fha purchase - sierra pacific mortgage word...fha purchase maximum occupancy ... • builder...

FHA Standard & High Balance Fixed Correspondent Business Channel T100 – 30 year Fixed & T101 – 15 year Fixed T100HC – 30 year Fixed High Balance Loans

FHA Standard & High Balance – Revision July 9, 2014 1

FHA PURCHASE

Maximum

Occupancy Max Loan Amount LTV CLTV

Minimum Fico Score Max DTI /UW 4

620 50% AUS 45% Manual UW 4

Primary – HUD REO $100 1

1 Unit < $625,500 <100% 1 <100% 1


620 50% AUS 45% Manual UW 4 Primary w/

DPA 2 1 Unit < $625,500 96.5% 105% 2


620 50% AUS 45% Manual UW 4 Primary 1 Unit < $625,500 96.5% 96.5%



Primary 24 Units < 625,500 96.5% 96.5% 660 55% AUS

45% Manual UW 4

Primary 24 Units 3 > $625,500 $1,202,925 96.5% 96.5% 660 50% AUS

1. HUD REO $100 Down Program LTV exception to standard FHA maximum LTV of 96.5% 2. Primary with Down Payment Assistance Program from Governmental Agency limited to the lesser of 100% cost to acquire

property or CLTV 105% 3. 24 Units requires Borrower have previous home ownership experience as evidenced by a previous mortgage rating found

on the credit report. 4. Manual DTI > 29/41% require compensating factors as per HUD Mortgagee Letter 201402 – effective with all case

numbers assigned on or after April 21, 2014



FHA RATE / TERM REFINANCE

Maximum

Occupancy Max Loan Amount LTV CLTV



Primary 1 Unit < $625,500 97.75% 97.75 660 55% AUS

45% Manual UW 1

620 50% AUS 45% Manual UW 1 Primary 24 Units < 625,500 97.75% 97.75


Primary 24 Units > $625,500 $1,202,925 97.75% 97.75 660 50% AUS

1. Manual DTI > 29/41% require compensating factors as per HUD Mortgagee Letter 201402 – effective with all case numbers assigned on or after April 21, 2014



FHA CASH – OUT

Maximum Occupancy Max Loan Amount LTV CLTV


620 50% AUS 45% Manual UW 1 Primary 1 Unit < $625,500 85% 85%



Primary 24 Units < 625,500 85% 85% 660 55% AUS

45% Manual UW 1

Primary 24 Units > $625,500 $1,202,925 85% 85% 660 50% AUS

1. Manual DTI > 29/41% require compensating factors as per HUD Mortgagee Letter 201402 – effective with all case numbers assigned on or after April 21, 2014



FHA STREAMLINE REFINANCE

Maximum Occupancy Max Loan Amount

LTV CLTV Minimum Fico Score Max DTI /UW 1,2

Primary 1 Unit < $625,500 125% 125% 620 N/A

Primary 24 Units < 625,500 125% 125% 620 N/A

Primary 24 Units > $625,500 $1,202,925 125% 125% 660 N/A

1 For NonCredit Qualifying Streamlines – 2 For Credit Qualifying Streamlines, loan requires full credit, income, & asset documentation Loan underwritten as a manual underwrite subject to Mortgagee Letter 201402



This product guide provides Product High Lights Only. Please refer to applicable HUD Handbooks, Mortgagee Letters, Federal Register Updates and HUD Notices for specific criteria. In addition, your local FHA Homeownership Center (HOC) may be consulted. See Reference Tool section at the end of the matrix for specific links.

Note: Any reference made to “loans” within this matrix is referring to the base loan amount (prior to adding UFMIP). The FHA loan limits will vary by state, county and property as published on HUD’s website at: https://entp.hud.gov/idapp/html/hicostlook.cfm

Select 2014 drop down box off website for 2014 loan limits)

Standard FHA Maximum Loan Amounts

1Unit $417,000

2Unit $533,850 3Unit $645,300

Continental US

4Unit $801,950 Loan amounts exceeding this table must follow High Balance loan criteria.



Appraisal Requirements

• State Certified Appraiser Requirement: As of October 1, 2009, all FHA loans requiring an appraisal must be from state certified appraisers. Please refer to HUD ML200839 for complete details. o The appraiser assignment field within the Case # assignment screen in FHA Connection must be input with an appraiser listed as either certified residential or certified general on the FHA Roster for the state in which the property is located

• Market Conditions Addendum (FNMA form 1004MC): Market Conditions Addendum (FNMA form 1004MC) required for all appraisals of properties insured by FHA. Please refer to HUD ML 200909 for additional details.

• Appraisal Update and/or Completion Report: FFNMA Form 1004D/FHLMC 442 is a dual purpose form. The Appraisal Update and/or Completion report may be used to: • Part A/Summary Appraisal Update Report –

• To extend the validity period of an existing appraisal that is due to expire & do not want to order a new appraisal report. Please note that the update must be ordered & completed prior to the expiration date of the original appraisal and completed by the same appraiser of the original report, or

• To extend the validity period of an existing appraisal for new construction that is incomplete. Please note that the update must be ordered & completed prior to the expiration date of the original appraisal and completed by the same appraiser of the original report.

• An original appraisal report can only be updated one time via the Appraisal Update Report, limiting the use of the Appraisal Update Report to one time.

• The appraiser must include a completed Market Conditions Addendum (FNMA Form 1004MC/FHLMC Form 71) for the subject property that is reflective of market conditions as of the effective date of the Appraisal Update Report.

• Part B/Completion Report – • To report the completion of a repair and/or satisfaction of requirements and conditions noted in the original

appraisal report referenced in the header of the Summary Appraisal Update and/or Completion Report. The form should be completed by the same appraiser of the original report.

• The Appraisal Update and /or Completion Report may not be used: • If the property has declined in value • The building improvements that contribute value to the property cannot be observed from the street or a public

way • The exterior inspection of the property reveals deficiencies or other significant changes that did not exist as of

the effective date of the appraisal report being updated. • The Completion Report may not be used in lieu of the Form HUD 92051, Compliance Inspection Report, for new

construction. (Regardless if the property was > 90% done at time of original appraisal) • Reference ML 200951 & 201013

• Appraisal validity period:ML 200930 reduces the validity period for all FHA appraisals to 120 days. Requirement applies regardless of the property’s construction stage (existing, new, under construction, or proposed) effective for case #’s assigned on or after 112010. • Appraisal withno Appraisal Update Report, loan must close within 120 days from the effective date of the appraisal

report. • Appraisal withno Appraisal Update Report, and the loan is Final Approved as evidenced by the DE Underwriter

signature & date on the HUD 92900 LT (all loan approval conditions met & Final DU ran), the term of the appraisal may extended for 30 days to allow for the closing of the loan, for a total of 150 days. The DE Underwriter will



note on the HUD 92900 LT 30 day extension to allow closing per 4155.2 4.4f, as well as show the 30 day extension on the 92900A page 3.

• Appraisal with anAppraisal Update report, 240 Day Validity period. In no case may a loan be insured where the original or underlying appraisal is subsequently updated if the loan is not closed within 240 days from the effective date of the original appraisal report being updated. The 30 day extension period permitted in 4155.2 cannot be used for cases when the original appraisal is updated.

• Reference ML200930 &201013

Appraisal New Construction ML 199618 ML 199722 ML 200127 ML 200633

• For properties < 1 year old and never been occupied • New Construction required documents (excluding Condos):

• Builder Certification of Plans, Specifications & Site – HUD Form 92541 • Builder’s Warranty – HUD Form 92544 (on high ratio loans >90%) • 1 of the following – (ref ML 0127)

• Building Permit & Certificate of Occupancy, or • 3 Compliance Inspections by an FHA Fee Inspector (Footing, Framing, & Final), or • 10 Year Warranty and a Final Inspection by an FHA Fee Inspector

• Wood Infestation Report, NPMA 99a and 99b • Local Health Authority Well Water analysis and/or septic report, where applicable

Assets 4155.1 5.B

• Source of Funds: If there is a large increase in an account, new account recently opened, or unidentified deposits, an explanation and documentation of the source of the funds is required.

• Cash on Hand:The money must be verified deposited into a financial institution or held by the escrow/title company & borrower must provide satisfactory evidence of the ability to accumulate such savings. Borrower LOE required explaining in DETAIL how the funds were accumulated and the amount of time it took to accumulate the funds. The DE Underwriter must determine the reasonableness of the accumulation based upon the Borrower’s Profile. (Time frame for saving, income, spending habits, finances/expenses, etc.) Borrowers with checking/savings accounts are less likely to save money at home.

• IRA’s, TSP, 401K, & Keogh Accounts: Up to 60% of the vested value of the asset may be included in the UW analysis. Evidence of accessibility (withdrawal and/or borrowering) is required.

• Stocks & Bonds: Verify value with the most recent statement provided by the stockbroker or financial institution.

• Gifts: • Must be from an eligible donor defined as in 4155.1 5B.4.b (relative, employer, close friend w/clearly

defined & documented interest in the borrower, Governmental Agency) • The donor may not be a person or entity w/ an interest in the sale such as (1) Seller, (2) RE Agent or

Broker, (3) Builder, or (4) an associated entity. • Donors Ability to gift must be documented to ensure that the funds were not provided by an

unacceptable source, and were the donors own funds.



• Documentation to include fully executed/dated/completed gift letter and documentation to paper trail funds from donor to borrower.

• Gifts of Equity: Only family members defined as (1) Child, parent or grandparent, (2) Legally adopted child, (3) foster child, (4) brother, stepbrother (5) sister, stepsister, (6) Uncle or Aunt (ref Mtgee Ltr 201203

• Sale of Personal Property: Documentation includes evidence of ownership, 3 rd party valuation of asset sold, evidence that the item was sold, and funds received by borrower

• RE Commission from Sale of Subject Property:If the borrower is a licensed RE Agent entitle to a commission from the sale of the property being purchased, then the commission may be used for the borrower’s cash investment. A family member entitle to the commission may also provide it as gift funds to the borrower.

• Rent Credit: The cumulative amount of rental payments that exceed the appraiser’s estimate of fair market rent may be considered accumulation of the borrower’s cash investment. The amount to be considered is the difference between the rental amount paid and the fair market rents as determined by the appraiser. Conversely the DE UW must treat the rent as an inducement to purchase, with an appropriate reduction to the mortgage if the sale agreement reveals that the borrower has been living in the property rent free or has an agreement to occupy the property at a rental amount considerably below fair market value.

• Can be from own funds* or collateralized loan • Gifts acceptable from family members, church, employers, municipality, FHAapproved charitable/nonprofit agency. (Note: Outright gifts do NOT require specific recordation of liens, memorandums, etc. and are not the same as a Down Payment Assistance Program for which specific requirements are expected and recorded in the form of Agreements and/or 2 nd liens).

Automated Underwriting “TOTAL Scorecard”

• All loan must be run through TOTAL Scorecard through Desktop Underwriter (Loan Prospector is not eligible) – the DU certificate is required in the loan file for all loans except streamline refinances.

• Loan Amounts < $625,500 – Min Fico > 620, then Maximum DTI AUS Approve/Eligible is 50% • Loan Amounts < $625,500 – Min Fico > 660, then Maximum DTI AUS Approve/Eligible is 55% • Loan Amounts > $625,500 – Min Fico > 660, then Maximum DTI AUS Approve/Eligible is 45% • Loan Amounts < $625,500 – Min Fico > 620, then Maximum DTI AUS Refer/Eligible is 45% • Loan Amounts > $625,500 – AUS Refer/Eligible Loans are ineligible • Loan Amounts > $650,000 require second signature by Regional Operations Manager who has FHA Authority or Corporate Operations**.

All manual underwrites require a second review & signature by the Regional Operations Manager who has FHA Authority or Corporate Operations** on BOTH the Loan Approval &FHA 92900LT

Reminder: A downgrade from Approve to Refer is required under certain circumstances as stated in FHA Total Scorecard User Guide.

**Please allow 48 hours for all Corporate Reviews



• Approve/Ineligible findings that contain the following condition may be acceptable if determined to be eligible for SPM and FHA by the Underwriter: "The lender must determine that the reason for ineligibility is one that can be resolved in compliance with FHA requirements, and must document the circumstances in the remarks section of the FHA Loan Underwriting and Transmittal Summary (LT)."

• All loans with Total Scorecard “Refers” that are manually underwritten must follow the SPM Verbal Verification requirements and utilize the SPM Verbal Verification of Employment form. ALL criteria for the VVOE must be adhered to, except that it must be completed by SPM personnel three days prior to loan funding.

Borrower Eligibility

• U.S. Citizens, Permanent Resident Aliens and NonPermanent Resident Aliens • Partnerships or Corporations are not allowed • Must have valid Social Security Number

Reminder: Nonprofit organizations are not eligible borrowers.

Cash Reserves ML 201402

• Reserves as required as per ML 201402 Manual Underwrite • 1 month reserves required for all Manually Underwritten Loans • 3 months reserves required for all 34 Unit Transactions • Reserves cannot come from Gift Funds must be borrower own funds.

CoSigners • SPM does not allow Cosigners. Note: A Cosigner is NOT the same as a NonOccupant Coborrower. There is no restriction/overlay for NonOccupant Coborrowers, and HUD guidelines may be utilized.

Collections/ Judgments ML 201325 ML 201324

• Effective with all Case Number Assigned on or after October 15, 2013 • Borrower(s) must provide LOE w/ supporting documentation for each outstanding collection/judgment (Manual UW)

• If Collection Account > $2000 & All Judgment (regardless of dollar amount), a capacity analysis must be performed (Both AUS & Manual UW)

• Capacity Analysis includes collections & judgments of a nonpurchasing spouse in Community Property States

• Capacity Analysis includes any of the following: •At time of closing or prior to, payment in full of the collection and/or judgment •Borrower makes payment arrangement with creditor – minimum 3 month payment history (although longer could be required at discretion of DE Underwriter) and payment included in DTI

•Complete copy of Payment Agreement and evidence payments were made on time •Borrower(s) are not allowed to prepay scheduled payments in order to meet the required minimum month payments

• If evidence of collection payment is not available, the lender must include 5% of the outstanding balance of each collection in DTI ratios •All judgments not in a repayment plan must be paid off in full



•Exclude Medical collection and charge offs.

Condo Approval ML 201122

• ML 201122 clarifies, expands, consolidates and replaces ML 200946, 200946b and 201103. Please refer to ML201122 and its attachments for condo approval process requirements. HUD ML 201218 contains further updates/revisions/clarifications.

o The hazard insurance policy for a 24 unit condo project MUST be issued under the name of the Home Owner’s Association. Insurance policies issued under the Borrower’s name will not be acceptable.

• Reminders: o Condo projects with existing HRAP approval are eligible for financing (E.G. those HRAP approvals other lenders obtained from HUD). SPM will not assume the responsibility for acquiring/recertifying/maintaining HRAP condo project approvals directly from HUD.

o “Lender Certification for Individual Unit Financing” form is required for each loan. Responsibilities associated with the loan documentation review and consequent certification cannot be waived.

o HO6 Ins. Coverage: If master policy does not include interior unit coverage, (incl. replacement of interior improvements and betterment coverage to insure improvements made to the unit), the borrower must obtain a “wallsin” coverage policy (HO6).

o Site Condo: Condo project approval is not required for Site Condominiums. These are defined as single family totally detached dwellings* (no shared garages or any other attached buildings) encumbered by a declaration of condo covenants or condo form of ownership. Site Condominiums that do not meet thisdefinition will require project approval. Inaddition, the previous guidance requiring the use of appraisal form 1073 is no longer required and form 1004 can also be used as an alternative. There may NOT be any kind of attachments connecting any part of any building including decorative arches or other types of architectural elements. HUD has stated that even a piece of wood or metal connecting the buildings would render the project to be ineligible for a site condo. For FAQ’s, please refer to:http://www.hud.gov/offices/hsg/sfh/condo/faqs_condo.pdf



Contributions by Others 4155.1 2.A.3 4155.1 2.A.4

• The seller and/or 3 rd party may contribute up to 6% of the lesser of the property’s sales price or the appraised value toward the buyer’s closing costs, prepaid expenses, discount point and other financing concessions.

• Contributions exceeding 6% are considered inducements to purchase and require a dollar for dollar reduction in the lesser of the sale price or appraised value before applying the appropriate LTV factor.

• Payments considered inducements to Purchase include but are not limited to: (1) Contributions exceeding 6% of the sales price, (2) contributions exceeding the actual cost of prepaids, discount points, & other financing concessions, (3) decorating allowances, (4) repair allowances, (5) moving costs, and (6) other costs as determined the HOC.

• A dollar for dollar sales price reduction is also required for excessive rent credit as described in 4155.1 5.B.6.f and/or gift funds not meeting the requirements described in HUD 4155.1 5.B.5

• Personal Property Inducements given by the seller or other interested 3 rd party to consummate the sale of a property results in a reduction in the mortgage amount. The value of the item(s) must be deducted from the lesser of the sales price or appraised value of the property before applying the LTV factor. Exception Replacement of existing equipment or other realty item by the seller before closing, such as carpeting or air conditioners, does not require a value adjustment, provided a that a cash allowance is not given to the borrower.

Conversion Of Principal Residence 4155.1 4.E.4.h

• Rental Income from a borrower’s principal residence that is being vacated in favor of another principal residence cannot be considered unless: • Borrower has a LTV ratio of 75% of less, as determined by a (1) Residential appraisal no more than 6

months old, or (2) comparing the unpaid principal balance to the original sales price of the property • An exterior only appraisal using FNMA/FHLMC 2055 or FNMA/FHLMC 1075 for condominiums may be

used • The rental income must be reduced by the appropriate vacancy factor as determined by the jurisdictional

FHA HOC ( Currently as of 01/30/2014 15% for Santa Ana, Philadelphia, & Atlanta, 25% for Denver) • Rental Income documented with a copy of a fully executed lease and a copy of the security deposit

and/or 1 st month rent deposited into borrower account Credit 4155.1 4.C • DU Certificate is required in the loan file. See Automated Underwriting Section.

• Credit report is required on all transactions, including Streamline refinance transactions



Credit Con’t

• For Loan Amounts < $625,500, the Min. Credit Score is 620 (regardless of AUS findings). All borrowers must have a traditional credit history and meet credit score requirements as stated.

• For Loan Amounts > $625,500, the Min. Credit Score is 660 (regardless of AUS findings). All borrowers must have a traditional credit history and meet credit score requirements as stated

• Nontraditional credit may be used to supplement a “Thin” Credit file, but is not acceptable in lieu of traditional credit or to mitigate/negate poor credit. Applies to all loans

• Loan Amounts <$625,500: • AUS Approved/Eligible & Minimum FICO score> 620 – Max DTI 50% • AUS Approved/Eligible & Minimum FICO score> 660 – Max DTI 55% • AUS Refer/Eligible – Max DTI 45% and requires 2 nd signature by Regional Ops Mgr. w/FHA authority or Corp Ops • Chapter 7 Bankruptcy require 2 year seasoning from date of discharge/dismissal to date of initial application • Chapter 13 Bankruptcy & Consumer Credit Counseling Payment Plans (“CCS”) requires a minimum of:

• One year of the payout period under the BK has elapsed, • The borrower’s payment history has been satisfactory & all payments made on time, and • The borrower has received written permission from BK court/CCS Agency to enter into the mortgage

transaction • Foreclosure, DeedinLieu, or Short Sale require a 3 year seasoning from the date of completion to the date of the

initial application • Borrower’s whose previous mortgage was FHA, are not eligible for a new FHA insured mortgage from the date that

FHA paid the claim associated with a foreclosure or preforeclosure sale. • Loan Amounts > $625,500:

• Minimum FICO score 660 • Verification of most recent 12 months housing expense – 0x30 • AUS Approved/Eligible – Max DTI 45% • AUS Refer/Eligible – Not allowed – NO MANUAL UNDERWRITES !!!!! • No Bankruptcies (Chpt. 7 or 13), Foreclosures, Deed in Lieu, or Short Sales last 7 years

• . • NO 30 days or greater mortgage lates are permitted in the most recent 12 months on any refinance loan transaction. This includes ALL refinance transactions regardless of Total Scorecard findings, and includes any 30 day mortgage late on Borrower’s credit report during the past 12 mos.

• Authorized User Accounts: UW is responsible to determine impact of Authorized User accounts. If primary account holder is another applicant in transaction, no further action is required. However, if there is a significant difference in credit use, late payments and/or credit limits between Authorized User accounts and primary credit lines, the following applies: o Relationship of between the applicant and primary account holder must be that of a relative (spouse, parent or individual related to the applicant by blood, marriage, adoption or legal guardianship).

o Accept/Eligible: LOE from applicant explaining relationship AND 3 months recently cancelled checks documenting applicant(s) have been making payments on time

o Refer findings: LOE from applicant explaining relationship AND 12 months recently cancelled checks documenting applicant(s) have been making payments on time



• Inquiries: Regardless of AUS decision, a review and evaluation of the “inquiry” section of the credit report must be reviewed and evaluated to determine undisclosed debts within the last 90 days of credit report date. o A detailed fully executed explanation letter from Borrower is required specifically addressing both the purpose and outcome of each inquiry.

o Generic letters are not acceptable

• Requirements for DU Refer findings: o For DU “Refer” rental/housing payments may NOT include 30 day lates during past 12 months. o FHA Comprehensive Risk Assessment Worksheet for Manual UW (printed out of OPS) must be fully completed by DE UW and retained in loan file.

o Maximum DTI ratio of 45% o Effective with loan applications dated 01/10/2014 2 nd level review and approval required from Regional Ops Mgr. as evidenced on both the Loan Approval and 92900LT

• Payoff demand: All Refinance transactions MUST BE CURRENT as evidenced by the payoff demand retained in the loan file in addition to documentation supporting mortgage history. o Borrower must be current on the mortgage being refinanced for the month due prior to the month in which they close the refinancing and for the month in which they close. Example: Loan is closing on April 8. The Borrower must have paid the March payment within the month of March and the April payment must be made by closing. Borrower has the option to make the April payment at the beginning of the month, or may include the April payment in the payoff amount at closing.

• QC credit reports: SPM policy requires Q.C. credit reports for all loan transactions, including Streamline Refinances. Please refer to FHA Streamline Refi sections for specific details.

DAP (Down payment Assistance Programs) ML 201314 ML 201408

§ Refer to Secondary Financing for Full Detail § Regional Operations Centers (“ROC”) are responsible for review and approval of the various governmental entity Down Payment Assistance ProgramsAll loan documents for the secondary financing are to be drawn at the ROC by the Operations Staff.

§ Compliance with Mortgage Letter 2013014 “Minimum Cash Investment” and Mortgage Letter 201408 “Guidance on Nonprofits Assisting Government Entities in Providing Secondary Financing in Conjunction with FHA Insured Mortgages”.

Declining Market

• A reduction in maximum LTV/CLTV is NOT required for FHA loans in declining markets for any of the FHA programs.



Deed Restriction Mtgee Ltr 9402 4240.4 Rev2 Ch. 7

• Restrictions to Transferability HUD long standing policy that a property with HUD insured mortgage shall be free of restriction that prevent the borrower from freely transferring the property. This rule uses the term “legal restrictions on conveyance” to describe such restrictions and is broadly defined to include provision in any kind of legal instrument that would cause a conveyance by the borrower to:

• Be void or voidable by a 3 rd party • Be the basis of contractual liability of the borrower • Terminate, or subject to termination, the borrower’s interest in the property • Be subject to consent of a 3 rd party • Be subject to limits on the amount of sales proceeds a borrower can retain • Be grounds for accelerating the insured mortgage • Be grounds for increasing the interest of the insured mortgage.

• If a conveyance could cause any of the above these to occur, the property is usually ineligible for HUD insured mortgage, HOWEVER there are circumstances when the restrictions do not make the property ineligible. They are:

• Restrictions that are part of an eligible program for lowmoderate income housing (referred to as an “Affordable Housing Program”. An eligible program must be operated pursuant to a Federal program, or operated by a State or local government.

• Restrictions related to taxexempt revenue bond financing. (I.E. State Bond Programs such as CALFHA, Virginia Bond, etc.)

• Restrictions for housing the elderly are allowed if consistent with Federal, State, and local laws and marketability is not duly affected

• Limitations on Restrictions – Affordable Housing Programs. All restriction relating to affordable housing programs that are otherwise allowed by HUD policy must automatically and permanently terminate upon foreclosure, deed in lieu, or assignment of the insure mortgage to HUD. The relevant legal documents must have language that accomplished this result. Merely subordinating the restrictions to the insure mortgage is not sufficient. The restrictions cannot come back into force upon subsequent resale by the lender or HUD.

• Restrictions may not be enforced by any of the following: • Voiding a conveyance by the borrower. • Terminating the borrower’s interest in the property • Accelerating the insured mortgage • Increasing the interest rate for the insured mortgage • Subjecting the borrower to contractual liability.

• Affordable Housing Program must be designed to serve borrowers with a household income not to exceed 115% of the median are income, unless the local HUD office has approved a higher income in writing. Currently the only area with an approved higher income limit is Hawaii, with a limit of 140%

• Specific Restrictions allowed for Affordable Housing include: • Limits to the resale price of the property or recaptures of equity



• First Right of Refusal upon borrower’s sale of home if the rights are held by a governmental body, is exercised within 45 days, and any option price allows the borrower to recover the investment plus a reasonable share of appreciation as defined in detail in Mtgee Ltr 9402

• Income Limits • First Time Homebuyers

The following requirements must be met: For all types of Restrictions: • Copy of Restricted covenant must be include in loan file • ALTA9 title endorsement is required • Affidavit for Properties subject to Age Restriction must be completed and retained in loan file

OPS will print the Age Restriction Affidavit when the Deed Restriction field is correctly populated with the “Y” regardless of occupancy type. If the property is subject to Age Restriction, the form will be required.

DTI Ratios

• Loan Amounts < $625,500 – Min Fico > 620, then Maximum DTI AUS Approve/Eligible is 50% • Loan Amounts < $625,500 – Min Fico > 660, then Maximum DTI AUS Approve/Eligible is 55% • Loan Amounts > $625,500 – Min Fico > 660, then Maximum DTI AUS Approve/Eligible is 45% • Loan Amounts < $625,500 – Min Fico > 620, then Maximum DTI AUS Refer/Eligible is 45% • Loan Amounts > $625,500 – AUS Refer/Eligible Loans are ineligible • All Manual underwrites require Regional Ops Mgr. review and approval as noted on both the Loan

Approval and 92900LT

EEM • EEM’s are not permitted

Electronic Signature

• HUD ML 201014 addressing the acceptance of Electronic signatures for Third Party Documents • FHA accepts electronic signature on 3 rd party documents forward mortgage and Home Equity Conversion

Mortgage (HECM’s), in accordance with the Electronic Signature in Global & National Commerce Act (ESIGN), and the Uniform Electronic Transactions Act (UETA).

• 3 rd party documents are documents originated and signed outside of the lender’s control, such as a sale contract.

• An indication of the electronic signature & date must be clearly visible when viewed electronically, or in a paper copy of the electronically signed document.

• Lenders must employ the same level of care and due diligence with electronically signed documents as they would for paper documents with “wet” or ink signatures, and maintain the origination case binder in either hard copy of electronic format for 2 years from the date of endorsement



Escrow Hold back 4155.2 4.6

• Escrow Holdbacks are permitted and funds may be withheld in escrow only if (1) ADVERSE WEATHER conditions prevent completion of major outdoor items, usually new construction items (walkways, driveways, exterior painting, landscaping, garages, etc.), or (2) DEFERRED MAINTENANCE when the seller will not pay or allow work to be done before close, usually on REO properties.

• Escrow Holdbacks for adverse weather conditions requirements: • Withholding 1 ½ times the dollar amount necessary to complete the postponed items (as documented by an

“Estimate” from a licensed professional) from the proceeds due the seller at closing. • Fully completed and executed SPM Escrow Holdback Agreement – Funds to be held by Closing Agent • HUD 92300 “Mortgage Assurance of Completion” fully completed, executed, & dated • The items that need to be completed do not affect the livability of the house, and the dwelling is habitable, safe, and

complete if new construction • The deferred work cannot be completed prior to the close, but will be completed within 90 business days of closing • It is the Regional Operations Center responsibility to follow up with a 1004D/CIR to evidence that all the work

has been satisfactorily completed and all conditions 92800.5B Conditional Commitment of the have been complied with.

• It is the Regional Operations Center responsibility to follow up with a revised HUD 1 settlement statement showing the disbursement of funds for the repairs & reinspection fee.

• Escrow Holdbacks for deferred maintenance requirements: • Withholding 1 ½ times the dollar amount necessary to complete the postponed items (as documented by an

“Estimate” from a licensed professional) from the proceeds due the seller at closing. • Fully completed and executed SPM Escrow Holdback Agreement – Funds to be held by Closing Agent • UW to review & approve Work Estimate to ensure it is reasonable to expect all repairs to be completed within 10

business days and adequately address the repair. • Repairs cannot be structural in nature. • The deferred work cannot be completed prior to the close, but will be completed within 10 business days of closing • Total cost of repair + amount held back for unforeseen contingencies plus the amount to pay for inspection must not

exceed $5000.00. • It is the Regional Operations Center responsibility to follow up with a 1004D to evidence that all the work has

been satisfactorily completed and all conditions of the 92800.5B Conditional Commitment have been complied with. • It is the Regional Operations Center responsibility to follow up with a revised HUD 1 settlement statement

showing the disbursement of funds for the repairs & reinspection fee.

All FHA guidelines applicable to Escrow Holdbacks must be met

Flood Insurance

Reminder: Flood zone determination and Flood insurance requirements must be met in accordance to ML 2009 37 For additional information, you may use this link: http://www.fema.gov/good_guidance/download/10040 • The term “Property Flipping” refers to a practice whereby recently acquired property is resold for a considerable profit with an artificially inflated value.

• Property Flipping Restrictions found in 4155.2 4.7 and 24 CFR 203.37a do not apply to a builder selling a



Flipping Policy 4155.2 4.7 ML 200614 24CFR Part 203

newly built home or building a home for a borrower wishing to use FHA insured financing • Seller must be Owner of Record: To be eligible for FHA, (1) property must be purchased from the owner of record, (2) transaction may not involve any sale or assignment of the sales contract, and (3)the case binder to HUD has documentation verifying the seller is the owner of record (as of the date of the purchase contract)

• Appraiser responsibility for Analyzing Prior Sales of a Property: Appraiser are required to analyze any prior sales of a subject property for the previous 3 years

• Restriction on Resale’s Occurring 90days or less after Acquisition: Properties resold < 90 following the date of acquisition by the seller. Seller’s date of Acquisition as the date of settlement on the seller’s purchase of property and Resale date is defined as the date of execution of the sales contract by the buyer. Note: Property Flipping Waiver requirements follow below(24 CFR Section 203.37a).

• 2 nd Appraisal Required on Properties sold between 91 & 180 days after Acquisition: A 2 nd appraisal must be obtain by another FHA appraiser if the resale date of the property is between 91 & 180 days following the acquisition by the seller, and the resale price is 100% or more over the price paid by the seller when the property was acquired. The cost of the 2 nd appraisal may not be charged to the borrower.

• Resales Occurring between 91 days & 12 months following Acquisition: FHA reserves the right to require additional documentation to support the resale value of a property if the resale day is > 90 days and < 12 months after the date of acquisition by the seller and the resale price is 5% or greater than the lowest sale price of the property during the preceding 12 months. At FHA’s discretion, such documentation may include, but is not limited to, an appraisal from another appraiser.

• Exceptions to the 90 day Restriction: • Properties acquired by an employer or relocation agency in connection with the relocation of an employee • Resales by HUD under REO program • Sales by other US Government agencies of single family properties pursuant to programs operated by

these agencies • Sale of properties by nonprofits approved to purchase HUD owned single family properties at a discount

with resale restrictions • Sales of properties that are acquired by the seller by inheritance • Sales of properties by state & federal chartered financial institutions & government sponsored enterprises • Sales of properties by local & state government agencies, and • Sales of properties within Presidentially Declared Disaster Areas

• Please note: Pursuant to 24 CFR Part 203,37a The HUD temporary waiver scheduled to expire on Dec. 31, 2012 have been extended through Dec. 31 2014.

• To be eligible for the Waiver 24 CFR 203.37a For properties being resold within the 90 day period after prior acquisition subject to certain conditions as follows: • All transactions must be armslength, with no identity of interest between the buyer and seller or other

parties to the transactions



• The seller holds title to the property • Limited Liability Companies, corporations, or trusts that are serving as sellers were established &

operated with applicable state & federal law • No pattern of previous flipping activity exists for the subject property as evidenced by multiple transfers

within a 12 month time frame (chain of title information found in appraisal report or Title Work) • The property was marketed openly and fairly, through a multiple listing service (MLS), auction, for sale

by owner offering, or developer marketing. (any sales contract that refer to an “assignment of contract of sale,” which represents a special arrangement between seller & buyer may be a red flag)

• In the cases in which the sale price of the property is > 20% above the sellers acquisition cost, the mortgage is eligible only if: • Justifies the increase in value by obtaining a 2 nd appraisal

• The 2 nd appraisal must be performed by another FHA roster appraiser, with the same case number on the report. The cost of the 2 nd appraisal cannot be charged to the borrower(s), the 2 nd appraisal is not used as the appraisal for case processing and it is not entered into FHA Connection.

• Orders a property inspection (by a Licensed Professional) and provided the inspection report to the purchaser before closing. The Borrower may be charged for this report. The inspector must have no interest in the property or relationship with the seller, and must not receive compensation for the inspection for any other party than the mortgagee (lender), and cannot be involved with performing any repairs recommended by the inspection. The borrower(s) may be charged for the home inspection report. • At a minimum, the inspection must include: (1) Property structure including the foundations,,

floor, ceiling, walls & roof (2) The exterior including siding, doors, windows, appurtenant structures such as decks & balconies, walkways & driveways, (3) The roofing, plumbing systems, electrical systems, heating & air conditioning systems, (4) all interiors, and (5) all insulation & ventilation systems, as well as fireplaces & solid fuel burning stoves.

• If the inspection report notes that repairs are required because of the structural, or “health & safety” issues, the DE UW will call for those repairs after review of the Home Inspection Report. All repairs must be completed prior to closing, and the Home inspector must conduct a final inspection to determine if the repairs have been completed satisfactorily.

• Only forward mortgages are eligible for the waiver.

Geographic Restriction

• Geographic restrictions may apply. Please refer to the Geographic Restriction Table posted on the web’s Underwriting Guideline section.

• 24 units not available in the State of Rhode Island



HPML (High Price Mortgage Loans)

• FHA Conforming Loan Amount are eligible • FHA HiBalance Loan Amount ARE NOW ELIGIBLE • Purchase/Rate & Term / Cash Out Refinance Only • Streamline Refinances ARE NOT ELIGIBLE • TOTAL Scorecard AUS Approved/Eligible – MAX DTI 50% • Total Scorecard Refer / Manual Underwrites – Maximum DTI 45% + 2 nd review for Loan Applications dates on or after 01/10/2014

• Follow AUS documentation requirements for TOTAL Scorecard Approved/Eligible loans. • Manual Documentation for all TOTAL Scorecard Refer/Eligible loans.

HUD REO Purchase Transaction ML 201344 ML 201008

HUD REO purchases are also referred to as Property Disposition sales. Management and Marketing (M&M) Contractors market and manage singlefamily properties owned by HUD. To locate the appropriate M&M Contractor for a given state go to the following website: http://www.hud.gov/offices/hsg/sfh/reo/mm/mm_info.cfm • Additional Sales Incentives: From timetotime, for particular properties or particular areas, HUD may authorize additional sales incentives. Where those incentives are authorized, they will be noted in writing on either the HUD Sales Contract or accompanying cover letter with sales contract. o HUD offers various incentives in conjunction with HUD properties acquired through foreclosure. The incentives for HUD REO properties may include, but are not limited to the following:

o FHA financing using $100.00 down payment • Standard FHA underwriting guidelines apply.

o HUD REO LTV revision: For all $100.00 down payment REO loan transactions the total loan amount including UFMIP will be limited to 100% of the asis appraisal value from the initial HUD REO appraisal report that set the listing price for the subject property. This revision is applicable w/ case #’s assigned on or after April 28, 2011. § Each loan transaction must be evaluated for eligibility/ability to finance the UFMIP in the total loan

amount. § It will not be possible to finance part of the UFMIP to 100% LTV and the remaining in cash.

UFMIP must be either totally financed into the loan amount or totally paid in cash. • Appraisal reports: The appraisal report and the Property Inspection Report ”PCR”) from the M&M contractor

must be present in the loan file o Per HUD ML 201008& ML 201344: All appraisals utilized to establish the listing price on an REO property owned by HUD with an effective date on or after April 1, 2010 will be valid for a period of 120 days from the date of the appraisal.

• Per ML 201344 – Mortgagees must order a new appraisal that is valid for a HUD REO property financed



with an FHA insured mortgage if any of the conditions in the following chart exists:

Condition

Maximum FHA Insurable mortgage amount (subject to UW requirements for down

payments, financing of closing cost, etc. ) will be:

There are material deficiencies with the current HUD REO appraisal, as determined by the DE UW.

Based on the value of the property as determined by the new FHA appraisal.

The purchaser of a HUD REO property is applying for a 203(k) loan, and an “as repaired” appraisal is required.


The REO sales contract was not ratified within 120 days of the HUD REO appraisal’s effective date.


The appraisal ordered by HUD is no longer valid. Based on the value of the property as determined by the new FHA appraisal.

The contract sales price on a property securing the FHA insured loan is greater than the value of the appraisal by HUD and/or the “asis” appraised value is not available.

Limited to the lesser of (a) the contract sales price, (b) the new FHA appraisal value, or (c) the initial list price of the HUD REO property.

• If the new FHA appraisal is ordered, then: • The original appraisal ordered by HUD may not be used to underwrite the loan; • HUD will not reimburse the mortgagee for the cost of the new appraisal. Consequently, the

borrower/purchaser can be charged for the expense of the new appraisal as part of the borrower’s closing cost on the Form HUD1, Settlement Statement;

• The mortgagee must provide a written justification for ordering a new appraisal, and • The mortgage must retain copies of all appraisals (and the Property Condition Report “PCR”) available to

the mortgagee in its loan file • Please refer to ML 201344 for HUD’s guidance/criteria to appraisers on establishing Market Value for REO properties.

• Eligible “FHA” program and “insurable without repairs” must both be checked on the fully executed purchase contract.

• Occupancy: HUD REOs are available for owneroccupied properties only! NonOwner HUD REO properties are not eligible. o Any time the purchase price on a HUD REO property exceeds the appraised value, the Borrower must pay the difference (even if purchased under the $100.00 down payment program). This scenario may be typical in areas where bidding wars occur due to high demand. The file should be documented that such situation is applicable to this transaction.



• Please refer to HUD ML0027 and HUD Handbook #4155.1 for further details. To access additional HUD lending parameters and available incentives, use this link: http://www.hud.gov/salesincentives/ Properties eligible for these special incentives are identified by HUD incentives stated within the terms of the purchase contract. These special incentives are offered to reduce the number of available REO properties and are NOT special products located within the FHA guidelines.

Income 4155.1 4.D.1

• Verifying Employment History: The Borrower’s most recent 2 full years employment history must be verified, and the borrower must (1) explain any gaps in employment that span >1 months (> 6 months for TOTAL Scorecard approval), and (2) indicate if in school or the military and provide supporting documentation to support this claim.

• Borrower Returning to Work after Extended Absences: A borrower’s income may be considered effective & stable when recently returning to work after an extended absence if (1) is employed in current job for > 6 mths (at time of initial application), and (2) can document a 2 year work history prior to an absence from employment using either traditional VOE or alternative income documentation such at W2’s & paystubs. Extended absence is defined as > 6 mths.

• General Policy on Borrower Income Analysis: DE must analyze the income of each borrower to determine whether the borrower’s income level can be reasonably expected to continue thru at least the 1 st 3 years of the mortgage loan. Measured from the date of closing, 3 years forward.

• Overtime, Bonus, & Part Time: Borrower must have worked/received this income for the past 2 years uninterrupted. An earnings trend must show the income has been stable or increasing. If the employment verifications that state the OT and/or Bonus income is unlikely to continue, it may be not be used for qualifying.

• Self Employed Documentation: Selfemployed Borrowers must provide: • Signed/Dated individual tax returns, with all schedules for the most recent 2 years • Signed/Dated business returns, with all schedules for the most recent 2 years, as applicable • YTD Profit & Loss and Balance Sheet through the most recent quarter (for example if it is June 20 th , P&L

should be through March 31 st ) • Business credit report for corporations and “S” corporations (Business credit report not required if loan

receives a TOTAL Scorecard Accept/Approved) • DE UW to analyze the Business’s financial strength. Annual earnings that are stable or increasing are

acceptable, while businesses that show a significant decline in income over the analysis period are not acceptable, even if the current income & debt ratios meet FHA guidelines

Ineligible FHA Programs

• 203k • 203k Streamline • HUD REO Repair Escrow Transactions • ML 201326 “Back To Work” • ML 201023 & 201035 – “Refinance of Negative Equity” • FHA Good Neighbor Next Door



• Hawaiian Homelands • Section 184

IRS #4506T

• REMINDER; For ALL credit qualifying FHA loan transactions (including credit qualifying Streamlines) the #4506T is still required.

• Most recent 2 years complete 1040 4506T transcripts are required to support/validate income used for qualifying. This would include personal returns and business returns as applicable.

Manual UW Ml 201402

• Loans downgraded to a Manual Underwrite – Maximum DTI Ratio 45% • TOTAL Scorecard Refer/Eligible – Maximum DIT Ratio 45%

• Ratios exceeding FHA 31/43 will require compensating factors documented as per Mortgagee Letter 201402

• Applies to all Credit Qualifying Loans (which includes credit qualifying streamline refinances) • Applies to all loan types including Purchase, Cash Out Refinances, Rate/Term Refinances, & Credit Qualifying Streamlines

• Reserves are defined as the sum of verified & documented funds less total funds required for closing but does not include any gift funds (or gift of equity), equity in other property owned or borrowed funds from any source, cash proceeds from cash out refinance, or incidental cash received at closing.

• All manually underwritten loans MUST HAVE minimally ONE month total monthly mortgage payment for 12 units and THREE total monthly mortgage payments for 34 units as cash reserves (NO GIFTS).

• Fico: > 620 Max Ratios: 37% / 45% Must have 1 of the below compensating factors: • > 3 mths Monthly Mortgage payments for 12 units or > 6 mths Monthly Mortgage payments for 34

units • Proposed housing is < $100 or 5% higher than current housing AND 12 month payment history

showing 0X30. For cashout refinances all payments on the mortgage being refinanced reflect 0X30 • Residual Income (per VA guidelines)

• Fico: > 620 Max Ratios: 40% / 45% Must have 2 of the below compensating factors: • > 3 mths Monthly Mortgage payments for 12 units or > 6 mths Monthly Mortgage payments for 34

units • Proposed housing is < $100 or 5% higher than current housing AND 12 month payment history

showing 0X30. For cashout refinances all payments on the mortgage being refinanced reflect 0X30 • Significant additional income that is not considered effective income

• Effective with all loan applications dated January 10, 2014 and after, all Manual underwrites require Regional Ops Mgr. review and approval as noted on both the Loan Approval and 92900LT

Max.# RE owned Follow Standard FHA guidelines.

Min/Max. Loan amount

• There is no minimum loan amount established. • Maximum loan amount may not exceed FHA statutory guidelines as posted on page 1.



Min Property Standards 4155.2 Chapter 4

• Minimum property standards must be met • All properties must be Safe, Sound, and Sanitary. • All mechanical systems & utilities must be functional and in good working order. • All properties must be habitable and all appliances, plumbing, electrical, etc., must be functional and in good working order.

• The definition of a functional kitchen is defined as having kitchen cabinets and a working sink, and all built in appliances are present.

• FHA requires flooring throughout the house. Foundation slab concrete is not acceptable as it presents a health & safety risk.

• Public Water/Sewer Hookup: The appraiser is required to report on the availability of connections to public and/or community water/sewer systems.

• Well & Septic Distances must be verified to meet FHA requirements, or local/state requirements. The appraiser is not required to sketch the distances between the well & septic, however, he or she should be mindful of FHA’s minimum distance requirements between private wells and sources of pollution (septic systems) in the performance of FHA appraisal; and if dissemble, comment on them. Prudent appraisal practice would have the appraiser requesting a copy of survey from the homeowner.

• Septic Inspections: Septic testing is to be governed by state or local requirements; however the appraiser must note any readily observable deficiencies regarding the septic system & it surrounding area. If there are obvious or readily observable signs of system failure, the appraiser is to “require inspection” to ensure that the system is in properly working order. In those instances where a subject property is vacant, FHA defers to the DE to employ prudent UW in requiring tests and/or certifications.

• Water Tests: For existing properties, FHA will defer to the water testing requirements of the local jurisdiction & will not add additional contaminant level testing to that required by the local jurisdiction. If the local authority does not have any requirements, the maximum contaminants levels established by the EPA apply. (Safe Drinking Water Act )

• Termite Inspections: Lender discretion and prudent underwriting is the key to properly evaluating the risk associated with a property’s condition including its geographical location. Lenders may refer to the TIPS (termite infestation probability) zone and use that information as one of the tools in their determination of whether or not require a pest inspection. ML 200548 clarifications to “Customary to the area” would be driven by local market practices such as incorporating provisions addressing termite or wood destroying organisms in the standard real estate sales contract in termite prone areas or where the potential of infestation exists, or local requirements such as states requiring the use of their own form. TIP zones may be found at: http://www.npmapestworld.org/techresources/hud.cfm

•

Mortgage Ins. Premium (MIP)

Mortgage insurance is required on all loans. Mortgage requirements: • May be paid Upfront (UFMIP) OR MIP may be financed 100% • Monthly MIP is required in addition to the UFMIP. Note: UFMIP may NOT be partially financed. • The following HUD bulletins reference the Upfront and Annual MIP based on the case number date assigned



and the terms of the loan. o HUD ML201204, the FHA Upfront and Annual MIP (AMIP) will change for case numbers assigned on or after June 11, 2012 for streamline refinances that were endorsed on or before May 31, 2009. The endorsement date is on the Case Query Screen in FHA Connection.

o HUD ML201204, the Annual MIP (AMIP) will change for case numbers assigned on or after June 11, 2012 for when the base loan amount exceeds $625,500

Note: The changes contained in the above bulletins have various different implementation dates. The OPS system has incorporated applicable changes in compliance with this mortgagee letter. Please refer to the mortgagee letter for specific details.

Reminder: The OPS system is already programmed to calculate the monthly MI amount in accordance to HUD requirements. The correct methodology for those calculations are as follows:

o Every month’s unpaid principal balance is taken for the first 12 months, multiplied by the monthly factor and divided by 12.

o The OPS system then takes all of those monthly amounts and averages them. o HUD completes the same routine every 12 months.

Occupancy • Owner occupied

Property Types

• 1Unit, attached and detached residencesPUD, or FHA Approved Condo. (Must currently have 51% O/O) • Modular Homes are now eligible • 24 Unit

Note: For 34 unit properties, the subject property must be “selfsufficient”. (Gross rents less the applicable FHA HOC vacancy factor for all units, including the owner occupied unit, must be equal to or greater than the total payment for the subject).

Qualifying Rate Qualify atNote Rate

Refinance General All 4155.1 3.A.1

• Refinance Transaction: a refinance transaction is used to pay off an existing real estate debt with the proceeds of a new mortgage for a borrower(s) with legal title and on the same property.

• Maximum Mortgage: Generally the maximum mortgage amount may never exceed the statutory limit, except by the amount of any new upfront mortgage (UFMIP). However the maximum mortgage may exceed the statutory limit on Streamline Refinances.

• Types of Refinances: Streamline Refinance, No Cash Out (Rate & Term), and Cash – out • ReUsing an Appraisal for a Refinance: A new appraisal is required for each refinance transaction requiring

an Appraisal. • Refinance Authorization Numbers for FHA to FHA Refinances: A Refinance Authorization Number from the

FHA Connection (FHAC) is required for all FHA to FHA refinances. • Existing 1 st Mortgage: Must be current for month due • Properties listed for Sale:

• Properties currently listed for sale are ineligible for refinance transactions. NO EXCEPTIONS!



• Properties that have been listed for sale in the previous 6 months prior to loan application are eligible for Rate/Term refinance or Streamline Refinance subject to the following requirements. • The listing must have been cancelled PRIOR to the loan application date. • A copy of the MLS cancellation to document the cancellation must be retained in the loan file. • The appraiser must certify that the property is NO longer listed for Sale.

• Properties that have been listed for sale in the previous 6 months prior to the loan application are ineligible for cash out refinances.

Refinance No CashOut (aka Rate/Term) 4155.1 3.B.1

• Maximum mortgage:is the lesser of 97.75% LTV/CLTV of the appraised value of the property or the existing debt

• Calculating the Existing Debt: • Existing 1 st Mortgage which may include: (1) interest charged by the servicing lender when the payoff will not likely be received on the 1 st day of the month, (2) any prepayment penalties assessed on a Conventional Mortgage or FHA Title I, (3) Late Charges, (4) escrow shortages. May not include delinquent interest.

• Prepaid Expenses which may include (1) Per diem interest + (2) MMI premiums, + (Real Estate tax deposits for establish escrow account

• Add (1) any purchase money 2 nd ’s, or (2) junior liens > 12 months (HELOCS with no draws >$1000 in last 12 months), and/or (3) discount points

• Less UFMIP refund from an existing FHA loan • The resulting figure is the existing debt

• Subordinate Liens: including HELOCS regardless of when taken may remain outstanding provided the subordinate lien meets all of FHA eligibility criteria as outlined in 4155.1 5.C and the CLTV does not exceed 97.75%

• Refinancing to Buy out ExSpouse or Coborrower Equity: When the purpose of the refinance is to buy out the equity an ExSpouse or CoBorrower equity, the specific equity to be paid is considered as property related indebtedness and eligible to be included in the new mortgage calculation. The divorce decree, settlement agreement, or other bona fide equity agreement must be provided to document, and the funds paid directly to the buyout party.

• Mortgage Calculation for Property Acquired < 1 year before Loan Application: Is based upon the lesser of the original sale price or current appraised value.

• No Cash refinance transactions are available in the state of Texas as long as the transaction is NOT a Texas (a)(6) loan. Reminder: Borrower may NOT receive ANY incidental cash back at closing

• Maximum Cash Back at Closing: is limited to $500 as a result of calculation adjustments – Maximum Principal Reduction is $500 any amount greater that the total of $1000 ($500 cash back + principal reduction) requires the loan to be returned to the DE UW for the loan amount to be recalculated and reduced accordingly.

• Short Payoffs: Are not eligible



Refinance Cash Out 4155.1 3B.2

• Eligibility for Cash Out: Properties owned free & clear may be refinanced as a cash out. • Restriction on Addition of NonOccupancy CoBorrower for Credit Underwriting Compliance: Nonoccupant

Coborrower may not be added in a cash out refinance transaction in order to meet FHA credit UW guidelines. Any coborrower added must be an occupant of the property & acceptable documentation to support.

• Subordinate Liens: including HELOCS regardless of when taken may remain outstanding provided the subordinate lien meets all of FHA eligibility criteria as outlined in 4155.1 5.C and the CLTV does not exceed 85.00%

• Maximum Mortgage Amount Based on Length of Ownership: • > 12 months preceding the date of the loan application is eligible for the maximum amount of 85% of

the appraised value • < 12 months preceding the date of the loan application is limited to the less of 85% of the appraised

value or Sales Price of the property when acquired. Note: The sale price does not need to be considered if the property was acquired as the result of inheritance and is, or will become the heir’s principal residence.

• Cash Out Refinancing for Debt Consolidation: Cash out refinancing for debt consolidation represents considerable risk, especially if the borrowers have not had a corresponding increase in income. Prudent UW and careful evaluation of this type of transaction is required.

• Occupancy of Former Investment Property (per HUD ML 201111): must be seasoned 12 months or more prior to application date for max. financing same as owneroccupant. If less than 12 months: Rate/Term only (no Streamline) with max 85% LTV.

• FHA loans are limited to owneroccupied transactions only • Mortgages with fewer than 6 months of payment history are not eligible for cash out refinances.

Refinance Streamline 4155.1 6.C

• Description of a Streamline Refinance: Streamline refinances (1) are designed to lower the monthly P&I payment on a current FHA insurance mortgage, and (2) must involve no cash back to the borrower, except for minor adjustments at closing that are not to exceed $500.

• Appraisals: Appraisals are not needed on a Streamline refinance. Value is based upon the appraised value from the previous case number.

• Total Scorecard: TOTAL Scorecard is not to be used on Streamline Refinances, even Credit Qualifying Streamline Refinance. All streamline refinances are a manual underwrite requiring a DE Underwriter review & CHUMS numbers on the 92900a & 92900LT

• Loan Application: Complete applications are required to include all employment information & income source information, assets, etc. with exception that no actual income amount should be shown. Due to various disclosure requirements, the initial 1003 application & 92900a addendums must be signed & dated by the borrower(s) before the loan is underwritten.

• Cash to Close: If assets are needed to close, the funds need to be verified, documented, and determined to be acceptable funds for closing. Refer to 4155.1 5.B for acceptable sources of funds for closing.

• Maximum Cash Back at Closing: is limited to $500 as a result of calculation adjustments – Maximum



Principal Reduction is $500 any amount greater that the total of $1000 ($500 cash back + principal reduction) requires the loan to be returned to the DE UW for the loan amount to be recalculated and reduced accordingly

• Borrower Additions or Deletions to Title: • Individual may be added to title without a creditworthiness review, and triggering a dueonsale clause • Individuals may be deleted from title with a Credit Qualifying Streamline as the deletion of title will trigger the dueonsale clause (post 1989 loans)

• Credit Qualifying Streamlines:To ensure the remaining borrower(s) have an acceptable credit history & ability to make the payments. • Verification of Borrower’s Income & Credit as per FHA Manual Underwrite Documentation Guidelines • DTI ratios of 29/41 – • DTI ratios >29% and/or >41% require documented compensating factors as per Mtgee Ltr 201402 • Max DTI ratio of 45% as per Manual Underwriting

• Seasoning – On the date of the FHA case number assignment, • the borrower must have made at least six (6) payments on the FHAinsured mortgage being refinanced • at least six (6) full months must have passed since the first payment due date of the refinance

mortgage, and • at least 210 days must have passed from the closing date of the mortgage being refinanced Note: FHA Connect will NOT assign a case number for a Streamline Refinance until the full six month loan seasoning period has elapsed (212 days).

• Mortgage Payment History Requirements. The following requirements must be met without exception: o Loans with a 12 month payment history: 0x30 lates in the previous 12 months. • Mortgages with less than 12 months payment history: the borrower must have made all payments within the month payment is due.

• A delinquent Mortgage is not eligible for a streamline refinance. 4155.1 6.C.4.c • Maximum Mortgage Calculation: The maximum insurable mortgage for streamline refinance without an appraisal cannot exceed the outstanding principal balance (can include up to 60 day interest +2 months MIP): • Minus the applicable refund of UFMIP (found on refinance authorization) • Plus the new UFMIP that will be charged on the refinance NOTE: The outstanding principal balance • May include interest (Up to a maximum of 60 days*) charged by the servicing lender when the payoff is

not rec’d on the first day of the month. *If payoff demand reflects current month paid (i.e. closing in May & May payment made), only 30 days interest plus one month MIP may be included. *If payoff demand reflects due for current month (i.e. closing in May & due for May payment), up to 60 days interest plus two months MIP may be included. Ø May not include delinquent interest, late charges, and escrow shortages.



Ø Payoff Demands must be current. If borrower makes payment before closing, AN UPDATED PAYOFF DEMAND IS REQUIRED!! Loan to be resubmitted to Underwriting for review & recalculation.

Ø Existing loan must be paid off in month due. • Utilize the applicable FHA Streamline Refinance Worksheets based on the case # assignment date found

on the website under Document Library • Contributions by Others: Nocost refinances, in which the lender charges a premium interest rate to defray the borrower(s) closing costs and/or prepaids, as permitted to a maximum of 6%. YSP may not be used to pay off/down any fee or unpaid principal balance as shown on the payoff demand. Ref 4155.1 63.C..4.a

• Subordination Financing: If subordinate financing remains in place, the: • Maximum combined CLTV is 125% • CLTV is based on the original appraised value of the property, and • Maximum CLTV is calculated by taking the original FHA base loan amount (the original FHA principal

balance excluding financed UFMIP), adding all other financed liens still outstanding, and dividing by appraisal value. This calculation may not exceed 125%

• NOTE: The lender must use the maximum accessible credit limit of the existing subordinate lien to calculate the CLTV ratio.

• 4155.1 3.C.2.f “Policy on Subordinate Financing on Streamlines” • Condominium Project Approvals: If approval of a condominium project has been withdrawn, FHA will insure only streamline refinances without appraisals for that condominium projects. 4155.1 6.C.3.d “Withdrawn Condominium Approvals

• HPML / Hi Cost Mortgage: Not Allowed • CAIVRS, LDP and GSA Exclusion Lists: The Credit Alert Interactive Voice Response System (CAVIRS) does not need to be checked for streamline refinances, but the lender must review, for all parties, the: • HUD Limited Denial of Participation (LDP) List, and • General Services Administration (GSA) “List of Parties Excluded from Federal Procurement or Non

Procurement Programs.” • Occupancy: Owner Occupied Transactions Only • Net Tangible Benefit (NTB) Requirements: The lender must determine that there is a net tangible benefit to the borrower as a result of the streamline refinance transaction. Net tangible benefit is defined as a: • a 5% reduction to the principal & interest (P&I) of the mortgage payment plus the annual mortgage

insurance premium (MIP), or • Refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage. • NOTES:

• A reduction in the terms 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. • The table below provides the net tangible benefit requirements for various types of ARM

refinances.4155.1 6.C.5.c “Net Tangible Benefit of ARM Refinance”:



Type of ARM Refinance Requirement to Establish Net Tangible Benefit

1 yr. ARM to Fixed Rate New interest rate must be no greater than 2% above the current interest rate of the existing ARM.

1 yr. ARM to 1 yr. ARM Reduction of at least 5% of P&I + MIP

1 yr. ARM to Hybrid ARM New interest rate must be at least 2% below the current interest rate of the ARM

Hybrid ARM (during Fixed Period) to Fixed Rate

Reductions of at least 5% of P&I + MIP

Hybrid ARM (during Fixed Period) to 1 yr. ARM

New interest rate must be at least 2% below the current interest rate of the ARM

Hybrid ARM (during Fixed Period) to Hybrid ARM

Reduction of at least 5% of P&I + MIP

Hybrid ARM (during adjustable period) to Fixed Rate

New interest rate must be no greater than 2% above the current interest rate of the existing ARM

Hybrid ARM (during adjustable period) to 1 yr. ARM Reduction of at least 5% of P&I + MIP

Hybrid ARM (during Adjustable Period) to Hybrid ARM

New interest rate must be at least 2% below the current interest rate of the ARM

• The table below provides the net tangible benefit requirements for various types of fixed rate mortgage refinances. 4155.1 6.C.5.d “Net Tangible Benefit of Fixed RateRefinance.

Type of Fixed Rate Refinance Requirements to Establish Net Tangible Benefit Fixed Rate to Fixed Rate Reduction of at least 5% of P&I + MIP

Fixed Rate to 1 yr. ARM New interest rate must be at least 2% below the current interest rate of the fixed rate

Fixed Rate to Hybrid ARM Reduction of at least 5% of P&I + MIP

• FHA NET Tangible worksheet must be completed for all FHA Streamline Refi’s by UW and retained in loan file

• Term Reduction:A transaction for the purpose of reducing the mortgage term must be underwritten and closed as rate and term (no‐cash out) refinance transaction. 4155.1 6.C.4.b “Term Reduction Ineligible for Streamline

Refinance” • Employment/Income verification.

o The verbal VOE is required must meet all of the SPM requirements stated in the P&P and must be



completed 10 business days prior to Note date. § 3 rd party verifications for selfemployed borrowers are needed. § Note: VVOE is required for all salaried employees and selfemployed. VVOE requirement does not apply to Borrowers with passive income sources.

• SPM processed #4506T transcripts are no longer required for selfemployed borrowers or any other borrowers. Signed #4506T must NOT be obtained at closing for ANY borrowers, and should NOT be retained in the loan files for any noncredit qualifying Streamline refi.

• Discounts Points: Discount Points may no longer be included in existing loan o If borrower has agreed to pay discount points, verification of borrower’s assets documenting available funds must be contained in the loan file.

Reminders: Be sure to include the payoff statement in the loan fileSee Pay off demand in credit topic for specific requirements. Also, FHA Secure Loans are NOT eligible for Streamline Refinances. These loans are coded FHAC on FHA Connection.

Secondary Financing/ Subordinate Liens Includes Down Payment Assistance Program (DPA) ML 201314 ML 199402 4155.1 5.C

• Under HUD’s definition Section 4155.1 5.C.1.a, any financing (including Down Payment Assistance Programs) that creates a lien against the property is considered secondary financing.

• Permissible Sources of Secondary Financing: • Secondary Financing from government agencies (HUD 4155.1 5.C.2) see below for detail

• DAP may contain Deed Restriction Refer to the Section on Deed Restrictions for eligibility requirements. All applicable SPM guidelines and HUD 4155.1 Chapter 5 requirements must be met

• Our first lien may be subject to any terms or conditions of a State bond program. Refer to the Section on Deed Restrictions for eligibility requirements.

• The transferring of servicing rights for our first lien may NOT be restricted. o Prior notification or approval from the sponsoring authority in the event of the transfer of the first mortgage’s servicing rights may NOT be required

• Branches are solely responsible to understand and be familiar with any and all DPA program eligibility requirements. This includes, but is not limited to: documentation review and acceptability, property and borrower eligibility requirements as well as funding availability for applicable DAPs.

o DAP specific program questions must be directed to the applicable agency’s DPA contact person. o DE UW is responsible to: § Properly enter the Secondary Financing/DPA field in Express Loan and OPS § Ensure SPM and HUD requirements are met in addition to specific Secondary Financing/DPA eligibility and documentation criteria. This includes, but is not limited to reviewing a copy of Borrower’s Secondary Financing/ DPA eligibility cert with terms & conditions, or other eligibility affirmation and/or all other specific documentation.

§ Condition for acceptable documentation evidence the funds (specific amount) provided to the borrower from the applicable source. If the funds are not coming directly from a Governmental Instrumentality, then pursuant to Mortgage Letter 201314, each loan file to have documentation via a letter from the Governmental instrumentality that they have incurred a “Legally Enforceable Obligation to provide the funds towards the Borrower’s minimum cash investment.

§ Condition for copies of the Secondary Financing/DPA loan instruments/documents. § Condition that Borrower may NOT receive cash back at closing: all Secondary Financing/DPA funds must be utilized towards down payment and/or closing costs.



§ On purchase transactions, the combined amount of the First and Second mortgages may NOT exceed 100% of the cost to acquire the property or CLTV 105%, whichever is less. The monthly payment under the first and second mortgage or lien, plus other housing expenses and recurring charges, cannot exceed the borrower’s reasonable ability to pay.

§ The source, amount, and repayment terms must be disclosed in the mortgage application, and the borrowers must acknowledge that they understand and agree to the terms

o Other specific procedures will be posted on the intranet and branch personnel must understand and be familiar with the process.

o Closer/Funder is responsible to: § Ensure all UW conditions and File documentation requirements are received and properly signed by Borrowers including but not limited to: copies of Security Instrument, Note, and any other documentation required to be signed by the Borrower for specific Secondary Financing /DPA program

§ HUD1 must be closely reviewed to ensure compliance to UW condition that all Secondary Financing/DPA funds are to be used for down/payment/closing cost requirement.

§ No Cash Back is allowed to the borrower All funds from the Secondary Financing/DPA must be utilized for the transaction

• Secondary Financing from nonprofits organizations (ML 201408) • ML 201408 “Guidance on Nonprofits Assisting Government Entities in Providing Secondary Financing in Conjunction with FHA Insured Mortgages” published 04/29/214 & effective immediately states when a government entity uses a nonprofit to assist in the operation of the government entity’s secondary assistance programs, HUD approval & Placement on the Nonprofit Organization Roster is no longer required so long as there is a documented agreement that: • The functions performed are limited to the government entity’s secondary financing program and • The secondary financing legal documents (Note & Deed of Trust) name the government entity a the Mortgagee • Documentation requirements include a letter from the government entity evidencing the relationship between

the government entity & nonprofit in the case binder for each FHA insured mortgage. The letter must be on the government entity’s letterhead (signed by an authorized official for the government entity) and contain the following information: • The FHA case number for the 1 st mortgage • The complete property address • The name, address, & Tax ID for the nonprofit, • The name of the borrower(s) to whom the nonprofit is providing secondary financing • The amount & purpose for the secondary financing provided to the borrower, and • A statement indicating whether the secondary financing will (1) close in the name of the government entity,

or (2) will close in the name of the nonprofit & held by the government entity. • Where the nonprofit closes the secondary financing in its own name, that nonprofit is required to be both HUD

approved and placed on the Nonprofit Organization Roster even if the secondary financing will be held by the government entity.

• Enter the secondary financing information in FHA Connection as noted in the below matrix • Nonprofit Organization Roster link https://entp.hud.gov/idapp/html/f17npdata.cfm • Nonprofit Matrix below:



Secondary Financing Legal Documents

HUD Approval & Roster Placement Required

Government Entity (“GE”) must Satisfy Documentation

Requirements of ML 201408

Information Entered in FHA Approved Mortgagee in FHA

Connection

The secondary financing legal documents are in the name of the GE

No Yes Enter information on GE only

The secondary financing legal documents are in the name of the nonprofit and will be held by the GE prior to issuance of FHA insurance.

Yes Yes

Enter information on the nonprofit & GE. If there is more than one nonprofit, enter information on all nonprofits.

The secondary financing legal documents are in the name of the nonprofit and will be held by the nonprofit prior to issuance of FHA insurance.

Yes No

Enter information on the nonprofit. If there is more than one nonprofit, enter information on all nonprofits

• Secondary Financing from private Individuals or other organizations (HUD 4155.1 5.C.4) • The secondary financing is disclosed at the time of application • The required minimum cash investment is not financed • The insured 1 st mortgage does not exceed FHA mortgage limits • The CLTV rate of the 1 st & subordinate liens does not exceed the applicable FHA LTV limit • The borrower can afford the total amount of the payments • Any periodic payments are level and monthly • There is no balloon payment during the first 10 years, and • There is no prepayment penalty

• Secondary Financing from family members (HUD 4155.1 5.C.5)

Note that an outright gift of the cash investment meeting all applicable SPM guidelines, HUD 4155.1 Chapter 4 and FHA Info 1367 requirements is not considered secondary financing.

• Reminder: If the existing subordinate lien is a HELOC, the entire lien must be subordinated at refinance. For the calculation of the Combined Loan to Value (CLTV) ratio, the maximum accessible credit limit of the existing subordinate lien must be used.

Significant Derogatory

• Loan Amounts <$625,500: • Chapter 7 Bankruptcy require 2 year seasoning from date of discharge/dismissal to date of initial application



(Foreclosure, DIL, SS, BK) 4155.1 4.C

• Chapter 13 Bankruptcy & Consumer Credit Counseling Payment Plans (“CCS”) requires a minimum of: • One year of the payout period under the BK has elapsed, • The borrower’s payment history has been satisfactory & all payments made on time, and • The borrower has received written permission from BK court/CCS Agency to enter into the mortgage transaction

• Foreclosure, DeedinLieu, or Short Sale require a 3 year seasoning from the date of completion to the date of the initial application

• Borrower’s whose previous mortgage was FHA, are not eligible for a new FHA insured mortgage from the date that FHA paid the claim associated with a foreclosure or preforeclosure sale.

• Loan Amounts > $625,500: • No Bankruptcies (Chpt. 7 or 13), Foreclosures, Deed in Lieu, or Short Sales last 7 years

Special Req.

• Non Purchasing Spouse in a community property state will require credit report and authorization. We must qualify our borrower with spouse’s debts.

• CAIVR, LDP and GSA Search must be completed and clearance documented in loan file. • Valid SS# is required • Reminder: To avoid insurability issues, the FHA connect Warning/Error messages must never be ignored.

Tax Credits

Loans that include subordinate financing for the First Time Homebuyer (FTHB) Tax Credits described in Mortgagee Letter 200915 dated May 29, 2009 are not eligible for financing. Please note: When the First Time Homebuyer Tax Credit option becomes available, you will be notified and updated product guide will be posted.

Tax Transcripts 4506T

• All loans require processed 4506T full tax transcripts verifying personal income (and Business Returns as applicable) for the previous 2 years to validate income

Temporary Buydown Not Permitted

Verbal VOE • NonCredit Qualifying Streamline FHA VVOE: Please refer to Streamline Section above • Total Scorecard “REFER” transactions VVOE: Please refer to Automated Underwriting Section above • Credit Qualifying FHA loans: Follow SPM VVOE policy previously communicated.

Reference Tools

• Website access to look up FHA mortgage limits by area: https://entp.hud.gov/idapp/html/hicostlook.cfm • Mortgagee Letters, National HOC Reference Guide, HOC Letters, or Handbooks, go to: http://www.hud.gov On left side of site you will be able to access resources stated above. You may also access www.hudclips.org or look up FHA loan limits on:

https://entp.hud.gov/idapp/html/hicostlook.cfm • For a complete archive of clips or mortgagee letters:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/ • Nonprofit HUD look up: https://entp.hud.gov/idapp/html/f17npdata.cfm



Examples of how to complete the 92900a Page 1 & 3 can be found on the following pages