Lots Of Action On FHA With New Mortgagee Letters And On Capitol Hill!

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

It’s been a busy few weeks on the FHA-Front with the release of several Mortgagee Letters as well as movement on the FHA Reform Bill on Capitol Hill in Washington. Let’s review:

Mortgagee Letter 2010-13-Appraisal Update and/or Completion Report (Fannie Mae Form 1004D/Freddie Mac Form 442/March 2005)

It was definitely a positive that HUD issues this communication because the content of this bulletin most certainly clears up confusion on appraisal validity when an existing FHA appraisal is extended by the appraiser with FNMA Form 1004D. HUD communicates one fact in ML 2010-13 that was not so clear in the first communication issued via Mortgagee Letter 2009-51: That the original FHA appraisal may only be extended one time with the use of the Appraisal Update Report.

It was also clarified that the maximum validity of the FHA appraisal is 240 days if the Appraisal Update Report is used to extend the validity of the original appraisal report. In these cases, the DE underwriter may not add an additional 30 days extension to bring validity to 270 days.

The same requirements listed in ML 2009-51 apply in that the property cannot be located in an area of market decline. That in itself wipes out much of the ability to utilize the Appraisal Update to extend the validity of FHA appraisals and in most cases, once the original appraisal ages to 120 days, a new FHA appraisal will be required instead of using the FNMA Form 1004D to extend validity.

Always be sure to check your lender’s guidelines as some lenders are not even honoring the Appraisal Update Report and will always require a new FHA appraisal once the 120 milestone is reached.

Mortgagee Letter 2010-14 Electronic Signatures on Third Party Documents

This bulletin simply clarified what’s already been accepted for a few years as far as I’m aware. FHA simply clarified in writing that they are now accepting electronic signatures on third party documentation such as verification forms and real estate contracts. Note that this does not include their acceptance of electronic signatures on applications documents and disclosures nor closing documents. These all require actual ink signatures from our borrowers.

Mortgagee Letter 2010-15 FHA Case Number and FHA Roster Appraiser Assignments
As we all know, this bulletin was long overdue since Appraiser Independence standards were effective for cases assigned on and after February 15th. This ML simply communicates the changes to FHA Connection Case Assigning data screens in that we are no longer required to enter the appraiser information in the initial stages for case assignment. Instead, we will now be entering the appraiser information with appraisal logging procedures. This is a good change in that it will eliminate the masses of errors that had been created in the past when processors and underwriters logged a different FHA appraiser than the one who was originally assigned to the case.

There is one part of this bulletin I feel is of particular importance to point out, however, and that is point number 3 at the top of the letter:

3. Requires that the effective date of the appraisal be after the case number assignment date except in certain limited circumstances.

This change is especially important for those who have established the bad habit of ordering FHA appraisals before the case has been assigned. I’ve seen this happen way too often. The appraisers should not accept orders without the case assignments but they do and often, they end up completing the appraisal before the case is even assigned. This letter communicates that HUD is no longer accepting those except for the limited circumstances outlined in the bulletin which require lender certification.

Lastly, the H.R. 5072, “The FHA Reform Act” is moving its way through Capitol Hill. It passed the House Financial Services Committee on Tuesday, April 27th and will likely end up passing into law because it has the support of a diverse group of organizations including the National Urban League, the National Council of La Raza, the National Community Reinvestment Coalition, the Mortgage Bankers Association, the National Association of Realtors and the National Association of Home Builders.

This bill proposes increasing FHA annual mortgage insurance premiums from the current .50 and .55 rates to 1.50 and 1.55 which is a substantial increase to monthly mortgage payments for potential FHA homeowners. This is a bit concerning since as we all know, up-front mortgage insurance premiums were just increased from 1.5% and 1.75% to 2.25% effective in early April. If the annual mortgage insurance is increased for FHA, it may make FHA lending more difficult as far as qualifying lower income borrowers in certain areas of the country.

In addition the bill proposes to hold lenders accountable for indemnification of loans with claims paid out whereas a determination is made that fraud was involved. (this one I couldn’t agree with more. It’s about time lenders with poor screening processes be held accountable for the fraud that contributes to bad things for all of us in the industry).

The bill also proposes that HUD has the right to terminate underwriting authority for those lenders whose default rates are determined excessive, in addition to a number of other measures that are presented to preserve and protect the mortgage insurance reserve fund.

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.

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

FAQ Results from Recent HUD Webinar

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

I was quite impressed with the HUD webinar I listened in on April 20th. I was thrilled to see that a lot of commonly asked questions were addressed and explained. In the past, many of these same questions received different answers from various interpretations of the guidelines over the years. I’m excited to pass on some of the test questions and FAQS from the session! Test your own knowledge by reviewing the questions below. I’ve provided the answers at the bottom of this writing.

QUESTIONS:

1. Borrower currently owns a primary residence secured by FHA financing and wishes to purchase another home with FHA financing to accommodate the needs of a larger yard for Rex, the new family dog. Does this need meet FHA’s requirements for increase in family size which allows for ownership of more than one FHA-insured property?

2. Borrower is purchasing a property in a community property state with a non-purchasing spouse. Review of the borrower’s IRS tax transcript, as required by the lender, indicates a Schedule C business loss for the non-purchasing wife. Does the lender need to take the income losses of the non-purchasing spouse into account for the borrower’s qualifying purposes?

3. Borrower just returned to the work force after a job gap of 4.5 years due to her spouse’s consistent military transfers all over the country. She has been back on the job for 30 days. Can her income be used for qualifying purposes?

4. Review of borrower’s credit report shows obligation for a mortgage rated current with 2 x 30 late payments reflected in the most recent 12 month period. Borrower provides copy of divorce decree with settlement showing that the divorce awarded the prior marital home to the ex-spouse and that the mortgage was to have become the ex-spouse’s responsibility. Is the lender correct in omitting this debt from the borrower’s qualifying requirements?

5. Borrower’s credit report indicates a bankruptcy discharge just two years ago and review of documentation reflects that a home with mortgage liens was included in the bankruptcy. Is the borrower eligible for FHA financing?

6. Borrower’s credit report reflects an individual auto loan currently in repayment but the borrower states his sister makes payments on the auto since she now drives the car. He can provide 12 months cancelled checks to substantiate this. Can this debt be omitted from the borrower’s qualifying ratio?

7. Borrower earns commissions as a Schedule C sales person. The credit report reflects a large auto loan payment but borrower states that her business makes the payments. Is the lender correct in omitting this debt from qualifying if the tax returns demonstrate that the auto expenses are indeed being covered by the business?

8. Borrower’s credit report reflects a disputed account with a zero balance and AUS/TOTAL Scorecard has approved the loan. Does the automated approval require a downgrade to refer and must the loan be manually underwritten?

9. Borrower recently accepted new employment at a higher salary which has been used in qualifying, loan is AUS approved but borrower isn’t set to start the job until 30 days after the loan closes. Is this acceptable if a signed employment offer is obtained from the new employer confirming the salary and that the start date is within 60 days of loan closing?

10. Is a credit report required for a non-purchasing spouse when the non-purchasing spouse is an illegal alien with no valid social security number?

ANSWERS:

1. Unfortunately no. Increase in family size must be documented by the borrower providing documentation of an added dependent or extension of family as well as by an increase to the number of bedrooms when comparing the capacity of the current home to that of the proposed home. The definition of family member does not include pets for FHA’s purposes.

2. No. Business losses for non-purchasing spouses do not need to be accounted for in qualifying the purchasing borrower.

3. Unfortunately no. FHA requires a minimum of six months return to the work force after an extended period of absence as well as documentation that the borrower had a minimum two year employment history prior to the gap.

4. Yes. When documented by a divorce decree or court order, the debts of an ex-spouse may be omitted.

5. Unfortunately no. When a home mortgage is written off in a bankruptcy discharge, it is considered a foreclosure for FHA qualifying purposes and is subject to the minimum three year requirement before the borrower is allowed to purchase a home secured with FHA financing.

6. The auto payment can only be omitted if the sister is on the auto loan with the borrower. If the auto loan was obtained solely in the borrower’s name, the debt cannot be omitted even if another party provides evidence that someone other than the borrower has been repaying the loan.

7. Unfortunately no. A Schedule C Sole Proprietorship business which means the borrower is still solely responsible for all income, expenses and debt. The business would not be considered a co-obligor on the debt and thus, the obligation cannot be omitted from qualifying.

8. Yes. Regardless of the disposition of a disputed account, the loan must be downgraded from AUS Approve or Accept to Refer and must be manually underwritten.

9. It may be acceptable to the FHA guideline requirements but if the AUS findings require review of the most recent or 30 days paystubs, the lender cannot meet the documentation requirements because the borrower hasn’t yet started the new job for which income is being used to qualify. In this situation, the AUS approval must be downgraded to a Refer and the loan must be manually underwritten.

10. The lender must provide evidence of due diligence in attempting to obtain a credit report for the non-purchasing spouse. However, if the non-purchasing spouse does not have a valid SSN, it is unlikely to render a credit report result.

How did you do? I thought these were great questions that HUD addressed on the webinar. Am hoping you find the answers helpful as well!

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

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

This Week’s Hot Topics

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

Two items in particular stand out this week. As being the commonly asked questions I’ve had to jump in and answer.

1. Where can I get hard copies of the HUD Settlement Cost Booklet?

2. What will lenders require in regards to tax transcripts after the April 15th filing deadline date?

To answer the first question, HUD Settlement Cost Booklets (recently updated on 3/25/2010) are available for download at the RESPA website at
http://www.hud.gov/offices/hsg/ramh/res/settlement-cost-booklet03252010.cfm.

HUD has not made the booklets available for order from their online distribution center this year. However, I’m told that you may still call and order up to 100 booklets at no charge by calling HUD Customer Service at 1-800-767-7468. Beware however, that shipments may be delayed due to the recent booklet update. Be sure to ask for the approximate shipping time.

In regards to question number two, I don’t know about anyone else but I am just sick to death of even hearing mention of the “T word.” (transcripts). I don’t understand why everyone in mortgage land is having such a difficult time with these new requirements. It all comes down to common sense which should be no different than any other underwriting situation!

Within the past day, I’ve researched and contacted a number of the largest lenders and the consensus among them was this: If the borrower’s 2009 earnings were significantly higher than in previous years and the 2009 income is required for the borrower to qualify for the mortgage, transcripts are expected to accompany all other documentation to substantiate the income. If the borrower’s 2009 income is used to qualify and no transcripts are in the file when it goes to the lender for purchase, the lender may downgrade your income qualifications by tossing out the 2009 figures to go off of 2008 transcript income. This can cause non-saleable loan issues and significant purchasing delays.

So, what’s the trick to making the judgment calls on these situations? Use conservative qualifying, meaning the worst possible case qualifying you can in order to avoid the requirement for the 2009 transcript if it’s not yet available.

For borrower’s, who do not need the 2009 income increase to qualify, simply obtain copies of the 2009 W2s, a copy of the 2009 filed return or extension to file, evidence that IRS transcript is not yet available and substitute the 2008 transcript instead.

For you originators out there - If you send out email alerts or marketing communications to past customers, be sure to inform them of the need for their transcripts in most loan situations. Give them the heads up that they should not delay filing their 2009 returns if their intent is to refinance or purchase a home within the coming months. Make sure they are prepared and can be certain that their transcripts will be available from the IRS at the time of application or shortly thereafter. You’ll be saving them a world of frustration and potential closing date delays but giving them the information ahead of time!

Be sure to inform your realtor, builder and financial planning partners about the tax transcript requirements as well so that they can assist in preparing potential applicants for the tax transcript requirements! Your business partners will appreciate you keeping them informed and up-to-date on the underwriting policies and requirements that can affect your mutual interest clients!

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.

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