Mortgage Processor Blog :

Credit Denials

2008-08-29T12:26:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

If your office looks anything like mine does, then you have a stack of files about 2 feet high that you have recently rejected. In this day of ultra conservative mortgage credit underwriting, I think all of us, as underwriters, are practicing prudence when making underwriting decisions these days and with no creative financing alternatives available, it seems that what would have been deemed sub-prime quality two years ago, is now FHA quality.

With that in mind, I thought it might be a good idea to discuss mortgage credit rejects where FHA was concerned as well as some of the misconceptions that surround them.

I would like to start by saying that as underwriters, we should make every effort possible to approve the mortgage applications submitted to us for underwriting. Our primary responsibility as DE underwriters is to assist HUD in expanding homeownership opportunities for Americans and other eligible individuals. So with this in mind, exhaust every available option for your borrowers before rejecting the case.

If however, it is just not feasible to approve the case or the borrower(s) present an undue risk to HUD from a mortgage insurance standpoint then by all means reject the case and provide the borrower with the property disclosure of such as per HUD’s guidelines. This disclosure would be an adverse action letter dated within 30 days of the actual mortgage credit reject which contains any and all necessary repository information.

In addition to providing the borrower with accurate and fair disclosure as to why the case has been rejected it is also the underwriter’s responsibility to complete the Mortgage Credit Analysis Worksheet with the reasons for the mortgage credit reject as well as complete the Mortgage Credit Reject information screens within FHA Connection. This information will remain in FHA Connection and be tied to both the property address as well as to the borrower using their Social Security number.

Any subsequent lender can add, delete or view borrower mortgage credit reject information on a non-endorsed case depending on their authorization in FHA connection. If a borrower, at a later date, would apply to another FHA approved lender for a mortgage, the mortgage credit reject would be referenced on any new attempted case number pull.

Now, for the misconception. It is believed by many DE underwriters that if a case was rejected by one DE underwriter on some previous date in the recent past, that another DE underwriter can not overturn the mortgage credit denial. This is untrue. FHA will allow another DE underwriter, if he or she is provided with new or updated information where the borrower is concerned that results in a significant material change in the case file, to overturn the rejection of another DE underwriter.

It is important that the approving DE underwriter, print the information contained in the mortgage credit reject screens in FHA connection and upon approval of the case, disclose on the Mortgage Credit Analysis what new information was provided and how it enabled the approving DE’s ability to approve the application. Comparative analysis between the old documentation and the new documentation is strongly encouraged. Also keep in mind that any previously rejected loan that are approved by another lender after rejection will undergo a very detailed underwriting review by HUD during any post closing technical review so be sure to address all of the reasons that from an underwriting standpoint that the case is now approvable under FHA guidelines. If the explanations make sense, then the case should be insured by HUD.

I will say that in the past, I have overturned mortgage credit rejects on limited occasion. Generally I will contact an underwriter at my local HOC and discuss the case before I overturn the reject just to get a second opinion. I will also tell you that in each instance, the case was insured by HUD. Keep in mind there are several reasons that a case could be rejected during underwriting including reasons that are not necessarily prohibited under FHA guidelines. Analyze the data provided in cases carefully to determine if the case is approvable and if it is, then by all means approve the loan if it is in the borrower’s best interest to do so. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

How to Become a FHA Direct Endorsement DE Underwriter

2008-08-22T17:03:00.005-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Over the past several months, I have had several individuals ask me what it takes to become a Direct Endorsement or DE Underwriter for HUD. Many of the individuals who were asking for information were either conventional or sub-prime underwriters that were currently unemployed or just realized that they needed to make the transition from conventional to government underwriting due to current market demand.

I will say that presently, DE underwriters seem to be few and far between. Most of them went the way of Alt A and sub-prime seven or so years ago when the market turned more towards non-traditional financing. Even those who have had their DE for years are having a hard time making the transition due to large number of changes in the FHA program overall. In the past 3 years alone, FHA has adopted completely different appraisal protocol, they have all but done away with Non-allowable closing costs and as we are all aware, are even doing away with the use of the Mortgage Credit Analysis Worksheet.

Additionally, it seems that every mortgage broker and lender nationwide have also made the jump to government lending because of the limited financing options available in today’s market and as a result, individuals with FHA experience are in high demand and there seems to be quite a shortage of experienced personnel.

A lot of individuals who are Direct Endorsement underwriters have taken some training classes and have had their DE reinstated by HUD, however there are a lot of really good underwriters in the industry that need to make the transition to DE underwriter in order to be marketable. From what I have gathered from peers in the industry, not to mention some of my own students who are actively seeking employment, brokers and lenders are actually requesting potential employees to take tests where the FHA stuff is concerned or if they are aware that the employee has taken FHA training courses are asking for the Certificate of Completion. I actually had one former student ask me if I could provide a class outline for the DE Underwriting course that I teach because a potential employer wanted to review the content of the course before accepting the certificate of completion. This seems to be the norm for underwriters who wish to become DE underwriters.

So how exactly does an individual become a DE underwriter seems to be a pretty common question these days. There really is limited information on the subject, this has to do with the fact that FHA no longer approves individual underwriters, they haven’t since 1996. As discussed in Mortgagee Letter 96-10 the underwriter approval process was replaced with Underwriter Registration using the Underwriting registry. Per the mortgagee letter:

“UNDERWRITER APPROVAL PROCESS REPLACED WITH REGISTRATION. Effective February 26, 1996, FHA will no longer approve individual underwriters to participate in the Direct Endorsement (DE) program. The approval process previously employed has been replaced by a DE Underwriter Registry. All DE underwriters must be registered with FHA. Failure to do so may delay issuance of mortgage insurance certificates on loans underwritten by non-registered underwriters. Underwriters with valid CHUMS identification numbers and currently shown as working for an FHA-
approved lender need not re-register. We will continue to check all underwriters against the Credit Alert Interactive Voice Response System (CAIVRS) file and we reserve the right to remove underwriters from the registry upon imposition of sanctions taken by local FHA offices or Headquarters.

Lenders must update underwriter information whenever a DE underwriter is hired or when an underwriter has achieved the necessary qualifications to underwrite FHA-insured mortgages for the company. Lenders may add, update, or delete underwriter
information in the registry through CLAS (CHUMS Lender Access System). CLAS has been expanded to maintain the necessary information under the heading the heading
"Underwriter Registry," which is a new option on the CLAS Add/Update Request menu (CLAS Version 8.0 is required). After the information has been processed by CHUMS, CLAS will return an Underwriter Update report to the lender verifying the information
provided as well as the underwriter's CHUMS identification number. Lenders may also obtain a listing of all its underwriters on the registry through CLAS through a written request.

III. COMMUNICATIONS AND LENDER TRAINING. Since we will no longer review underwriter qualifications and will rely on lenders to assure that its underwriters are fully qualified, it becomes even more important to provide adequate training to underwriters as well as production personnel. As our policies and procedures evolve over time, it is imperative that we communicate with the lending community and keep it informed of those changes designed to expand homeownership opportunities.”

What all of this means for the individual that wants to become a DE Underwriter is that there is no company on the planet that can sell you a DE or guarantee that you will be a DE once you have completed their training course. The only way to become a DE underwriter is through lender nomination. In other words, your current employer or future employer must determine that you have the knowledge and experience to underwrite mortgages to guidelines and principals as set forth by the U.S Department of Housing and Urban Development where the FHA mortgage insurance program is concerned.

I want to say first that there is definitely a difference between conventional underwriters and government underwriters and it’s not the Chums ID number. Program guidelines are different no doubt but the overall mentality is different. Forget FHA Connection, case number assignments and LDP and GSA lists, the overall underwriting mentality embraces more of what I would call old school underwriting than the underwrite by software mentality. Manual underwrites live on in the world of FHA.

If one was interested in becoming a DE underwriter, I would first suggest training. Remember, ultimately you are going to need to impress your current or future employer with your knowledge of the program to the extent that they feel comfortable nominating as a DE.

There are several training options available to those individuals who would like to pursue further training. Fhatraining.org is a great website for information on FHA/VA underwriting training classes. Additionally, this course will also provide a FHA DE Underwriting certification stating that the training was completed and will provide sufficient information so that any FHA DE underwriting candidate will be able to complete all of the underwriting responsibilities associated with being a DE Underwriter.

Once the underwriter has sufficient knowledge then it will be up to their current employer to nominate them as a DE underwriter. It is at this point that the individual will then have their DE which will remain with them for as long as they wish to continue to remain in the mortgage industry.

Remember, there are still a lot of great opportunities out there in the mortgage industry for processors and underwriters; However, the best ones are going to the people with FHA experience or at least a sufficient amount of verifiable training. If you have been unable to locate anything once you have completed some training, try www.fhajobs.com and see if you can find anything there. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Housekeeping

2008-08-15T15:29:00.001-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Mortgage lending as a whole consists of several areas of expertise. Most of us are extremely familiar with the front room or production functions of the business such as origination, processing and underwriting and somewhat familiar with back room functions such as closing, post closing and insuring. However, there are several other aspects of mortgage lending that are addressed on a daily basis by individuals that do not directly participate in production or servicing functions however are directly effected by the work that we do performing the production or servicing pieces of the operation.

HMDA and compliance for instance. Most of us dread our compliance officers and their whips but without them, the regulators, both state and federal would shut us down. Housekeeping, as one of my processors likes to call it, is a very real consideration for any mortgage lender as well as broker and just as the word itself implies, it carries with it several small and large areas that we need to keep site of each day.

When we consider all of the applications that need to be completed from start to finish where origination, processing and underwriting are concerned, we always keep in mind the common things, such as Regulation Z and 3 day disclosure. For underwriters, it might be completing HMDA information screens within the LOS or making sure that the information contained in the screens is accurate.

The insuring department will always focus on getting the UFMIP remitted to HUD within 10 days and even perhaps remitting the monthly MIP should the loan be purchased by the investor as of the 2nd payment. But there are a lot of other little items, housekeeping items that we need to keep in mind each day.

One item of importance for production is FHA Connection. As processors and underwriters we consistently think of the tools that we utilize each day within the system such as case number assignment, LDP, GSA and other such items that we need in order to complete the process. But there are other functions in FHA Connection that need to be addressed as well.

Managers, particularly underwriting managers, may want to regularly access Underwriter Activity within FHA Connection. This function allows each institution to have hands on information as to the quality of the underwriting of each mortgage application insured by FHA. Not only that, as deficiencies are found with these report cards, they can act as valuable training tools for the rest of the underwriting staff.

Neighborhood Watch is also an area that each institution should regularly utilize. This system will allow each lender an in depth look at the quality of mortgage they are approving and closing including conclusive information on current loan defaults where FHA insured mortgages that have been originated by a particular lender is concerned as well as overall compare ratios which will allow a lender to compare their overall loan quality and performance to that of their peers both locally and nationally.

Lenders are also required to report in Neighborhood Watch Single Lender information any findings on a particular case from an audit or underwriting stand point, that might indicate fraud or possibly lax underwriting performance. Again, very useful stuff as it allows lenders and brokers to monitor internally their overall performance from a production standpoint.

Housekeeping in the mortgage industry is comprised of several areas which we as lenders and brokers need to keep a watchful eye on. To do so will only benefit us in the long run. There are many tools available to manage this piece of the business, including FHA Connection, compliance software and the like and I strongly recommend that each individual responsible for the long term performance of their particular areas research the best tools available. As always, good luck and happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Manufactured Housing

2008-08-08T16:45:00.002-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Due to the increase in the number of questions I am now fielding regarding manufactured housing, I thought this week would be a good time to discuss the guidelines for such properties when applying for financing using FHA insured mortgage programs. FHA actually has a very nice program set up to financing manufactured homes under the 203b program as well as other programs available for the same under Title I programs, however, today I am going to discuss financing under the 203b program.

FHA will allow financing for manufactured homes under the standard 203b program with few exceptions or program deviations. When origination a mortgage on a manufactured home the same standard forms and disclosures are required from an origination standpoint.

Additionally, LTV guidelines and credit criteria remain the same. Appraisal requirements vary slightly as the appraiser must include additional information where the unit is concerned; however, for the most part there is no real significant difference. Case number assignment requirements, appraisal logging requirements remain the same as do required submission documents including the Conditional Commitment.

With that covered lets talk about the additional requirements for manufactured housing. To be eligible for FHA mortgage insurance, all manufactured housing must meet the following requirements:

1. Have a floor area of not less then 400 square feet.

2. Be constructed after June 15, 1976, in conformance with the federal manufactured home construction and safety standards as is evidenced on the affixed certification label (HUD tag). The HUD tag must still be intact on the unit and the appraiser should provide a photograph.

3. Be classified and taxed as real property and located on a lot that is conveyed as real property.

4. The mortgage must cover both the manufactured home and site and have a term of not more then 30 years.

5. The manufacture home must be built and remain on a permanent chassis.

6. It must be designed to be used as a dwelling with a permanent foundation.

7. The lender must obtain a certification of foundation from an engineer prior to loan closing for both purchase and refinance transactions.

Other criteria as set forth for any standard 203b mortgage to be insured under the FHA mortgage insurance program applies with respect to ratio guidelines, employment criteria and the like.

Additionally, UFMIP and monthly MIP premiums amounts are the same as with any 203b program. Further information regarding this property type can be found on FHA Connection.

Keep in mind FHA will insure them when underwritten to their guidelines but investors in the secondary market have implemented some instruction of their own or have opted not to purchase them at all. Make sure to check with your investors to determine where these mortgages can be sold. As always, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Remembering Fiduciary Responsibility

2008-08-01T15:08:00.001-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we watch the mortgage market continue to evolve each week, we take note of increased foreclosure activity, tightening of credit requirements, new legislation and ironically the attempted resurgence of sub-prime lending. Granted there are not many sub-prime lenders in the current market and guidelines have been improved but the bottom line is it is sub-prime.

As I do a great deal of Third Party Originations, needless to say many of my brokers are quite interested in the program simply because they can get loans closed fast and as they say “make more money”. The sub-prime lenders that we have relationships with do underwrite their own business so nothing is underwritten in house, but even given this, quite a few of my brokers still insist that for them it is the best way to go and I am sure that given the profit margin for the broker, it is. The bigger question here however is what about the borrower. Is it really the best option for them?

Over the past week, I have received three Pre-qualifications from my sub-prime manager. The cases were faxed to him for the purpose of pre-qualification and after review, he felt that the borrower would be done a much greater service if the cases were originated and closed using FHA. When he brought the cases to me, he said it looked like they would qualify and the interest rate we could provide would be at least 3% less then any sub-prime rate he could provide. I looked at each case and he was correct, 2 of the 3 where FHA approvable with far better interest rates then they would have received going sub-prime. I completed the pre-qualifications and faxed them to the brokers just to have one of the brokers call us to state that he still wanted the case to go sub-prime, like I said easier and he would make more money. What a shame for the borrower.

After 22 years in the mortgage industry, 20 of them underwriting I have decided that there are two kinds of mortgage professionals. The individuals who unbeknownst to them are really only here for the short term, will make as much as they can and will be ultimately selling cars in five years and the other mortgage professionals who believe that they not only have a fiduciary responsibility to the company that employs them, but also to the borrowers for which they provide a service to.

Fiduciary responsibility is defined “a relationship imposed by law where someone has voluntarily agreed to act in the capacity of a caretaker of another’s rights, assets and/or well being.” In short, the fiduciary owes an obligation to carry out these responsibilities with the utmost degree of “good faith, honesty, integrity, loyalty and undivided service of the beneficiaries’ interest.” While I agree that one’s employer could be defined as the beneficiary of such actions, I will also assert that I believe in the case of mortgage lending, the borrower could also be defined as such a beneficiary.

As we have seen the ultimate outcome of placing otherwise deserving borrowers into mortgage programs that they could not afford, I think it is time that we remember that we do have a fiduciary responsibility to our clients. I will agree that I think all loan originators or brokers do deserve to be paid a fair fee for their services, I also think that they need to look at the long term consequences of unconscionable lending practices which quite frankly we now face each day. Declining property values, spiking foreclosure rates and the collapse of financial institutions will not serve any mortgage professional in the long term, not even the individuals who feel no responsibility towards their employers, their clients or the industry as a whole. Without ethics in lending the mortgage industry will continue in the state that it is currently in.

Remember, the best compliment any loan originator or broker can receive is a referral and that will not be received if a borrower feels financially raped after closing. With that said, I say that we all work to treat our clients with the financial respect they deserve and behave in the capacity that we have been in trusted with. This will promote future business opportunities for all of us as well as more stability within the mortgage market as a whole.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Providing A Service

2008-07-25T12:24:00.003-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we know, the mortgage lending industry is a service related industry. Ultimately, we as mortgage professionals profit when the service we provide exceeds that of our peers. Outstanding service determines both the quality and quantity of business that we generate. Now the question: What exactly constitutes outstanding service?

Very recently my supervisor met with our staff and insisted that the quality of service that we were providing our broker clients was less than excellent; in fact, he thought it was less than satisfactory. In his opinion, service with a smile was not enough to maintain our current business partner base as well as expand it. Of course we all think he is not only unreasonable but way off base, after all, we service our business partners very well as far as we are concerned and there lies the problem. Defining quality service is very subjective and defined completely by opinion; there is no black and white rule.

Last week I was on vacation. I spent the week with my family in Ocean City, Maryland, a nice little beach resort complete with boardwalk and the Atlantic Ocean. As part of the tradition we always go to the boardwalk first so the kids can get on the rides, eat Thrashers French fries and buy junk trinkets and true to tradition, that’s where our vacation began.

During the week we spend there each year, I always purchase beach shots of all my children, the OC beach photographers walk the beach all day each day and take the pictures which usually end of in scopes or on key chains and on my desk of course. This year was no different, I fully anticipated having those pictures taken, however, when I was on the boardwalk I passed an old time photo studio and decided it would be fun to have a photo of all of them dressed up as gangsters or something.

So we decided that before we left the boardwalk that afternoon we would have that photo taken as well. Well as you can imagine, the kids are teenagers now and have a tendency to wander off and by the end of the afternoon when it was time to have the picture taken I had collected all but one of them, my son, who decided to do the Zipper one more time. The rest of the kids and I were at the photo studio and my son called from his cell phone saying that he was on his way, and would be there in just a few minutes.

The rest of the kids got dressed in the gangster get ups and when my son arrived, the photographer told me that it was too late to include him because he had another group waiting. He had not yet taken the photograph and quite frankly my youngest son was still getting his costume on. The photographer said that didn’t matter, he wasn’t waiting and regardless of if I wanted the photo or not, I still had to pay for it because he had already spent enough time getting the others ready. As I stared at him in disbelief, he took the photo and told me that the photo would be $39.99. I was mad. The service was horrible and that was just the beginning.

The next night we ended up at a restaurant, waiting for ½ hour for someone to come over and at least take a drink order from us. When the waitress walked up to the table next to us and asked if they needed anything and then walked away again without taking our order we left thinking the service was horrible. We actually ended up at the restaurant next door to the one we left, they seated us right away, we had beers in 3 minutes flat and the staff was a blast, friendly and courteous. The food was excellent and due to the great service they provided we ended up not only having a great time but very appreciative of how welcome they made us feel.

When I left the restaurant I began to think about the conference room conversation the week before with old Atilla and decided he was right. Adequate is simply not enough because my definition of adequate may not be the same as that of my brokers or borrowers.

Ok, so what is point am I trying to make? Underwriting is pretty much the end all - catch all of every mortgage operation. Without us loans do not get approved and if they don’t get approved they don’t close. If they don’t close, the company makes no money; the borrowers do not own homes and so on and so forth. It’s sometimes hard for underwriters to identify themselves with the individuals in the company that are on the front line of customer service and by this I mean the originators and processors.

After all they are the people that talk to the clients, the real estate agents and business partners so therefore should be the people responsible for making sure that the company image stays untarnished right? Wrong. Without the support of the underwriting staff, quick and expeditious turn times and availability, the front room support staff cannot provide any type of service let alone quality service. We as underwriters need to make ourselves available to our support staff and provide to them the kind of quality service that we ourselves would expect if we were apply for a mortgage or purchasing any other type of service. We need to muster all of the self control we have (YES, sometimes it takes that) to answer all of the questions quickly and accurately and get the loans turned around as fast as possible so that the guys and girls on the front lines can provide service above and beyond that of their peers and then we all win.

Now with that said, if anyone will spending time on the east coast this summer and want some outstanding steamed crabs done only like they do it on the Chesapeake Bay, try Outriggers in Fenwick Island DE, they rock!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Assessing Financial Behavior

2008-07-18T16:59:00.003-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor
(previously posted January 23, 2008)

Over the course of the most recent few years, underwriting guidelines have steered away from the more traditional assessment of financial risk to the product matrix. If the loan application met all the criteria as set forth in product matrix then the case was approvable for the most part. It seemed that allowing higher debt ratio’s if the loan to value was low enough off set the financial risk to the lender. Additionally, the ever-rapid appreciation in the market of the last years seemed to be diminishing the overall assessment of credit risk where the mortgage applicant was concerned.

As underwriters, it appears that we were given the opportunity to close our eyes to our fiduciary responsibility to both the mortgage applicant as well as the lending institutions that employ us as long as the loan fit the product matrix or if the case was accepted by an Automated Underwriting System. Looking back, this was probably not the most prudent way to underwrite mortgage applications.

Considering the current market, it is safe to assume that the days of the product matrix is a thing of the past. As mortgage professionals we are seeing a return to the days of traditional lending practices even if enhanced with additional tools such as Automated Underwriting Systems as well as credit scores and AVM’s. But it is important that we remember that these items are just tools and that as underwriters it is important to assess overall credit risk of the applicant to not only protect the institutions that we are employed by, but to safeguard American homebuyers ensuring that the homes they are purchasing are affordable to them.

The current credit crunch, as it has recently been defined, makes this a more daunting task for mortgage professionals. However, several programs are still available for the average American home purchaser. FNMA and FHLMC still provide programs that assist first time homebuyers as well as low to moderate home purchasers programs for which to purchase or refinance affordable housing. FHA was designed to assist the low to moderate income borrower not to mention other underserved populations. These programs in themselves serve a great number of Americans who in the most recent years were placed in subprime programs that were less than affordable and contributed to the growing number of foreclosures as well as overall market instability. But underwriting these borrowers can be a little more complicated based on manual underwriting practices and the inability of an underwriter to look at a product matrix to determine if the loan is approvable.

This is what assessing overall financial behavior is about. For the most part, it is easy to approve a loan that has been accepted by an automated underwriting system. However, it isn’t very easy approving the one that hasn’t. But this in itself does not deem the borrower unworthy of a mortgage. It is important to assess overall financial risk of the case but just as important to assess the financial behavior of the borrower. In some cases, it may appear that a particular borrower is a less then fair credit risk however further research can demonstrate that a borrower has a very acceptable credit explanation and an overall solid financial reputation. Late payments on a borrowers credit report does not in itself demonstrate an unacceptable risk. Borrowers who have demonstrated an acceptable credit reputation but have incurred significant consumer debt while saving little or no money for future unacceptable expenditures can present a larger risk the borrower who lives modestly while saving a small portion of their income, even if they have made some late payments due to extenuating circumstances.

From an underwriting standpoint, it is important that we evaluate all aspects of the borrowers’ financial behavior. Reviewing a borrowers’ bank statements for regular monthly expenditures is a good way to determine what a borrower does with their money. For instance, a borrower who has refinanced, receiving cash out 3 times in the most recent 24 months presents a more significant financial risk than a borrower who has not but has made 1 late payment on their mortgage. The borrower with multiple refinances may be living off of the equity in their home vs. managing their finances in a manner that allows them to, for the most part, pay their debts timely, based on their regular monthly income.

Feeling like a financial psychologist yet? Great, because you are. It might not be as cut and dry as it was in the past but it is more interesting. Contrary to what we as mortgage professionals are assuming about the current market, there still are a lot of worthy borrowers out there and as mortgage professionals we will continue to sound financing options for them. All we need to do is give it some thought.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

The VA Home Loan Program

2008-07-11T17:38:00.001-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

This year has been a big year for the FHA home loan program. Not only have we seen a considerable rise of FHA mortgage originations, but we have also seen several major changes to the program itself. From increases in the statutory loan limits under stimulus, the abolition of the MCAW to the current reforms which have not yet been signed into law, FHA has come into the 21st century.

No longer alternative to sub-prime, FHA is again a major player in the mortgage industry very unlike its sister program, The VA Home Loan Mortgage Program. That’s right, the other government program.

Now as things go, a government loan is a government loan and yes VA just like FHA provides mortgage insurance for loans granted under the provisions of the VA Home Loan program, it is just simply designated for eligible veterans. Several years ago it too was a player where available mortgage programs were concerned but it is only recently that we are too seeing its revival.

With the elections ahead of us and the looming Iraq issue, we are beginning to see a rise in eligible veterans and they want to use their VA benefits. The VA Home Loan Mortgage Guarantee program is the most efficient way to do this. Providing mortgage insurance for eligible veterans while guaranteeing loans with 100% financing is nothing to sneeze at. Currently this is the 100% program available. Additionally, when you consider that there is no monthly MI on this program and flexible credit guidelines, well its actually a very beneficial mortgage program to offer.

The program works like this. Any eligible veteran may apply for a mortgage under the VA Home Loan Mortgage Guarantee program, which will provide for 100% financing, unlimited seller paid closing costs where non-recurring closing costs are concerned and allow DTI up to 41%. There are processing and underwriting difference that must be followed such as determining the balance available for family support is sufficient to meet VA guidelines but overall the program itself is pretty easy to manage. Credit guidelines also allow for more flexibility than FHA or Conventional.

As we are all aware, the average military homebuyer faces additional challenges that individuals in the civilian world do not face, particularly when they are deployed. These factors are usually taken into consideration when underwriting hence forth, no minimum credit score requirements under the program and for the most part with existing investors which are purchasing these mortgages. Programs are available for purchase, refinance, cash out refinance and EEM mortgage types so you can do pretty much the same things with them as you can the FHA mortgage types.

Now with that said, I will advise for all mortgage professionals to look to the future and hopefully the safe return of all of our military service personal which will most surely result in an increase in demand for the VA Home Loan. The current market supports the need for the program so I suggest checking into it. For those of you interested in more information, you can access VA’s website at www.va.gov.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

The Paperwork Reduction Act

2008-07-03T18:46:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we are all aware, there are several pieces that effect FHA mortgage lending. Origination, Processing and Underwriting are all pieces that the production staff are very familiar with. HUD has set many standards which influence how we go about managing these pieces of the processes, from adhering to underwriting guidelines to completing functions such as appraisal logging in FHA Connection, we all comply with these standards in the same manner.

However, there are other pieces to the FHA mortgage insurance process that we as the production staff do not regularly consider and these functions directly effect not only the salability of a case but ultimately the insurance process. Further they can effect how an underwriter is graded during a post closing audit which is a direct effect on all Direct Endorsement Underwriters.

I am talking about the closing and post closing pieces of the FHA mortgage insurance program and that it entails. Closers not only have the responsibility to insure that a lien on the proposed collateral is perfected but to also determine that the borrower has met their minimum required investment by reviewing the HUD I and advising title companies as to what closing costs the borrowers must pay and so on.

This is an obvious point to the closing process which would effect underwriting. Needless to say, if the borrower has not met their minimum required investment, these case could be uninsurable and the responsibility would fall back to the underwriter. If certain closing conditions were not collected and the post closer did not pursue them then the file would contain material deficiencies which could also be viewed as production errors. These are the obvious things however there are some very important items that we are not aware of that and may even be doing correctly that could get the underwriting staff into some trouble, a double edged sword of sorts.

I am talking about the post-closing function of shipping a file to HUD for insuring. The process of shipping the case binder in itself is pretty easy. All information required including the shipping order of the case binder is set forth in HUD Handbook 4165 which tells the post closer how to handle remitting the UFMIP, Insurance Application and ultimately the stacking order of the documents where the case binder is concerned. Better still, the Paperwork Reduction Act of 1995 has made the case binder staking piece even easier, doing away with several pieces of information that a broker or lender would collect to complete the underwriting process.

Under the Act, the post closing is only required to forward in the case binder certain necessary documents that HUD will need in order to determine insurability of the case. These items pretty much consist of copies of the Appraisal, Contract of Sale, Condition Commitment and any other valuation documentation such as a termite inspection and so on and for the credit side, the Mortgage Credit Analysis Worksheet, AUS Findings, Note, Deed of Trust, 1003, 92900a and credit report. Some FHA disclosures are required such as the For Your Protection Get a Home Inspection but not all of them. Sounds pretty great for post closers, you know less is more but the principal is not so great for the underwriter.

A few years back I was reviewing some of my report cards from HUD, you know those lovely things they give DE Underwriters when they audit our cases at the HOC level. Audits are completed on about 10% of files underwritten per lender per year. As I was reviewing them I noticed that I was consistently being written up for material deficiencies that there is no way I could have missed. Things like credit explanations, evidence of sufficient cash to close, VOE etc. As I reviewed the findings on each case I noticed that this stuff was consistently noted as missing on just about all of them. Needless to say I started pulling the cases and sure enough the copy packages contained all of the documentation that the HUD auditors were stating was missing. So I called my HOC and explained that I did not understand how I was being written up for missing items that were clearly in the file.

The individual that I spoke to asked me if the documentation had been included in the case binder and I thought why wouldn’t it have been. The answer: Paperwork Reduction Act. The HUD employee explained to me that other than the credit report the information that I was speaking of was no longer required in the case binder as a matter of insuring and that the Paperwork Reduction Act had done away with the need of most of this stuff so therefore the post closers were no longer required to ship the credit information as part of the post closing insurance process. What this means for the underwriter, however, is that when and if the case is audited, there is no employment, asset or supporting credit documentation in the file which results in serious material deficiencies and not so great report cards.

I checked with my closer and sure enough she was not including this stuff as she was not required to. After several meeting it was determined that although our institution was doing nothing wrong from a post closing standpoint, adhering to the Paperwork Reduction Act was causing problems from an audit standpoint and that the post closers would now include all collected credit, employment and asset information in the file when shipping to HUD for insurance purposes and that policy continues today.

Now some advice for the underwriters out there who are not sure what is going to HUD in the case binders, GO ASK! Sit down with your managers and make them aware of the fallout that can result for not including all documentation collected during the processing and underwriting phase of the mortgage cycle in the case binder when it goes to FHA for insuring. Poor audits not only make the underwriter look bad but makes the institution whom which they are employed by look irresponsible. As usual, happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

The Checklist

2008-06-27T16:26:00.001-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Over the past few months I have had several individuals ask me if I had some sort of underwriting checklist that could be used while underwriting FHA mortgages. I promised to create something that new DE underwriters could use while underwriting so that nothing was forgotten and true to my word, here it is.

FHA Underwriting Checklist

Borrower:_____________________ Transaction Type:_______________
Co: Borrower:__________________ LTV/CLTV:___________________
Property Address:_______________ Total Scorecard Results:__________
City, State, Zip:_________________ DPA: ____yes_____no
Base Loan Amount:______________ Purchase Price:________________
UFMIP:_______________________ Minimum Req’d Investment:_____
Total Loan Amount:_____________ Seller Contribution:_____________

Maximum Allowable Mortgage: $_______________________

Required Underwriting Submission Documents

o Underwriting Checklist
o Lock Conformation
o 92900-LT or MCAW
o Maximum Mortgage Worksheet
o Final typed 1003, 2900a pgs 1-4
o Initial 1003, 92900a
o Total Scorecard Findings
o Credit Report & Supporting Documentation
o Payoff Statement (Refinance Transactions)
o Evidence
o Income Documentation
o W-2’s two most recent years, 1 month of paystubs documenting YTD earnings, Verbal VOE
o Verification of Assets, Earnest Money Deposit, Evidence of sufficient funds to close
o 60 days most recent bank statements or VOD and 30 days most recent bank statements
o Purchase agreement/Contract of Sale with all applicable Addenda including FHA Amendatory Clause and Real Estate Certification, Lead based paint disclosure and For Your Protection Get a Home Inspection
o FHA Appraisal report indicating the FHA case number on all pages
o Evidence that the Condo is approved, 51% Owner Occupancy Certification
o Conditional Commitment pages 1-6
o Appraisal Logging Information
o FHA Case Number Assignment, LDP, GSA and Clear CAIVRS
o Refinance Authorization for Streamline Transactions
o Good Faith Estimate
o Truth In Lending
o State Required Disclosures
o Servicing Transfer Disclosure
o ECOA, Fair Lending, Right To Receive an Appraisal
o FHA Assumption Policy
o Informed Consumer Choice Disclosure
o Important Notice to the Homebuyer
o FHA DE Disclosure
o For Your Protection Get A Home Inspection
o Additional Federally required Disclosures

Remember that all circumstances are not addressed on the checklist so make sure you determine what if any additional documentation is needed. Examples would be Divorce Decree, evidence that child support will continue for at least 3 years and so on. For those of you looking for maximum mortgage worksheets you can find them on FHA Connection. Enjoy Underwriting!

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Reviving the Fine Art of Mortgage Processing

2008-06-20T18:32:00.001-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

In the days of subprime lending, alternative credit products and expanded criteria loan programs, a processor need only to look at a product matrix to determine if the case was approvable under a certain program. A product matrix not to mention Automated Underwriting Systems did most of work not to mention the thinking for originators, processors and underwriters alike. If a case fit within the guidelines as set forth in the matrix or the AUS took the loan, it was a doable deal.

Documentation standards under these programs were also easy to achieve. Take the Stated income Stated asset program. Credit report and appraisal, possibly an Accountants letter and the deal was complete and ready for underwriting. Recent changes in the housing market however have resulted in the tightening of credit standards and programs such as SISA or No Ratio programs have become a way of the past. So we hail goodbye to the product matrix and say hello again to old school processing.

This subject has become more important to me recently than ever before. Three years ago we saw very few FHA loans so for the most part everything was checklist underwriting in the form of AUS findings or the product matrix. With the strong return of FHA lending however, processors now need to process the cases, determine income, evaluate credit and provide the necessary documentation needed to fill the holes that one finds in full documentation loans.

I have found recently that old habits die hard. Very recently I am underwriting cases that result in two pages of conditions. Ultimately when the conditions are received to clear the loan to close, something like 70 pages of documentation comes across the fax machine. I am sorry but this is a re-underwrite, not clearing conditions. As crazy as it sounds it usually takes me about ½ hour to clear conditions and in most cases I still don’t have everything I need. I call this processing by underwriting and I have to tell you its very frustrating for the underwriting staff.

Twenty years ago, in the absence of Automated Underwriting, Credit Scoring and AVM’s it was the mortgage professional’s job to assess overall risk. Cases were processed without the benefit of an Automated Underwriting System and for the large part were approved. Programs available to your average borrowers were programs that are for the most part, still available today. Standard Conventional products, FHA, VA loans provided mortgage funding for almost all borrowers.

The cases were originated, documented completely with income and asset information, credit and property appraisals were evaluated by underwriters and hopefully approved. This process 20 years ago was considered an art. The feeling was that no two cases were alike and each and everyone needed to processed and underwritten based on its own merit. In this thinking processors and originators engaged the borrower, discussing financial options that would best meet borrower’s needs. Extenuating circumstances were documented and borrowers who might have had financial difficulties in the past were given the same opportunities from an underwriting standpoint as any other borrower. What this allowed was more personal service to an applicant as well as allowing a mortgage processor as well as an underwriter the ability to truly process and underwrite a loan application.

Processors had the ability, without bias, to pick up a loan application, review a credit report and possibly find any and all compensating factors that may possibly get a loan approved. By collecting the necessary documentation to present to underwriting an approvable loan, they were allowed not only to be creative but demonstrate that they too actually believed that the case was an approvable loan. Underwriters were given the same privilege. In short, processors were allowed to process and underwriters were allowed to underwriter without the restrictions of credit scores, AUS systems and the product matrix. In processing the application, processors built a case for the borrower.

It is very rewarding to put something together, piece by piece and also very interesting. It is more even more rewarding to see the finished product when an individual understands that they are the Author of such a piece. As an underwriter I see different quality standards where processing the mortgage application is concerned. I can usually tell when a processor is old school or a very recent inductee into the mortgage business. Old school processors not only know the guidelines they take pride in the fact that the approval has no conditions. In fact I have had a couple of them teach me a thing or two. These are people who truly love the art involved in pulling together the case and presenting the most positive financial picture for the borrower. With this said, I challenge the processors out there to pull together their own work, truly processing the loan. You will feel a great sense of satisfaction once the case is finished and your underwriting staff will be greatful.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

In Case You Missed It

2008-06-13T16:16:00.003-04:00

Written By: Bonnie Wilt-Hild
Senior FHA DE Underwriter & NAMP Instructor

2008 has been a busy year for FHA loan originations not to mention the U.S Department of Housing & Urban Development. FHA modernization took center stage this year as a result of the collapse of the national mortgage market in 2007 and improvements to the FHA program has been a priority this year. These improvements have not only been designed with the low to moderate income borrower in mind, but also those individuals who have suffered financial hardship due to the rash of sub prime lending over the past 5 years.

FHA Secure has been a great program for these individuals, it help to save thousands from foreclosure, and overall modernization of the program, even if not complete, has assisted not only homeowners and homebuyers in obtaining affordable mortgage but has also assisted lenders and the overall mortgage market where prudent and common sense underwriting principals are concerned.

As we are all aware, modernization of the FHA program is still in the works, however, we have all seen a number of changes to the program this year and wait for the overhaul to be complete. The result of these changes has been multiple mortgagee letters changing program guidelines for everything from Non-Traditional Credit guidelines to 2nd appraisal requirements in declining markets. Given the number of mortgagee letters being issued each month, I thought it might be a good idea to reiterate some of the recent few that have a large impact on how we are assessing our FHA applications.

Most importantly this year was the increased loan amounts under stimulus. Mortgagee Letter 2008-06 was the letter for these changes. I thought it important to remind everyone that per this mortgagee letter the increase in loan amounts are temporary and slated to be reduced again as of December 31, 2008. Additionally, I would like to also stress that on several occasions I have received Total Scorecard findings which have stated that either DU or LP is not aware of the maximum mortgage limit for a particular area and that it is the underwriters responsibility to determine that the loan amount meets HUD’s statutory loan limits, so please keep your eyes open. Maximum mortgage limits can be checked in FHA connection.

Next big one was ML 2008-09, which reduced the maximum LTV on cash out refinanced to 85% for loan amounts greater then 417000.00 and required second appraisals for properties located in declining markets where the loan amount would exceed 417000 and the LTV is greater then 95%. I am still running across individuals who are unaware of these guidelines including large lenders, so for those of you who were not aware, pull the mortgagee letter, it could have a large impact on your pipeline should you have anything like this in process.

ML 2008-11 was a big change where Non-traditional credit is concerned. Per this mortgagee letter there is now tiered consideration of alternative credit sources, placing the alternative credit into either Group 1 or Group 2 credit borrowers. Borrowers with no alternative credit acceptable under Group 1 alternative trades will now be placed as an insufficient credit borrower and further guidelines and restrictions now apply including maximum number of late payments to a creditor in a 12 month period, reserve requirements, requirements which will disallow non occupying co borrowers and further guidelines which require that ratio requirements of 31/43 be strictly adhered to. This is a big change, particularly the insufficient credit category restrictions so please make sure your staff is aware of the changes.

Lastly, I would say ML 2008-15 and most recently 2008-16 are big ones. ML 2008-15 discusses the retirement of the Mortgage Credit Analysis Worksheet and introduces the use of 92900-LT, the new FHA loan transmittal, which will replace the MCAW. This mortgagee letter also discusses the modifications to the 92900a, which will remain in use.

ML 2008-16 is the changes regarding the UFMIP and new requirements for risk based pricing for the UFMIP and Monthly MIP factors. This new policy will be in effect on July 14, 2008 so best to share it now. It will directly affect all loans closed after this date but also disclosure of the same beginning as recently as now. In addition, the letter also discusses underwriting rules and updates to Total Scorecard, so if you have not pulled it yet, maybe today is a good idea.

As we move forward, I am sure we can all expect multiple other changes where the FHA program is concerned particularly considering Reform and the changes that will be brought about as a result. Staying current with mortgagee letters and participating in FHA training is not a bad idea, I don’t think any underwriter would be happy noting a uninsured loans to their credit. Access of mortgagee letters can be completed on HUD’s website: Click Here>>.

Good luck and happy underwriting.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior FHA DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

FHA Modernization

2008-06-06T15:55:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Change is good. It can be exciting and present new challenges that simply make life more interesting. This year has brought about many changes to the FHA mortgage insurance program, so it’s not surprising that I am going to discuss another one this week.

But before I start I would just like to say that there are just some distinguishing characteristic about FHA that made it not only different than conventional but simply FHA.

Take manual underwriting for instances, it’s just an FHA thing. Case numbers and CAIVRS also make the program special. Most importantly though, the one thing that sets FHA loans apart from all other loan types is the Mortgage Credit Analysis Worksheet. Be it convoluted and confusing it is what FHA Single Family mortgage programs are about.

Known to us die hard DE Underwriters as a MCAW, we love this document. Just like eyeliner, it makes us feel powerful. There is nothing like marking up the MCAW when you are finished underwriting a case, a scratch through here, mark up there and comments, love those, just write all over the place.

The MCAW is the end all document for FHA insured mortgages and as of May 22, 2008, in conjunction with mortgagee letter 2008-15, it will also become a thing of the past. That’s correct, the Mortgage Credit Analysis Worksheet will be replaced with a new HUD form 92900-LT, which is the new FHA Loan Transmittal. I am not quite sure if I like the name yet, but I am sure I will adjust as will everyone else and for those of you who will bid it good riddance as oppose to farewell, understand we are loosing a piece of history.

Now like I said, change is good and all things do come to an end. This change is no different. There is no doubt that completing the new LT will be far less time consuming and a lot less confusing for new DE underwriters not to mention less intimidating from a visual standpoint. But there are some drawbacks.

Unlike the MCAW, which walked the underwriter through every calculation and made it almost impossible to miscalculate the maximum mortgage amount, the new LT is not quite as helpful. It is now the underwriter’s responsibility to make sure that the borrower has met their minimum required investment and the LT isn’t going to provide the guidance that the MCAW did for you to get there.

Mortgagee Letter 2008-15 reminds us that “Lenders are reminded that they are still responsible for calculating the mortgage amount in accordance with existing FHA statutory requirements and documenting that calculation in the loan origination file”. So in other words, everyone is still on the hook for making sure that the borrowers minimum required investment has been met where it pertains to down payment and allowable closing costs, but like I said the new document isn’t walking anyone through the calculation.

There is further guidance to the document when using it in conjunction with the 203k, which all 203k underwriters should read. Additionally, the mortgagee letter also notes some changes to the 92900a, which will also take effect as of October 1, 2008, so it would be a good idea to check the mortgagee letter out if you have not already.

Below is a sample of the new LT. I think we will all agree that it is not nearly as busy as the MCAW, but it also seems to lack the FHA feel. Be careful with your loan amount when using this document because it is now all up to the underwriter. Good luck!

FHA%20Loan%20Underwriting%20%26%20Transmittal%20Summary.pdf

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

No Excuse for Spiteful Behavior

2008-05-29T17:44:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Now that we are in full swing where the FHA originations are concerned, there are several practices which exist where FHA lending is concerned that are not associated with conventional or even sub-prime lending. Completing some of these tasks requires cooperation among lenders and brokers, more particularly case number assignments.

As we are all aware, only one FHA case number is issued per borrower and property. The origination lender or broker usually requests this case number upon origination of the loan application and if something happens, say the borrowers decides to move their loan to another lender, the originating lender must assign both case number and appraisal to the new lender. This usually takes place by the originating lender transferring the case in FHA connection to the lender of the borrowers choice. However if the origination lender refuses, the new lender cannot proceed or even access the case in FHA connection.

Ultimately this means the borrower cannot close on the loan until this is completed. I will say that I have encountered lenders or brokers in the past that would refuse to assign the case number, trying to hold on to the case. Not very professional and certainly not in the borrowers best interest, it’s also sort of manipulative but ok. In these cases, the borrower would simply fax a letter to HUD requesting that the case number be assigned and it would be completed at the HUD level. A waste of time, manipulative but ultimately the case would close.

Today I saw something different and for the first time and I have to say it disgusted me. It was not a case of a desperate loan officer holding onto a case number because he really needed the commission, it went a little further than that and included support staff, more particularly an FHA DE Underwriter, which is why it was so disgusting.

In short, I had a case in which the borrower had chosen to move their case to the institution that I am employed by. I requested that the case number be assigned for about 2 weeks before faxing a letter to HUD to have the transfer completed. When I went into FHA Connection to pull the case number assignment, it printed with a flag stating that the loan had been rejected. REJECTED! What a way to spite a borrower for moving their case. Let me state that these particular borrowers were requesting a cash out refinance, had DTI/HTI of 23/35, 14 + years on their jobs respectively and 801 median credit scores. No kidding. The underwriter rejected the loan for inadequate income.

As underwriters, either conventional or DE underwriters, we all know that none of you would have rejected this case. This kind of behavior is a little more common among that of maybe origination staff but not FHA Direct Endorsement underwriters. The thought of a DE, with any amount of dignity or professionalism sitting at their desk and intentionally rejecting a loan of this quality just to manipulate or spite a borrower makes me want to scratch and then shower. As for the rest of us that take the responsibility seriously and consider it a privilege to underwrite loans on behalf of the US Department of Housing, I would like to say that there is no place in this industry for individuals like that underwriter.

On a more positive note, I called the Philadelphia HOC and upon reaching a HUD underwriter explained the case to her. She was awesome and when she reviewed the rejection in FHA Connection, she agreed with me that the underwriter was completely out of line for rejecting the case. Additionally, the underwriters name is also listed in the rejection screens so it did my heart good to know that the underwriter from HUD also got his name. She asked me if I knew this guy, which I didn’t but we both agreed he needed to read the 4155 again. I hope she gets his next loan to audit.

I realize we all need business but as underwriters we not only have a fiduciary responsibility to our borrowers but a responsibility to make fair decisions where all of our borrowers are concerned.

This type of spiteful behavior has no place in an industry already plagued with a horrible reputation for unscrupulous lenders and brokers. Please people don’t add FHA Direct Endorsement Underwriters to a long list of mortgage sleeze.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Have Patience

2008-05-23T15:12:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we all gallantly return to the FHA market, I thought this week would be a good week to discuss something that a lot of underwriters are currently experiencing and that is plying through test cases. It’s not something we think about as a normal course of business but given that so many companies have recently become approved to originate FHA business, I thought mentioning the other piece of the FHA approval process would be relevant. Not only that, but as I, myself, have accepted a new position with a mortgage lender who has also recently upgraded their FHA approval from Loan Correspondent to Unsupervised Lender and I too have found myself in “test case hell”.

I would like to start by saying it’s not a completely horrible thing to have to submit cases to HUD prior to closing, it has its benefits from a learning perspective, however, the daunting scrutiny that an underwriter is subject to with each file is a little unnerving. As a DE of 18 years with several test case situations under my belt, I have to tell you it doesn’t get any better with time, so I really feel for new DE’s who are muddling through this process. Which brings me to the true subject of this blog, please have patience with your underwriters.

Test cases require not only underwriting but review at the highest level. As a normal course of business, FHA will scrutinize every aspect of the case so it is up to the underwriter to not only anticipate what another underwriter may pick up deem unacceptable, but to underwrite the case and adhere stringently to every policy, procedure and documentation completion guideline that FHA has as well as making sure the case is simply approvable.

Forget that any audit process is stressful, most DE’s find themselves underwriting and re-underwriting the cases just to make sure that every I is dotted and T is crossed. Then there is management, particularly the production side, who wants everything closed yesterday so they don’t quite get why the underwriters at HUD won’t immediately, if not sooner, pick up their case and underwrite it. It takes on average 4 days for this process to be completed and a Firm Commitment to be issued so the wait in itself is enough to make an otherwise amicable production manager a little short tempered.

Once the origination staff gets the idea of how it all works, they usually start harassing the underwriters, sort of like “Is that case at HUD yet?”. Not cool, there are two ways to do things, the right way and the wrong way and just shipping cases that are not complete to HUD while in test case phase is a big no no and will ultimately result in a Notice of Rejection or NOR due to missing documentation. The DE knows this and will usually try to explain this to the origination staff and production managers who, with settlements scheduled prematurely, just don’t get it. This causes more frustration.

By this point, the production managers begin to resemble Attila the Hun on steroids and are just all over the underwriters to get it done. This is where the plea for patience comes in. Support staff needs to understand that an underwriter can send the case to HUD or they can send the case to HUD the right way. If you want the firm commitment and ultimately the completion of the test case phase, give them the time they need to do it right so business as usual can begin.

The sooner all 15 test cases have been completed THE RIGHT WAY, the sooner HUD will ultimately release the lender and everyone can begin conducting business more efficiently and without the delays and scrutiny we all must bear during the test case phase. So have patience and let your DE’s do what they do best and you will find yourself out of test cases before you know it.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

FHA Risk Based Premiums

2008-05-16T14:28:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

I have had a lot of questions this week regarding risk based pricing where FHA loans are concerned or as it would be referred to by FHA “Flexible Premium Pricing” and if it were true that HUD will implement such policy soon. The answer to this question is yes and the policy will go into effect on July 14, 2008.

In a news release issued by the US Department of Housing and Urban Development, FHA and the Bush Administration has stated that FHA will assume this new premium pricing structure as a way to insure that taxpayers do not assume the cost of the expansion of the FHA Secure initiative.

Additionally, it is HUD’s hope that implementing this risk-based insurance structure will allow them to reach more borrowers while at the same time preserving traditionally lower UFMIP premiums for borrowers with strong credit histories. This risk-based structure will continue to provide for a financially sound department as the FHA mortgage insurance program is funded through its mortgage insurance premiums, not tax payer dollars.

As we are aware FHA has in fact expanded the FHA Secure initiative to allow borrowers delinquent on their non-FHA ARM’s due to a rate reset or the occurrence of an extenuating circumstance who experienced no more then two 30-day or one 60 day late payment in the most recent 12 months prior to rate reset to qualify for refinance under FHA Secure.

Additionally, it will further allow delinquent borrowers who have experienced no more then one 90 day late payment on no more the three 30 day late payments prior to reset to refinance providing the LTV does not exceed 90%. As a result of the increased risk of this program the new UFMIP is set at 2.25% of the base loan amount regardless of loan to value and the Annual premium which is collected monthly is set at .55%.

As FHA has the statutory authority to charge as much as 2.25% for UFMIP and .55% percent for the annual premium, it appears that they will implement this pricing structure for all FHA mortgage insurance programs. Specifics as to how it will apply to programs other then FHA Secure have not yet been disclosed by the department in the form of a mortgagee letter however more information can be found in the Federal Register published on May 13, 2008 Vol. 73, No. 93.

Per the Federal Register Risked based premiums after July 14, 2008 will apply to all Title II FHA mortgage products including 203b, 203k and 234c programs. Risk based premiums will not effective Title I programs. Changes apply to both 30 and 15-year programs and implement guidance for using the matrix, which is also included in the information provided in the federal register. Included in guidance is minimum credit scores and LTV maximums for manually underwritten cases or cases referred by Total.

It is strongly recommended that all mortgage professionals use the guidance found in the Federal Register to prepare for the changes coming in July. I have attached the link below for easy access. Happy Underwriting!

http://edocket.access.gpo.gov/2008/pdf/E8-10625.pdf

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

New Guidelines for Non-Traditional Credit

2008-05-09T21:47:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

As we all jump back into the FHA game it seems that guidelines are changing as rapidly as the FHA program itself is changing. Each week new mortgagee letters are being issued to appropriate new and expanded guidelines and this week is no different.

FHA has long allowed non-traditional credit guidelines for borrowers who demonstrate no traditional credit trade lines. The approach that was always taken was that if a borrower chooses not to incur debt as a means to manage their financial responsibilities then that individual should be looked upon favorably as he or she managed their financial affairs without incurring debt. In these instances it was the lenders responsibility to develop an overall credit history using non-traditional credit sources to determine the borrowers ability to make monthly payments in a timely fashion.

When considering the directive, lenders had a lot of leeway where that task was concerned. From rental housing payments to school tuition, just about any monthly expense where their borrower was required to make a monthly payment was acceptable for HUD purposes.

On April 29, 2008, HUD issued Mortgagee letter 08-11 and all of this has now changed. There are now new guidelines in effect for non-traditional credit sources, which will now place references in Group I or Group II categories. Additionally, borrowers who have no non-traditional credit sources from Group I, will be considered insufficient credit borrowers and will have to fall under a whole different set of guidelines, which are far more stringent than any guidelines instituted by FHA in the past. These new guidelines could make it a little more difficult for borrowers who have no current housing expense to obtain FHA financing.

To sum it up, Group I references are non-traditional references for rental expense and normal household expenses such as utilities, landline phone lines and cable T.V. Any other alternative credit references will fall into Group II references and borrowers who can demonstrate no Group I references will be considered insufficient credit borrowers. There are several guidelines that will apply to these borrowers in addition to demonstrating 3 acceptable sources of non-traditional credit. A few of these guidelines are as follows:

1. The borrower may have no collection accounts appearing on their credit report within the most recent 12 months.
2. There may be no more then 1x30 day late in the most recent 12 months on any of the non-traditional credit trade lines.
3. Borrowers ratio’s may not exceed the 31/43% housing to income and debt to income ratio guidelines.
4. The borrower must have 2 months PITI in reserves after closing which must be borrowers own funds and can not come from gifts, grants etc.
5. There may be no non-occupying co-borrowers used to help the borrower qualify.

There are additional guidelines where these cases are concerned so I strongly recommend pulling the mortgagee letter and sharing it with staff. The changes will have a large impact on a lot of groups particularly certain minority groups and new immigrants who could previously obtain home loan financing using non-traditional credit as a means to develop an overall credit history.

The link for the mortgagee letter is listed below for easy access. While reading the letter I will recommend contemplating what additional changes may be ahead where the FHA program is concerned and perhaps modification of any types of strategic business plans to compensate for tightening of regulation.

I do believe that FHA will continue to serve the low to moderate income segment in the future as effectively as they have in the past but I also believe that there will be some necessary changes where the program is concerned to ensure financial stability of the agency as well as the overall housing market. From a lender standpoint, the best you can do is prepare for the inevitable and make sure your staff stays abreast of the new information. Happy lending.

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Have Fun With It…

2008-05-02T11:47:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Recently I had the pleasure of teaching an FHA DE Underwriting class. The class, which is presented by FHA Online University, is one of my favorites to teach. As opposed to the nuts and bolts of FHA underwriting practices and guidelines it takes on a more subjective perspective to underwriting, the why’s and what if’s if you would. I love teaching the class because as a whole a lot of super ideas get passed around and it allows the students to participate in more of the mental approach to underwriting a mortgage than just the mechanics of how it is done.

With that said, I just want to say that this week was no exception and as always, I had a blast. More than that, I had a few students say that they too had a lot of fun. What a concept, fun and underwriting. There is no doubt that there is a great deal of responsibility that goes hand and hand with making prudent underwriting decisions but I take heart in the fact that there are still individuals out there that enjoy the task as much as I do. There is nothing better than reading credit explanations out loud and phonetically correct and lets not forget the most famous employment gap letter, “I’ve never worked at the Gap” sorry but I still laugh every time I think about it.

I always find great stuff in loan files but more than that I love the puzzle. Pulling it all together and actually being able to assemble something that not only makes sense but makes financial sense is something I will never get board with. Every time I become frustrated with current market conditions, minimum credit score requirements with the FHA stuff and sometimes the inability to make loan decisions that I believe in because of secondary, I try to remember how much fun this job really is.

Recently I have listened to a lot of people complain about how limited they now are in terms of providing financing for individuals that they really believe deserve a mortgage. “Underwriting is no longer common sense, it’s obnoxious”, is the general statement from support staff. How unfortunate. I remember a time 20 years ago or so that most support staff thought that underwriters had a God complex. As judge and jury, they never really needed to be nice or even work with support staff, “Convince me”, was the game. Things seemed to turn around 10 years ago when the industry as a whole seemed to consider service a priority and underwriting actually followed suit. Rates were low, business was booming and every AE wanted the new accounts and underwriting accommodated. The job was fun.

That was then, this is now. The God complex has returned, as underwriters no longer need to be nice. The industry has tightened to a point that investors almost seem to discourage production, even production that makes sense and underwriting has again followed suit. There are a lot of old school underwriters out there who really have the knowledge to teach the new generation how to not only do it, but also do it right and with a level of service that knows no bounds and still have fun.

So this blog was supposed to be an underwriting checklist, that I promised some students from this weeks DE class, but as you can see it’s not. Instead it’s a thank you for spending some time with me and reminding me how much I really love this stuff. I hope that the people that were in the class learned as much as I did and continue to not only pass the knowledge on, but also have fun with it.

Next week, FHA underwriting checklist, I promise……

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.

Discovering FHA

2008-04-25T11:44:00.000-04:00

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

We are witness to the mad dash to become FHA approved. It seems that every broker has applied for a mini-eagle and the brokers that had the mini-eagle have applied for their full eagle. FHA has become the mortgage program of choice not only because of the flexibility of the program but also because it seems to be the only option to get borrowers qualified.

While I have seen an upward trend in the number of FHA mortgage applications from an underwriting standpoint, I am also witness to the number of mortgage professionals who have taken it upon themselves to immerse themselves into the program by educating themselves in all aspects of the program from origination to underwriting and while this is important, there are aspects of the program which all new initiates of the program need to be aware of, and this is the “back room”.

From a broker standpoint, I will say that origination and processing standards are paramount points of training simply because most of the back room functions will be completed by the underwriting lenders, however for those companies that have moved from loan correspondents to unsupervised lender, the back room is a very real consideration and is something that needs to be addressed prior to the closing of the first FHA loan application.

Remember that even while a lender is in test cases immediately after conversion from loan correspondent to unsupervised lender they are responsible for handling the closing and post closing functions associated with FHA lending. There are additional steps that need to be completed with these and I have found that most new lenders have not equipped themselves with the information necessary to close or post close the cases. So here is a little heads up;

1. Remember that certain FHA specific closing documents need to be completed with the closing package and the Security Instruments must indicate the FHA case number.

2. The UFMIP collected from the borrower at time of closing must be remitted to HUD via FHA Connection within 10 days of loan closing. Each lender must be set up on www.pay.gov in order to remit the UFMIP and the set up process takes about 14 days so if you haven’t completed you might want to do it today.

3. The FHA case binder must be completed and shipped to FHA for Insuring purposes within 30 days of closing and must contain FHA connection print outs for Appraisal Logging, Insuring Logging and evidence that the UFMIP has been remitted to HUD.

4. Case binder stacking orders are available on FHA connection. Word to the wise, be careful with the paperwork reduction act, if the case binder does NOT contain all documentation used to make the credit decision it is possible that your underwriter will end up with a poor rating if the case is audited so be sure to ship everything in the credit and valuation package in the case binder.

5. Make sure you provide a Mortgagee Record Change form in the FHA case binder if the case has already been sold on the secondary market. FHA will need to make the necessary changes in FHA connection as to who the servicing lender is.

6. Post closers, check FHA Connection regularly for Mortgage Insurance Certificates (MIC’s). These need to be forwarded to your investors to demonstrate that the case has been insured. Keep a copy with your closed and sold loan files.

7. Lastly, don’t panic if you receive the case binder back from HUD with a NOR (Notice of Rejection). Read the notice and determine what the deficiency is and correct it. Once corrected, resend the case binder to HUD for insuring.

Keep mind that there are other factors that apply to closing and post closing FHA loans but the above information will get you started. Closers may want to take some time and training as to what additional documentation is required and disclosure of the UFMIP and monthly MIP from a Regulation Z standpoint as well as Initial Escrow Account Statement standpoint.

Also keep in mind that Compliance Issues matter. If your underwriters are not underwriting for compliance, they need to start. Review the final HUD I before you allow the loan to close if not serious errors where maximum mortgage amount calculations and minimum closing costs requirements are concerned can and will occur. No one likes to buy a loan down and getting the funds from the borrower after closing is near impossible.

Underwriting a performing asset is certainly critical where the FHA loans are concerned but managing the closing and post closing piece are just as critical. Its my experience that just as many errors in this area are made as with processing and underwriting however from a closing standpoint they can be costly. Additional information pertaining to the closing and post closing piece can be found on FHA Connection and need be, call FHA, they are great and always willing to help.

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.