HUD Handbook Fast Facts

Transcription

1 HUD Handbook Fast Facts

2 TABLE OF CONTENTS 1. Overview Credit Income Assets Appraisal Property Other Streamline Refinances... 20

3 1. OVERVIEW The Department of Housing and Urban Development has developed a new Single Family Housing Policy Handbook, also known as the HUD Handbook This handbook is designed to achieve a consolidated, authoritative source of single-family housing policy using clear, consistent, and direct language. Because the information aligns more closely with our mortgage process, it is easier to understand and implement relevant policy changes. In addition to consolidating all policy into a single document, the Handbook makes numerous substantive changes to Federal Housing Administration (FHA) requirements. The Handbook will be effective for FHA-insured loans with case numbers assigned on or after September 14, Listed below are some helpful HUD links. Handbook , FHA Single Family Housing Policy Handbook (Full Text) Handbook FAQs This is an LDWholesale interpretation for informational purposes only and do not establish or modify policies within FHA s new handbook. These Fast Facts are not all inclusive and for our business partners as a reference tool only; subject to change without notice. It is important to read the new FHA handbook specific sections in its entirety to understand the policy LDWholesale Proprietary and Confidential Page 1

4 2. CREDIT TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Revolving Debt The payment was calculated as the greater of 5% of the outstanding balance or $10 The monthly payment indicated on the credit report for revolving accounts must be used. Instances in which the credit report does not include a monthly payment, either the payment shown on the current account statement or 5% of the outstanding balance are to be used. ENHANCEMENT Delinquent on FHA Mortgage/Federal Debt Borrowers were required to wait three years after payment of an FHA insurance claim before being eligible for another FHA loan. Borrowers currently delinquent on an FHA mortgage and/or federal debt are required to resolve the delinquency in order to proceed. Eliminates the borrower 3 year waiting period after payment of an FHA insurance claim. ENHANCEMENT Business Debt No Published Policy. Business debt reported on the borrower s credit report must be included in the DTI calculation, unless it can be documented that the debt is being paid by the borrower s business and the debt was reflected in the business tax returns. Non-Borrowing Spouse Credit Report A credit report that complies with the requirements of HUD C.2 must be provided for the non-purchasing spouse in order to determine the debts that must be counted in the DTI ratio. Note: This requirement is applicable if the subject property or the borrower s principal residence is located in a community property state. The lender must obtain a credit report for a non-borrowing spouse who resides in a community property state, or if the subject property is located in a community property state. The credit report must indicate the non-borrowing spouse s SSN was matched with the SSA, or the lender must provide separate documentation indicating that the SSN was matched with the SSA. In addition, the lender must notate in file referencing the specific State law that justifies the exclusion of any debt from consideration. 30-Day Accounts No Published Policy. 30-day accounts that are paid monthly are not included in the borrower s DTI. If the credit report reflects any late payments in the last 12 months, use 5 percent of the outstanding balance as the borrower s monthly debt to be included in the DTI. Use the credit report to document that the borrower has paid the balance on the account monthly for the previous 12 months, and to document the balance. We must also document that funds are available to pay off the balance in excess of the funds and reserves required to close LDWholesale Proprietary and Confidential Page 2

5 2. CREDIT TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Installment Debt Including Student Loans (all repayment statuses) and Timeshare Debt If a debt payment, such as a student loan, is scheduled to begin within 12 months of the mortgage loan closing, include the anticipated monthly obligation in the underwriting analysis, unless the borrower provides written evidence that the debt will be deferred to a period outside this timeframe. Actual payments on all types of installment debt including student loans in repayment, deferred, or in forbearance must be included in the borrower s DTI. Deferred student loans with a zero or unavailable payment, 2% of the balance for payment. All other deferred installment debt with zero or unavailable payment use 5% of the balance for the payment. Debts in repayment: if the payment is not on credit report or if the credit report payment is incorrect, use the actual documented payment from the account statement or loan agreement. Timeshare debt is considered an installment debt, not a mortgage loan. Authorized User Accounts No Published Policy. Authorized user accounts must be included in borrower s DTI ratio unless the lender can document that the primary account holder has made all required payments on the account for the previous 12 months. If less than three payments have been required on the account in the previous 12 months, the payment amount must be included in the Borrower s DTI. Negative Income Liability No Published Policy. Negative income must not be treated as a recurring monthly liability and must be subtracted from the borrower s gross monthly income. Alimony/Child Support Obligation No Published Policy. In addition to obtaining the official signed divorce decree, separation agreement, or other legal order; the lender must also obtain borrower s pay stubs covering no less than 28 consecutive days to verify whether the borrower is subject to any order of garnishment relating to alimony, child support, and maintenance. Monthly obligation calculation from the greater of: 1. The amount shown on the most recent decree or agreement establishing the borrower s payment obligation; or 2. The monthly amount of the garnishment LDWholesale Proprietary and Confidential Page 3

6 2. CREDIT TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Charge Offs No Published Policy. AUS/TOTAL Scorecard loans Charge Offs do not need to be included in borrower liabilities or debt. Manual loans Must determine if charge off accounts were result of: o Borrower s disregard for financial obligations; o Borrower s inability to manage debt; or o Extenuating circumstances. Must document reasons for approving mortgage when the borrower has any charge off accounts. o LOE along with supported documentation for each outstanding charge off account. o Explanation and supporting documentation must be consistent with other credit information in the file. Debts with Less Than 10 Payments to Payoff Debts lasting less than ten months must be included if the amount of the debt will affect the borrower s ability to pay the mortgage during the months immediately after loan closing, especially if the borrower will have limited or no cash assets after loan closing. Closed end debts with less than 10 months to payoff and with the cumulative payments of all such debts less than or equal to 5 percent of the borrower s gross monthly income are not required to be included in the DTI; pay down of the balance to meet the 10-month requirement is not allowed. Age of Documents The maximum age of credit documents for new construction loans was 180 days. Documents used in the origination and underwriting of a mortgage may not be more than 120 Days old at the disbursement date. Documents whose validity for underwriting purposes is not affected by the passage of time, such as divorce decrees or tax returns, may be more than 120 Days old at the Disbursement Date. For purposes of counting days, day one is the day after the effective or issue date of the document, whichever is later LDWholesale Proprietary and Confidential Page 4

7 2. CREDIT TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Obligations Not Considered Debt: Obligations not considered debt, and therefore not subtracted from gross income, include: Federal, state, and local taxes Federal Insurance Contributions Act (FICA) or other retirement contributions, such as 401(k) accounts (including repayment of debt secured by these funds) Obligations not considered debt, and therefore not subtracted from gross income, include Medical collections Federal, state, and local taxes, if not delinquent and no payments are required Automatic deductions from savings, when not associated with another type of obligation ENHANCEMENT Commuting costs Union dues Open accounts with zero balances Automatic deductions to savings accounts Child care, and Voluntary deductions. Federal Insurance Contributions Act (FICA) or other retirement contributions, such as 401(k) accounts Collateralized loans secured by depository accounts Utilities Child care Commuting costs Union dues Insurance, other than property insurance Open accounts with zero balances Voluntary deductions, when not associated with another type of obligation LDWholesale Proprietary and Confidential Page 5

8 3. INCOME TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Part-Time Income Part-time income received for less than two years may be included as qualifying income, provided that we can justify and document that the income is likely to continue. The lender may use employment income from part-time employment as qualifying income if the borrower has worked a part-time job uninterrupted for the past two years and the current position is reasonably likely to continue. The lender must average the income over the previous two years. In case of a documented pay rate increase, the most recent 12-month average of hours at the current pay rate may be considered for qualifying. Overtime and Bonus If the employment verification states that the overtime and bonus income is unlikely to continue, it may not be used in qualifying. The lender must develop an average of bonus or overtime income for the past two years. Periods of overtime and bonus income less than two years may be acceptable, provided the lender can justify and document in writing the reason for using the income for qualifying purposes. If either type of income shows a continual decline, the lender must document in writing a sound rationalization for including the income when qualifying the borrower. Overtime and Bonus Income may be useable as qualifying income if the borrower has received this income for the past two years and it is reasonably likely to continue. Periods of Overtime and Bonus Income less than two years may be considered for qualifying income if the Overtime and Bonus Income has been consistently earned over a period of not less than one year and is reasonably likely to continue. Average the income over the previous two years to calculate qualifying income. However, if the overtime or bonus income from the current year decreases by 20 percent or more from the previous year, use the current year s income to calculate the qualifying income. A period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year. Non-taxable Income Document and support the amount of income grossed up for any non-taxable source, and use the same rate the borrower used to calculate income tax the previous year. If the borrower is not required to file a Federal tax return, the tax rate to use is 25%. The percentage of non-taxable cannot exceed the greater of 15 percent or the appropriate tax rate for the income amount, based on the borrower s tax rate for the previous year. If the borrower was not required to file a federal tax return for the previous tax reporting period, gross up the non-taxable income by 15 percent. Adjustments or allowances based on the number of the borrower s dependents are not permitted LDWholesale Proprietary and Confidential Page 6

9 3. INCOME TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Commission Income Commission income must be averaged over the previous two years. To qualify with commission income, the borrower must provide: The lender may use commission income as effective income if the borrower earned the income for at least one year in the same or similar line of work and it is reasonably likely to continue. Copies of signed tax returns for the last two years, and The lender must calculate effective income for commission by using the lesser of: The most recent pay stub. Commission income showing a decrease from one year to the next requires significant compensating factors before a borrower can be approved for the loan. 1. The average net commission income earned over the previous two years, or the length of time commission income has been earned if less than two years; or 2. The average net commission income earned over the previous one year. A borrower whose commission income was received for more than one year, but less than two years may be considered favorably if the underwriter can document the likelihood that the income will continue, and soundly rationalize accepting the commission income. The lender must calculate net commission income by subtracting the unreimbursed business expenses from the gross commission income. Hourly Income No Published Policy. Hourly employees with hours that do not vary - the lender must consider the borrower s current hourly rate to calculate qualifying income. Hourly employees with hours that vary - the lender must average the income over the previous two years. In the case of a documented pay rate increase, the most recent 12-month average of hours at the current pay rate may be considered for qualifying. Future (Expected) Income Expected or Projected income is acceptable for qualifying purposes for a borrower scheduled to start a new job within 60 days of loan closing if there is a guaranteed, non-revocable contract for employment. Expected Income (including cost-of-living adjustments, performance raises, new job and retirement) can be used for qualifying if the amount can be verified and documented to begin within 60 days of closing. Expected Income from a family-owned business is not eligible. Self-Employment Balance Sheet A YTD P&L statement and balance sheet are required for all selfemployed borrowers. A balance sheet is not required for self-employed borrowers filing Schedule C income. ENHANCEMENT LDWholesale Proprietary and Confidential Page 7

10 3. INCOME TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Military Income No Published Policy. Obtain a copy of the military Leave and Earnings Statement (LES). Verify the Expiration Term of Service (ETS) date on the LES. If the ETS date is within the first 12 months of the Note, the military income may only be considered qualifying income if the borrower represents their intent to continue military service. NOTE: Military education benefits are ineligible for use as qualifying income (G.I. Bill) Self Employment Income Calculation When qualifying a self-employed borrower for a mortgage loan, the lender must establish the borrower s earnings trend from the previous two years using the borrower s tax returns. The Lender must calculate gross self-employment income by using the lesser of: The average gross self-employment income earned over the previous two years; or The average gross self-employment income earned over the previous one year. Employment Stability & Frequent Changes in Employment No Published Policy. If the borrower has changed jobs more than three times in the previous 12-month period, or has changed lines of work, obtain: Transcripts of training and education demonstrating qualification for a new position; or Employment documentation evidencing continual increases in income and/or benefits Temporary Income Reduction No Published Policy For Borrowers with a temporary reduction of income due to a short-term disability or similar temporary leave, the Lender may consider the borrower s current income as effective income, if it can verify and document that: The borrower intends to return to work; The borrower has the right to return to work; and The borrower qualifies for the mortgage taking into account any reduction of income due to the circumstance. For borrowers returning to work before or at the time of the first mortgage payment due date, the mortgagee may use the borrower s pre-leave income LDWholesale Proprietary and Confidential Page 8

11 3. INCOME TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Rental Income Rent received for properties owned by the borrower is acceptable income for qualifying as long as the lender can document the stability of the rental income through a(n) Current lease Agreement to lease, or Rental history over the previous 24 months that is free of unexplained gaps greater than three months (such gaps could be explained by student, seasonal or military renters, or property rehabilitation). Underwriters may not consider any rental income from a borrower s principal residence that is being vacated in favor of another principal residence, except under the conditions described in HUD E.4.h (relocation and sufficient equity of 25%) in vacated property. This policy assures that a borrower either has sufficient income to make both mortgage payments without any rental income, or has an equity position which makes it unlikely that he/she will default on the mortgage on the property being vacated. This applies solely to a principal residence being vacated in favor of another principal residence. It does not apply to existing rental properties disclosed on the loan application and confirmed by Schedule E of IRS Form If the borrower does not have rental income reporting on the most recent year s tax returns then use the lesser of: the monthly operating income reported on Freddie Mac Form 998; or 75 percent of the lesser of: o o fair market rent reported by the Appraiser; or the rent reflected in the lease or other rental agreement. The borrower needs to have 25% equity in the rental property if there is no rental income for that property reporting on the most recent year of tax returns. 2 years of tax returns reporting Schedule E rental income for the rented property are required; for the properties with less than two years of rental income history, document the date of acquisition by providing the deed, Settlement Statement or similar legal document and annualize the rental income. For rental income reporting for 2 years calculate the rental income by using the lesser of the two year average or the current lease; the income cannot be declining. To use departing residence rental income, the departing residence must be over 100 miles from the subject property. Three and Four unit properties have additional guidelines for self-sufficiency LDWholesale Proprietary and Confidential Page 9

12 3. INCOME TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS IRA/401(k) Income No Published Policy. For IRA/401(k) income that has been and will be consistently received, use the current amount of IRA income received to calculate the income. With fluctuating IRA/401(k) income, use the average of the IRA/401(k) income received over the previous two years to calculate the income. If IRA/401(k) Income has been received for less than two years, use the average over the time of receipt. Obtain the most recent IRA/401(k) statement and any one of the following documents: Federal tax returns; or The most recent bank statement evidencing receipt of income. Document that it is reasonably likely to continue for three years or longer LDWholesale Proprietary and Confidential Page 10

13 4. ASSETS TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Eligible Family Members All relatives were acceptable Gift Donors. Cousins do not meet family eligibility requirements to be Gift Donors Joint Accounts No Published Policy. All non-borrower parties on the joint account must provide a written statement that the borrower has full access and use of the funds. Sale Of Personal Property No Published Policy. Borrowers may sell personal property to obtain cash for closing. The lender must obtain a satisfactory estimate of the value of the item, a copy of the bill of sale, evidence of receipt, and deposit of proceeds. A value estimate may take the form of a published value estimate issued by organizations such as automobile dealers, philatelic or numismatic associations, or a separate written appraisal by a qualified appraiser with no financial interest in the mortgage transaction. Retirement Funds Liquidation Evidence of liquidation is not required, unless more than 60% of the amount in the account is used. Obtain the most recent monthly or quarterly statement to verify and document the existence and amounts in the borrower s retirement accounts, the borrower s eligibility for withdrawals, and the terms and conditions for withdrawal from any retirement account. If any portion of the asset is required for funds to close, evidence of liquidation is required. Earnest Money Deposit The amount that required verification was 2% of the sales price or was excessive based on the borrower s history of accumulated savings. Verify and document the deposit amount and source of funds if the amount of the earnest money deposit exceeds 1% of the sales price or is excessive based on the borrower s history of accumulating savings LDWholesale Proprietary and Confidential Page 11

14 5. APPRAISAL PROPERTY TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Defective Conditions The documentation provided by the required attachments/exhibits to satisfy FHA s minimum requirements. However, additional exterior and/or interior photos, reports, studies, analysis, or copies of prior listings may be included in support of the appraiser s observation and analysis, e.g. photographs of positive or negative view influences, property deficiencies, or adverse conditions, provides strong supporting documentation of conditions observed on the date of the appraisal. Photo documentation of property condition is always advisable. The appraiser must observe, analyze and report defective conditions and must also provide photographic documentation of those conditions in the appraisal report. (The DE UW must render the property ineligible until the defects or conditions have been remedied and the probability of further damage eliminated. If defective conditions exist and correction is not feasible, the DE UW must reject the property.) Zoning Determine whether the current use is in compliance with the zoning ordinances. Mark whether it is Legal, Legal Non-Conforming (Grandfathered Use), No Zoning, or Illegal Use. If the existing property does not comply with all of the current zoning regulations (use, lot size, improvement size, off street parking, etc.) but is accepted by the local zoning authority, enter Legal Non-Conforming and provide a brief explanation. If the use is not legal, the property is not eligible for FHA mortgage insurance. The appraiser must determine if current use complies with zoning ordinances. If the existing property does not comply with all of the current zoning ordinances but is accepted by the local zoning authority, the appraiser must report the property as Legal Non-Conforming and provide a brief explanation. The appraiser must analyze and report any adverse effect that the non-conforming use has on the property s value and marketability, and state whether the property may be legally rebuilt if destroyed. (If the property cannot be legally rebuilt, it is not eligible for FHA financing.) Security Bars Security bars are acceptable if they comply with local fire codes. Occupants of a bedroom must be able to get outside the home if there is a fire. The appraiser must report when the property has security bars on bedroom windows or doors. Gross Living Area Gross Living Area: To complete this section, enter the total number of above grade rooms, the total number of bedrooms above grade, and the total number of bathrooms above grade. Do not include foyers, basement finished rooms or unfinished attic space. Calculate square footage by using exterior dimensions. Enter the total square footage of the gross living area above grade. Gross Living Area required analysis and reporting far more detail on how to describe and consider below-grade areas, room additions and garage conversions. Also new guidance on how to analyze and report differences between subject and comps regarding the existence of additions and/or conversions. (Refer to section d Gross Living Area for more detailed content specifics) LDWholesale Proprietary and Confidential Page 12

15 5. APPRAISAL PROPERTY TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Accessory Dwelling Units Accessory dwelling unit means a subordinate dwelling unit may or may not be incorporated within, or detached from a single-family structure. Accessory units may not be subdivided or otherwise segregated in ownership from the primary residence structure. For an Accessory Dwelling Unit (ADU) as part of the highest and best use analysis, the appraiser must make the determination to classify the property as a Single Family dwelling with an ADU, or a two-family dwelling. The conclusion of the highest and best use analysis will then determine the classification of the property and the analysis and reporting required. The appraiser must not include the living area of the ADU in the calculation of the gross living area of the primary dwelling. The appraiser must notify the lender of the deficiency in MPR or MPS if more than one ADU is located on the subject property. Leased Mechanical Systems No published policy. The appraiser must not include the value of leased mechanical systems and components in the market value of the property. This includes furnaces, water heaters, fuel or propane storage tanks, solar or wind systems (including power purchase agreements), and other mechanical systems and components that are not owned by the property owner. The appraiser must identify such systems in the appraisal report. (The Lender must ensure that the property value does not include the value of any equipment, including an energy system that is not fully owned by the borrower. The lender must review the terms of the lease on any equipment to ensure they do not contain any legal restrictions on conveyance.) Pools No published policy. The appraiser must report readily observable defects in a non-covered pool that would render the pool inoperable or unusable. The appraiser must condition the appraisal report for pools with unstable sides or structural issues to be repaired or permanently filled in accordance with local guidelines, and the surrounding land regraded if necessary. If the swimming pool has been winterized, or the appraiser cannot determine if the pool is in working order, the appraiser must complete the appraisal with the extraordinary assumption that the pool and its equipment can be restored to full operating condition at normal costs. (The lender must confirm that a swimming pool complies with all local ordinances LDWholesale Proprietary and Confidential Page 13

16 5. APPRAISAL PROPERTY TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Real Property: Definition No published policy. Real property refers to the interests, benefits, and rights in the ownership of physical real estate. Personal property refers to tangible property, other than real property, such as cars, recreational vehicles, stamps, coins or other collectibles. Cabinets and built-in appliances that are considered real property must be present and operational. The appraiser must note appliances present in the house and indicate whether that appliance is considered personal property or real property. The appraiser must operate all conveyed appliances and observe their performance. The appraiser must notify the lender of the deficiency of MPR or MPS if any conveyed appliances are inoperable. (The lender must ensure that cabinets and built-in appliances that are considered real property are present and operational. Photographs of Property Front and rear at opposite angles to show all sides of the dwelling, any improvements with contributory value that are not captured in either the front or rear photograph, street scene photo to include a portion of the subject site. If the subject property is proposed construction and the improvement has not started, the appraiser should take a photograph that shows the grade of the vacant lot. Photos depicting the front view of each comparable sale utilized must be those taken by the appraiser. Photograph exhibit requirements a far more detail of minimum photo requirements for following categories: Subject Property Exterior, Interior, Comparable Sales/Listings/Pending Sales, Rentals, Subject Property Deficiencies and Condo Projects. (Refer to section 4a Photograph, Exhibits and Map Requirements for more detailed content specifics). Form The DE UW may use HUD Form to modify value or make corrections and/or comments. HUD Form 54114, DE Underwriter Review of Appraisal, may no longer be used when is effective on September 14th, Mixed-Use Properties Properties were eligible for FHA financing if the commercial space did not exceed 25% of the GLA and the building was residential in use and character. Mixed Use one- to four-unit Single Family Properties are eligible, provided: A minimum of 51% of the entire building square footage is for residential use; AND The commercial use will not affect the health and safety of the occupants of the residential property ENHANCEMENT LDWholesale Proprietary and Confidential Page 14

17 5. APPRAISAL PROPERTY TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Sales Comparables Only closed (settled) sales may be used as comparable sales 1, 2 or 3. If a sale is over six months is used, an explanation must be provided. No sales over one year old are permitted except as additional comparable sales and would be identified as comparable sale(s) 4, 5 or 6. Properties under contract may be also be submitted as additional comparable sales 4, 5 or 6 to support trends or value conclusions observed. The appraiser must include as many comparable properties as necessary to support the appraiser s analysis and conclusion. At a minimum, the appraiser must include the most recent and relevant sales, preferably within the last six months. The appraiser must include at least three sales that settled no longer than 12 months prior to the effective date of the appraisal. The appraiser must provide additional support by including more sales, offerings now under contract, or relevant sales that settled more than 12 months prior to the effective date of the appraisal. The appraiser must analyze the whole market, including when there are a number of sales that may or may not be classified as arm s length sales or may not be classified as directly similar to the property. (The lender must ensure the market value of the property is sufficient to adequately secure the FHA-insured mortgage) LDWholesale Proprietary and Confidential Page 15

18 6. OTHER TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Identity of Interest A transaction between a tenant and a landlord with no identity of interest was not restricted to 85% LTV. The maximum LTV for a transaction in which a tenant-landlord relationship exists at the time of contract execution is restricted to 85%. The 85% LTV restriction may be exceeded if the current tenant purchases the property in which the tenant has rented the property for at least six months immediately predating the sales contract. A lease or other written evidence to verify occupancy is required. Interested Party Contribution Credits on Hud-1 Closing costs (non-recurring closing costs, pre-paid expenses, and discount points) may not be used to help meet the borrower s minimum required investment. The lender may apply interested party credits to the closing costs and prepaid items including any items Paid Outside Closing (POC). The refund of the borrower s POCs may be used toward the borrower s minimum required investment if the lender documents that the POCs were paid with the borrower s own funds. The lender must identify the total interested party credits on the front page of the settlement statement or similar legal document or in an addendum. The lender must identify each item paid by interested party contributions. ENHANCEMENT Real Estate Tax Credits No Published Policy. Where real estate taxes are paid in arrears, the seller s real estate tax credit may be used to meet the minimum required investment, if the lender documents that the borrower had sufficient assets to meet the minimum required investment and the borrower paid closing costs at the time of underwriting. ENHANCEMENT Interested Party Contributions The seller and/or third party may contribute up to six percent of the lesser of the property s sales price or the appraised value toward the buyer s closing costs, prepaid expenses, discount points and other financing concessions. Interested Parties may contribute up to 6 percent of the sales price toward the Borrower s origination fees, other closing costs and discount points. IPC s may not be used for the borrower s minimum required investment LDWholesale Proprietary and Confidential Page 16

19 6. OTHER TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Loans Requiring Manual Downgrade A manual downgrade becomes necessary if additional information, not considered in the AUS/TOTAL decision, affects the overall insurability or eligibility of a mortgage otherwise rated as an Accept. Downgrade and manually underwrite any mortgage that received an Approve recommendation if: The mortgage file contains information or documentation that cannot be entered into or evaluated by DU; Additional information, not considered by DU that affects the overall insurability of the Mortgage; The Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts; The date of the Borrower s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of case number assignment; The case number assignment date is within three years of the date of the transfer of title through a Pre- Foreclosure Sale (Short Sale), Foreclosure sale, Deed-in-Lieu (DIL) of foreclosure; The Mortgage Payment history requires a downgrade as defined in Housing Obligations/Mortgage Payment History below; o The Borrower has undisclosed mortgage debt; or o Business income shows a greater than 20 percent decline over the analysis period. Late Mortgage Payments for Purchase and No Cash-Out Refinance The Mortgage must be downgraded to a Refer and manually underwritten if any mortgage trade line, including mortgage line-of-credit payments, during the most recent 12 months reflects: Three or more late payments of greater than 30 Days; One or more late payments of 60 Days plus one or more 30-Day late payments; One payment greater than 90 days late. A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late housing payments. Late Mortgage Payments for Cash-Out Refinance Transactions The Mortgage must be downgraded to a Refer and manually underwritten if any mortgage trade line, including LDWholesale Proprietary and Confidential Page 17

20 6. OTHER TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS mortgage line-of-credit payments, reflects: A current delinquency; or Any delinquency within 12 months of the case number assignment date. A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late housing payments. Parties On LDP / GSA (SAM) Ineligible Participants for FHA Insured Transaction: Borrower, Seller, Listing or Selling Real Estate Agent, or Ineligible Participants for FHA Insured Transaction: Borrower, Seller, Listing and Selling Real Estate Agent, Loan Originator Loan Officer Loan Processor Underwriter Appraiser Principal Residence Relocation Exception to Obtain another FHA Loan No mileage restriction was placed on the relocation for qualifying purposes. The borrower may be eligible for another FHA-insured loan when the relocation is employment-related and the subject property is more than 100 miles from the borrower s current principal residence. Borrowers on Contracts All buyers on the sales contract were not required to match the borrowers on the loan. An FHA-defined family member of a purchaser, who is not a borrower, may be listed on the sales contract without modification or removal. In all other cases, all buyers on the sales contract are required to match the borrowers on the loan LDWholesale Proprietary and Confidential Page 18

21 6. OTHER TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Employer Assistance / Relocation If the borrower s employer guarantees to purchase the borrower s previous residence as a result of relocation, he/she must submit evidence of the agreement. Employer Assistance are benefits provided by an employer to relocate the borrower or assist in their housing purchase, including closing costs, MIP, or any portion of the Minimum Required Investment (MRI). Employer Assistance does not include benefits provided by an employer through secondary financing. A salary advance cannot be considered as assets to close. The net proceeds must also be guaranteed. If the employer pays the following to attract or retain valuable employees, the payment is considered employee compensation: Employee s closing costs Mortgage insurance premiums, or Any portion of the cash investment. Relocation Guaranteed Purchase net proceeds can be used as cash to close. If the borrower is being transferred by their company under a guaranteed sales plan, obtain an executed buyout agreement signed by all parties and receipt of funds indicating that the employer or relocation service takes responsibility for the outstanding mortgage debt. The lender must verify and document the agreement guaranteeing employer purchase of the borrower s previous residence and the net proceeds from sale. Employer Assistance Plans may be used as cash to close. The lender must verify and document the borrower s receipt of assistance. If the employer provides this benefit after settlement, verify and document that the borrower has sufficient cash for closing. An adjustment to the maximum mortgage amount is not required. If the employer provides this benefit after loan settlement, the borrower must provide evidence of sufficient cash for closing. Note: A salary advance cannot be considered as assets to close, since it represents an unsecured loan LDWholesale Proprietary and Confidential Page 19

22 7. STREAMLINE REFINANCES TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Maximum Mortgage Calculation The maximum insurable mortgage for streamline refinances without an appraisal cannot exceed the outstanding principal balance minus the applicable refund of the UFMIP, plus the new UFMIP that will be charged on the refinance. For owner-occupied principal residences and HUD-approved secondary residences, the maximum base loan amount for streamline refinances is: the lesser of: o the outstanding principal balance of the existing mortgage as of the month prior to mortgage Disbursement; plus: interest due on the existing mortgage; and Note: The outstanding principal balance: MIP due on existing mortgage; or may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but o the original principal balance of the existing mortgage (including financed UFMIP) less any refund of UFMIP (if financed in original mortgage). may not include delinquent interest, late charges or escrow shortages. Occupancy No Published Policy. Streamline Refinances may be used for Principal Residences, HUD- approved Secondary Residences, or nonowner occupied properties. The lender must review the borrower s employment documentation or obtain utility bills to evidence that the borrower currently occupies the property as their principal residence. The lender must obtain evidence that the secondary residence has been approved by the Jurisdictional HOC. Seasoning If mortgage < 12 months, must have made all mortgage payments within the month due If mortgage 12 months or more, must have made all mortgage payments within the month due and no more than 1x30 within 12 months and made all mortgage payments within the month due for the 3 months prior to the date of loan application. The borrower must have made all mortgage payments within the month due for the six months prior to case number assignment and have no more than one 30-Day late payment for the previous six months for all mortgages. The borrower must have made the payments for all mortgages secured by the subject property within the month due for the month prior to mortgage disbursement LDWholesale Proprietary and Confidential Page 20

23 7. STREAMLINE REFINANCES TOPIC WHAT IT WAS WHAT IT WILL BE S / ENHANCEMENTS Net Tangible Benefit The lender must determine that there is a net tangible benefit to the borrower as a result of the streamline refinance transaction, with or without an appraisal. A Net Tangible Benefit is a reduced combined rate, a reduced term, and/or a change from an ARM to a fixed rate mortgage that results in a financial benefit to the borrower. Combined rate refers to the interest rate on the mortgage plus the Mortgage Insurance Premium (MIP) rate. ENHANCEMENT Net tangible benefit is defined as: Reduction in Term: A 5% reduction to the principal and interest (P&I) of the mortgage payment plus the annual mortgage insurance premium (MIP), or The net tangible benefit test is met if: The mortgage term is reduced; The new interest rate does not exceed the current interest rate; and Refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage. The combined principal, interest and MIP payment of the new mortgage does not exceed the combined principal, interest and MIP of the refinanced Mortgage by more than $50. Notes: A reduction in the term of the mortgage is not a net tangible benefit. When refinancing to a hybrid ARM, lenders must treat the new hybrid ARM as a fixed rate mortgage. Reduction in Term: A transaction for the purpose of reducing the mortgage term must be underwritten and closed as a rate and term (no cash-out) refinance transaction LDWholesale Proprietary and Confidential Page 21