match.

However, such as has occurred in the case I worked through this week, there may be times when even the additional third party vendor identity check comes back as a “no match.” When this occurs, it requires a bit more thorough “digging for answers” and you will need to get the borrower’s involvement. The borrower may need to provide his/her birth certificate, photo identification, any immigration papers and any other supporting documentation. He/she may also need to address the issue with the local Social Security office.

In my specific case, we had a borrower whose ID report came back as a “no match” because he and two of his brothers were named the same name by his parents. Two of the three brothers also have the same middle initial. It appears that between SSA and the credit bureaus, these three brothers’ data has been mixed within several databases and it is causing havoc when trying to verify any of their identities. He is providing his personal birth certificate, driver license and the information from his brothers to prove his story is true. I am waiting on SSA now to see what information they will provide to us for purposes of validating his identity so we can close his loan.

Note that according to HUD, it is the lender’s responsibility to validate and verify the identities of all borrowers for credit granting purposes and thus, we must document our file accordingly so that HUD will insure the loan. I will keep you posted on how this all turns out!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Status of Downpayment Assistance

noreply@blogger.com (Editor in Chief) — Thu, 14 Aug 2008 20:51:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

If you are like most folks out there, you’re feeling less than adequate about answering questions about the Housing and Economic Recovery Act “HERA.” Who could blame you considering the bill itself spans a lengthy 684 pages?!

I’m an absolute control freak so I always make every possible attempt to read the content of these things myself but good heavens, who has the time to read 684 pages? Not to mention who has the patience to navigate through all of the legal jargon and “mumbo jumbo?” I consider myself to be pretty good at it considering all of the state and federal regulations I’ve read through in my days but holy cow! I got through just over one page of the FHA Modernization section and I waived the white flag and surrendered. I couldn’t take it!

Thank God for the Mortgage Bankers Association and our corporate membership which entitled me to participate on the recent national conference call to summarize the major points of the bill or I might have myself stuck in a corner trying to read this thing for months or even years to come!

The most common question coming to me these days is in regards to downpayment assistance. Everyone wants to know when it’s ending, if it’s ending, where things stand… Let me give you a briefing of what I know at this very moment.

Title I, Section 2113 of HERA includes the following statement which leads to the cease of seller-funded downpayment assistance on FHA mortgage transactions:

“(C) Prohibited Sources- In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before, during or after closing of the property sale:
(i) the seller or any other person or entity that financially benefits from the transaction.
(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).
This subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.”

Upon reading the above paragraph, the first question that comes to mind is this- How does one define the term “credit approval date?” This has been answered and clarified by HUD on the recent MBA call. “Credit approval” is defined as the last loan approval date through TOTAL Scorecard with Accept/Approve findings or for manually underwritten loans; it is the date that the underwriter signs and dates the MCAW or Loan Transmittal form.

Therefore, to clarify, if you have an FHA loan in process and it includes DPA, the loan needs to be fully approved through automated underwriting with final findings before October 1st or if your loan is to be manually underwritten, your underwriter must have the file fully credit approved as demonstrated by his/her signature and date on the MCAW or Transmittal form by October 1st. As long as the loan is credit approved before October 1st, it may still close after October 1st with DPA and will be insured by HUD.

It’s important to note the risk of “banking on your automated approval” without obtaining a final clear to close approval from underwriting. I’ve already been receiving emails from originators trying to “buck the system.” Make sure that ALL of your loan files that include DPA are fully approved by your underwriters before you bank on your automated approval being golden. Any change to income, credit criteria, can require findings be rerun and will kick you from being allowed to include DPA on the transaction.

So what are you to do out in the sales force if a majority of your business involves the use of downpayment assistance for purchases? I suggest familiarizing yourselves with the homebuyer funding options available in your market area. Visit HUD’s Local Home buying Programs website where you can access information by state. You can also contact your local state and government agencies to inquire about homebuyer funding programs in your area.

Downpayment assistance providers haven’t quite thrown in the towel yet either. On July 30th, several members of Congress presented H.R. 6694 -FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008. The bill proposes to require particular credit scoring in order to incorporate the use of DPA funding with qualifying purchase transactions. It hasn’t seen any action since its original presentation but this will be one to watch. (My personal opinion is that it will not pass and thus, DPA will cease as of October 1st).

You can voice your support or opposition to H.R. 6694 by visiting any one of the major DPA websites such as Ameridream, Nehemiah or Preferred Program.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

FHA Case Transfers and Case Cancels

noreply@blogger.com (Editor in Chief) — Fri, 08 Aug 2008 17:57:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

I recently received a suggestion from a reader to address and explain FHA case transfers so this week I am going to honor her suggestion and provide information I think you will find helpful on that topic.

FHA Case assignments are connected with the property address. Therefore, whenever you are working on an FHA transaction where the property falls through and you do not receive the deal involving new borrowers for the same property, you need to request that the case be cancelled by HUD so that it can be re-assigned and utilized if another buyer wishes to apply for FHA financing on the same property in the future.

To request a case cancel, you will need to prepare a written request on company letterhead that includes the following information:

• The case number you are requesting be cancelled
• The borrower names
• Address of the subject property
• Appraisal date or note that appraisal was never completed
• Appraiser name & license id
• Your name and title
• Your signature and date
• Your contact information
• Reason for request for cancellation
• Any supporting documentation for the cancel request

The request needs to be faxed to the HUD Homeownership Center that has jurisdiction over the property.

For states covered under the Atlanta HOC, fax the request to 813-228-2478
For states covered under the Denver HOC, fax the request to 303-672-5210.
For states covered under the Philadelphia HOC, fax the request to
• 215-656-3434 if the property is in DE, DC, MD, MI, PA, VA or WV
• 215-656-3438 if the property is in CT, ME, MA, NH, NJ, NY, OH, RI or VT
For states covered under the Santa Ana HOC, fax the request to 714-796-5519.

If the case is not cancelled, a lender requesting a case assignment for different buyers will receive notification in FHA Connection that there is a case already assigned in FHA Connection. Under those circumstances, the lender will need to request a case transfer from the prior lender.

Each case transfer request should be made in writing from one lender to the next. The transfer request should include the following information:

• The Case number
• The property address
• The new FHA lender id number
• The new FHA lender sponsor id number (if applicable)
• Inclusion of the following verbiage: ABC Lender hereby requests that all rights, title and interest to the FHA case assignment referenced herein be transferred from EXISTING Lender to ABC Lender effective month/date/year.
• ABC Lender Contact information
• ABC Lender authorized signature, title & date

Upon receipt of the request for the case transfer, the receiving lender should immediately comply and complete the case transfer function in FHA Connection.

Follow these steps to complete an FHA Case transfer to another lender:

• Sign on to FHA Connection
• Choose Single Family FHA
• Choose Single Family Origination
• Choose Case Processing
• Scroll down to find and choose Case Transfer
• Enter the FHA Case Number
• Enter the New Originator ID
• Enter a new sponsor/agent id or leave id blank
• Enter the date and click send

You will receive a message that the case transfer has been completed successfully. Print a copy of the screen and provide it to the requesting lender.

You should always be prepared to explain case transfers to your underwriter because it’s the underwriter’s obligation to assure that the case has not been underwritten and declined for a reason that would be of interest to HUD.

Be sure to maintain records of the case transfers that you request and the case transfers you perform in case of audit. If an issue were to arise in the future in which HUD would request explanation of why a particular case was transferred, you want to be able to provide the answers they need.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Don’t Forget About Conventional Lending

noreply@blogger.com (Editor in Chief) — Fri, 25 Jul 2008 15:04:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This past week the top processor in our company came to me because she needed to vent. She was extremely frustrated because she received a file from an originator that was a complete disaster. She had to fix it all up, run it through automated and clean up the mess. But the most concerning part to me was what she said next. The file had been turned over to processing as an FHA but she said she ran the file conventional through Desktop Originator and it came back approve/eligible the first time through. The problem was that the originator was hell-bent on it going FHA. Why? Well why do you think? More money for the originator.

As much as I am pro-FHA, I never like to see or hear of an originator placing borrowers in an FHA loan when they can be approved conventionally. It’s not in the best interest of the borrower. FHA charges the borrower both an up-front mortgage premium that gets financed into the loan and also charges the borrower a monthly mortgage insurance premium. Those two premium requirements add to the monthly payments and make them higher than a conventional loan with MI in most cases.

When an originator starts putting his own financial greed before the financial needs and concerns of the borrower, it’s time he move on down a different career path. Nothing gets me more fired up than when people in our business forget why we’re all here in the first place. We’re here to service the borrowers. They put their trust in us to help them with their financial choices and it’s our obligation to do our homework and make sure we are choosing the very best option possible for their mortgage needs.

I’ll be honest with you. With so many program and guideline changes in the past six months, I haven’t even paid attention to conventional products myself. There have been days when I’ve thought that even wonder-woman wouldn’t have had a chance in hell of keeping up with all the lender bulletins pounding into my in-box each day. It’s been a chore just keeping up with HUD’s activity much less all of the Fannie and Freddie changes. But let’s no forget that the conventional loan options are still there because if there are options aside from FHA for the borrower, it’s worth our time to research them.

Fannie and Freddie both provide some great product training and it wouldn’t hurt many of us to check in for refresher sessions. These are also great for new originators and processors as well.

For Fannie Mae product training, refer to https://www.efanniemae.com/lc/mtgproducts/index.jsp where you’ll find a list of convenient recorded product trainings.

For Fannie Mae Underwriting-related product training which is great for processors, refer to https://www.efanniemae.com/lc/ou/websem/index.jsp where you’ll the “Basics of Underwriting Series” which includes convenient recorded sessions on analyzing income, analyzing assets and liabilities, analyzing credit and self-employed borrowers as well as sessions regarding manufactured housing and lending for minority borrowers.

You’ll find additional Fannie Mae sessions at https://www.efanniemae.com/lc/ou/websem/index.jsp#additional which includes training topics like appraising rural properties, guidelines for condos, coops and PUDs, underwriting non-U.S. citizen borrowers, and jumbo conforming mortgages.

Refer to https://www.efanniemae.com/lc/technology/du/ for desktop underwriting training and don’t forget to bookmark https://www.efanniemae.com/sf/guides/duguides/
Which is where you will find all of the DU Guides.

Lastly for Fannie Mae, be sure to bookmark http://www.allregs.com/efnma/ which is where you’ll find the Selling Guide containing all of FNMA’s guidelines.

Freddie Mac also provides a variety of convenient training options and some great reference guides and tools. Visit Freddie Mac’s Learning Center at http://www.freddiemac.com/learn/ to check out all the material.

Refer to Freddie’s Loan Prospector website at http://www.loanprospector.com/

For LP training sessions and material and be sure to bookmark http://www.allregs.com/tpl/Main.aspx which is where you’ll find Freddie’s Seller Guide.

Stay tuned next week when I will provide some great training options with the MI companies and some of my best online training discoveries and resources for conventional lending.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Quality Assurance throughout the Loan Process

noreply@blogger.com (Editor in Chief) — Fri, 18 Jul 2008 16:43:00 +0000

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

This week’s topic came easy to me because of a variety of projects I am working on that have me diving into quality assurance and quality control-related subjects.

It’s not hard to conclude that in today’s market, lenders have tightened their lending guidelines along with their quality control measures to better protect against the risks and losses associated with mortgage fraud and loan defaults. The industry simply cannot afford oversights and mistakes at this point in time when the economy is surely suffering because of the high foreclosure rates and fraud convictions across the country.

It’s important that all parties involved in each loan transaction fully understand what quality assurance measures are, what quality control means and why these subjects are so important today. We each have a responsibility to be on the watch for fraud and questionable business practices. (When I refer to “each of us” I mean the consumer, originator, processor, underwriter, closer and the funder involved with each loan).

First, for the consumers:

• HUD’s Don’t Be a Victim of Loan Fraud website at http://www.hud.gov/offices/hsg/sfh/buying/loanfraud.cfm

• HUD’s Don’t be a Victim of Loan Fraud Fact Sheet at http://www.hud.gov/offices/hsg/sfh/buying/loanfraudfaq.pdf which is nicely formatted and perfect for color printing

• HUD’s Don’t be a Victim of Loan Fraud Brochure which is perfect for color print and distribution at http://www.hud.gov/offices/hsg/sfh/buying/loanfraudbroc.pdf

For those of us involved with originating, processing and underwriting, we can get a much clearer picture of how mortgage fraud is affecting our industry by referring to the FBI’s Mortgage Fraud web page at http://www.fbi.gov/hq/mortgage_fraud.htm. There you’ll find the various fraud schemes defined, articles explaining recent fraud convictions and arrests, facts, figures and reports. If your employment position involves any contact with the loan file, YOU need to spend some time on this website. It never ceases to blow my mind what people out there are doing and getting away with. At least until they’re caught.

There are some great tools out there that can be utilized at various stages of the loan process. I highly recommend taking advantage of them. Not because you’re required to but because your efforts just might turn up a red flag on a file that involves mortgage fraud. Something found by using one of these simple validation or verification tactics could very well lead to a future mortgage fraud conviction.

To Confirm the Existence of a Business, Such as an Employer or Place of Employment

Use 411.com, yellowbook.com, or any other reputable online directory to search for a listing by business name, business type, reverse phone number, or reverse address. These resources should be utilized for every single verbal VOE used for documentation in your loan files. Provide a printout of the web page to demonstrate you’ve verified the business exists. What to do if you don’t find the business listed or find that the phone number of address doesn’t match the information on the loan application? Immediately bring the discrepancy to the attention of your supervisor and ask for further instructions.

Another way to validate the existence of a business is to check the state licensing website for the business in question. If the business requires licensing, you can most likely find a search option at the state licensing website. You should also be able to search for corporations for most states.

I’ve also tracked down business information on occasion by simply entering the business name as a Google search and tracking down the business website.

Consult www.theworknumber.com to determine if the business reports to theworknumber. If you find the business name listed, simply request verification from the website.

You can also utilize Google Maps to determine if a business exists and precisely where it exists. This option is helpful to determine the reasonable commuting distance between the borrower’s residence and place of employment. Go to www.maps.google.com, enter the business name, business address or business type and click on “Find Businesses.” The map will populate reflecting the location on an area map.

To Validate the Reasonableness of Earnings/Income

You have options to verify average wages by area, occupation and/or industry at The Department of Labor website at http://www.bls.gov/bls/blswage.htm

Seek out employment projections and statistics by occupation or industry at http://www.bls.gov/emp/home.htm

Verify employment trends by occupation, training and earnings by going to http://www.bls.gov

To Validate and Confirm Identity

Check the SSN deceased list at http://ssdi.rootsweb.ancestry.com. Simply enter the social security number in question and click Submit. Refer to http://helpdesk.rootsweb.com/ssdi for a tutorial on the website.

Consult with your credit bureau(s) to learn about measures that can be taken and incorporated into your credit report requests. Most offer a range of additional products that can be utilized to identity possible identity theft and fraud.

To validate Occupancy

Use 411.com, yellowbook.com, or any other reputable online directory to search for a listing by borrower name, reverse phone number, or reverse address.

Obtain tax transcripts for the IRS using IRS form 4506-t. There are many vendors out there who offer their services which can help you obtain copies of the IRS files tax returns in transcript format. Those returns will identify the property address the borrower has filed under and any additional properties claimed as investment properties on schedule E.

To Validate Property Value, Neighborhood Trends

Refer to www.zillow.com where you can search for current listings and recent sales. You’ll get the most effective “hit” list by entering a zip code.

www.realtor.com will help you find estimated home values, area listings etc.

You might also check with your lenders. Many of them are now offering AVM services right at their websites!

It’s always a good idea to build a relationship with a top-quality vendor who can assist you with quality assurance and AVM products and processes as well. A few to consider include Interthinx, CoreLogic, and Rapid Reporting.

Take a hard look at the measures your organization is taking in regards to quality assurance and risk control measures. There’s never been a better time to add some of these simple tactics into your processing routines. Something this simple could very well stop something fraudulent and far more complicated.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.