New from FHA- Updated TOTAL Scorecard User Guide!

Written By: Stacey Sprain

At the end of 2011, HUD finally released a long-awaited current version of the TOTAL Scorecard User Guide. The prior version had not been updated since 2004. FHA requires that all loans be scored through TOTAL except for those transactions involving borrower’s with no traditional credit scores and streamline refinance transactions. It’s important to be aware that TOTAL does not:

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• reject applications,
• review the loan for compliance,
• review maximum mortgage amounts,
• compute debt-to-income ratios,
• review property eligibility,
• determine LTV, or
• Complete additional functions typically performed by an AUS.
For those who may not be completely familiar with the history of TOTAL Scorecard, what it is or what purpose it serves, HUD offers the following explanation:
“The FHA TOTAL Scorecard was developed by HUD to evaluate the credit risk of FHA loans that are submitted to an automated underwriting system. To underwrite an FHA loan electronically, a mortgagee must process the request through an automated underwriting system that can communicate with the FHA TOTAL Scorecard.
FHA developed their own “scorecard” for a number of reasons:
1. To ensure that applicants for FHA loan insurance are evaluated by the same scoring process regardless of the AUS vendor submitting the loan.

2. To enhance FHA's ability to access and manage risk. FHA systems capture TOTAL Scorecard data and allow the study and analysis of trends used to make policy changes when appropriate.

3. To ensure that no borrower is denied an FHA insured mortgage loan on the basis of a refer classification by an AUS alone.

The TOTAL Scorecard provides two risk classifications: "Accept/Approve" or "Refer." An "Accept/Approve" indicates that FHA will ensure the borrower's loan with reduced documentation. If the loan receives a "Refer" classification", the lender must manually underwrite the loan.”

Updates in the New TOTAL Scorecard User Guide

The following summarizes the changes that appear in the newly updated User Guide versus that content that appeared in the prior version of the Guide.

The new Guide reiterates the importance of not scoring streamline refinance transactions through TOTAL.

The new Guide addresses data entry requirements to identify sponsored/third party originations.

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“As of October 4, 2010, TOTAL allows entry of the sponsored originator’s Employer Identification Number (EIN). Loan origination companies acting as sponsored originators are able to access TOTAL through any AUS that is integrated with TOTAL. If the AUS is able to send the sponsored originator’s EIN, the AUS should transmit the sponsored originator’s EIN into the Sponsored Originator EIN data field. If the AUS is unable to transmit the EIN number, the following number should be transmitted in the Lender ID field, “6999609996”. Either the Lender ID or the Sponsored Originator EIN must be sent in the request to TOTAL. If neither or both are submitted, TOTAL will return an approved error code with instructions to address the error.”

The new Guide expands by adding a bit more detail regarding qualifying the debts of a non-purchasing spouse:

Old Guide: Those debts that must be considered in the qualifying ratios if the borrower resides in or the property is located in a community property state, per Handbook HUD 4155.1 REV-5.

New Guide: Debts of a non-purchasing spouse must be included in the borrower’s qualifying ratios if the borrower resides in a community property state, or the property being insured is located in a community property state, except for obligations specifically excluded by state law.

The new Guide added a new section that specifies specific tolerance levels for resubmission requirements:

“There is no need to resubmit the mortgage to TOTAL for rescoring provided the:

• Cash Reserves verified are not more than 10 percent less than that reported by the borrowers on the loan application.
• Income verified is not more than 5 percent less than that reported by the borrowers on the loan application.
• Tax and Insurance Escrows estimates used at scoring and later verified at or near loan settlement do not result in more than a 2 percentage point increase in the payment- to-income and debt-to-income ratios.”

The new Guide expands on the detail that TOTAL evaluates regarding the borrower’s credit and capacity to repay the mortgage:

Old Guide stated the following are reviewed: Adequacy of Income; Funds to Close, Cash Reserves; and Credit History.

New Guide states that the following are reviewed: Adequacy of Income; Monthly housing expense; Credit score (FICO score); Credit History; Loan-to-value ratio (LTV); Loan term; Funds to close; and Cash reserves.

The new Guide expands by adding more detail to Risk Classifications and Related Responsibilities for lenders:

Old Guide: Lenders should also refer to the user guides developed by the AUS vendor. However, feedback messages provided by the AUS vendor do not supersede the written guidelines issued by FHA in this User Guide.

New Guide: Lenders should also refer to the user guides developed by the AUS vendor. However, any feedback messages provided by the AUS vendor do not supersede the written guidelines issued by FHA in this User Guide, Mortgagee Letters, Agency Handbooks, and any other applicable agency policies.

The new Guide separates the System Overrides and Manual Downgrade sections and adds additional detail whereas the old Guide combined them under one summarized category.

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The Underwriting Chapter of the new Guide is organized in a different order than the Old Guide when it comes to the specific eligibility and underwriting -related topics.

Order of Old Guide Topics in Underwriting Chapter:
• System Overrides AND Manual Downgrades,
• Documentation Requirements- Faxed documents, internet downloads, Employment/Income, Asset Information, Credit Report Processing and Reconciliation Information
• More on System Overrides AND Manual Downgrades
• Federal Eligibility- Delinquent Federal Debt, CAIVRS, Suspended and Debarred Individuals
• Credit Issues, Previous Foreclosure, Bankruptcy, Late Mortgage Payments, Disputed Accounts

Order of New Guide Topics in Underwriting Chapter:
• System Overrides
• Manual Downgrades
• Federal Eligibility- Delinquent Federal Debt, CAIVRS, Suspended and Debarred Individuals
• Credit Issues- Previous Foreclosure, Bankruptcy, Late Mortgage Payments, Disputed Accounts/Collections and Public Records
• Occupancy-Non-Occupants, Non-Traditional and Insufficient Credit Histories (this topic seems to be totally out of place in the new Guide),
• Documentation Requirements- Faxed documents, internet downloads, Employment/Income, Asset Information, Credit Report Processing and Reconciliation Information

The new Guide does provide specific detail on itemized topics under the Documentation sub-topics regarding Employment/Income, Asset and Credit Report information.

The third chapter of the new Guide is essentially identical to that of the old Guide except that the new Guide clarifies the importance of entering the FHA case number into Scorecard as soon as it is known:

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“While TOTAL is available for lenders to “pre-qualify” loan applicants, unless that mortgage is scored at least once with a case number FHA does not recognize the risk assessment nor can information be carried from TOTAL to FHA Connection for endorsement processing. It is imperative that the lenders make certain that they enter the FHA case number into their LOS or AUS as soon as it is known. This will ensure a more efficient endorsement process. Mortgage loans that FHA’s system of records cannot identify as having been risk-assessed by TOTAL will not receive the benefits of the documentation reduction and credit policy revisions and may be returned to the lender for manual underwriting.”

You can access the December 2011 updated version of the TOTAL Scorecard User Guide athttp://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf and will find HUD’s TOTAL Scorecard web page at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/tot....



About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.