Overview of the recent…
FHA UPDATES
Offered by…
FIRST MORTGAGE CORPORATION
May 15, 2014
Desktop Underwriter is a registered trademark of Fannie Mae. Loan Prospector is a registered trademark of Freddie Mac. This
presentation is a summary and is not complete. This information is for mortgage professionals only and should not be distributed
to or used by consumers or other third-parties. Information is accurate as of the date shown below and is subject to change
without notice. 05/15/2014
AGENDA

Introduction

FHA Updates


ML 2014-02 (January 21, 2014)
Reminders
•
ML 2013-24, 2013-26 (August 15, 2013)

FMC’s Manual Overlays

FAQ’s and Resources…

FMC Support
FHA UPDATES - Understanding new FHA Mortgagee Letters
INTRODUCTION to
First Mortgage Corporation
•
First Mortgage Corporation is an independent residential Mortgage Banking firm with branch
offices located throughout the west.
•
Founded in 1975, FMC is a direct-lending mortgage banker approved as a lender and/or loan
servicer by the Federal Housing Administration (FHA); the Veterans Administration
(VA); the Federal National Mortgage Association (Fannie Mae); the Government
National Mortgage Association (Ginnie Mae); the National Homebuyers Fund (NHF);
and many other major secondary market institutions.
First Mortgage Corporation is currently rated the #3 FHA Lender in CA;
Top 50 in the Nation!
•
Having funded in excess of $20 billion in residential real estate loans, FMC has assisted
thousands of families with their mortgage needs. FMC enables families to enjoy the American
Dream of Homeownership…“it’s the only thing we do.”
•
FMC has a longstanding tradition of providing unparalleled customer service and a reputation
built on adding value to the home loan process. That’s why FMC should be
considered…“YOUR FIRST LENDING RESOURCE”.
FHA UPDATE – Understanding FHA Mortgagee Letters
Clarification of Mortgagee Letter…
2014-02
MORTGAGEE LETTER
FHA UPDATES - Understanding new FHA Mortgagee Letters
Manual Underwriting
Mortgagee Letter 2014-02
Manual Underwriting
 Explains maximum qualifying ratios for all manually underwritten
loans based on the minimum decision credit score
 Revises and clarifies the compensating factors that must be cited
in order to exceed FHA’s standard qualifying ratios for manually
underwritten loans
 Explains the new reserve requirement for manually underwritten
loans involving 1-2 unit properties
 ML is not applicable to: Non-credit qualifying FHA to FHA
Streamline refinance loans.
FHA UPDATE – Understanding FHA Mortgagee Letters
Definition:
Manually Underwritten Loans
Definition
Manually Underwritten loans include:
 Loans involving borrowers without a credit score; not scored
against FHA’s TOTAL Scorecard
 Loans receiving a Refer recommendation from FHA’s TOTAL
Scorecard
 Loans receiving an Accept recommendation from FHA’s TOTAL
Scorecard, but which have been downgraded to a Refer by the
underwriter
 Loans with an Accept recommendation that is downgraded to a Refer,
must be underwritten in accordance with all provisions of this ML
FHA UPDATE – Understanding FHA Mortgagee Letters
Definition:
Minimum Decision Credit Scores
Definition
Minimum Decision Credit Score:
 HUD 4155.1 Chapter 4, Section A.1.j states that:
 If 3 scores are available, use the middle score
 If 2 scores are available, use the lesser of the two scores
 If 1 score is available, that one score is used
 If multiple borrowers exist
 Determine the minimum decision score for each borrower
 Use the lowest minimum decision score for all borrowers
 If multiple borrowers exist, and one or more borrowers have zero scores
(using alternative/non-traditional tradelines)
 Use the lowest minimum decision score of the borrower(s) with credit score(s) to
determine the maximum ratios
 For pricing purposes, use the lowest known middle score of all
borrowers (N/A vs 0)
FHA UPDATE – Understanding FHA Mortgagee Letters
Definition:
Reserves
Definition
Reserves:
 Sum of verified and documented borrower funds;
MINUS
 Sum the borrower is required to pay at closing, including the cash
investment, closing costs, prepaid expenses, any payoffs that are a
condition of loan approval, and any other expense required to close the
loan;
BUT NOT INCLUDING
 The amount of cash taken at settlement in cash-out transactions or
incidental cash received at settlement in other loan transactions, gift funds
in excess of the amount required for the cash investment and other
expenses, equity in another property, and borrowed funds from any source
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
RESERVE REQUIREMENT
Reserve Requirement – NEW
All manually underwritten loans must meet or exceed the following
minimum reserve requirements:
 1-2 Unit Properties:
 Reserves must equal or exceed ONE total monthly
mortgage payment
 3-4 Unit Properties:
 Reserves must equal or exceed THREE total monthly
mortgage payments
*** This new policy replaces the current 2-month minimum reserve
requirement for one and two unit properties for borrowers with insufficient
credit.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
MAXIMUM QUALIFYING RATIOS
Maximum Qualifying Ratios – NEW
For borrowers with Minimum Credit Decision Credit Scores below
580 or with Non-Traditional or Insufficient Credit:
 Total monthly mortgage payment may not exceed 31%
of gross effective monthly income (33% for EEM), and
 Total monthly fixed payment may not exceed 43% of
gross effective monthly income (45% for EEM)
*** Ratios above may not be exceeded regardless of whether they meet
one or more compensating factors.
*** Qualifying ratios for insufficient credit borrowers are computed
using income only from borrowers occupying the property and
obligated on the loan.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
MAXIMUM QUALIFYING RATIOS
Insufficient Credit Borrowers
 Qualifying ratios for insufficient credit borrowers are computed
using income only from borrowers occupying the property, and
obligated on the loan.
 Non-occupant co-borrower income may not be included.
*** Income from non-occupant co-borrowers may be included
in the ratios for non-traditional credit borrowers.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
MAXIMUM QUALIFYING RATIOS
Maximum Qualifying Ratios – NEW
Borrowers with Minimum Decision Credit Scores of 580 or more
and “NO” compensating factors:
 Total monthly mortgage payment may not exceed 31%
of gross effective monthly income (33% for EEM), and
 Total monthly fixed payment may not exceed 43% of
gross effective monthly income (45% for EEM)
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
MAXIMUM QUALIFYING RATIOS
Maximum Qualifying Ratios – NEW
Borrowers with Minimum Decision Credit Scores of 580 or more provided
they meet “ONE” of the comp factors below:
 Total monthly mortgage payment may not exceed 37% of gross
effective monthly income, and
 Total monthly fixed payment may not exceed 47% of gross
effective monthly income
Acceptable Compensating factors are limited to the following:
 Verified and documented cash reserves that equal or exceed “3” total monthly
mortgage payments (1-2 units), or that equal or exceed “6” monthly mortgage
payments (3-4 units);
 New total monthly mortgage payment is not more than $100 or 5% higher than
previous total monthly housing payment, whichever is less, and there is a
documented 12-month housing payment history with no more than 1x30 day late
payment.
 In cash-out transactions, all payments on the mortgage being refinanced
must have been made within the month due for the previous 12-months
 Residual Income (see Residual Income slide)
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
MAXIMUM QUALIFYING RATIOS
Maximum Qualifying Ratios – NEW
Borrowers with Minimum Decision Credit Scores of 580 or more provided
they meet “TWO” of the comp factors below:
 Total monthly mortgage payment may not exceed 40% of gross
effective monthly income, and
 Total monthly fixed payment may not exceed 50% of gross
effective monthly income
Acceptable Compensating factors are limited to the following:
 Verified and documented cash reserves that equal or exceed “3” total monthly
mortgage payments (1-2 units), or that equal or exceed “6” monthly mortgage
payments (3-4 units);
 New total monthly mortgage payment is not more than $100 or 5% higher than
previous total monthly housing payment, whichever is less, and there is a documented
12-month housing payment history with no more than 1x30 day late payment.

In cash-out transactions, all payments on the mortgage being refinanced must
have been made within the month due for the previous 12-months
 Verified and documented significant additional income that is not considered effective
income; and
 Residual Income (see Residual Income slide)
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
MAXIMUM QUALIFYING RATIOS
Maximum Qualifying Ratios – NEW
Borrowers with Minimum Decision Credit Scores of 580 or more (with
established credit lines in their own name open for at least 6-months with No
Discretionary Debt (housing payment is only account with an outstanding
balance and borrower can document that revolving credit has been paid off in
full monthly for at least the previous 6-months):
 Total monthly mortgage payment may not exceed 40% of gross
effective monthly income, and
 Total monthly fixed payment may not exceed 40% of gross
effective monthly income
*** For borrowers meeting this criteria, no other compensating factors are
required.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
MATRIX
FHA Maximum Qualifying
Ratio Matrix
Effective 4.21.2014
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
Recording Compensating Factors
Recording Compensating Factors – NEW
 Compensating factors cited to support the underwriting decision must be
recorded in the Underwriters Comments section on the LT – FHA Loan
Underwriting and Transmittal Summary
 Documentation supporting the compensating factors cited must be included
in the file; if applicable, a worksheet attached to the LT reflecting the
calculation of residual income
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
Energy Efficient Homes
Energy Efficient Homes – NEW
 Current policy allows borrowers who are manually underwritten with homes
such as Energy Efficient Mortgages to exceed the 31/43 ratios (33/45).
 These borrowers may be eligible for ratios in excess of the 33/45 stretch
ratios but NOT exceeding 37 and/or 47, ONLY if they have a minimum
decision credit score of 580 or higher and meet at least any one of the
compensating factors specified on slide 13.
 Ratios exceeding 37/47 (not to exceed 40 and/or 50) may be approved
ONLY if they have a minimum decision credit score of 580 or higher AND
meet at least any two of the compensating factors specified on slide 14.
 Eg: Borrower with a credit score of 570 purchasing an EEM home is
capped at 33/45.
 Eg: Borrower with a credit score of 590 and one comp factor purchasing
an EEM home can go up to 37/47 max ratios.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW: Documenting Comp Factors
CASH RESERVES
Documenting Acceptable Compensating Factors – NEW
CASH RESERVES:
 Verified and documented cash reserves may be cited as a
compensating factor subject to the following requirements:
 Reserves are equal to or exceed (3) total monthly mortgage
payments on 1-2 units; or
 Reserves are equal to or exceed (6) total monthly mortgage
payments on 3-4 units
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW: Documenting Comp Factors
CASH RESERVES cont’d…
Documenting Acceptable Compensating Factors – NEW
CASH RESERVES:
 Funds and/or “assets” that are NOT to be considered as cash
reserves include:
 Gifts
 Equity from another property
 Borrowed funds
 Cash received at closing in a cash-out refinance or incidental
cash received at closing in a loan transaction
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW: Documenting Comp Factors
CASH RESERVES cont’d…
Documenting Acceptable Compensating Factors – NEW
CASH RESERVES:
 May use a portion of a borrower’s retirement account (IRA, Thrift Savings
Plan, 401k, and Keogh accounts) to calculate reserves, subject to the
following conditions:

Use only 60% of the vested amount in the account, less any outstanding
loans (to account for withdrawal penalties and taxes).

Document the existence of the account with the most recent depository or
brokerage account statement.

Evidence must be provided that the retirement account allows for
withdrawals under conditions other than in connection with the borrower’s
employment termination, retirement, or death
If withdrawals can be made only in connection with employment
termination, retirement, or death, the retirement account may NOT be used
to calculate the borrower’s cash reserves.


If any of these funds are also to be used for loan settlement, that amount
must be subtracted from the amount included as reserves
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW: Documenting Comp Factors
MINIMAL INCREASE IN HOUSING
Documenting Acceptable Compensating Factors – NEW
MINIMAL INCREASE IN HOUSING:
 A minimal increase in housing payment may be cited as a compensating
factor subject to the following requirements:
 The new total monthly mortgage payment does not exceed the current
total monthly housing payment by more than $100 or 5%, whichever
is less; and
 There is a documented twelve month housing payment history with no
more than 1x30 day late payment.
o In cash-out transactions, ALL payments on the mortgage being
refinanced must have been made within the month due for the
previous 12-months.
 If the borrower has no current housing payment, cannot cite this as a
compensating factor
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW: Documenting Comp Factors
NO DISCRETIONARY DEBT
Documenting Acceptable Compensating Factors – NEW
NO DISCRETIONARY DEBT:
 “No discretionary debt” may be cited as a compensating factor subject to the
following requirements:

The borrower’s housing payment is the only open account with an
outstanding balance that is not paid off monthly;

The credit report shows established credit lines in the borrower’s name
open for at least 6-months; and

The borrower can document that these accounts have been paid off in full
monthly for at least the past 6-months.
Borrowers who have no established credit other than their housing payment, no
other credit lines in their own name open for at least 6-months, or who cannot
document that all other accounts are paid off in full monthly for at least the past 6months, do not qualify under this criterion.
Credit lines not in the borrower’s name but for which he or she is an authorized
user do not qualify under this criterion
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW: Documenting Comp Factors
SIGNIFICANT ADDITIONAL INCOME
Documenting Acceptable Compensating Factors – NEW
SIGNIFICANT ADDITIONAL INCOME NOT REFLECTED IN GROSS
EFFECTIVE INCOME:
 Additional income from bonuses, overtime, part-time or seasonal
employment that is not reflected in gross effective income can be cited as a
compensating factor subject to the following requirements:
 Must verify and document that the borrower has received this income
for at least 1-year, and it will likely continue; and
 The income, if it were included in gross effective income, is sufficient
to reduce the qualifying ratios to not more than 37/47.
Income from non-borrowing spouses or other parties not obligated for the
mortgage may not be counted under this criterion.
This compensating factor may be cited ONLY in conjunction with another
compensating factor when qualifying ratios exceed 37/47 but are not more
than 40/50.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW: Documenting Comp Factors
RESIDUAL INCOME
Documenting Acceptable Compensating Factors – NEW
RESIDUAL INCOME:
 Residual income may be cited as a compensating factor provided it can be
documented and it is at least equal to the applicable amounts for
household size and geographic region found on the Table of Residual
Incomes by Region found in the VA Pamphlet 26-7 (see separate slide).
FHA has modeled the calculation of residual income on underwriting guidance
provided by VA.
FHA is also using tables from the VA guidelines for the determination of
whether residual income is sufficiently high to qualify as a compensating
factor.
FHA UPDATE – Understanding FHA Mortgagee Letters
Calculating Residual Income
Calculating Gross Monthly Income
Calculating Monthly Expenses
Residual Income Table
RESIDUAL INCOME
FHA UPDATES - Understanding new FHA Mortgagee Letters
NEW:
RESIDUAL INCOME
Calculating Residual Income:
Residual Income is calculated as follows:
 Calculate the total gross monthly income for all occupying borrowers.
 Deduct the following items from the gross monthly income:
Residual Income, Deductions from Gross Monthly Income
State Income Taxes
Federal Income Taxes
Municipal or other Income Taxes
Retirement or Social Security
Proposed total monthly fixed payment
Estimated maintenance and utilities
Job related expenses (eg., child care)
 Subtract the sum of the deductions from the table above from the total gross monthly
income of all occupying borrowers.
 The balance is residual income.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
RESIDUAL INCOME cont’d…
Calculating Gross Monthly Income:
 Gross monthly income should be calculated for the
occupying borrowers ONLY!!!
 Do not include bonus, part-time, or seasonal income that does
not meet the requirements for effective income
 Do not include income from non-occupying co-borrowers, cosigners, non-borrowing spouses, or other parties not obligated on
the mortgage.
Because taxes are taken into account in the calculation of residual
income, non-taxable income may NOT be “grossed up”.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
RESIDUAL INCOME cont’d…
Calculating Monthly Expense:
 If available, use Federal and state tax returns from the most recent
tax year to document state and local taxes, retirement, Social
Security and Medicare.
 If tax returns are not available, rely upon pay stubs
 For estimated maintenance and utilities in all states, multiply the
living area of the property (square feet) by $.14.
Eg.,
1,500 square feet
x .14
$210.00 per month
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
RESIDUAL INCOME cont’d…
Using Residual Income as a Compensating Factor:
 To use residual income as a compensating factor, count all members of the
household of the occupying borrowers without regard to the nature of their
relationship and without regard to whether they are joining on title or the
note.
 Exception: As stated in the VA Guidelines, you may omit any individuals
from “family size” who are fully supported from a source of verified income
which is not included in effective income in the loan analysis. These
individuals must voluntarily provide sufficient documentation to verify their
income to qualify for this exception.
 From the table on the next slide, select the applicable loan amount, region
and household size.
 If residual income equals or exceeds the corresponding amount on the
table, it may be cited as a compensating factor.
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
RESIDUAL INCOME cont’d…
FHA UPDATE – Understanding FHA Mortgagee Letters
NEW:
RESIDUAL INCOME cont’d…
FHA UPDATE – Understanding FHA Mortgagee Letters
Clarification of Mortgagee Letters…
ML 2014-24 & ML 2014-25
ML 2014-26
MORTGAGEE LETTER
FHA UPDATES - Understanding new FHA Mortgagee Letters
ML 2013-24 & ML 2013-25
Mortgagee Letter 2013-24 and 2013-25 (TOTAL)
Handling of Collections, Judgments, Disputed Accounts
 Amends guidance on collection and disputed accounts
 Clarifies guidance on judgments
 Effective for Case #’s assigned on or after October 15, 2013
 Affects all FHA mortgage programs
 Excludes non-credit qualifying streamline refinances and HECM’s
 Excludes medical collections and medical charge-offs
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-24 & ML 2013-25
Lender Requirements
Expanded Lender Requirements
=
 Credit Analysis: Manually underwritten loans
•
Disregard for financial obligations
•
Inability to manage debt
•
Extenuating circumstances
•
Borrower must provide LOE and supporting documentation
 Capacity Analysis:
•
Effect of collections and judgments on ability to repay
o Payment in full
o Payment arrangements – Document proof of pay arrangement
o No payment arrangements – 5% payment in DTI
o Include non-purchasing spouse collections in Community
Property States
 Downgrade to manual may be required
FHA UPDATE – Understanding FHA Mortgagee Letters
Capacity Analysis:
COLLECTIONS
With/ DU APPROVAL
 Cumulative total < $2,000: no
additional requirements
 Cumulative balances totaling => $2,000:
 Include actual payment, or payment
equal to 5% of cumulative
outstanding balances
With/ MANUAL Underwriting
 Cumulative balances totaling => $2,000 must
either be:
 Paid in full prior to or at closing with
satisfactorily source funds, or
 Enter into payment arrangement and qualify
with the monthly payment, or
•
“Approve/Eligible”: no
additional requirements
 Qualify with a monthly payment equal to 5%
of the total outstanding balances
•
“Refer”: downgrade to
manual underwrite
 Collections of non-purchasing spouse in a
community property states must be included
in cumulative balance unless excluded by state
law
 May not pay down below $2,000 to
qualify
 May not pay down below $2,000 to qualify
FHA UPDATE – Understanding FHA Mortgagee Letters
Capacity Analysis:
JUDGMENTS
With/ DU APPROVAL
Required to be paid in full
With/ MANUAL UNDERWRITING
Required to be paid off, except if the borrower has
entered into a payment agreement:
 Provide evidence of the payment agreement, and
 Evidence paid as agreed for 3-months PRIOR to
credit approval
 Pre-payment of scheduled payments is NOT
allowed
 Judgments of non-purchasing spouse in a community
property state must be paid in full, or meet the
exception guidance for judgments above, unless
excluded by state law
FHA UPDATE – Understanding FHA Mortgagee Letters
Capacity Analysis:
DISPUTED ACCOUNTS
Mortgagee Letter 2013-24
 Disputed derogatory credit accounts – INCLUDE in the $1,000 cumulative
total
•
Disputed charge-off accounts
•
Disputed collection accounts
•
Disputed accounts with lates in the last 24 months
 Non-derogatory disputed accounts – EXCLUDE from the $1,000 cumulative
total
•
Disputed accounts with zero balance
•
Disputed accounts with late payments aged 24+months
•
Disputed accounts that are current and paid as agreed
 Non-purchasing spouse in community property states – exclude from
cumulative $1,000 benchmark
 Disputed accounts not indicated on credit report - exclude
FHA UPDATE – Understanding FHA Mortgagee Letters
Capacity Analysis:
‘DEROGATORY’ DISPUTED ACCOUNTS
With/ DU APPROVAL
 Cumulative total < $1,000: No
additional requirements
With/ MANUAL Underwriting
 Cumulative total => $1,000:
 Downgrade to manual
 Letter of explanation from borrower with
supporting documentation
 Determine if resulting from:
 Derogatory account no longer
disputed: Same as manual
•
Disregard for financial obligations
•
Inability to manage debt
•
Extenuating circumstances
 Derogatory account no longer disputed:
 Obtain new credit report with dispute
removed
 Re-run through TOTAL
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
BACK TO WORK Initiative
Mortgagee Letter 2013-26
Back to Work Initiative
 Intended for borrowers who have experienced an Economic Event
as a result of the recent recession:
• Loss of employment, or
• Loss of income, or
• Combination of both which resulted in:
 At least a 20% reduction in household income
 For at least 6 months minimum
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Cont’d…
Mortgagee Letter 2013-26
Back to Work – Extenuating Circumstances
 Recognizes effect of recent recession on borrower’s ability to meet
their previous financial obligations
 Continues FHA’s mission to strengthen communities by supporting
access to affordable mortgage finance programs
 Establishes requirements to assist borrowers to become
homeowners
 Available for Purchase money loans only
 Effective for case #’s assigned on or after August 15, 2013 through
September 30, 2016
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Eligibility
Back to Work - Eligibility
 To be eligible for the program, borrowers must document:
1. Experienced an “Economic Event” resulting in loss of
employment, or a 20% reduction in household income was
beyond their control, and
2. Demonstrate full recovery from the event, and re-established
satisfactory credit for the most recent 12-months, and
3. Completion of housing counseling through a HUD-approved
counseling agency, or combination of homeownership
education and counseling, provided by state housing agencies,
approved intermediaries or their sub-grantees, or through an
on-line course
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Household Income vs. Member
 Household Income:
•
Gross Income of the borrower and all household members for
purposes of evaluating loss of income
•
Only the income from the borrower (not Household Income) may be
used to qualify for the new loan
•
 Household Member:
•
Individual residing at the borrower’s primary residence at the time of
the economic event, AND who was a co-borrower on the borrower’s
previous mortgage
•
Non-occupant co-borrowers are excluded
•
Household members not going on the new loan must still provide
authorization to verify loss of employment/income
•
Must document occupancy of household members if not readily
available
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Qualifying Requirements
 Borrowers may be considered for an FHA-insured mortgage (1yr
seasoning only) if we can document:
 Default was due to an economic event beyond the borrower’s
control
• Loss of employment, or
• Loss of income, or
• Combination of both which resulted in at least a 20%
reduction in household income for a minimum of 6 months
o 6-mos is counted from Month of Loss to re-establishment of
satisfactory credit for a minimum of 12 months
 Satisfactory re-established credit for recent 12 months
 Borrower completes housing counseling
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Clarifications
 Economic Event – occurrence beyond the borrower’s control resulting in
 Loss of Employment
 Loss of Income
• Includes Overtime, Bonus Income, PT Income, 2nd Job,
• Must have 2-yr history of getting it before the event
 Combination of both resulting in reduced household income
 Household income reduction
 Reduction of 20% or more for a period of at least 6-months or more
 Covered individuals
 Borrowers and Co-borrowers on the loan, AND
 Must be a household member (non-occupant co-borrowers are excluded)
 Covered extenuating circumstances (standard requirement)
 Bankruptcies (2yr seasoning)
 Foreclosures (3yr seasoning)
 Deed in Lieu (3yr seasoning)
 Short Sales (3yr seasoning unless they meet ML 2009-52)
 Collections/Judgments (affects credit analysis and may require payoff)
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Loss of Employment
Loss of Employment must be verified and documented with:
 A written Verification of Employment (VOE) evidencing the
termination date.
 In cases where the prior employer is no longer in business:
 Written termination notice, or
 Other publicly available documentation of the business closure, and
 Documentation of receipt of unemployment income
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Loss of Household Income
Loss of Household Income must be verified and documented
with:
 A written Verification of Employment (VOE) evidencing prior
income; or
 Signed tax returns or W-2’s evidencing prior income
 Seasonal Income Loss:
 2-yr history of seasonal employment in same field just prior to loss
of income plus documentation requirement above
 Part-Time Income Loss:
 2-yr history of continuous part-time employment just prior to the
loss of income plus documentation requirement above
Note: Household members not going on the current loan should still be
analyzed (employment/income) to document reduction in household
income at the time of the event
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Satisfactory Credit Requirement
Satisfactory Credit Requirement is met if:
 Credit history shows no current late housing payments or
installment debts, and no major derogatory credit issues on
revolving accounts in the last 12-months
 Any open mortgage is current and shows 0x30 within the last
12-months
• Mortgages have been brought current through loan modification
(may be temporary or permanent) as long as payments have been
made per the modification agreement
 Borrower’s with non-traditional credit history must document
NTC covering 12-months including:
•
NO lates on rental housing payments, and
•
NO more than 1x30 day late on payments due other creditors, and
•
NO collections/court records reporting (other than medical and/or
identity theft)
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Credit Analysis
1. Analyze and document:
 All delinquent/derogatory credit including collections,
judgments, BK’s, FC’s, DIL’s, SS’s, and other credit problems
to determine if the associated credit deficiencies were because
of the
• Economic event, or
• Inability to manage debt, or
• General disregard for managing financial obligations
2. Determine if the derogatory credit was the result of an
Economic Event. Determine that:
a) Borrower had satisfactory credit PRIOR to the event onset,
b) Derogatory credit occurred AFTER the event onset, and
c) Borrower has re-established satisfactory credit for minimum of
12-months
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Seasoning Requirements

Foreclosures or Deed-In-Lieu:
 Minimum of 12-months have elapsed since the date of FC/DIL, and
 Foreclosure or Deed-in-lieu was the result of the economic event

Short Sale:
 Minimum of 12-months have elapsed since the date of sale, and
 Short Sale was the result of the economic event

Chapter 7 Bankruptcy:
 Minimum of 12-months have elapsed since date of discharge, and
 BK was the result of the economic event

Chapter 13 Bankruptcy – verify and document that:
 Chapter 13 was discharged prior to application and all required payments were
made on time, or
 For open Chapter 13s, at least 12-mos have elapsed and all required payments
were made on time. If the BK wasn’t discharged prior to application, written
permission is required from BK court to proceed with new loan, and
 BK was the result of the economic event

Collections and Judgments
 Verify and document all collections and judgments were due to economic event
FHA UPDATE – Understanding FHA Mortgagee Letters
ML 2013-26
Counseling Requirements
Housing Counseling Requirements
 Housing Counseling - Borrower must:
• Receive homeownership counseling or a combination of
homeownership education and counseling
• Each participant must receive at a minimum ONE HOUR of
one-on-one counseling from a HUD approved counseling
agency. For a list of HUD approved agencies
Go to http://www.hud.gov/ or call (800) 569-4287
• Must be completed no less than 30 days, but no more than 6months prior to the date of the application
• May be in person, via telephone, via internet
• Housing Counseling Fees apply
FHA UPDATE – Understanding FHA Mortgagee Letters
FMC’s Manual Overlays
Pending Guidance
Resources including FAQ’s
FMC Support
MISCELLANEOUS
FHA UPDATES - Understanding new FHA Mortgagee Letters
FMC’s Manual Overlays
Effective: May 1, 2014
FHA UPDATE – Understanding FHA Mortgagee Letters
FMC’s Manual Overlays
Effective: May 1, 2014
FHA UPDATE – Understanding FHA Mortgagee Letters
FMC’s Manual Overlays
Effective: May 1, 2014
FHA UPDATE – Understanding FHA Mortgagee Letters
Pending Guidance
 Seller Concessions – Proposed changes were published in
Federal Register
 Discusses reducing the maximum seller concession to 3% or
$6,000, whichever is greater
 Limiting seller concessions to closing costs, prepaids, discount
points, UFMIP, and interest rate buy down, no condo, HOA fees
or interest payments
FHA UPDATE – Understanding FHA Mortgagee Letters
RESOURCES & FAQ’s
•
•
HUD Website
•
www.hud.gov
•
4155.1 – Mortgage Credit Analysis
•
Mortgagee Letters
FHA Loan Limits
•
•
FHA Approved Condos –
•
•
http://entp.hud.gov/idapp/html/hicostlook.cfm
https://entp.hud.gov/idapp/html/condlook.cfm
FHA FAQ
•
www.hud.gov/answers
FHA UPDATE – Understanding FHA Mortgagee Letters
FMC SUPPORT
WEB SITE
Go to our FMC websites
for:
1.
RATE SHEET
2.
TRAINING
MATERIALS
3.
GUIDELINES
4.
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5.
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6.
TOOLS
7.
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TRAININGS
First Mortgage offers FREE
Weekly ONLINE Trainings
See June Training schedule at
FMC websites for upcoming
trainings
Trainings for May 2014:
•
5/6 – Product Overview
•
5/7
•
5/13 –VA Training
•
5/15 – FHA Updates
•
5/20 – Point Training (FMC
Employees ONLY)
CHF Platinum
SUPPORT
Retail:
Contact Loan Help
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Contact your FMC A/E
For help with your:
•
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•
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•
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•
Loan
Submissions
•
Trainings
FHA UPDATE – Understanding FHA Mortgagee Letters
THANK YOU FOR YOUR BUSINESS…
On behalf of First Mortgage, thank you for joining today’s
training and we hope the information provided will help you
build your business!
The main purpose of First Mortgage Corporation’s (FMC) training documents is to assist real estate and mortgage
professionals in developing entry-level competence with loan programs.
While FMC staff, employees, contractors and contributors take care to ensure the accuracy of the content of
training documents, FMC makes no warranties as to the accuracy of the information contained within these
materials. Furthermore, every user of this material uses it understanding that he or she must still conduct his or
her own original legal research, analysis and drafting. In addition, every user must refer to the relevant legislation,
case law, administrative guidelines, rules and other primary sources.
FMC specifically disclaims any liability for any loss or damage any user may suffer as a result of information
contained within this training material.
While the information contained in FMC’s training material addresses guidelines and issues surrounding mortgage
programs, these materials do not constitute legal advice. All non-legal professionals are urged to seek legal advice
from a lawyer.
FHA UPDATE – Understanding FHA Mortgagee Letters