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  1. Underwriting and Compliance- --UNCOVERED!!!!

  2. Our Mission “The Successful Man will Profit from his mistakes and try again in a different way” --Dale Carnegie

  3. Sponsors

  4. Underwriting and Compliance- --UNCOVERED!!!!

  5. WHY?

  6. Banks too loose with lending

  7. New Attitude! Quality! Responsibility! Competition!

  8. Banks must PROTECT!

  9. BACK TO BASICS!

  10. What it takes to get a home loan • THE 3 C’S • Capacity- Debt to Income Ratio • Collateral- “Skin in the game” • Credit- “Ability to pay back a

  11. Capacity= ? • DTI!!! • Does the Borrower have the Ability/ Capacity to make the mortgage payment? • What is income vs. debts? • $4000 income • $1250 Mortgage • $350 Car pymt • $400 Credit Cards • $2000 Total Debts $4000 income vs. $2000 debts = 50% Debt to Income Ratio

  12. Maximum DTI! FHA= 38/41% VA= 41/41% USDA= 29/41% MAX allowable 45%!!!

  13. Collateral • How much of the Home does the BANK Own? • How much of the Home does the Buyer Own? • 100% no matter how you slice it: • 96.5% loan to value/ 3.5% Down Payment • 80% LTV/ 20% Down Payment • 80/10/10= 80% First Mtg/ 10% 2ndMtg/ 10% d.p. The bank does not want to be completely leveraged against…. They do not want the “Entire Property”

  14. Down Payment REQUIREMENTS! • FHA= 3.5% DOWN • VA- 0% DOWN • CONVENTIONAL= 5% DOWN • PMI at 80-85-90-95 • Monthly MI very expensive! • Financed MI is gone as of last week with most investors • LPMI still available! But for how long?

  15. Credit Scoring • FICO • 620 Is line in the sand! • FHA, VA, USDA- Govt programs = 620 • Conventional • 620-639 Extremely high risk • 640-659 More High risk • 660-679 High Risk • 680-699 Somewhat High Risk • 700-719 Some Risk • 720-739 Not Risky • 740+ NO Risk

  16. Jumbo Loans - What are they? • Any loan above $417,000 • Mortgages are sold in packages to the 2ndary market as MBS • Larger pool of $$$, sold at lower rates, bigger supply = Fannie Mae • Smaller pool of loans sold as MBS, sold at higher rates = JUMBO LOANS • Smaller pool of investors

  17. Risk

  18. Why?

  19. Sell to Investors?

  20. The BANKS are now the INVESTORS!!!

  21. A New world of lending…..

  22. Over Regulation • Over Document! • Over Compliance! • Over Complicate!

  23. Higher Quality Pool of loans! • The lenders who DON’T CARE right now… may be forced out of business down the line! • Your Client Base! • Lenders are COMPETING! For best POOL of loans to sell to Investors!

  24. Types of loans • Conventional • FHA • VA • USDA • 2nds • HELOCs

  25. Conventional • Conventional- Fannie Mae and Freddie Mac • LTV= up to 95% • Down Payment = minimum of 5% • FICO= 680+ • PMI= 700+ FICO • DTI= 45% MAX! • Non Owner = 25% down • Foreclosures & Shortsales, OK!

  26. FHA • FHA max loan to value = 96.5% • LTV= up to 96.5 % • Down Payment = minimum of 3.5% • FICO= 620 • DTI= 41%... However… 45% MAX! • Non Owner =Not Allowed! • Only 1 FHA loan per USA Citizen! • Foreclosures– depends on condition of home • Shortsales– depends on condition of home, usually ok! ** beware contract assignments

  27. An FHA borrower: • Has blemished credit acceptable to FHA, but not strong enough for prime pricing in the conventional market • Filed Bankruptcy 2 Yrs ago (2 yrs Chapter 7, 1 yr Chapter 13) • If a foreclosure was included: 3 yrs from the date the home sold (short sale 120 days late) • Wants to purchase a house that costs less than the FHA maximum loan limit.

  28. Down Payments • Gift from relative or family member is still allowed. • Gift from an employer! • Grant from local community or state agency. • Immediate family can loan the funds to the buyer and even record a 2nd lien.

  29. FHA Loan limits • By county! • You can look it up! • Condos… look for eligibility!

  30. UFMIP– up front Mortgage Ins • Was 1.75%.... Now 2.25%! • Higher Loan Amounts = Higher pymts = Higher DTI • Monthly is going from .55 to .85 in October!

  31. Seller Contributions 3% or 6%? 6%!!!!

  32. FHA Loan Limits County Name $281250 $360050 $435200 $540850 Single Family Duplex Tri-plex Four-plex St Charles ST Louis $$281250 $360050 $435200 $540850 Single Family Duplex Tri-plex Four-plex Lincoln $281250 $360050 $435200 $540850 Single Family Duplex Tri-plex Four-plex

  33. FHA 90 Day Flipping Rule (expires 2-1-11) FHA Overview Cont… • If the sales price exceeds 20% • You will need to provide the purchase price from the previous transaction – HUD. • It must be an “Arms Length” transaction. • Some lenders may require 2 appraisals - • They may also ask for a detailed cost breakdown and a letter of explanation of what work was completed. • Seller will need to be on title, NO middleman!!! • No previous flipping of the property within 12 months. • Home not previously in foreclosure!! • Property must have been marketed openly and fairly via MLS, etc. • Lender must order a property inspection report and provide to buyer prior to closing.

  34. FHA Myths Myth- There’s a significant amount of extra paperwork involved Truth – Requires only 9 additional documents signed by the borrower

  35. FHA Myths • Myth- You must be a first time home buyer to get an FHA Loan • Truth - You do not need to be a first time home buyer to get an FHA Loan. There are no income restrictions.

  36. FHA Myths Myth- FHA loans take longer to get approved • Truth – In today's world of automated underwriting and paperless processing, FHA loans take no longer than conventional loans to close if you are being helped by a loan officer who understands FHA loans. • Myth- The borrower can't pay certain loan costs or fees • Truth – The borrower may pay all reasonable and customary charges except for the tax service fee.

  37. FHA Myths • Myth- FHA is too restrictive • Truth - FHA provides guidelines for underwriting - same as industry investors • Truth - Automated Underwriting Systems approval is not required . FHA allows for a manual underwriting- for a hands-on, common sense judgments

  38. FHA Myths - Appraisals Valuation Conditions ARE NO LONGER REQUIRED!! HUGE WIN with “AS IS” appraisals now required on each transaction!

  39. VA • VA • LTV= up to 100% • Down Payment = minimum of 0% • FICO= 620 • DTI= 45% MAX! • 6 months active duty • 100% financing • UFMIP of 2.25%... 1.5% w 10% down… 3.3% for subsequent use • No MI

  40. Additional VA Requirements: • Acceptable VA appraisal! • All repairs to be made by SELLER • VA appraisal sticks for 6 months • Termite Inspection may be required… underwriters discretion… • Foreclosures– NOT ADVISABLE!!! • SHORTSALES– Ok, depending on condition of property

  41. USDA • USDA- Rural Development= 102% • (100% + 2% MI Financed) • Limited to designated areas • LTV= up to % • Down Payment = minimum of % • FICO= • DTI= 45% MAX! • Non Owner = % down

  42. 2nds/ HELOCs • LTV= up to 85% • FICO= 660, Depends? • DTI= 45% MAX! • Have a private bank or CU in your back pocket!

  43. Investor overlays • What are they? • Income • DTI • # of properties owned • Flips!

  44. Investor overlays DTI 45% Max! Line in the Sand Income Part Time Income

  45. Investor Overlays • Gmac= Heloc pymt • Everyone else= 1% max HELOC LINE! • B of A = WAIVE 90 day seasoning FHA • Wells Fargo= 50% DTI, but Freddie only, and massive compensating factors

  46. Investor overlays Flips • 125% increase in value = 2 appraisals! • Underwriter’s discretion • Chain of Title

  47. MI company underwrites • Tradeline Requirements • DTI---- Max is 41% (one MI co. allows up to 45% with 740 FICO or higher) • Minimum Credit Scores • 2 Approvals Needed?

  48. Investor overlays • # of Properties owned Or?

  49. Investor overlays • DU/ LP document waivers • 401k Loans