Written By: Bonnie Wilt-Hild, Op-Ed Writer
We are witness to the mad dash to become FHA approved. It seems that every broker has applied for a mini-eagle and the brokers that had the mini-eagle have applied for their full eagle. FHA has become the mortgage program of choice not only because of the flexibility of the program but also because it seems to be the only option to get borrowers qualified.
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While I have seen an upward trend in the number of FHA mortgage applications from an underwriting standpoint, I am also witness to the number of mortgage professionals who have taken it upon themselves to immerse themselves into the program by educating themselves in all aspects of the program from origination to underwriting and while this is important, there are aspects of the program which all new initiates of the program need to be aware of, and this is the “back room”.
From a broker standpoint, I will say that origination and processing standards are paramount points of training simply because most of the back room functions will be completed by the underwriting lenders, however for those companies that have moved from loan correspondents to unsupervised lender, the back room is a very real consideration and is something that needs to be addressed prior to the closing of the first FHA loan application.
Remember that even while a lender is in test cases immediately after conversion from loan correspondent to unsupervised lender they are responsible for handling the closing and post closing functions associated with FHA lending. There are additional steps that need to be completed with these and I have found that most new lenders have not equipped themselves with the information necessary to close or post close the cases. So here is a little heads up;
1. Remember that certain FHA specific closing documents need to be completed with the closing package and the Security Instruments must indicate the FHA case number.
2. The UFMIP collected from the borrower at time of closing must be remitted to HUD via FHA Connection within 10 days of loan closing. Each lender must be set up on www.pay.gov in order to remit the UFMIP and the set up process takes about 14 days so if you haven’t completed you might want to do it today.
3. The FHA case binder must be completed and shipped to FHA for Insuring purposes within 30 days of closing and must contain FHA connection print outs for Appraisal Logging, Insuring Logging and evidence that the UFMIP has been remitted to HUD.
4. Case binder stacking orders are available on FHA connection. Word to the wise, be careful with the paperwork reduction act, if the case binder does NOT contain all documentation used to make the credit decision it is possible that your underwriter will end up with a poor rating if the case is audited so be sure to ship everything in the credit and valuation package in the case binder.
5. Make sure you provide a Mortgagee Record Change form in the FHA case binder if the case has already been sold on the secondary market. FHA will need to make the necessary changes in FHA connection as to who the servicing lender is.
6. Post closers, check FHA Connection regularly for Mortgage Insurance Certificates (MIC’s). These need to be forwarded to your investors to demonstrate that the case has been insured. Keep a copy with your closed and sold loan files.
7. Lastly, don’t panic if you receive the case binder back from HUD with a NOR (Notice of Rejection). Read the notice and determine what the deficiency is and correct it. Once corrected, resend the case binder to HUD for insuring.
Keep mind that there are other factors that apply to closing and post closing FHA loans but the above information will get you started. Closers may want to take some time and training as to what additional documentation is required and disclosure of the UFMIP and monthly MIP from a Regulation Z standpoint as well as Initial Escrow Account Statement standpoint.
Also keep in mind that Compliance Issues matter. If your underwriters are not underwriting for compliance, they need to start. Review the final HUD I before you allow the loan to close if not serious errors where maximum mortgage amount calculations and minimum closing costs requirements are concerned can and will occur. No one likes to buy a loan down and getting the funds from the borrower after closing is near impossible.
Underwriting a performing asset is certainly critical where the FHA loans are concerned but managing the closing and post closing piece are just as critical. Its my experience that just as many errors in this area are made as with processing and underwriting however from a closing standpoint they can be costly. Additional information pertaining to the closing and post closing piece can be found on FHA Connection and need be, call FHA, they are great and always willing to help.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".