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On Behalf of HUD & FHA Welcome to our session on the Credit Underwriting Borrower Analysis

On Behalf of HUD & FHA Welcome to our session on the Credit Underwriting Borrower Analysis. Housekeeping Phone lines ~ Q&A ~ Polling Activities. Phone lines – muted Questions – Q&A panel Interactivity – voting tools and polling questions. 2. About Your Instructor. Pava J Leyrer

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On Behalf of HUD & FHA Welcome to our session on the Credit Underwriting Borrower Analysis

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  1. On Behalf of HUD & FHA Welcome to our session on theCredit Underwriting Borrower Analysis

  2. Housekeeping Phone lines ~ Q&A ~ Polling Activities • Phone lines – muted • Questions – Q&A panel • Interactivity – voting tools and polling questions 2

  3. About Your Instructor Pava J Leyrer CMC, CRMS, CMP 3

  4. FHA Subject Matter Expert Welcome to our guest from the FHA – who will be responding to participant questions and offering additional guidance during today’s webinar. 4

  5. Credit Underwriting Borrower Analysis 5

  6. Discuss the differences in underwriting FHA and conventional loans. Understand allowable assets and borrower cash requirements for FHA loans. Know ratios and eligibility requirements of FHA borrowers. Understand how to calculate allowable income. Understand borrower credit requirements. How to review more challenging FHA borrowers. Explain TOTAL Scorecard underwriting system. Course Objectives 6

  7. Together we will look at: FHA borrower eligibility. Different types of borrower income. Borrower qualifying ratios. Borrower credit requirements. Different types of borrower debt. Allowable assets for cash investment requirements. Allowable assets for closing. Gift funds and documentation. TOTAL Scorecard and Manual Underwriting. Case studies. Course Overview 7

  8. Polling Questions How long have you been in the mortgage industry? What is your position or primary responsibility? 8

  9. FHA Borrower Eligibility 9

  10. Age requirements Identification requirements (Patriot Act & SSA) Borrower Eligibility HUD 4155.1 4.A.1.a-b 10

  11. Resident Aliens Non-resident Aliens: Principal residence Valid Social Security Number Eligible to work in U.S. Borrower Eligibility 4155.1 4.A.1.a & 4155.1 4.A.3.d-e 11

  12. Occupancy Requirements: Primary residence for majority of the year. Occupy within 60 days. Identity of Interest. Borrower Eligibility & Occupancy • 4155.1 Chapter 1; 4155.1 4.B.1; 4155.1 2.B.2.a-c 12

  13. Previous use of FHA. General rule – Only one FHA-insured loan per borrower at one time. Possible Exceptions. Multiple FHA Loans • HUD 4155.1 4.B.2.d 13

  14. Other properties: Rental property Previous owner-occupied home Multiple FHA Loans • HUD 4155.1 4.B.2.d; ML 08-25 14

  15. Borrower Risk AssessmentMultiple Borrowers & Past History 15

  16. Take title to property. Obligated on mortgage note. Sign all security instruments. Co-Borrowers 4155.1 4.A.1.d; 2.B.3.b 16

  17. Do not have ownership interest. Obligated on mortgage note. Sign all security instruments. Co-Signers 4155.1 4.A.1.e-f 17

  18. Prohibited parties. Must meet credit guidelines. Principal residence in U.S. Co-Borrowers & Co-Signers - Eligibility 4155.1 4.A.1.f 18

  19. Non-purchasing spouse. Community property state. Co-Signers & Co-Borrowers 4155.1 4.A.5.a-c 19

  20. CAIVRS System: Borrowers LDP Check: All Parties EPLS Check: Discontinued on 11/21/2012 SAM Check: System for Award Management Risk Assessment 4155.1 4.A.7; 4155.1 4.A.1.f; ML 04-39; HUD Memo 3/1/2002 20

  21. Credit Alert Verification Reporting System Risk Assessment - CAIVRS • 4155.1 4.A.7 21

  22. Eligibility exceptions: Assumption Divorce Bankruptcy Seller of principal residence Disaster victims Risk Assessment - CAIVRS • 4155.1 4.A.7.e 22

  23. Clearing incorrect information. Resolving conflicting information. Risk Assessment - CAIVRS • 4155.1 4.A.7.f-g 23

  24. Limited Denial of Participation Risk Assessment – LDP List 24 • 4155.1 4.A.2.a; https://www5.hud.gov/ecpcis/main/ECPCIS_List.jsp

  25. System for Award Management www.SAM.gov Risk Assessment - SAM 25

  26. Risk Assessment - SAM https://www.sam.gov 26

  27. Questions 27

  28. FHA Borrower IncomeCalculation & Documentation 28

  29. General Employment Guidelines Exceptions for military service or educational W-2 Wage Earner Overtime & Bonus Borrower Income • 4155.1 4.D.2.b 29

  30. Part-time/2nd job income Commission Seasonal income Unemployment income Borrower Income 4155.1 4.D.2.d; 4155.1 4.D.2.g; 4155.1 4.D.2.e 30

  31. Military Contract/Per-diem Return to workforce Maternity leave Layoffs Borrower Income 4155.1 4.E.3.a; 4155.1 4.D.1.d 31

  32. Borrower Income – Self-Employed P&L Statements Balance Sheet Depreciation & Depletion 4155.1 4.D.4.a-g; 4.D.6.a-c; 4.D.7.a; 4.D.8.b; ML 12-03 32

  33. Computing Income: Example: 2010 - $72,000 2011 - $82,000 2012 - $103,000 Use $103,000 as long as the YTD P&L is consistent. Borrower Income – Self-Employed 4155.1 4.D.4.e 33

  34. Polling Question What if the YTD income shows less than the previous year? How would you calculate it? 34

  35. Social Security Income Two programs Social Security Disability Insurance (SSDI) Supplemental Security Income (SSI) Borrower Income – Other 4155.1. 4.D.2.k; ML 12-15 35

  36. Social Security Income Federal Tax Return Most recent bank statement showing auto deposit Benefits letter (SSA) Benefits statement (SSA-1-00/1042S form) Borrower Income – Other 4155.1. 4.D.2.k; ML 12-15 36

  37. Borrower Income – Other Retirement income Disability 4.D.2.j; 4.E.5.a-b 37

  38. Borrower Income – Other Child Support Alimony Spousal Maintenance 4155.1 4.E.1.a; 4.E.5.b 38

  39. Rental income 3-4 unit properties Fair Market Rent Borrower Income – Other ML 08-25; 4155.1 4.E.4.b-d; 2.B.4.c 39

  40. http://www.huduser.org/portal/datasets/fmr.html 40

  41. Dividend or interest income Foster care Borrower Income – Other 4155.1 4.E.2.a; 4.E.3.c 41

  42. Section 8 Employer differential payments VA benefits Mortgage Credit Certificates (MCC’s) Borrower Income – Other 4155.1 4.E.3.b-c; 4155.1 4.D.2.i; 4155.1 4.E.3.d 42

  43. Joe is buying a home, and wants to know what he might qualify for. Let’s calculate his income. Borrower Income – Case Study 43

  44. Joe works as a District Manager for Wellco Foods, and has been there for four years. He currently is earning $22.00 per hour, plus a shift premium of $135.60 per week since he covers the night shift (which hehas had to do ever since they fired Benny three years ago). As part of his contract, he also is entitled to a production bonus. His bonus in 2010 was $9500 and in 2011 it was $9700. For the first nine months 2012 YTD, his paycheck stub shows a bonus of $7200. What is Joe’s usable Gross Monthly Income? Borrower Income – Case Study 44

  45. $22.00 x 40 = $880 $880.00 x 52 = $45,760/yr = $3813/mo $135.60 x 52 = $7,051/yr = $588/mo $9500 + $9700 + $7200 = $26,400 $26,400 / 33 months = $800/mo $3813 + $588 + $800 = $5201 per month Borrower Income – Case Study 45

  46. Questions 46

  47. Borrower Credit AnalysisAre There Problems? 47

  48. What is a credit profile? What is credit performance? Other credit documents: Paycheck stubs Bank statements Verification of Rent Verification of Loan Borrower Credit Analysis 4155.1 4.C.1.a-c 48

  49. Credit Reports Credit Reporting Agencies (CRA’s) TransUnion Equifax Experian Borrower Credit Analysis 4155.1 4.C.1.d; ML 10-28; 4155.1 4.A.1.c 49

  50. Credit Score requirements: ≥58096.5% LTV 500-579 90% LTV ≤500Not Qualified Borrower Credit Analysis Borrowers with debt ratios that exceed 43%, and who have a credit score below 620 MUST be manually underwritten. 4155.1 4.C.1.d; ML 10-29; 4155.1 4.A.1.c; ML 13-05 50

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