Written By: Stacey Sprain, Op-Ed Writer
If you are like most folks out there, you’re feeling less than adequate about answering questions about the Housing and Economic Recovery Act “HERA.” Who could blame you considering the bill itself spans a lengthy 684 pages?!
I’m an absolute control freak so I always make every possible attempt to read the content of these things myself but good heavens, who has the time to read 684 pages? Not to mention who has the patience to navigate through all of the legal jargon and “mumbo jumbo?” I consider myself to be pretty good at it considering all of the state and federal regulations I’ve read through in my days but holy cow! I got through just over one page of the FHA Modernization section and I waived the white flag and surrendered. I couldn’t take it!
Thank God for the Mortgage Bankers Association and our corporate membership which entitled me to participate on the recent national conference call to summarize the major points of the bill or I might have myself stuck in a corner trying to read this thing for months or even years to come!
The most common question coming to me these days is in regards to downpayment assistance. Everyone wants to know when it’s ending, if it’s ending, where things stand… Let me give you a briefing of what I know at this very moment.
Title I, Section 2113 of HERA includes the following statement which leads to the cease of seller-funded downpayment assistance on FHA mortgage transactions:
“(C) Prohibited Sources- In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before, during or after closing of the property sale:
(i) the seller or any other person or entity that financially benefits from the transaction.
(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).
This subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.”
Upon reading the above paragraph, the first question that comes to mind is this- How does one define the term “credit approval date?” This has been answered and clarified by HUD on the recent MBA call. “Credit approval” is defined as the last loan approval date through TOTAL Scorecard with Accept/Approve findings or for manually underwritten loans; it is the date that the underwriter signs and dates the MCAW or Loan Transmittal form.
Therefore, to clarify, if you have an FHA loan in process and it includes DPA, the loan needs to be fully approved through automated underwriting with final findings before October 1st or if your loan is to be manually underwritten, your underwriter must have the file fully credit approved as demonstrated by his/her signature and date on the MCAW or Transmittal form by October 1st. As long as the loan is credit approved before October 1st, it may still close after October 1st with DPA and will be insured by HUD.
It’s important to note the risk of “banking on your automated approval” without obtaining a final clear to close approval from underwriting. I’ve already been receiving emails from originators trying to “buck the system.” Make sure that ALL of your loan files that include DPA are fully approved by your underwriters before you bank on your automated approval being golden. Any change to income, credit criteria, can require findings be rerun and will kick you from being allowed to include DPA on the transaction.
So what are you to do out in the sales force if a majority of your business involves the use of downpayment assistance for purchases? I suggest familiarizing yourselves with the homebuyer funding options available in your market area. Visit HUD’s Local Home buying Programs website where you can access information by state. You can also contact your local state and government agencies to inquire about homebuyer funding programs in your area.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
Downpayment assistance providers haven’t quite thrown in the towel yet either. On July 30th, several members of Congress presented H.R. 6694 -FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008. The bill proposes to require particular credit scoring in order to incorporate the use of DPA funding with qualifying purchase transactions. It hasn’t seen any action since its original presentation but this will be one to watch. (My personal opinion is that it will not pass and thus, DPA will cease as of October 1st).
You can voice your support or opposition to H.R. 6694 by visiting any one of the major DPA websites such as Ameridream, Nehemiah or Preferred Program.
About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently 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.