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First mortgage. FHA 203(k) Program. PROGRAM TRAINING.
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First mortgage FHA 203(k) Program PROGRAM TRAINING 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. 06/17/2014
Agenda • Introduction to FHA 203(k) • Featured Products – Standard & Streamline 203(k) • Available FMC 203(k) Program • Program Underwriting Guidelines • Draw Process • FHA 203(k) Resources • Tips & Reminders • Certification & Flow Process • How to complete the 203(k) Maximum Worksheet HUD-92700
Why 203(k)? • This is HUD’s primary program for the repair and rehabilitation of single family properties. • The Federal Housing Administration 203(k) Program allows borrowers to purchase or refinance their home and include the costs to repair or rehabilitate it in the same loan. • When buying a house that needs modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. BENEFITS OF THE PROGRAM: • The FHA 203(k) can help borrowers: • Offer a solution that can help borrowers obtain financing that covers both the acquisition and rehabilitation of the property • Help borrowers save time and money • The FHA 203(k) can help you: • Expand your market reach • Increase your loan origination volume • Help borrowers find affordable financing and realize the dream of homeownership 3
First mortgage FMC’s AvailableFha 203(k) program
Featured Products • Allows borrowers to finance an additional $35,000 into their mortgage to make improvements • Minimum $5,000 rehabilitation amount • Available for purchase and rate and termrefinance transactions • Allowed on limited improvement types • Can be 100% cosmetic improvements • Can not be used for structural improvements or repairs • Streamlined 203(k) – the improvements and the disbursement process are Streamlined • HUD Cost Consultant may be required STREAMLINED FHA 203(k)
Targeted Market? • Borrower’s purchasing a home in need of repairs • May be REO’s, foreclosures and short sales • REO’s are a significant portion of the purchase market • Out-dated kitchens, bathrooms, etc. • Borrower’s refinancing an existing home and making improvements • Improve instead of move • Out-dated kitchens, bathrooms, etc. 7
Available FMC Programs Program ….07 • Investor: • FMC – Program …07 • Minimum Fico: • 580 Minimum for Conforming L/A • 620 Minimum for Jumbo L/A • Disbursement Turn-times: • 10 days after closing • Pricing: • Use regular 07 pricing • 203(k) price hit • Fico score hits 8
First mortgage 203(k) program guidelinesUW guidelines
First mortgage OTHER INFORMATION(CONTINGENCY RESERVE, SELF-HELP, COST CONSULTANT)
Cost Consultant • Not Required on Streamline 203(k) • May be required at the discretion of the Special Products Division • Consultant Fee MUST be disclosed upfront in the event it is required • Cannot be financed into the loan • If the UW feels the cost estimates are not realistic, they may ask for a 2nd opinion from another Contractor. This will be part of UW review. • A HUD Approved Cost Consultant (if required) is selected to: • Visit the site • Prepare work write-up that specifies a description and cost of each work item • Review the architectural exhibits for compliance with HUD’s Minimum Property Standards • Work with the Contractor to ensure work is eligible, cost is reasonable, whether any permits are required, any recommendation • Inspect any of the property’s health and safety items noted on the drawing • Cost Consultants can be found on HUD’s website: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm 18
First mortgage disbursement / draw process
First mortgage PRICING / FEES(pricing, closing costs)
First mortgage Miscellaneous(FORMS, tips & REMINDERS, tools, fmc support)
FHA 203(k) Checklist • ____Streamline 203(k) Maximum Mortgage Worksheet HUD-92700 (In FB) • _____ Contractors Estimate Bid, Signed & Dated by Borrower & Contractor • _____ Contractor’s Valid License • _____ Valid Liability Insurance • _____ W9 – Print signers name on form – Executed by the GENERAL CONTRACTOR only • _____ Rehabilitation Loan Agreement, Fully executed • _____ Borrower’s Acknowledgment – Borrower/LO to countersign to avoid condition • _____ Borrowers Identity of Interest Certification • _____ Homeowners/Contractors Agreement – Borrower/Contractor • _____ Termite Report & Septic Inspection, if noted on Purchase Agreement • _____ Rehab Escrow Account & Fees Acknowledgement • _____ Notice to Borrower regarding your Rehab Loan • _____ Borrower’s Acknowledgment of Draw Process *** FHA 203(k) Streamlines - Maximum $35,000 in Repairs)***
Tips and Reminders (1)… • Make sure all impacted parties understand the draw process – Consultation Call prior to docs • When the first and all subsequent draws are made • How many draws are allowed – maximum two (2) for Streamline 203(k) • Title must be clear before final payment is made • FMC does one Title update - $100 cost; Any mechanics lien must be cleared • Title Reports – With regard to any notice that the property is substandard on the prelim, processing needs to submit documentation such as contractor’s bid and/or work write up to the title company so title can clear the substandard note and issue a clear title. • Notify Title and Escrow UP-FRONT of the 203(k) Transaction • Choose a Title Company that will provide a 122 Endorsement. Eg., • Chicago Title • ServiceLink • First American Title Insurance • Holdback funds are not released until ALL work is completed • Construction must begin within 30 days on FHA 203(k) Streamlined loans. (Weather related and/or other delays are not normally allowed). • Licensed Contractor – Work must be done by a licensed contractor. Borrower can do his/her own work only if a licensed contractor themselves. 28
Tips and Reminders (2)… • Contractors Itemized Estimates – Make sure there is one in the file. They must show material and labor separately and be legible and total up correctly. • FHA 203(k) Forms – Must be in the loan file and must be completed; do not submit signed blank forms. • FHA 203(k) Worksheet – Must be in the loan file and must be completed and accurate; incomplete worksheets are not acceptable. • Discount Points - Total AMOUNT of discount points on Rehab portion (which can be financed as part of the total rehab) cannot exceed total AMOUNT of discount points on the non-rehab portion. • Supplemental Origination Fee – All 203(k) loans must include this fee – this is NOT OPTIONAL! Charged for handling rehabilitation process ($350 or 1.5% whichever is greater). • Cost Consultant – When using a consultant, include their invoice to determine if it needs to be included in the rehab amount or not. • Rehab Amount (Line B14 of 203(k) Worksheet) – Must be included in First Base so it’s reflected on the DOT and funds to close are as accurate as can be. • Details of Transaction (In DU/DO) – must include the Rehab amount. • Utilities – Appraiser needs to mention that utilities are on; otherwise loan cannot be done as a Streamline 203k.
Tips and Reminders (3)… • Termite Report – If termite report shows section 1 items need to be completed, they need to be itemized on the work write-up. • Line B-14 of 203(k) Worksheet – Make sure the amount reflected here includes the total rehab loan amount. Must include contractors estimates and all the rehab costs so if you’re doing a Streamline 203(k), the total amount here cannot exceed $35,000; if it does, loan cannot be done as a Streamline 203(k). • Contractor’s License – Must be current and valid; cannot be expired. Must be current through the end of construction. 6 mos minimum for Streamline. Use the link on the Resource page to check. • Pool – Can finance up to $1,500 to repair an existing Pool. Pool must be filled prior to closing; cannot be empty. • Health/Safety Items – The appraiser can list the health/safety items that require repair, and they should all be on the contractors estimate. The appraiser should also list any health/safety items NOT addressed in the contractor’s estimate, then the cost estimate would have to be revised to include any additional health/safety items noted by the appraiser. • Process Flow – Follow the Process Flow in place when doing 203(k) loans. Try to always get a Contractor’s Estimates first BEFORE the appraisal is ordered. This will eliminate the Appraiser asking for health/safety issues to be cleared before closing and the constant back and forth causing unnecessary delays. • Related Contractors – NOT ALLOWED at FMC. See Borrower Identity of Interest Form for HUD rule. 30
Tips and Reminders (4)… • FHA Connection (Tips on Inputting FHA 203(k) on FHA Connection): • Initial GFE (Tips on where to put B14 on Initial GFE for FHA 203(k): 31
FHA 203(k) Resources • HUD’s FHA 203(k) Q & A: http://www.hud.gov/offices/hsg/sfh/203k/faqs203k.cfm • For area median home prices: https://entp.hud.gov/idapp/html/hicostlook.cfm • Cost consultants can be found on HUD’s website: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm • For information on FHA mortgage insurance programs, visit: http://www.fha.gov/ • For information on U.S. Department of Housing and Urban Development, visit: https://www.hud.gov/ • Contractor license check:http://www.cslb.ca.gov/Contractors/
SPECIAL PRODUCTS DIVISION(Certification & Review Process) First mortgage 33
Certification Process Certification Requirement • All FMC originators including Loan Officers, Processors, and Account Executives for Wholesale wishing to originate the FHA 203(k) program must be certified. • As part of the Certification Process, you will be required to attend a FHA 203(k) Certification training, take the Certification Test and obtain a Certificate which will be required in every loan file submitted to underwriting for review. • PROCESS: • FHA 203(k) Certification Training is available on the FMC websites for self trainings. • To request the test for certification: • E-mail certificationhelp@firstmortgage.com • Send back the Answer Sheet and worksheets to the same e-mail. • The Loan Officers/Processors/Account Executive Certificates must be in the loan file submitted to Underwriting for approval 34
Retail Process Flow (Memo #B-12-06) Revised 8/6/2012 To ensure that all FHA 203(k) transactions are handled with careful reviews of the Contractors Bids to ensure they are thorough, bids are accurately quoted, contingency reserve is sufficient to complete the work, appraisers are congruent with the Bids, and the Borrowers and Contractors are fully informed of the disbursement of funds, ALL FHA 203k transactions are going to be reviewed by the Special Products Division • For Wholesale, Certified AE’s/Branches can handle their own FHA 203(k), or they can refer it to the Special Products Division as before (See “203K Updated Procedure Effective 8/6/12” e-mail issued on August 8, 2012 and Memo #B-12-06 for more details). SPECIAL PRODUCTS DIVISION Contact Information for submission and questions: Email: specialproducts@firstmortgage.com Phone: (800) 394-4778 35
Retail Process Flow cont’d… Revised 8/6/2012 PROCESSING: • FHA 203(k) loans will be processed out of already certified Branches; otherwise, it will be processed out of Corporate Processing in Ontario, CA HUD Consultant: • A HUD Consultant may be required on a Streamline 203(k) transaction • Special Products will notify the Loan Officer and Processor of the HUD Contractor determination and their information if one is required and selected by Special Products HUD Consultant Fee: • Initial Disclosures will always include a HUD Consultant fee (if needed) ranging from $400 up to $1,000 depending on repair amount and type of transaction • If NO Consultant is required, the fee will not be charged 36
Retail Process Flow (Memo #B-12-06) Revised 8/6/2012 Submit the following to the Special Products Division: Prior to ordering Appraisal: • CONTRACTORS BID (FHA Streamline 203(k) Transactions) to determine: • Whether the transaction meets the FHA Streamline 203(k) guidelines • If permits will be required. If required, loan cannot be done as a Streamline 203(k) • Exception may be made on Roof permits by SPD • If ALL utilities will be on prior to funding. If not, loan cannot be done as a Streamline 203(k) • Validity of Bid, accuracy and completeness per HUD requirements • If Contractor meets minimum qualifications for work to be performed • Determine if a HUD Consultant will be required • Purchase Contract • 1003 • SPD to inform Branch when the Appraisal is ready to be ordered 37
Retail Process Flow cont’d… Revised 8/6/2012 • Upon Receipt of the Appraisal, send report to SPD to determine: • Appraiser marked the correct repair Box on report based on transaction type • The appraiser incorporated all items from the Contractors Bid on his report • Did the Appraiser add any other required repairs to meet HUD MPS • An “AS IS” and an “AS COMPLETED” value was given • INCLUDE THE FINAL HUD-92700 for review prior to submitting file to UW • INCLUDE ALL FULLY EXECUTED FHA 203(k) FORMS during this time for final review prior to UW submission • SPD inform Processing when file is ready for UW Submission • Prior to Docs: • Send Approval and all 203(k) PTD conditions to ensure all underwriting requirements have been met and recommend what else may be needed/required • LO/Processor to advise SPD of Borrower and Contractor phone #’s and preferred time/date for consultation • LO/Processor to advise SPD once docs have been drawn to perform the required consultations with all applicable parties – Borrower, Contractors, etc. • Prior to Funding: • Prior to funding final clearance from SPD is required 38
First mortgage Completing the 203(k) maximum worksheet (HUD-92700)
Eligible Expenses (Total Rehab – Line B-14) Eligible expenses to be included in Line B14 of the HUD-92700 (cannot exceed $35,000): • Cost of Materials, labor, contingency reserve, overhead and construction profit (noted in each work item) • Expenses related to the rehabilitation such as permits, fees, licenses, inspection fees by a qualified home inspector, inspection fees during construction by a HUD accepted inspector, lien protection fees for title updates (soft costs) • Cost of rehabilitation may also include the supplemental origination fee and the discounts which the borrower will pay on that portion of the mortgage proceeds allocated to the rehabilitation
FMC Support • TRAININGS • First Mortgage offers FREE Weekly ONLINE Trainings • See the FMC website for the June 2014 Training schedule • Trainings for June 2014: • 6/3 – FMC Product Overview • 6/4 – NHF Access/FirstDOWN • 6/10 – NEW PROGRAM Training • 6/13 – NHF Sapphire Program Training • 6/17 – FHA 203(k) Streamline Program Training • 6/19 – FHA EEM Program Training WEB SITE • RATE SHEETS • TRAINING MATERIALS • CALCULATORS • TOOLS • FORMS • MARKETING SUPPORT For Retail: Contact Loan Help For Wholesale: Contact A/E • Scenarios • Pricing • Program Guidelines • Product Support • Loan Submissions • Fees • Trainings 45
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.
