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Friday, March 12, 2010

Why Aren’t More Lenders Following HUD’s “Flipping Waiver?”

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

One of the hot buttons in our industry these days seems to be the lack of lenders honoring HUD’s recently issued “Flipping Waiver” for FHA lending. I’ve had a number of originators vent their frustrations with not having any outlets to turn to for this and a number have asked for further explanation. As someone who spends a majority of my time working with credit risk, I feel I can offer a pretty darn good explanation for why.

We all know what’s lead us to the state of the industry that we’ve dealing with for the past two plus years. Credit policy standards were far too low for us to eliminate high risk borrowers and far too little attention was paid to high risk trends because everybody was too busy making money. But FHA was a bit ahead of the game in that at last they had the 90-day seller seasoning requirement in place through that entire period. That gave lenders the ability to refuse lending to FHA borrowers who were purchasing properties from flippers and flipping rings that hadn’t been in title for at least 90 days. It offered at least some protection to the lenders. Unfortunately many of the flippers and flipping rings managed to get through the system using sub-prime and conventional lending which eventually contributed to the mass of foreclosures and default trends that eventually lead to the fall of our markets.

When mortgage defaults increased and foreclosures started rising, the lenders all found themselves having to expand their quality control monitoring which in many cases meant expanding the sizes of their QC staff. This lead to more costs while allowing them to meet minimum agency QC standards which the agencies had no choice but to start paying real attention to. Lenders started paying real attention to the details and trends of their defaulted loans and foreclosure portfolios.

With the major change from the world of sub-prime and conventional lending over to a dependence upon FHA lending for the first time in many years, lenders all experienced a significant learning curve. It took over a year for originators, processors, closers, funders, shippers, insurers, auditors, purchasers and servicers to really learn and get comfortable with the ins and outs of FHA lending. Many of them had come into the industry when it was booming and may have had no experience whatsoever with FHA lending. Now, with a major switch in lending trends, lenders had to get their staffs trained, reorganize their divisions, hire in FHA experts, spend money and time getting FHA-approved if they weren’t already and take serious looks at their internal processes and procedures. They all had to ramp up their training and education on high risk and fraud recognition and awareness.

It’s really just within the past few months I feel that the industry as a whole has really come to fully comprehend the differences between the former dependence on mainly conventional lending to now depending upon FHA-insured lending options. Employees of the industry now have gained an understanding of FHA guidelines and requirements and most lenders likely encounter many fewer “screw ups” than in the previous 12-18 month period. But just when we all feel like things have settled a bit BAM! HUD comes out with the flipping waiver that completely contradicts the message we’ve all been learning in the past few years about FHA. We are surrounded by constant crackdowns on credit policies and tougher lending standards and we’ve all read the articles and seen the news coverage about the FHA insurance funds being in trouble. But then instead of tightening standards, as they have in so many other areas, they tell us to ignore the 90-day seller seasoning standard to allow properties to move. Say what?

I remember my initial reaction when I received notice of the waiver. I believe I yelled out something like “have they lost their *(&*^&^ (&) P_&*&*(&(Y mind!” I immediately know that I wasn’t the only person who was thinking what I was thinking. My thoughts were of the contradictory message the waiver sends to the industry in these times where lending is tightening and fraudsters are sought out moreso than ever in the past. I expected that our main lenders might have serious issue with the waiver, just as I did. And I was correct in my thinking.

To date I have heard only of two outlets honoring the waiver. I am not aware of any significantly large and common lenders that are. To be honest, I don’t expect they will. They don’t trust the message that’s being sent out from HUD right now. On one hand, HUD has made it particularly clear they are monitoring lender performance moreso now than ever in the past. They have made their point known by the various news articles and announcements they’ve made subpoenaing lenders for investigations. We’ve seen the penalties and sanctions they’ve been distributing out there.

What it comes down to is this: In the past, lenders jumped on the bandwagon when opportunity presented itself to capitalize on the market because the other lenders were doing it. They were quick to ignore the risks of allowing no doc borrowers to go through the system, were quick to ignore the risks of allowing borrowers with no credit, minimal credit and borrowers who flat out didn’t qualify to go through the system, were quick to offer lending products like interest only when they clearly knew borrowers didn’t come near to qualifying for the full payment on said mortgage. All of those lenders have paid dearly for their bad business decisions.

In today’s world, lenders stop to weigh the options before jumping on the bandwagon of opportunity because they have all learned the hard way that opportunity now can end up costing later. With limited seller seasoning being a clearly identifiable lending risk, lenders simply cannot afford to take a chance on HUD’s waiver.

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)

Friday, March 05, 2010

FHA Case Transfers and Appraisal Portability

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

With all of the recently implemented FHA appraiser and appraisal changes, it can be somewhat confusing as to what detail and information you as a loan officer or processor may need to be aware of when it comes to new appraisal orders and appraisals received as the result of case transfers. Below is some information you may find useful.

There are two common situations that can lead to an incoming FHA case transfer:

1. The borrower starts their FHA loan application with Lender A who obtains an FHA Case Assignment but the borrower chooses to finish out the loan process by re-applying with Lender B and requests their case be transferred from Lender A to Lender B; or

2. Lender B attempts to request a case assignment for a new application but receives a message in FHA Connection that an existing case, belonging to Lender A, exists in association with the subject property. (most often this involves different borrowers than applied with Lender A)

In either case, Lender B in is position to request a case transfer from Lender A. There are a number of things that must be taken into consideration by Lender B when requesting the case been transferred from Lender A to Lender B. These are pertinent questions that should be asked whenever you are in position to accept an incoming case from another lender:

1. Does Lender B have application from the same or differing applicants than started the process with Lender A?

2. Has Lender A underwritten and rejected a loan for the same borrower’s who are now in process with Lender B?

HUD requires that Lender A complete the Mortgage Credit Reject screen in FHA Connection prior to transferring the case to Lender B if indeed the loan was underwritten and rejected. When this screen is completed by Lender A, Lender B can “overturn” the rejection of Lender A by specifically explaining and documenting the reasoning in Lender B’s case file for insuring.

3. Has an FHA appraisal been received for the subject property by Lender A?

- If Lender A does not have an appraisal in hand, your borrower’s will be able to obtain an appraisal specifically for them and their property through whatever appraisal ordering process your organization has implemented for purpose of maintaining appraiser independence.

- If Lender A does have an appraisal in hand, Lender B should be aware of any internal procedures and requirements that may apply within Lender B’s organization for the review and acceptance of incoming appraisals related to FHA case transfers.

4. If Lender A has a completed FHA appraisal in hand, is the existing appraisal still valid? Will the appraisal remain valid by the time Lender B’s loan is set to close?

- If the case was assigned prior to January 1, 2010 the appraisal has a six month validity period for existing construction or a 12 month validity period for new construction.

- If the case was assigned after January 1, 2010 but before February 15, 2010 the appraisal expires after 120 days and a new appraisal is required after expiration.

- If the case was assigned on or after February 15 the appraisal has a validity of 120 days but when it expires, FNMA Form 1004D may be used to request an appraisal update If the appraisal meets the requirements of Mortgagee Letter 2009-51. If the appraisal does not meet such requirements, a new appraisal must be requested from the same appraiser who completed the incoming appraisal through whatever appraisal ordering process your organization has implemented for purpose of maintaining appraiser independence.

5. If Lender A has a completed FHA appraisal in hand, is the appraiser on Lender B’s ineligible list? Is there any reason Lender B cannot accept an appraisal completed by the appraiser who completed the appraisal for Lender A?

- Unless the situation meets either of the requirements listed in Mortgagee Letter 2009-29, Lender B must re-use the appraisal being transferred in from Lender A.

6. Does Lender A intend to charge Lender B for transferring the appraisal?

- Transferring lenders are entitled per HUD to charge reasonable fees for reimbursement of the appraisal expense. When the case involves different borrowers for a common property, FHA instructs that Lender B is to collect an appraisal fee from the new borrowers and present the fee to Lender A so that Lender A may reimburse the original borrower’s for the appraisal expense.

For any case transfer request, Lender B should specifically request that all rights to the existing case and appraisal be transferred to Lender B and that Lender B will accept all rights to the case. The questions listed above should also be kept in mind when requesting the case transfer so that informed decisions can be made at point of transfer and so that effective communications can be made to your borrower(s) involved with the case transfer process.

One thing to note of importance - If Lender B determines that any portion of the transferred appraisal received from Lender A requires updating, additional commentary, corrections, etc. the appraiser is obligated by the confidentiality regulations within USPAP and cannot honor the request of Lender B without considering it a new appraisal assignment. These situations can lead to additional fees and in some cases, requirements for another appraisal fee to be charged. HUD does not allow the borrowers to be charged for more than one appraisal.

HUD does not require that the borrower names, client (lender name) or transaction details match on the appraisal in cases of case transfer. They are concerned most that the value of the property is justified to meet the requirements of your transaction type and that the property meets HUD minimum property standards. However, Lender B may have their own requirements for all data to match between the appraisal and the transaction. Be aware that you cannot request that the appraiser change the client (lender) name or any of the other minor details without it being considered a new assignment which leads to added charges. HUD does not get involved with the appraiser charges or charges between the lenders concerning case transfers.

If the transferring lender is uncooperative, prior to contacting HUD, the new lender should attempt to resolve the situation with the original lender at a management level. If the new lender cannot reconcile the situation with the original lender, the new lender can fax the following items to the Director of Processing and Underwriting Division in the appropriate Home Ownership Center (HOC) containing the following:

1. The steps taken by the lender to try and accomplish the transfer;
2. A Listing of the fees (if any) the original lender has requested be paid;
3. The resolution, if any, to the request for payment of fees by the original lender;
4. A letter signed by the borrower stating that the borrower wants to work with the new lender.

HUD staff will transfer the case number or cancel the existing case number so that a new case number may be issued, as appropriate.

Fax the above listed information to the appropriate Homeownership Center as listed below:

- Atlanta Homeownership Center oversees the following states: Alabama, Florida, Georgia, Kentucky, Illinois, Indiana, Mississippi, North Carolina, South Carolina, and Tennessee.

Fax request to: 404-331-3361

- Denver Homeownership Center oversees the following states: Arkansas, Colorado, Iowa, Kansas, Louisiana, Missouri, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas, Wisconsin, Wyoming, and Utah.

Fax to (303) 672-5211 or (303) 672-5210, if busy

- Philadelphia Homeownership Center oversees the following states: Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia.

Fax to (215) 656-3434 for properties in DE, DC, MD, MI, PA, VA, WV

Fax to (215) 656-3438 for properties in CT, ME, MA, NH, NJ, NY, OH, RI, VT

- Santa Ana Homeownership Center oversees the following states: Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon and Washington.

Fax to (714) 796-5521

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)

Friday, February 26, 2010

Freddie Mac Favorites

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

This week I am providing the last of my favorite lists of agency websites and resources. I like to visit these often to obtain as much training and education as I can get my hands on. Freddie Mac offers some of the most thorough and user-friendly education materials out there and I highly recommend taking advantage of everything they offer. Whether you are a loan officer, processor, underwriter, auditor, shipper or seller, you can benefit from Freddie Mac’s extensive list of resources!

View the list by clicking here:
List of Freddie Mac Favorites.pdf

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)