FHA & Basic Processing

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

There is no doubt that these are trying times for many of us in the industry. The market is definitely more difficult out there than I have seen it in a LONG time - perhaps even the most difficult that I have seen in the 16 years I’ve called this industry my home.

However, some of the things I am seeing never cease to blow my mind. So many problems connected with underwriting turn-times, long lists of conditions, closing dates being blown, files being rushed … so many of the issues I’m seeing and hearing about are the result of people not using simple common sense. It’s like everyone has just completely lost their minds!

FHA is NOT as difficult as so many people out there are making it. With 16 years of expertise under my belt I can tell you that the major difference between FHA and conventional lending can be summed up in one simple word- “DETAILS.” It’s all about the details! And when I say “details” I’m not talking about some code word among us FHA gurus that none of the general public would understand - I’m talking about true and factual every day ordinary DETAILS! The same details that are of importance on any standard conventional loan are those exact same details that need to be accounted for with FHA lending.

As a processor, there are a few standard details that simply cannot be overlooked. Here is a list of common issues I see caused by lack of attention to details:

· Incomplete 1003 loan application data. Don’t care, don’t want to hear your excuses, don’t want to hear you blame the loan officer- when YOU as a processor turn a file in to underwriting where employment information doesn’t include the address, job time is missing, to and from employment dates are missing, bank account information isn’t filled in, year built isn’t updated on page 1 of the 1003, current rent isn’t listed as current housing expense on page 2 of the 1003, I blame YOU! Any good processor who cares any bit about a quality reputation will not submit a loan file with these DETAILS missing. The moment you receive a new loan file from a loan officer, your first duty is to review that 1003 and either return incomplete sections to the originator to complete and resubmit or YOU need to take the initiative to gather and complete those DETAILS.

· Age of the property. When you receive a new loan file for processing, you need to be immediately clear on the age of the property. Why? Because any property that is under 1 year old is considered new construction for FHA purposes and will require additional disclosures and documentation. These are not things you want to find out you need at the last minute. I see this happen all the time and it causes a ripple of panic I don’t envy. You must make sure your loan officers know of the importance of advising you with that info day one when the file comes in. If you receive the file and it’s not clear, either ask the LO or better yet, go straight to the realtor and ask so it’s certain.

· Outdated/duplicated/derogatory credit. If you can’t flat out tell what the borrower owes on each tradeline right now at first glance of the credit report, guess what? The underwriter can’t either! She doesn’t have some magic pair of rose-colored glasses that allow her to see things any differently than you do! Take the time and do the underwriter the courtesy of updating tradelines on the credit report so they rate current, show current balances and get duplicates removed! This will save so many people so much time it will be mind-boggling!

· Employment/income docs. Back when I was processing, I don’t know if I was just abnormally anal retentive or what the deal was but I can guarantee you I wasn’t mixing all the borrowers and co-borrowers W2s together on the same page, submitting this documentation section out of order or submitting my copies cut off, some right side up, some upside down, some not even legible... There is a rule with this stuff- call it “Stacey’s Law” if you will- Here’s how it works: Submit the borrower’s employment and income documentation in chronological order followed by the co-borrowers employment and income documentation in chronological order. Huh you say?

Here goes:

Borrower- Explanation for any gaps, field changes, notes on income calculations …
Borrower- Full VOE or verbal VOE for current job
Borrower- current YTD paystub(s) in order, most recent first, followed by next recent, and so on
Borrower- Full VOE or verbal VOE for prior job(s)
Borrower- College Transcripts or copy of degree if needed to establish schooling
Borrower- W2s for most recent year followed by W2s for prior year
Borrower- Tax returns for most recent year (if required for any reason like self-employment, rental income etc).
Borrower- Tax returns for prior tax year (if required for any reason like self-employment, rental income etc).

Then follow with co-borrower information in same order.

**Note** the examples I’m listing here are designed for worst case full documentation situation. You would obviously only submit those documents required from your AUS findings or as dictated by your particular borrower’s employment/income history.

· Bank Statements/Assets/Gift funds/DPA. Now again, I don’t think I was any smarter than the average human back when I was processing regularly but I was very picky about my file order, the quality of the documentation and I challenged myself to edit every single page of every single document. I encourage you to review the bank statements you are submitting- watch for irregular deposits, request explanations for increases, be sure to catch negative balances and overdrafts and toss those statements out of the files, don’t submit six months of old bank statements when findings only require a current ONE month statement, … Most recent statements should be on top followed by the prior statement, checking and savings first, gift letter, gift funds documentation next, mutual funds, retirement/401k next, …. Make sure copies are straight, neat, complete and legible.

These are just a few common things that annoy me on a regular basis- I thought worth mentioning in hopes you will all take time to pay attention to these small details. Doing so up front in the process will save you a ton of time later in the process!

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.