Section 2.22 – The FHA 203(b) Loan Program

Transcription

Section 2.22 – The FHA 203(b) Loan Program
In This Product
Description
This product description contains the following topics.
Overview
2
Features and Benefits .................................................................................. 2
Product Summary ......................................................................................... 2
Ineligible FHA Programs............................................................................... 3
Correspondent Lenders with DE (Direct Endorsement) Authority................ 4
Helpful Websites ........................................................................................... 7
Related Bulletins ............................................................................................... 9
Ability-to-Repay Requirements ....................................................................... 10
Ability-to-Repay Requirements ................................................................... 10
Loan Terms ..................................................................................................... 10
Assumptions ............................................................................................... 10
Loan Term .................................................................................................. 10
Maximum Loan Amount and LTV ............................................................... 11
Minimum Loan Amount............................................................................... 14
Transactions Affecting Maximum Mortgage Calculations .......................... 15
Identity of Interest Transactions ................................................................. 15
Minimum Downpayment ............................................................................. 20
Maximum Number of Financed Properties and Borrower Exposure .......... 21
Prepayment ................................................................................................ 21
FHA Jumbo ..................................................................................................... 22
Eligible Transactions ....................................................................................... 26
New Construction ............................................................................................ 28
Ease-In Payment Reduction Feature .............................................................. 42
Energy Efficient Mortgage (EEM) Program ..................................................... 45
Refinances ...................................................................................................... 46
Cash-Out Refinances ...................................................................................... 48
No Cash-Out with an Appraisal (Rate and Term Refinances) ........................ 51
Streamline Refinances (STM to STM Transactions Only) .............................. 53
Secondary Financing ...................................................................................... 60
Geographic Restrictions .................................................................................. 69
Occupancy/Property Types ............................................................................. 70
Eligible Borrowers ........................................................................................... 76
Income............................................................................................................. 83
Liabilities and Qualifying Ratios .................................................................... 106
Credit Requirements ..................................................................................... 116
FHA Social Security Number Validation ....................................................... 134
Cash Requirements ...................................................................................... 136
Contributions by Interested Parties ............................................................... 152
HUD Allowable Closing Costs ....................................................................... 155
Mortgage Insurance ...................................................................................... 158
Appraisal Requirements ................................................................................ 161
Prohibition of Property Flipping ..................................................................... 183
Automated Underwriting Systems (AUS) ......................................................187
Rate, Points & Lock-Ins ................................................................................. 201
Application, Disclosures and Consumer Compliance ................................... 203
Underwriting and Loan Submission .............................................................. 208
Closing and Loan Settlement Documentation............................................... 212
Section 2.22
FHA 203(b) Loan Program
Correspondent Seller Guide
October 31, 2014
Page 1 of 222
Overview
Features and
Benefits
Features and benefits of the FHA mortgage include the following:
Features
Fixed Rate programs are available.
FHA fixed
available.
rate
Jumbo
loans
are
Seller can pay up to 6% of sales price
toward closing costs, prepaids, and
interest buydowns.
100% gift allowed for down payment with
no money from buyer required.
AUS Underwriting is permitted on FHA
loans.
No reserves are required on AUS
approved 1-2 unit properties.
100%
FHA
financing
through
FHA/SunTrust Approved Non-Profits.
No income-limit restrictions in qualifying.
Cash out refinances may be permitted
up to an 85% LTV.
Streamlined Refinances with and without
appraisals.
FHA loans are assumable by creditqualified buyers.
Product
Summary
Benefits
Flexibility
in
accommodating
a
borrower’s needs or preferences.
The surge in higher conforming loan
amounts is a great opportunity to help
make homeownership more affordable
for the borrower.
Borrower needs less cash for the
transaction.
Gift funds are considered as borrowers
own funds to apply toward the required
three and one half percent (3.50%)
investment.
AUS allows for less documentation and
easier borrower qualification.
Borrowers need less cash to qualify.
Allows more borrowers to purchase
home without having established
savings.
Borrowers are not limited to wages
under a set amount for their area.
Borrowers may use FHA’s easier
qualifying guidelines with less equity
remaining in their homes.
Less cost to borrowers.
More attractive for future resale if the
borrower plans to relocate or move up
to a larger home in the future.
General Information
This product description describes SunTrust’s Federal Housing Administration’s
(FHA’s) mortgage programs for Section 203(b), basic 1-4 family, and 234
Condominiums. The FHA 203(b) and 234(c) mortgages are insured by the Department
of Housing and Urban Development (HUD). This offers borrowers the opportunity to
obtain a mortgage when they may not qualify under conventional guidelines.
Continued on next page
Section 2.22
October 31, 2014
Page 2 of 222
Overview, Continued
Product
Summary,
(continued)
Reference: See Seller-Paid Interest Payment Reduction / Ease-In Payment
Reduction Feature subsequently presented in this product description for additional
information concerning the Seller Paid Interest Payment Reduction Feature.
AUS Guidelines
• Fannie Mae DU and Freddie Mac LP information can be found under the
appropriate topic and subtopic when applicable. AUS System setup and
processing is located in the AUS section of this product description.
• If “Approve/Ineligible” or “Refer,” reduced documentation may be used if allowed
by the findings report and approved by the D.E. Underwriter.
Reference: See FHA TOTAL Scorecard in the topic AUS Issues for additional
information.
Ineligible FHA
Programs
•
•
•
FHA 203(k) loans.
Energy Efficiency Mortgages (EEMs)
FHA Refinance Program for borrowers in negative equity positions.
Notes:
• The programs listed above are being evaluated by SunTrust, but have not been
embraced.
• This list may not be inclusive of all ineligible FHA programs (i.e., Section 248
Indian Reservation and other Restricted Lands).
Section 2.22
October 31, 2014
Page 3 of 222
Overview, Continued
Correspondent
Lenders with
DE (Direct
Endorsement)
Authority
•
•
•
•
•
Correspondent lenders with full FHA Direct Endorsement Authority and FHA
Direct Endorsement underwriters on staff may sell FHA loans to SunTrust
Mortgage, Inc. that are underwritten and closed in full compliance with FHA
regulations. SunTrust is not responsible for training correspondent lenders or
providing HUD handbooks or Mortgagee letters.
Correspondent lenders are responsible for remitting the up-front MIP and for
obtaining the MIC on each loan. Additionally, the correspondent lender is
responsible for reviewing the MIC for accuracy. Any errors detected should be
corrected and a new MIC issued BEFORE it is sent to SunTrust. SunTrust
Mortgage, Inc. will enforce repurchase of FHA loans that do not have MIC.
SunTrust will verify through FHA Connection that the FHA loan has been
submitted to HUD for MIC prior to purchase.
If FHA Connection reflects a receipt, SunTrust will purchase the loan.
If FHA Connection reflects a Notice of Return (NOR), SunTrust will not purchase
the loan until the loan has been insured by HUD.
Note: SunTrust may require evidence of the FHA Mortgage Insurance Certificate
(MIC) prior to funding when government loans are received for purchase by
SunTrust and/or has been pended at SunTrust, and it has been over 30 days from
the date of closing.
Reference: See Determining UFMIP in the topic Mortgage Insurance for additional
information.
•
SunTrust will not purchase FHA Test Cases or loans considered “Test Cases,”
where the lender is not yet approved for Direct Endorsement (D.E.) and is
submitting cases to the HUD Homeownership Center (HOC) for issuance of a
Firm Commitment.
•
Reference: Compliance Overview
Section 2.22
October 31, 2014
Page 4 of 222
Overview, Continued
Case Number
Assignment
and
Cancellation
Requesting Case Numbers
FHA Connection requires lenders to:
• Certify, via a checkbox question, that they have an active loan application for the
subject property.
• Provide the borrower’s name and social security number for all new construction
(i.e., under construction and existing construction less than one year old).
Automatic Case Number Cancellation
FHA Connection automatically cancels any uninsured case number where there has
been no activity for six months since the last action except for:
• Loans where an appraisal update has been entered, and/or
• Loans that have received the UFMIP.
Last action includes;
• Case number assigned,
• Appraisal information entered,
• Firm commitment issued by FHA,
• Insurance application received and subsequent updates, and
• Notice of Return and resubmissions.
Last action does not include updates to borrower names and/or property addresses.
Case Number Reinstatement
FHA will not reinstate any automatically cancelled case numbers, including case
numbers for condominium units, unless:
• The mortgagee provides verification that not reinstating the case number causes
an undue hardship to the borrower that is not related to recent updates to
premiums and underwriting requirements, or
• The mortgagee provides verification that the subject loan closed prior to
cancellation of the case numbers, such as a HUD-1 Settlement Statement.
Section 2.22
October 31, 2014
Page 5 of 222
Overview, Continued
The SunTrust
Government
Sponsorship
Program
•
•
•
•
Mortgagee Letter 2009-28, dated September 18, 2009, announced HUD’s new
Appraiser Independence guidelines and dictates that sponsored Correspondent
clients will not be able to order appraisals on case numbers assigned on or after
January 1, 2010.
Due to SunTrust’s interpretation of HUD’s new guidelines relating to ordering
appraisals, effective for FHA case numbers assigned on or after January 1,
2010, SunTrust will not purchase FHA loans from FHA Government Sponsored
clients.
It is the Correspondent lender’s responsibility to review the MIC for accuracy
before submitting the loan to SunTrust for purchase.
All FHA loans MUST be insured within 60 days of loan closing.
Note: See Determining UFMIP in the topic Mortgage Insurance for specific
information on remittance of Up-Front MIP (UFMIP).
HUD
Handbooks &
Mortgagee
Information
This product description contains only a portion of HUD’s various lending Handbooks
and Mortgagee Letters. It is the responsibility of the originating office to ensure that
mortgages processed for 203(b) and 234 loans meet HUD’s guidelines.
Reference: See the following HUD Handbooks for further clarification or for complete
guidelines:
• 4000.2 REV-3 Mortgagees’ Handbook Application through Insurance (Single
Family)
• 4000.4 REV-1 Single Family Direct Endorsement Program
• 4060.1 Rev 2 FHA Title II Mortgage Approval Handbook
• 4135.1 REV-2 Procedures for Approval of Single Family Proposed Construction
Applications in New Subdivisions
• 4145.1 REV-2 Architectural Processing and Inspections for Home Mortgage
Insurance
• 4150.1 REV-1 and REV 2 Valuation Analysis for Home Mortgage Insurance for
Single Family One-to-Four Unit Dwelling
• 4150.2 Valuation Analysis for Single Family One- to Four-Unit Dwellings
• 4155.1 REV-5 Mortgage Credit Analysis for Mortgage Insurance on One-to-FourFamily Properties
• 4155.2 Lender’s Guide to the Single Family Mortgage Insurance Process
• 4330.1 Administration of Insurance Home Mortgages
• 4905.1 Requirements for Existing Housing One- to Four-Units
• 4910.1 Minimum Property Standards for Housing, 1994 Edition
• Total
ScoreCard
User
Guide:
(http://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf).
Section 2.22
October 31, 2014
Page 6 of 222
Overview, Continued
Helpful
Websites
The following list provides links to helpful HUD web sites for clarification or for
complete guidelines:
• http://www.hud.gov/index.html.
• http://www.pacer.gov/login.html
• HUD Handbook 4155.1 Chapter 4
• HUD Handbook 4155.1, Chapter 1
• Circular Letters, http://www.hud.gov/offices/hsg/sfh/hoc/hsghocs.cfm for each
Homeownership Center
• FHA Connection, http://www.hud.gov/offices/hsg/connect.cfm
• Housing Keyword Index, http://www.hud.gov/offices/hsg/keywords.cfm, – This
Index allows you to search HUD’s web site using "keywords." From this site you
can also access the sites listed below.
• Letter "A"-Atlanta Homeownership Center (lists addresses, phone numbers,
etc.)
• Letter "D"- Denver Homeownership Center (lists addresses, phone numbers,
etc.)
• Letter "P"- Philadelphia Homeownership Center (lists addresses, phone
numbers, etc.)
• Letter "S"- Santa Anna Homeownership Center (lists addresses, phone
numbers, etc.)
• Letter "M"- Mortgagee Letters
• HUD Clips, http://www.hud.gov/offices/adm/hudclips (Handbooks & Forms)
• HUD Web site, http://www.hud.gov/
• FHA.gov
• FHA Frequently Asked Questions (FAQ)
http://www.hud.gov/faqs/faqbuying.cfm
Section 2.22
October 31, 2014
Page 7 of 222
Overview, Continued
HUD Home
Ownership
Centers
•
•
HUD has consolidated the various local HUD Field Offices into four (4) Home
Ownership Centers (HOCs). These HOCs are responsible for the policies and
procedures that lenders are responsible for applying to the origination,
processing, underwriting, closing and insuring of FHA loans.
The following table shows states that are served by the HOCs:
Atlanta, Georgia
Alabama
Florida
Georgia
Illinois
Indiana
Kentucky
Mississippi
North Carolina
Puerto Rico
South Carolina
Tennessee
Virgin Islands
•
Philadelphia,
Pennsylvania
Connecticut
Delaware
District of Columbia
Maine
Maryland
Massachusetts
Michigan
New Hampshire
New Jersey
New York
Ohio
Pennsylvania
Rhode Island
Vermont
Virginia
West Virginia
Denver,
Colorado
Arkansas
Colorado
Iowa
Kansas
Louisiana
Minnesota
Missouri
Montana
Nebraska
New Mexico
North Dakota
Oklahoma
South Dakota
Texas
Utah
Wisconsin
Wyoming
Santa Ana,
California
Alaska
Arizona
California
Guam
Hawaii
Idaho
Nevada
Oregon
Washington
All communication from the HOCs can be accessed through the Internet.
Reference: See the subtopic “Helpful Web Sites” within this topic for internet
links to individual HOCs.
•
HUD Section of
the Act and
ADP Codes
The information provided in this product description MAY NOT include all HOC
policies that may vary from standard FHA guidelines. It is the Correspondent
Lender’s responsibility to determine the guidelines specific to their location.
The table below provides the HUD codes for the Section of the Act and the applicable
ADP code for each product.
Section of
the Act
203(b)
203(b)
203(b)
203(b)
Section 2.22
Description
Basic Home Mortgage Insurance
Interest Rate Buydown
Condominium
Condominium Interest Rate Buydown
ADP Code for DE
703
796
734
797
October 31, 2014
Page 8 of 222
Related Bulletins
General
Related bulletins are provided below in PDF format. To view the list of published
bulletins, select the applicable year below.
•
•
•
•
•
•
2014
2013
2012
2011
2010
2009
Section 2.22
October 31, 2014
Page 9 of 222
Ability-to-Repay Requirements
Ability-toRepay
Requirements
See Section 1.05: Underwriting to view the Ability-to-Repay
Reference:
requirements.
Loan Terms
Assumptions
•
•
Loan Term
Fixed Rate - 10, 15, 20, 25 or 30 years
All FHA-insured loans are assumable.
Borrower(s) must contact their current mortgage servicer for additional
information.
Section 2.22
October 31, 2014
Page 10 of 222
Loan Terms, Continued
Maximum Loan
Amount and
LTV
•
•
•
•
The maximum insurable mortgage on a purchase is the lesser of:
• FHA’s statutory loan limit for the area (typically a county or
metropolitan/micropolitan statistical areas (MSA), or
• the applicable loan-to-value limit, which is based on the lesser of the sales
price or appraised value.
Loan amount limits vary by program, property location and the number of units
within the dwelling. They apply to both purchase transactions and refinances.
A percentage of the Fannie Mae/Freddie Mac maximum loan limits are used to
establish the FHA loan limits.
FHA’s “floor” loan limits for 1-4 unit properties is based on 65% of the conforming
loan limits as established by the Federal Government.
Units
1 Unit
2 Units
3 Units
4 Units
2014 FHA Mortgage Limits
Floor Limits
Maximum Ceiling Limits
$271,050
$625,500
$347,000
$800,775
$419,425
$967,950
$521,250
$1,202,925
Units
1 Unit
2 Units
3 Units
4 Units
2011-2013 FHA Mortgage Limits
Floor Limits
Maximum Ceiling Limits
$271,050
$729,750
$347,000
$934,200
$419,425
$1,129,250
$521,250
$1,403,400
Section 2.22
October 31, 2014
Page 11 of 222
Maximum Loan
Amount and
LTV,
(continued)
•
•
FHA uses its own data to set the maximum limit in each area. Loan amounts
exceeding the “floor” limits are accepted for those counties where FHA has
published higher loan limits.
A complete listing of FHA mortgage loan limits for all areas is available through
the FHA mortgage limits page. Go to the HUD website on the Internet to
determine the maximum loan amount allowed for the location of a specific
property.
Note: Use the chart below to determine the correct “Limit Year” to use on HUD’s
website. The results of your search will determine the available maximum county
loan limits.
•
If the loan was locked…
…and the Case Number
was assigned…
Before January 2, 2014
On or After January 2, 2014
…then choose the
below “Limit Year”
on HUD’s website.
CY 2013
CY 2014
CY 2014
CY 2014
This FHA Mortgage Limits page allows you to look up the FHA mortgage limits for
your area or several areas, and then list them by state, county, or Metropolitan
Statistical Area
Note: Streamline refinance transactions without an appraisal are not subject to the
2014 mortgage limits.
Base Loan
• Maximum LTVs are determined using the “base” loan amount.
• The “base” loan is the maximum loan amount prior to adding any financed
mortgage insurance premium. The type of transaction will determine the
calculation of the base loan amount.
Section 2.22
October 31, 2014
Page 12 of 222
Maximum Loan
Amount and
LTV,
(continued)
The table below reflects the allowable LTV or other methods used in the maximum
mortgage calculations.
Occupancy
Purchases
Owner
Occupied
Owner
Occupied
Stage
of
Construction
Proposed and Existing
Under Construction or
Less than 1 Year
*Second
Homes
*Investment
LTV / TLTV
96.5% / 105%
90% / 105%
Maximum financing allowed if Preapproved*
*See “New Construction” for acceptable
pre-approval documentation.
85%1 / 105%
75% / 105% - 1 Unit 1
85% / 105% - 2 to 4 Units
Notes:
•
Second Homes and Investment properties are eligible for FHA financing only under limited
circumstances.
•
Refer to each subtopic within the Occupancy/Property Types topic for additional information before
offering FHA financing for these property types.
1
Condominiums in the State of Florida are not eligible.
Section 2.22
October 31, 2014
Page 13 of 222
Maximum Loan
Amount and
LTV,
(continued)
Refinances1*
The table below reflects the allowable LTV or other methods used in the maximum
mortgage calculations.
Primary Residences
Credit Qualifying Streamline 97.75% / 105%
Refinances with an
Appraisal (STM to STM
transactions only)
Credit Qualifying Streamline 97.75% / 105%
Refinances without an
Appraisal (STM to STM
transactions only)
Rate/Term Refinance
97.75% LTV / 97.75% TLTV
Transactions
Cash Out Transactions
1
2
85% LTV 2 / 85% TLTV 1 to 4 Unit properties
See the topic Refinances for further information
Other limitations may apply; see the subtopic Cash-Out Refinances in the topic Refinances for
additional information.
Minimum Loan
Amount
None.
Section 2.22
October 31, 2014
Page 14 of 222
Transactions
Affecting
Maximum
Mortgage
Calculations
Transactions that Affect Maximum Mortgage Calculations
Various transaction types or relationships may affect the allowable LTV or other
methods used in the maximum mortgage calculations.
Identity of Interest Transactions
An identity-of-interest transaction is defined as a sale between parties with family or
business relationships. Identity-of-interest transactions are restricted to a maximum
LTV of 85%. However, maximum financing above 85% is permissible under the
following circumstances:
• family member purchase:
• A family member purchases another family member’s home as a principal
residence. If the property is sold from one family member to another and is
the seller’s investment property, the maximum mortgage is the lesser of:
• 85% of the appraised value, or
• the appropriate LTV factor applied to the sales price, plus, or minus
required adjustments.
Notes:
• The 85% limit may be waived if the family member has been a
tenant in the property for at least six months immediately predating
the sales contract. A lease or other written evidence must be
submitted to verify occupancy.
• A family member is defined as a borrower’s child (son, stepson,
daughter, stepdaughter), parent, stepparent, grandparent, step
grandparent, spouse, brother, stepbrother, sister, stepsister, legally
adopted son or daughter, including a child who is placed with the
borrower an authorized agency for legal adoption, and foster child.
•
•
•
A builder’s employee purchase:
• An employee of a builder purchases one of the builder’s new homes or
models as a principal residence.
A tenant purchase:
• A current tenant, including a family member tenant, purchases a property
they have rented for at least six (6) months immediately predating the sales
contract (with a lease or other written evidence to verify occupancy),
Corporate transfer:
• A corporation transfers an employee to another location,
• A corporation purchasing an employee’s home and reselling the home to
another employee,
• Selling the home to another employee.
Note: A full appraisal is required and must include verification of the
purchase price, last sale date, and recent listing of the subject property
regardless of the feedback provided in the AUS Messaging.
Section 2.22
October 31, 2014
Page 15 of 222
Transactions
Affecting
Maximum
Mortgage
Calculations,
(continued)
Non-Occupying Co-Borrowers
• Non Occupying Co-Borrowers are restricted to a maximum LTV of 75%.
However, maximum financing above 75% is permissible under the following
circumstances:
• borrowers are related by blood, marriage, or law, or
• unrelated individuals that can document evidence of a family-type,
longstanding and substantial relationship not arising out of the loan
transaction, and
• the property is a one (1) unit dwelling.
• Below are other requirements for a non-occupying co-borrower.
• All borrowers, regardless of occupancy status, must sign the security
instrument and the mortgage note.
• If a parent is selling to a child, the parent cannot be the co-borrower with the
child on the new mortgage, unless the LTV is 75% of less.
• Non-occupant co-borrowers are not permitted on cash-out transactions.
References:
• See Maximum Number of FHA Loans per Borrower subsequently presented in
this topic for additional information.
• See the topic Eligible Borrowers for additional information.
Three and Four Unit Properties
• Maximum mortgage is limited so that the ratio of the monthly mortgage payment
divided by the monthly net rental income does not exceed 100%.
• The monthly payment includes principal, interest, taxes, insurance, monthly
mortgage insurance, and homeowner’s association dues computed at the
note rate.
• No considerations for buydowns may be given.
• Net rental income is calculated by:
• using the appraiser’s estimate of fair market rent from all units, including the
unit the borrower will occupy, and
• subtracting the greater of:
• the appraiser’s estimate for vacancies, or
• the vacancy factor used by the jurisdictional HOC
• The projected rent may be considered only as gross income for qualifying
purposes, and not used to offset the monthly mortgage payment.
• Three (3) months reserves (PITI) after closing are required on all transactions.
Gift funds may not be used for reserves.
• The LTV/TLTV may not exceed 85% on a cash-out refinance.
Section 2.22
October 31, 2014
Page 16 of 222
Transactions
Affecting
Maximum
Mortgage
Calculations,
(continued)
Building On Own Land
• Maximum financing is available if the borrower receives no cash from the
settlement and acts as a licensed general contractor and is building a home on
land that they already own or acquires separately.
Note: Replenishing the borrower’s own cash expended during construction is not
considered “cash back,” provided that the borrower can substantiate with
cancelled checks and paid receipts all out-of-pocket funds used for construction.
•
•
•
•
LTV limits are applied to the lesser of:
• the appraised value or
• the documented acquisition cost, which includes the following:
• builder’s price, or the sum of all subcontractor’s bids, materials, etc.,
• cost of the land (value may be used if land was owned more than 6 months
or was received as an acceptable gift), and
• interest and costs from the construction loan obtained by the borrower to
fund construction of the property.
Equity in the land may be used for the borrower’s entire down payment.
Borrowers who are building homes on land they already own are still required to
have a 3.5% down payment (or its equivalent in land equity) into the transaction.
All mortgage transactions must be calculated using the documented acquisition
cost.
Note: A manual verification of the calculation is necessary to determine that the
maximum loan amount is accurate. Do not rely on computer-generated
calculations during the processing and underwriting of the loan as an accurate
loan amount.
•
•
•
The documented acquisition cost is entered in the Sales Price line, of the FHA
Loan Underwriting and Transmittal Summary (HUD-92900-LT) and includes the
sum total of the following items:
• builder‘s price or sum of all subcontractors‘ bids, materials, etc.,
• cost of the land (if owned more than six [6] months or received as an
acceptable gift, the appraised value of the land may be used instead of its
cost), and
• interest and other costs associated with any construction loan obtained by
the borrower to fund construction of the property.
The Loan Underwriting and Transmittal Summary (HUD-92900-LT) must
continue to summarize the mortgage transaction as a whole.
If the borrower receives cash at closing exceeding $500, the loan is limited to
85% of the sum of the appraised value plus closing costs.
Section 2.22
October 31, 2014
Page 17 of 222
Transactions
Affecting
Maximum
Mortgage
Calculations,
(continued)
Paying Off Land Contracts or Refinance Properties Subject to Ground Rent
• If the borrower will use the loan to complete payment on a land contract, contract
for deed, or other similar type financing arrangement where the borrower does
not have title to the property, the new mortgage may be processed as either a
purchase or a refinance transaction with maximum insured financing if the
borrower receives no cash at closing.
• if all loan proceeds are used to pay the outstanding balance on the land contract
and eligible repairs, renovations, etc., the appropriate loan-to-value ratio is
applied to the lesser of:
• the appraised value, or
• the total cost to acquire the property plus allowable closing costs and, if
treated as a refinance, reasonable discount points.
Note: If the property was acquired fewer than 12 months ago and the borrower
receives cash at closing exceeding $500, the loan is limited to 85% of the sum of
the appraised value and allowable closing cost.
•
•
•
Equity in the property (original sales price minus the amount owed) may be used
for the borrower’s entire down payment.
Replenishment of the borrower‘s own cash expended for repairs, improvements,
renovation, etc., is not considered as ―cash back, provided the borrower can
substantiate, with cancelled checks and paid receipts, all out-of-pocket funds
spent for these purposes.
Treat cash-out refinances that pay off land contracts or refinance properties
subject to ground rents in the same manner as cash-out refinance transactions
on properties held in fee simple ownership.
Occupancy of Former Investment Property
The maximum mortgage amount available for borrowers who reoccupy their former
investment property as their primary residence and wish to refinance are subject to
the following restrictions:
• If occupancy of the former investment property was 12 months or more prior to
the loan application date, then maximum financing as an owner-occupant is
allowed (97.75% for rate/term refinances; 85% for cash-out refinances)
• If occupancy of the former investment property was less than 12 months prior to
the loan application date, then the loan is eligible as a rate/term refinance only
with a maximum LTV of 85%.
Section 2.22
October 31, 2014
Page 18 of 222
Transactions
Affecting
Maximum
Mortgage
Calculations,
(continued)
HUD REO $100 Down Payment
Additions to the Mortgage Amount
Property repairs and energy upgrades must be complete for SunTrust
Mortgage to purchase the loan.
• An increase in the maximum mortgage amount is permitted only when the
appraised value exceeds the sales price; any remaining costs become part of
the borrower’s settlement requirements.
• The increase may not exceed HUD’s basic mortgage limits for the area where
the property is located, except for solar energy systems.
• Allowable additions to the mortgage amount are discussed under the headings
below.
• repairs and improvements,
• energy-related weatherization items, and
• solar energy systems.
Repairs and Improvements:
• The table below provides the requirements necessary to add the amount of
repairs and improvements in the loan amount.
IF the…
• repairs are required by the appraiser
and the value reflects these
requirements,
• repairs were not completed prior to
the appraisal, and
• sales
contract
or
addendum
identifies
the
borrower
as
responsible for paying for the repairs
THEN the…
• amount that may be added to the
sales price before calculating the
maximum mortgage is the lowest of:
• the amount the value of the
property exceeds the sales
price,
• the appraiser’s estimate of
repairs and improvements, or
• the amount of the contractor’s
bid, if available.
Reference: See Section 1.05b: Reviewing Sales Contracts in the Correspondent
Seller Guide for additional information.
Section 2.22
October 31, 2014
Page 19 of 222
Transactions
Affecting
Maximum
Mortgage
Calculations,
(continued)
Energy-Related Weatherization Items
If weatherization items are to be added to the property and paid for by the borrower,
the cost may be added to both the sales price and the value before determining the
maximum mortgage amount. Examples of weatherization items are shown below.
• Thermostats
• Insulation
• Storm windows and doors
• Weather stripping and caulking, etc.
Solar Energy Systems
The cost of the solar energy systems may be added directly to the mortgage amount
(before adding the UFMIP) after applying the LTV ratio limits. Important facts to
remember when considering adding the solar energy system are listed below.
• The statutory mortgage limit for the area also may be exceeded by 20% to
accommodate the cost of the system.
• The amount that may be added to the mortgage is limited to the lesser of the
solar energy systems replacement cost or its effect on the property’s market
value.
• Both active and passive solar systems are acceptable as are wind-driven
systems. See HUD-Handbooks 4150.1 Valuation Analysis for Home Mortgage
Insurance. for additional information.
Minimum
Downpayment
HUD’s Requirement
• The minimum downpayment is three and one half percent (3.50%).
• The minimum downpayment must come from the borrower’s own funds and may
not include closing cost paid by the borrower.
Section 2.22
October 31, 2014
Page 20 of 222
Maximum
Number of FHA
Loans per
Borrower
General Information
FHA will generally not insure more than one mortgage per borrower. Circumstances
in which a borrower may keep his current FHA-insured mortgage are provided below.
Relocating
The borrower is relocating and re-establishing residency to another area that is not
within reasonable commuting distance from the current HUD insured home. There is
no need to reduce the principal balance or sell the current home. Other items of
clarification are shown below.
• The relocation need not be employer mandated.
• If the borrower returns to an area where he/she owns a property with an FHA
Mortgage, it is not required that the borrower re-establish primary residency in that
property in order to obtain another FHA mortgage.
Family Size Increase
The borrower’s family has increased in the number of legal dependents and the
present home no longer meets the family needs and the following applies:
• satisfactory evidence must be provided of the increase in dependents and an
explanation of why the property no longer meets the family needs; and
• the outstanding mortgage balance on the present home is paid down to a
maximum LTV of 75% (excluding financed MIP).
• a current residential appraisal must be used to determine LTV compliance.
Note: Tax assessments, market analysis by real estate brokers, etc., are not
acceptable to determine LTV.
Co-Borrower for Family Member
The borrower will be a non-occupying co-borrower on property being purchased as a
primary residence by other family members, may have a joint interest in that property
as well as his own primary residence, which is a FHA-insured mortgage too.
Vacating a Jointly Owned Property
The borrower is vacating a residence that will remain occupied by a co-mortgagor.
Acceptable situations include following a divorce where the borrower is purchasing a
new home or where the borrower is vacating the property.
Maximum
Number of
Financed
Properties and
Borrower
Exposure
Reference: See the Maximum Number of Financed Properties and Borrower
Exposure in Section 1.22: Maximum Number of Properties and Borrower Exposure
in the Correspondent Seller Guide for guidelines.
Prepayment
There is no prepayment penalty on FHA loans.
Section 2.22
October 31, 2014
Page 21 of 222
FHA Jumbo
General
• Only 30 year fixed rate mortgages are eligible.
• The SunTrust FHA Jumbo Loan program Eligibility Checklist (COR 0331) is
required on all FHA Jumbo Loans.
Jumbo
Eligibility
• The FHA Jumbo Loan Program code (F30JFX) must be used when the base loan
amount meets or exceeds the loan amounts in the table below.
If you have a:
1 Unit Property
2 Unit Property
3 Unit Property
4 Unit Property
Maximum
LTV/TLTV
•
•
•
•
Jumbo Program Code begins at:
$417,001
$533,851
$645,301
$801,951
On Purchase Transactions, the maximum LTV/TLTV is 96.5%.
On Rate/Term Refinance transactions, the maximum LTV/TLTV is 97.75%.
On credit qualifying Streamline Refinance transactions, the maximum LTV/TLTV
is 97.75% / 105%.
On Cash-Out Refinance transactions, the maximum LTV/TLTV is 85.00%.
Note: Cash-out refinance transactions for properties located in the state of
Florida are limited to an LTV/TLTV of 80.00%.
Minimum Credit
Score
Requirement
for ALL
Borrowers
•
Underwriting
Method
•
•
•
The minimum credit score is 680 for Purchase, Rate/Term Refinance, and
Streamline Refinance transactions.
The minimum credit score is 700 for Cash-Out Refinance Transactions.
All transactions are eligible for Traditional or Automated Underwriting through
DU/DO and LP.
All Streamline Refinance transactions must be traditionally underwritten.
Note: If a FHA streamline refinance is inadvertently submitted through DU the
loan must still be manually underwritten.
•
Traditionally underwritten loans may not include any non-Traditional credit
references.
Section 2.22
October 31, 2014
Page 22 of 222
FHA Jumbo, Continued
Qualifying
Ratios
•
AUS
Maximum DTI 50.00% regardless of
AUS findings.
•
•
Traditional
Maximum ratios 31.00% / 43.00%
EEM/New Construction 33.00%
45.00%
/
Notes:
• Ratios may be exceeded when
acceptable compensating factors are
documented.
• Only Correspondent lenders that
have
a
Direct
Endorsement
underwriter on staff may underwrite
and submit for purchase loan
transactions involving the Energy
Efficient Mortgage (EEM) loan
program to SunTrust.
Non-Occupying
Co-Borrowers
and Co-Signers
•
Non-Occupant Co-Borrowers and Co-Signers are not permitted.
Loan Purpose
•
•
•
•
Purchase
Rate/Term Refinance
Credit Qualifying Streamline Refinances with and without an appraisal
Cash-Out Refinance
• Max 85.00% LTV
Note: Cash-out refinance transactions for properties located in the state of
Florida are limited to a LTV/TLTV of 80.00%.
Maximum
Number of
Financed
Properties
Reference: See the Maximum Number of Financed Properties and Borrower
Exposure in Section 1.22: Maximum Number of Properties and Borrower Exposure
in the Correspondent Seller Guide for guidelines.
Refinance
Guidelines
• Six (6) months seasoning (i.e., six (6) permanent mortgage payments made) is
required for the existing mortgage, and
• A twelve (12) month mortgage and/or rental verification is required.
Section 2.22
October 31, 2014
Page 23 of 222
Payment
History
First-Time Homebuyers (applies to AUS and non-AUS loans)
• Borrower must have an established credit history.
Note: An established credit history is defined as a minimum of three (3) active
traditional credit references that have been opened for at least 24 months and
have been active at some time during that period.
• Closed accounts with balances are acceptable.
• A full twelve (12) month satisfactory payment/rental history (0x30) must be
documented through a third party or credit bureau.
Note: Private references are not acceptable.
Borrower Not a First Time Homebuyer:
• If DU “Approve/Eligible,” follow FHA AUS guidelines and findings.
• If traditionally underwritten, no housing late payments within the last 12 months
(all mortgages), and
• Within the last 24 months no more than 2x30 late payments and acceptable to
the DE Underwriter.
Note: Isolated late payments may be acceptable.
Minimum
Downpayment
Required from
the Borrower
•
•
•
Borrower(s) are required to contribute three and one-half percent (3.50%) from
his/her own funds towards the down payment for purchase transactions.
Funds must be seasoned for a minimum of sixty (60) days and verified.
Gift funds are only acceptable if received from a family member.
• gift funds may only be applied to closing cost and prepaids only after the
borrower has made the required three and one half percent (3.50%)
investment into the transaction from their own funds.
• gift funds must meet the sixty (60) day seasoning requirement, either in the
donor’s account or a combination of both donor’s and borrower’s accounts.
Cash Reserves
•
•
Two (2) months cash reserves required for 1-2 unit properties.
Three (3) months cash reserves required for 3-4 unit properties.
Secondary
Financing
•
New secondary financing is eligible, including Community Seconds, on purchase
transactions.
Existing secondary financing is eligible for subordination on refinance
transactions.
•
Section 2.22
October 31, 2014
Page 24 of 222
Down Payment
Assistance
Programs
Down Payment Assistance programs are not eligible.
Ineligible
Programs
•
Ineligible
Property Types
The following property types are ineligible:
• Manufactured Home
• Investment Property
• Second/Vacation Home
The following program listed below may not be used.
• Ease-In Payment Reduction Feature.
Reference: See the Ineligible Property Types subtopic in the Occupancy/Property
Types topic for additional information.
Appraisal
Requirements
•
•
Declining
Markets
Guidelines
Reference: See the Properties Located in Declining Market Areas subtopic in the
Appraisal Requirements topic for additional information.
Bankruptcy/
Foreclosure/
Short Sales
•
•
The property may not have more than ten (10) acres.
When the loan amount is $1,000,000 or higher, the FHA Roster appraiser must
also be state certified to meet Title XI requirements for the Federal Institutions
Reform, Recovery and Enforcement Act (FIRREA).
No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last three (3)
years based on discharge date for Purchase money, Rate/Term refinance
transactions, and Credit-Qualifying Streamline Refinance transactions.
No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last seven (7)
years based on discharge date, for cash-out refinances.
Reference: See the Section 1.28: Short Sale and Restructured Mortgage Loans
document for additional information.
Section 2.22
October 31, 2014
Page 25 of 222
Eligible Transactions
ARM
Alternative
•
•
•
The ARM Alternative is a lender funded buydown, not an Adjustable Rate
Mortgage (ARM).
The feature is called the ARM Alternative because it is an alternative for
borrowers who like the low initial interest rate of an ARM but want the interest
rate protection of a fixed rate mortgage.
The ARM Alternative is a lender funded buydown where the cost of the buydown
is built into the pricing and therefore no buydown funds are required at closing.
Reference: See Section 2.02: The ARM Alternative product description in the
Correspondent Seller Guide for additional information.
Refinances
Reference: See the topic Refinances in this product description for information.
Temporary
Buydowns
General Requirements
• Borrower paid temporary interest rate buydowns are not eligible.
• Interest buydowns are permitted on purchase transactions only.
• The loan must be a fixed rate mortgage on an owner occupied principal
residence.
• Builders and sellers may still offer buydowns on the fixed-rate loans; however,
the borrower must qualify at the note rate.
• No adjustment is required to the acquisition cost unless the seller, mortgagee or
other third party contributes cash to the transaction that exceeds the 6% limit
established by HUD.
• The following requirements must be met for all temporary buydowns:
• an agreement must be executed in which the seller, lender or other third
party places funds in escrow with monthly releases to be made to the lender
to subsidize the borrower’s monthly payment during the first years of the
mortgage,
• the buydown is limited to 2% below the Note rate,
• the borrower is qualified on the Note rate,
• the payment increase during the buydown period cannot be greater than 1%
per year and can only occur once each year,
• payments are to be made by the escrow agent to the mortgagee, who is the
holder of the mortgage, or to its servicing agent,
• the FHA case number must have a special suffix code if the loan is a
buydown, and
• the seller or mortgagee may provide the buydown funds subject to the seller
contribution limits.
• The FHA/VA Buydown Agreement (COR 0344) must be completed and signed
by the borrower.
Section 2.22
October 31, 2014
Page 26 of 222
Eligible Transactions, Continued
Temporary
Buydowns,
(continued)
Underwriting Requirements
• A copy of escrow agreement, signed by the borrower and provider of the funds,
must accompany the loan application. (The underwriter may condition for the
executed buydown agreement at closing.)
• It must be established that the eventual increase in mortgage payments
will not affect the borrower adversely and likely lead to default.
Escrow Agreement Requirements
• Must provide that any escrow funds not distributed at time the mortgage loan is
prepaid be applied to the outstanding balance due on the mortgage. In the event
of foreclosure, the claim for mortgage insurance benefits must be reduced by the
amount remaining in the buydown escrow account.
• Must not permit reversion of undistributed escrow funds to the provider if the
property is sold or the mortgage is prepaid in full unless the borrower establishes
the escrow account.
• May continue to buyers who assume the mortgage.
• The escrow funds must be held in an escrow account by a financial institution
supervised by a federal or state agency.
Section 2.22
October 31, 2014
Page 27 of 222
New Construction
Construction
Definitions
Proposed Construction
Property is considered “proposed construction” when no concrete or permanent
material has been placed. Digging of footing and placement of rebar is not
considered permanent.
Under Construction
Property is considered “under construction” from the first placement of concrete
(permanent material) to one hundred percent (100.00%) completion or to ninety
percent (90.00%) with only customer preference items remaining.
Existing Construction Less Than One (1) Year Old
Property is considered “existing construction” when the appraisal was performed less
than one year since receipt of the final occupancy permit issued. The home is one
hundred percent (100.00%) complete if the Certificate of Occupancy (or its
equivalent) was issued prior to the appraisal and is less than twelve (12) months old.
Note: A re-sale property (sold from builder to owner-occupant and sold again) is not
exempt from the new construction exhibits when the Certificate of Occupancy (or its
equivalent) is less than twelve (12) months old.
Reference: See Appraiser’s Architectural Exhibits in the subtopic Architectural
Exhibits/Properties Not Complying With ML 2001-27 subsequently presented in this
topic for additional information.
General
Requirements
•
•
•
•
The new construction requirements remain unchanged except for the clarification
that the appraiser may appraise a home that is under construction and is 90% or
more complete, with only minor finish items remaining, without benefits of plans
and specifications.
The minor finish items include floor coverings, appliances, fixtures, landscaping,
etc.). Grading, drainage and functional utilities must be completed.
The appraisal can be completed at any time during construction.
If a borrower wants to obtain maximum FHA financing on new construction, ONE
(1) of the following documentation options is required:
• construction was completed more than one year preceding the borrower’s
signature on the Addendum to Uniform Residential Loan Application (HUD92900-A page 2),
• the site plans and materials were approved by Department of Veterans
Affairs, or a DE underwriter, or a builder under the FHA’s Builder certification
procedures, (see HUD Handbook 4145.1 Architectural Processing and
Inspections for Home Mortgage Insurance ) before construction began (this
does not apply to condominiums),
• the local jurisdiction has issued both a building permit (prior to construction)
and a Certificate of Occupancy or equivalent (this does not apply to
condominiums),
• the dwelling is covered by an approved 10-Year Protection Plan that is
acceptable to HUD (this does not apply to condominiums), or
Section 2.22
October 31, 2014
Page 28 of 222
New Construction, Continued
•
General
Requirements,
(continued)
the dwelling will be moved to a new location and the property is eligible at
the new location by having the site plans and materials pre-approved before
construction began.
Note: Lenders are not responsible for establishing an approved locality list (i.e.,
it is not SunTrust’s responsibility to verify with each county that we lend in to
determine if they issue a building permit prior to the start of construction).
Lenders are to assume that if the county issues a building permit, then it is prior
to construction.
Reference: See the subtopic Lender Required Documents subsequently
presented in this topic for additional information.
•
•
•
•
Loan files should contain a copy of the building permit (or a HUD Accepted
Insured Ten-Year Protection Plans), the final Certificate of Occupancy, and the
final inspection by the appraiser or HUD fee inspector, if applicable prior to
closing.
The loan file must be documented as to whether there will be a building permit or
a HUD Accepted Insured Ten-Year Protection Plan at the time the appraisal is
being underwritten to permit the underwriter to make the appropriate conditions.
Localities that do not issue building permits prior to the start of construction must
follow the "Early Start Letter" guidelines in order to avoid the ten (10) year
warranty requirement, all three initial compliance inspections, and final
compliance inspection.
This new definition of "pre-approval" process does not apply to Manufactured
Housing and Condominiums.
See HUD Specifications for Pre-Approval, Inspections and
Reference:
Documentation information.
•
•
All new construction must meet the Council of American Building Officials
(CABO) 1992 Model Energy Code (MEC), regardless of LTV.
The following information applies to issues concerning flood zones:
• a property (dwelling and related structures/equipment essential to the
property value and subject to flood damage) cannot be built in a special
flood zone (floodplain) unless FEMA has issued a “Letter of Map
Amendment” (LOMA), or a “Letter of Map Revision (LOMR) stating that the
property is not in a flood plain,
• the builder can use an “Elevation Certificate” as an alternative documents if it
is submitted with the Builder’s Certification of Plans, Specifications and Site
(Form HUD-92541), and
• if an “Elevation Certificate” is used in lieu of a LOMA or LOMR, flood
insurance is required, however, if a LOMA or LOMR are provided, flood
insurance is not required.
Reference: See General Section 1.14: Hazard and Flood Insurance of the
Section 2.22
October 31, 2014
Page 29 of 222
General
Requirements,
(continued)
•
•
•
•
•
Properties built in an airport runway clear zone are not eligible for new
construction FHA loans.
A certification must be provided on form HUD-92900-A, page 3, which states that
the property is 100% complete at the time of loan closing (both on site and off
site improvements) and the property meets HUD’s minimum property standards.
Documentation must be provided to verify completion of the property (i.e.,
appraisal, Certificate of Occupancy, and final inspection from the original
appraiser – as applicable for the type of new construction).
SunTrust requires a final inspection from the original appraiser on proposed or
under construction properties, even with a Building Permit and Certificate of
Occupancy issued prior to closing. If a Certificate of Occupancy, or its
equivalent, was not issued, then a HUD fee inspector must issue the final
inspection.
When a property is considered “existing construction” and there are no repairs or
corrections conditions noted by the appraiser, the appraisal serves as final
inspection. For new construction “existing” appraisals to serve as a final
inspection the following requirements apply:
• the appraisal must state that the property was built in accordance with the
submitted plans and specs and grading and drainage are adequate, and
• the appraisal may not be made “subject to completion per plans and
specifications.”
In all cases, without exception, the builder must provide a one (1) year builder’s
warranty as provided on Form HUD-92544.
References:
• See Comprehensive Valuation Package (CVP) Requirements in the topic
Appraisal Requirements for additional information.
• See Closing Documentation in the Application, Disclosures and Consumer
Compliance topic for additional new construction forms.
Inspection
Requirements
See Repair and Inspection Requirements in the Appraisal Requirements topic for
information regarding when an appraisal is made “As Is” or “Subject to” one of the
following categories:
• Completion per Plans and Specifications,
• Repairs and Alterations, or
• Required Inspections.
Builder
Approval: HUD
No Longer
Approves
Builders
HUD no longer approves builders nor maintains a list of approved builders.
Section 2.22
October 31, 2014
Page 30 of 222
HUD
Specifications
for PreApproval,
Inspections
and
Documentation
HUD Specifications for Pre-Approval, Inspections and Documentation as provided in
HUD Mortgagee Letter 2001-27 are shown below.
• The local jurisdiction is allowed to perform the inspections when evidenced by a
Certificate of Occupancy.
• Additionally, if a local jurisdiction issues a Building Permit (or its equivalent), prior
to construction, it is acceptable as evidence of “Pre-Approval”.
• In such cases where both a Building Permit and Certificate of Occupancy are
issued by a local jurisdiction
• Neither an Early Start Letter nor a HUD approved 10-Year Protection Plan is
required.
• This new definition of “pre-approval’ does NOT apply to condominiums due to
special requirements applicable to these housing types.
• In lieu of providing the Early Start Letter or proof of coverage by an acceptable
protection plan, a copy of the Building Permit (or equivalent) and a copy of the
Certificate of Occupancy (or equivalent) MUST be included in the endorsement
binder.
• The alternative to local inspections described above does not eliminate the
requirement for a One-Year Builder Warranty (HUD Form 92544) as required by
Section 801 of the National housing Act.
• In addition to the One-Year Builder’s Warranty, the Builder’s Certification of
Plans, Specifications and Site (Form HUD 92541) is still required.
Notes:
• FHA no longer requires mortgagees to retain architectural plans and
specification for high ratio loans on construction of single-family properties, one
year old or less, that have been processed and closed under the specifications
of Mortgagee Letter 2001-27.
• Mortgagee Letter 2005-09 only allows for the elimination of the retention of plans
and specs after the case is endorsed, NOT the elimination of obtaining plans and
specs for processing a new construction case. The client is still required to
obtain the documents for the appraiser.
• If the case is a condominium unit approved by FHA, the client is not required to
obtain the plans and specs.
Section 2.22
October 31, 2014
Page 31 of 222
Architectural
Exhibits/
Properties Not
Complying with
ML 2001-27
General
• Local jurisdictions that do NOT issue a Building Permit (or its equivalent) prior to
construction and a Certificate of Occupancy (or its equivalent), for a property one
year old or less must have one of the following to be eligible for a high-ratio
insured mortgage:
• Early Start Letter, OR
• 10 Year Protection Plan acceptable to HUD.
• Properties NOT processed and closed in accordance with the specifications in
Mortgagee Letter 2001-27.must meet the requirements shown below:
• If the property is proposed or under construction and NOT 90% complete at
time of appraisal, HUD expects the lender to obtain the architectural exhibits
for the appraiser.
• These exhibits must be adequate and accurate to determine compliance with
applicable HUD standards, for the accurate basis for HUD commitments,
determine acceptability of the physical improvements, and provide the basis
for conclusion. Lenders are not expected to review or approve these
documents.
• Additionally, appraisers must receive a fully executed Builder’s Certification
of Plans, Specifications & Site (Form HUD-92541) before performing the
appraisal on proposed, under construction or less than one year old
properties.
• Appraisers must review Item 1 on this form and note in the Appraisal report
any discrepancies between the information in Item 1 and the actual
conditions observed on site. The appraisal and lender are responsible for
addressing any yes answers in Item 1.
Lender’s Architectural Exhibits
For all proposed construction properties NOT processed under Mortgagee Letter
2001-27 that are less than 90% completed at time of appraisal, HUD requires the
lender to retain the appropriate architectural exhibit(s) in the origination file for
resolving any future construction complaints and Section 518(a) complaints for
structural defects. Therefore, the lender’s file must continue to retain the following
documents for new or proposed construction and high ratio loans:
• One Year Builder’s Warranty (Form HUD-92544)
• Builder’s Certification (Form HUD-92541).
• Design and local authority approval of individual water supply and/or sewage
disposal system
Section 2.22
October 31, 2014
Page 32 of 222
Architectural
Exhibits/
Properties Not
Complying with
ML 2001-27
(continued)
Lender’s Architectural Exhibits, continued
• Any additional exhibits made necessary when the mortgage risk could be
affected by unstable soil or other differential ground movement, ground water
problems and other site or toxic hazards (i.e., engineers’ reports on soil
exploration and testing, earthwork specifications, special foundation and related
designs, slope or other stability evaluations, evaluations of underground sewage
effluent disposal and waste disposal sites, et.).
• Pest Inspection forms from the National Pest Control Association, HUD-NPCA99-A and HUD-NPCA-99-B (where applicable).
• The following documents, as applicable:
• an executed Early State Letter, or
• a 10-year Warranty, and
• a final inspection from the HUD inspector.
• Evidence of an approved Affirmative Fair Housing Marketing Plan or Voluntary
Affirmative Marketing Agreement OR checked block “d” (part 11) on the Builder’s
Certification (form HUD-92541).
• Applicable inspections and/or certifications.
• Any other additional/appropriate documents required in satisfying FHA
requirements which may include, but are not limited to the LOMA/LOMR or
elevation certificate regarding flood plains, well water tests, local health authority
approval for individual water and sewer systems, etc. This is not applicable for
condominium projects.
• Final Inspection Requirements as shown below:
• Final inspection report by a HUD fee inspector is required, if property is
“proposed or under construction” and the LOCAL JURISDICTION DOES
NOT ISSUE A FINAL CERTIFICATE OF OCCUPANCY or its equivalent.
• When the final inspection is completed by a fee inspector on under
construction and less than 90% complete properties, the inspection will
include photographs along with a statement on the HUD-92051 as follows:
“This is a newly completed dwelling that was not completed under HUD or
VA inspections. The dwelling appears to be in conformance with the
submitted construction exhibits.”
• Final inspections performed by a fee inspector must include a notation that
all utilities were on and functional when the inspection was conducted.
• The appraiser may complete the final inspection if the local jurisdiction
issues a Certificate of Occupancy (or its equivalent) with the exception of
condominiums.
Section 2.22
October 31, 2014
Page 33 of 222
Architectural
Exhibits/
Properties Not
Complying with
ML 2001-27,
(continued)
Appraiser’s Architectural Exhibits
HUD’s itemization of architectural exhibits includes those listed below.
• plot plan (including dwelling and accessory buildings, finish grade elevations
direction of drainage, location of well and septic, if applicable),
• floor plan (separate foundation plan and plan of each floor and basement, if any),
• kitchen cabinet details,
• electrical layout,
• heat layout (ductwork and location of all vents),
• heat loss calculations,
• cooling system layout,
• exterior elevations (front, side and rear),
• sections (exterior wall sections, stairwells, and stairs),
• fireplace section and elevations, if applicable,
• roof truss details,
• water supply plans and specifications,
• sewage system plans and specifications,
• individual water supply and sewage disposal systems, if applicable, and
• Description of Materials HUD Form 92005.
• Completed Builder's Certification of Plans, Specifications, & Site (form HUD92541) signed and dated no more than 30 days prior to the date the appraisal
was ordered.
• all reports and available information (i.e., sales agreement, title report,
environmental reports or studies and inspection reports).
Note: HUD requires that all utilities be turned on and fully functional during a
final inspection otherwise, the property is not considered 100% complete.
•
•
For “under construction” properties that will be insured at 90% LOAN TO VALUE
OR LESS, the lender is to RETAIN a copy of the architectural exhibits in its
origination binder; however, the Builder’s Certification and Builder’s Warranty are
not required.
For “existing” properties GREATER than one-year old (100% complete) at the
time of the appraisal, architectural exhibits are not required.
Homes 100% Complete Less Than One Year old
• If the home is 100% complete at time of the appraisal and the appraisal is to
serve as the final inspection, the procedures below must be followed. (This
procedure does not apply to manufactured homes.)
Note: Manufactured homes are not eligible for financing through SunTrust
Mortgage.
•
•
The appraisal serves as the final inspection and Form HUD-92051 is not
required.
The appraiser must notate that the utilities were turned on at the time of
inspection.
Section 2.22
October 31, 2014
Page 34 of 222
Architectural
Exhibits/
Properties Not
Complying with
ML 2001-27,
(continued)
Homes 100% Complete Less Than One Year Old, continued
• The appraiser is to inspect for health and safety violations.
• If no health and safety problems are noted, there are no repairs, alterations, or
inspection conditions, and the property is ready for occupancy, the appraiser is to
mark the appraisal “As Is.”
• The appraiser must take a clear photograph (in addition to the standard appraisal
photos) of each diagonally opposite front and rear corner of the house to record
adequate grading and drainage of the site; and make a statement on the appraisal
report of the acceptance of the grading and drainage.
Lender
Required
Documents/
Properties Built
in Accordance
With ML 200127
General Information
• Complete appraisal package is always required, including the information listed
below, if the property is “under construction” or “existing”:
• Verification that the property conforms with plans and specs.
• Notation that there are no health and safety issues.
• Clear photographs of each diagonally opposite front and rear corner of the
house to record adequate grading and drainage of the site with the
appraiser’s statement that grading and drainage is acceptable.
• Notation of a final inspection if the property is “proposed construction” or
“under construction” less than 90% completed.
• Notation that all utilities were on and functional when the appraisal was
completed (if the property is complete).
Properties Built in Accordance With Mortgage Letter 2001-27
• The lenders files must continue to retain the following documents for new or
proposed construction and high ratio loans:
• Builders Certification of Plans, Specs, & Site (form HUD-92541)
• Building Permit
• National Pest Association Form NPCA-99A and HUD-NPCA-99-B, where
applicable.
Lender
Required
Documents
Properties Built in Accordance With Mortgage Letter 2001-27, continued
• Builders 1 Year Warranty (HUD form 92544)
• Certificate of Occupancy
• Carpet ID
• Manufactures Warranties
• Insulation Certificate
• Final Inspection by the appraiser with utilities on and functional (required by
SunTrust)
Section 2.22
October 31, 2014
Page 35 of 222
Lender
Required
Documents,
(continued)
Pre-Approval/
Early Start
Letters
See HUD Specifications For Pre-Approval, Inspections and
Reference:
Documentation previously presented in this topic for information concerning
Mortgagee Letter 2001-27
•
Regardless of the process used, the lender must certify that the property is 100%
complete (both on site and off site improvements) and that the property meets
HUD's minimum property standards. This certification is on the Addendum to the
Uniform Residential Loan Application (Form HUD 92900-A) on page 3.
•
Builders that wish to begin construction before the appraisal is completed or the
lender issues the Statement of Appraised Value must have “Pre-approval” in order
to permit a borrower to obtain greater than 90% financing in areas not issuing
Building Permits (or their equivalent).
Pre-approval is defined as either a lender issued Early Start Letter (COR 0462) or
a Building Permit (or its equivalent) issued by a local jurisdiction prior to
construction.
Upon review and analysis of the plans and specs, Early Start Letters are typically
issued by a lender’s DE Underwriter.
If a builder is providing a HUD approved ten (10) year warranty on the subject
property an Early Start Letter is not required.
If the local jurisdiction issues both a Building Permit and a Certificate of
Occupancy, then neither an Early Start Letter nor a HUD approved ten (10) year
warranty is required.
•
•
•
•
Note: This definition of pre-approval does not apply to condominiums or
manufactured housing.
Reference: See 10 Year Warranties for the HUD Accepted Insured Ten-Year
Protection Plans subsequently presented in this product description for additional
information.
Builder
Certification
•
•
•
•
The builder must complete the applicable sections of the Builder Certification of
Plans, Specs & Site Form (HUD 92451, REV 4/01) for all new construction,
regardless of whether or not a 10-year warranty is offered.
The Builder Certification of Plans, Specs & Site Form must be completed and
signed within 30 days of the lender’s request for an appraisal.
The form must be provided to the appraiser who must review the form and note
on the appraisal that he/she has seen the certification. In addition, the appraiser
must comment on the appraisal as to whether or not he/she agrees with the
builder’s findings.
If the form is not provided to the appraiser, HUD requires the appraiser to return
the appraisal request. If the form is not complete, HUD requires the appraiser to
return the form for completion prior to releasing the appraisal.
Reference: See Builder Certification Procedure subsequently presented in this topic
for additional information.
Section 2.22
October 31, 2014
Page 36 of 222
10 Year
Warranties
•
•
•
•
•
A ten (10) year warranty is required if the borrower wants maximum FHA
financing, an Early Start Letter is not available and the local jurisdiction does not
issue a building permit.
If a ten (10) year warranty is required, a copy of the actual warranty or letter from
the warranty company specifically stating acceptance of the property must be
provided.
Letters from the warranty companies should include the subject address,
effective date of coverage, type of warranty and the warranty company’s name.
The letter must be signed by an official of the company.
If a 10 Year Warranty is a condition on the loan, the loan cannot close until
actual confirmation of the warranty approval has been received in writing. Verbal
confirmation is not sufficient.
HUD issues periodic updates for approved warranty companies. Click here for
the current list of HUD Accepted Insured 10 Year Protection Plans.
Required
Exhibits for
HUD
Endorsement
•
Builder
Certification
Procedure
General Information
• The Builder Certification procedure is used to obtain mortgage insurance for
most new construction in new subdivisions.
• If the local HUD Field Office determines that local subdivision standards do not
exist, or are inadequate to protect HUD’s underwriting risk or the health and
safety of the of the intended occupants, it may require builders and lenders to
use only the Improved Area procedure (IAP) and the Appraiser/Review Checklist
(HUD-54891).
• Local HUD offices will periodically publish a list of those jurisdictions where
subdivision standards do not exist or are considered ineffective or inadequate.
• THE BUILDER CERTIFICATION PROCEDURE IS NOT APPLICABLE TO
CONDOMINIUM PROJECT APPROVAL.
Construction exhibits required to be submitted to HUD in the endorsement
package for high LTV (above 90%) cases are as follows:
• Builder’s Certification (HUD-92541),
• Builder’s Warranty (HUD-92544),
• a HUD Accepted Insured Ten-Year Protection Plan, (when required), and
• all other documents normally submitted, such as inspection reports, soil
poisoning certifications, appraisal reports, Square Foot Cost Appraisal form,
if applicable, etc.
Builder Certification Procedure (Local Standards Are Acceptable)
• The Builder Certification procedure is used where HUD determines that local
subdivision standards adequately protect the health and safety of the borrower.
Section 2.22
October 31, 2014
Page 37 of 222
Builder
Certification
Procedure
•
•
•
Affirmative Fair
Housing
Marketing Plan
(AFHMP)
•
•
•
•
•
•
•
•
•
The builder must complete the Builder Certification of Plans, Specifications, &
Site (HUD-92541). If there are flood hazards, runway clear zones/clear zones or
foreseeable hazards/adverse conditions noted on the certification, the DE
underwriter has the responsibility to determine if the health and safety of the
borrower or the underwriting risk is affected. The builder can use the certification
for more than one (1) property by attaching it to a list of properties with matching
FHA case numbers and entering “See Attached List” into the FHA case number
block on the form.
The Builder Certification of Plans, Specifications, & Site (HUD-92541) is sent to
the appraiser with the appraisal request. The appraiser will indicate any
discrepancies noted, use it as a source to assist in determining the property
value and return the form with the appraisal report to the lender.
The builder’s compliance with the Affirmative Fair Housing Marketing Plan
requirements must be noted on the Builder Certification of Plans, Specifications,
& Site (HUD-92541).
Mortgagee Letter 01-09 states, to “streamline the process and assure better
compliance to HUD’s affirmative fair housing marketing requirements”, a fourth
option is now available to builders that sold 5 or more units in the past 12 month
period or plan to sell 5 or more units in the next 12 month period with FHA
insured financing.
This new option-block “d”, paragraph 11 of the Builder Certification of Plans,
Specifications, & Site (HUD-92541), allows the builder to self certify compliance
with HUD’s affirmative fair housing marketing regulations.
Builders must also maintain records of their affirmative fair housing marketing
activities and make them available to the Department upon request.
If a builder opts to check block “d,” they no longer need to submit an individual
Affirmative Fair Housing Marketing Plan (AFHMP) to the department for
approval, sign a Voluntary Affirmative Marketing Agreement (VAMA), or contract
with another entity that has a VAMA or AFHMP.
To obtain approval of an AFHMP, the builder or developer must complete and
file Form HUD-935.2 with the Fair Housing and Equal Opportunity (FHEO)
Division of the local HUD Field Office or the FHEO Program Operations
Divisions in HUD Regional Offices.
THE AFHMP MUST BE APPROVED BY THE FHEO DIVISION BEFORE THE
BUILDER OR DEVELOPER BEGINS TO MARKET PROPERTIES.
For new subdivisions being built in phases, an AFHMP must be filed for the first
phase.
Builders or developers that are planning large phased subdivisions must consult
with the FHEO Division of the local HUD Field Office for further guidance.
The FHEO Division can request the submission of new or amended AFHMPs for
subsequent phases.
Section 2.22
October 31, 2014
Page 38 of 222
Affirmative Fair
Housing
Marketing Plan
(AFHMP)
•
A builder or developer may be exempt from obtaining HUD approval of an
AFHMP if the following conditions are met:
• the builder/developer is in good standing to a Voluntary Affirmative
Marketing Agreement (VAMA) between the Department and a State, local
home builders association, or Board of Realtors associated with their
national organizations (signatory promises that marketing activities
connected with HUD-insured mortgages will be conducted in a nondiscriminatory manner), AND
• the builder/developer submits to HUD written proof of its status as a
signatory to such an agreement.
• Case numbers should not be ordered on new properties until it has been
verified that the builder is in compliance with HUD’s AFHMP requirements
(i.e., have an approved AFHMP or documentation that builder is in good
standing to a VAMA).
Reference: See the FHA Case Number Assignment and Cancellation subtopic
in the Overview topic for additional information.
Land Contracts
•
•
•
•
If the borrower will use the loan to complete payment on a land contract,
contract for deed, or other similar type financing arrangement where the
borrower does not have title to the property, the new mortgage may be
processed as either a purchase or a refinance transaction with maximum
insured financing if the borrower receives no cash at closing.
If all loan proceeds are used to pay the outstanding balance on the land
contract and eligible repairs, renovations, etc., the appropriate loan-to-value
ratio is applied to the lesser of:
• the appraised value plus the allowable closing costs, or
• the total cost to acquire the property (the original purchase price, plus any
documented costs the purchaser incurs for rehabilitation, repairs,
renovation, or weatherization), plus allowable closing costs and, if treated
as a refinance, reasonable discount points.
Equity in the property (original sales price minus the amount owed) may be
used for the borrower’s entire down payment. However, if the borrower
receives cash at closing exceeding $500, the loan is limited to 85% percent of
the sum of the appraised value and allowable closing costs.
Replenishment of the borrower’s own cash expended for repairs,
improvements, renovation, etc., is not considered as “cash back”, provided the
borrower can substantiate, with cancelled checks and paid receipts, all out-ofpocket funds spent for these purposes.
Section 2.22
October 31, 2014
Page 39 of 222
Building on
Own Land
•
Borrowers who are building homes on land they already own are still required to
have a three and one half percent (3.50%) down payment (or its equivalent in
land equity) into the transaction. All mortgage transactions must be calculated
using the documented acquisition cost.
Note: A manual verification of the calculation is necessary to determine that the
maximum loan amount is accurate. Do not rely on computer-generated
calculations during the processing and underwriting of the loan as an accurate
loan amount.
•
•
•
•
The documented acquisition cost is entered in the Sales Price line, of the FHA
Loan Underwriting and Transmittal Summary (HUD-92900-LT) and includes the
sum total of the following items:
• builder’s price or sum of all subcontractors’ bids, materials, etc.,
• cost of the land (if owned more than six [6] months or received as an
acceptable gift, the appraised value of the land may be used instead of its
cost), and
• interest and other costs associated with any construction loan obtained by
the borrower to fund construction of the property.
The calculated Loan-to-Value Ratio shown will reflect the lesser of the sales
price or the appraiser’s value estimate, as it does on other purchase
transactions, and is the same value used for TOTAL Scorecard.
If the borrower receives cash at closing to replenish his/her own cash funds
spent during construction, it is not cash-out if documentation (i.e., canceled
checks and paid receipts) is provided that the funds were paid out of pocket.
If the borrower receives cash-back of more than $250 at closing, the maximum
LTV is limited to 85.00%.
Section 2.22
October 31, 2014
Page 40 of 222
Property Tax
Estimates
Tax Estimate Used for Qualifying
• Borrower(s) must qualify with the monthly payment based on improved property
taxes, not on the vacant land.
• In those states where it is customary for a borrower to pay property taxes in
arrears, (and he/she may not pay property taxes on the improvements until a year
or more after closing), FHA still expects the borrower to qualify based on accurate
and realistic property tax estimates that include the improvements.
• Realistic estimates of value for improved property must be obtained from reliable
sources such as those listed below.
• The appraiser
• Comparable sales data
• The assessor’s office
Tax Estimate for Escrow Accounts
• The borrower’s monthly escrow payments must be based on the accurate and
realistic “improved” property estimate when tax authority reassessments are likely
to occur within 12 months of mortgage loan closing.
• RESPA permits lenders to project the disbursements for real estate taxes for
the ensuing twelve months and collect funds based on this projection. When
the annual escrow analysis is completed, refunds are issued or shortages
collected based on the results of that analysis.
Re-Sale of New
Construction
Properties
•
•
FHA will treat most re-sales of properties that are less than one (1) year old and
100% complete, as an existing property for documentation purposes, and the
new construction exhibits normally submitted will not be required.
Re-sales of properties that are existing construction less than a year old, the new
construction exhibits are required when the following scenarios apply:
• the new FHA loan is a non-arms length transaction, or
• documentation to identify the transaction as a re-sale to a second or
subsequent purchaser cannot be provided.
Notes:
• The property must be 100% complete (including all on and offsite
improvements).
• The FHA case binder file must clearly identify the transaction as a re-sale to a
second or subsequent purchaser.
• A lender selling a newly built home is currently exempt from the ninety (90)
day property flipping guidelines.
• A builder selling a newly built home, where the current builder completed the
home and obtained the Certificate of Occupancy, is currently exempt from the
ninety (90) day property flipping guidelines.
• A builder selling a newly built home, where the current builder did not actually
complete the construction of the property and the Certificate of Occupancy
was issued prior to the current owner, is subject to all property flipping
guidelines.
Section 2.22
October 31, 2014
Page 41 of 222
Ease-In Payment Reduction Feature
General
Introduction
• The “Ease-In” is a payment reduction feature where the seller / builder
contributes interest up to the first six (6) months allowing the borrower to “easein” into a new home and to “ease-in” to the monthly payments.
• The maximum interest subsidy may not exceed the six percent (6%) seller
contribution.
• The builder or seller may pay the interest portion beginning with the first payment
up to the 6th month payment.
• This feature is only available for a fixed rate FHA loan.
• Temporary buydowns are not eligible when the seller-paid interest buydown
feature is utilized.
Requirements
• This feature is only available for a 30-year fixed rate FHA purchase transaction.
• Borrower must qualify at the Note rate.
• The maximum contribution of 6% of the sales price may be used towards the
borrower’s interest, closing costs and/or prepaids.
• Any dollar amount over the 6% seller contribution limit must be subtracted dollarfor-dollar from the sales price.
• Care must be taken to ensure the borrower’s three and one half percent (3.50%)
down payment is not reduced as a result of the seller contributions.
• The seller / builder contribution which is disbursed monthly must be a fixed
amount (i.e., payments applied to the monthly interest cannot fluctuate from
month to month).
• No portion of the funds may be applied to the principal balance.
Ineligible transactions
• The following transactions are not eligible for use with the Ease-In Payment
Reduction Feature:
• Temporary buydowns
• Base loan amounts greater than $417,000
• Housing Finance Agency loans
Amortization
Schedule
•
•
An amortization schedule may be obtained on the SunTrust website or similar
loan amortization programs can be used.
The following items are determined by running an amortization schedule:
• Total Seller Paid Contribution: the dollar amount of the seller paid interest,
• Reduced Payment Period: the number of months during which interest
payments are made, a minimum of one (1) month and no more than six (6)
months, and
• Interest Payment: a fixed dollar amount being paid monthly toward borrower
interest from the seller / builder contribution.
Section 2.22
October 31, 2014
Page 42 of 222
Ease-In Payment Reduction Feature, Continued
Interest
Payment
Reduction
Calculation
•
•
•
DU Direct
An example of a 5-month payment reduction on a loan amount of $97,000 at 6%
interest is shown in the table below.
The seller’s interest contribution for the payment reduction is a fixed amount that
cannot exceed the last month of the subsidy period.
The maximum monthly interest contribution amount in the example below is
$483.00.
Monthly
Payment
Principal
Interest
Owed
Total P & I
Seller/Builder
Contribution
Borrower
Contribution
#1
$96.56
$485.00
$581.56
$483.00
$98.56
#2
$97.04
$484.52
$581.56
$483.00
$98.56
#3
$97.53
$484.03
$581.56
$483.00
$98.56
#4
$98.02
$483.54
$581.56
$483.00
$98.56
#5
$98.51
$483.05
581.56
$483.00
$98.56
The table below shows the data input instructions for DU submission of the Ease-In
Payment Reduction Features in DU Direct.
Fannie Mae’s Desktop Underwriter (DU)
Types, Terms & Property
• Type of Mortgage and Terms of Loan
• Interest Rate (%) – enter the Note Rate
Details of Transaction
• Line f. Est. closing cost- Add Ease-In amount to closing costs.
• Line k. Closing Costs Paid By Seller – if an Ease-In Payment Reduction Feature
is involved, add the Ease-In feature amount to other seller paid closing costs
Other Credits
• Description of Other Credits – enter “Other”
• Amount – if an Ease-In feature is involved, enter the dollar amount of the Ease-In
feature
Additional Data
• Loan Information
• First Year Buydown Rate – enter the Note Rate
Section 2.22
October 31, 2014
Page 43 of 222
Ease-In Payment Reduction Feature, Continued
MLCS Loan
Set-Up
•
•
The following program and investor codes are applicable for MLCS. Additionally,
they apply to Non-AUS and Fannie Mae DU.
• Program Code = F30SPI
• Investor Code = 000
The table below shows MLCS procedures.
MLCS
Closing
•
•
•
•
•
Screen
MOM
MOB
MOB
Z74
Z74
Z74
Field
Program Code
Target Investor
Buydown Code
Type
Who Pays Buydown
Amount
Z74
MOS
Input
F30SPI
000 (should prefill)
SPI
D (for dollar buydown)
S (for seller)
$ Amount of monthly fixed interest payment
fund
# of months seller will pay toward the
interest portion of PITI payment
The Seller-Paid Interest Buydown Agreement (COR 0322) must be completed by
the Loan Closer and signed by the borrower and sellers.
The Ease-In Contribution must be show on a line within the 800 series of the
HUD 1 settlement statement as a seller credit and be labeled “Seller-Paid
Interest Contribution”, 4 months @ $483.54” with $1934.16 (per example above)
under the seller’s column.
Additional funds paid by the seller over and above the cumulative interest
calculation must be shown as a closing cost credit to the borrower on the HUD-1
settlement statement.
HUD does not require or permit the presentation or disclosure of “seller-paid
credits” on the Good Faith Estimate (GFE).
Seller credits must be entered as a “lump sum credit” on the HUD-1.
Note: When the seller makes a contribution to more than one expense for the
borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum
payment.”
•
•
The servicing department will disburse the seller-paid interest contribution shown
on the HUD-1 on a monthly basis and bill the borrower for the difference.
As far as IRS reporting is concerned, servicing will back out the seller-paid
interest contribution for year-end reporting purposes on Form 1098.
Section 2.22
October 31, 2014
Page 44 of 222
Energy Efficient Mortgage (EEM) Program
General
Only Correspondent lenders that have a Direct Endorsement underwriter on
staff may underwrite and submit for purchase loan transactions involving the
Energy Efficient Mortgage (EEM) loan program to SunTrust. Property repairs
and energy upgrades must be complete for SunTrust to purchase the loan.
Eligible
Mortgages
A mortgage for the Purchase or Rate/Term refinance of a property to be insured
under section 203(b), 203(k), or section 234(c) is eligible for the EEM program.)
Eligible
Property
•
•
Both new and existing 1-4 family unit properties are eligible, including 1-unit
condominiums and manufactured housing.
The allowable EEM dollar amount is for the entire property and not based on a
per unit basis for multiple unit properties.
Qualifying the
EEM Borrower
•
For homes that were built or/havebeen retrofitted to exceed the applicable IECC
standard, the borrower is eligible for the following stretch ratios in addition to the
cost of the improvements:
• Housing: 33.00%
• Debt to Income: 45.00%
Automated
Underwriting
System (AUS)
•
•
FHA’s TOTAL Scorecard may be used for underwriting EEMs.
The lender’s Direct Endorsement (DE) underwriter must attest that he/she has
reviewed the monthly payment and loan amount calculations associated with the
energy efficient improvements, and found the mortgage and the property to be in
compliance with FHA’s underwriting instructions
Section 2.22
October 31, 2014
Page 45 of 222
Refinances
Types of
Refinance
Transactions
SunTrust Mortgage offers the following types of refinance transactions:
• Cash Out Refinance (85.00% LTV), Rate/Term Refinance, and
• Streamline Refinances (FHA loan to FHA loan, STM to STM transactions only)
• Credit Qualifying with an appraisal
• Credit Qualifying without an appraisal
General
•
•
•
•
•
A new FHA appraisal is required for each refinance transaction requiring an
appraisal. An appraisal used for the purchase of the property cannot be used
again for a subsequent refinance even if 120 days has not passed.
All Rate/Term refinance and Streamline Refinance transactions must have a
payoff statement in the file.
The payment due in the month the loan is closing must be paid either prior to
closing or included in the payoff amount at closing. (i.e., if the borrower closes
and funds on a refinance in the month of December, the borrower does not need
to have made the December payment. However, if the loan doesn’t close/fund
until January, the December payment cannot be included in the loan amount and
the borrower will need to pay the December payment from his/her own cash.)
All subordinated financing, whether it will be subordinated to the new SunTrust
mortgage or will be paid off by the new SunTrust mortgage (unless FHA’s more
restrictive twelve (12) month period applies), must be seasoned for at least six
(6) months with 0x30 day late payments (i.e., six (6) permanent mortgage
payments made) prior to application for the new SunTrust mortgage.
Confirm the borrower is current on the mortgage being refinanced for:
• the month prior to the month in which they close, and
• the month they close.
Note: The borrower has the option to make the current payment at the
beginning of the month or include it in the payoff amount at closing, when closing
within the month the payment is due.
•
•
SunTrust Mortgage will not purchase any FHA loan where the tax, hazard and/or
flood insurance escrows are netted from the unpaid principal balance of the FHA
loan being paid off (i.e. principal balance cannot be reduced by escrow account
balance). Refunds of any tax and insurance escrow account balances are paid
directly to the borrower within 30 days after the existing loan is paid off.
SunTrust Mortgage will not purchase any FHA loan where the tax, hazard,
and/or flood insurance escrows are transferred (rolled) from the unpaid principal
balance of the FHA loan being paid off, to the new loan, in order to fund the new
escrow account. Refunds of any tax and insurance escrow account balances
are paid directly to the borrower within 30 days after the existing loan is paid off.
Section 2.22
October 31, 2014
Page 46 of 222
Refinances, Continued
FHA Refinance
Credit Query
•
•
•
•
•
•
•
If the existing loan is an FHA loan, there could be a refund of a portion of the
Upfront MIP. If the new loan will also be an FHA loan, this refund is applied as a
credit in determining the new loan amount. FHA provides Refinance Credit
Query to use in determining this amount “upfront.”
The Refinance Credit Query is used to determine the amount of the MIP credit
available for an active FHA-insured loan that is being refinanced.
It provides 30-day and 60-day calculations based on the projected closing date
of the new loan.
This feature can be used to determine the credit or refund on either FHA or
conventional new financing without ordering a new case number.
This enables lenders to know the amount of the MIP credit or refund at the preapplication stage.
The refund schedule for FHA-to-FHA refinances is modified to a three (3) year
time period for those mortgages endorsed for insurance on or after December 8,
2004.
In order to accurately determine the correct UFMIP has been charged, SunTrust
requires Correspondent lenders to complete a FHA Case Query on each
borrower to verify the accuracy of the case number assignment date. A copy of
the case query results must be included in the loan file prior to purchase.
The instructions to utilize the Refinance Credit Query feature are shown below.
Step
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Action
Sign in to FHA Connection
Click “Single Family FHA”
Click “Single Family Origination”
Click “Case Processing”
Click “Case Query”
Select the field office applicable to the subject property in the first box
Enter the borrower’s social security number
Click “Send”
The User will see either the “Case Query” screen or the “Case Query List”
If the “Case Query List” screen appears, print the screen, then select the
case number that matches the case number on the subject loan file and
print the resulting “Case Query” screen.
The “Case Query” screen appears, print the screen and include with the
loan file.
Repeat the steps reflected above for each borrower
Additionally, lenders MUST investigate, resolve and document in the loan file, any
other case number matches that are found under the borrower’s social security
number.
Section 2.22
October 31, 2014
Page 47 of 222
Cash-Out Refinances
General
•
•
Delinquent
Mortgages
•
HUD considers cash out refinances for debt consolidation a high risk, especially
if borrowers have not demonstrated a significant increase in income and appear
to be heavy credit users.
These transactions should be scrutinized more carefully.
Borrowers who are delinquent or in arrears with their existing mortgage, or had a
late payment in the last 12 months (no payment may have been more than thirty
[30] days late) are NOT eligible for cash-out financing.
• Verification of a satisfactory mortgage payment history must be provided
through the month prior to closing, ensuring that all payments have been
made within the month due for the previous 12 months.
• An updated credit report or Verification of Mortgage (VOM) is required, if the
mortgage payment history provided in the loan file is not reporting through
the month prior to loan closing.
• A prior to closing condition, code CLS54, will be issued requiring evidence
that the existing mortgage is less than 30 days past due at closing with 0 x
30 day late payment in the last 12 months.
• Loan Officers must inform their clients that all mortgage payments must be
made within the month due on their current mortgage, until the date of
closing for their new transaction.
Notes:
• Payoff statements are not an acceptable means to document a mortgage
payment history.
• Cancelled checks may be an acceptable source of documentation for a
mortgage payment history, at the underwriter’s and/or MLC’s discretion, on a
case-by-case basis
Reference: See the Mortgage/Rental Payment Histories subtopic subsequently
presented in the Credit Requirements topic for additional requirements when using
TOTAL Scorecard for borrowers that have any mortgage tradelines with a
delinquency in their credit history.
Eligible
Borrowers
•
•
Any co-borrower or co-signer being added to the Note must be an occupant of
the subject property.
Non-occupant co-borrowers or co-signers are not permitted.
Section 2.22
October 31, 2014
Page 48 of 222
Cash-Out Refinances, Continued
Occupancy
•
•
•
Maximum
LTV/TLTV
•
Cash-out refinances are eligible only for primary residences.
Primary residences owned free and clear must be refinanced as cash-out
transactions.
Owner-occupied One-to-four (1-4) unit dwellings are eligible.
If the borrower has owned and occupied the subject property as their primary
residence for less than one (1) year prior to loan application, the maximum loan
is limited to a combined TLTV of 85% of the lesser of:
• appraised value (no closing costs, discount points or prepaid items), or
• the original sales price of property (no closing costs, discount points or
prepaid items).
Note: A sales price need not be considered if the property was acquired as the
result of inheritance and is, or will become, the borrower’s primary residence.
•
A combined TLTV of 85% of the appraised value may be used if the borrower
has owned and occupied the subject property as their primary residence for at
least one (1) year prior to loan application.
Reference: See the TLTV Calculation subtopic in the Secondary Financing topic
subsequently presented in this product description for additional information
when secondary financing exists.
Section 2.22
October 31, 2014
Page 49 of 222
Cash-Out Refinances, Continued
Maximum
LTV/TLTV
•
If the borrower has owned and occupied the subject property as their primary
residence for less than one (1) year prior to loan application, the maximum loan
is limited to a combined TLTV of 85% of the lesser of:
• appraised value (no closing costs, discount points or prepaid items), or
• the original sales price of property (no closing costs, discount points or
prepaid items).
Note: A sales price need not be considered if the property was acquired as the
result of inheritance and is, or will become, the borrower’s primary residence.
•
A combined TLTV of 85% of the appraised value may be used if the borrower
has owned and occupied the subject property as their primary residence for at
least one (1) year prior to loan application.
Acceptable
Payment
History
•
Secondary
Financing
•
•
•
•
•
•
Mortgages with less than 6 months of payment history are not eligible for a cashout refinance.
Free and clear properties are eligible for cash-out refinances.
New subordinated financing is not allowed on any cash-out transaction.
If the secondary financing is an equity line, the maximum amount of the equity
line is used in the calculation.
All existing liens (to be paid off or remain subordinate to the new first mortgage)
must be seasoned for at least six (6) months (i.e., six (6) permanent mortgage
payments made), with an acceptable payment history (i.e., no late payments of
30 days or beyond).
When the LTV of the proposed first mortgage is 85%, no subordinate financing
may remain on the loan regardless of the length of ownership.
Discount points, prepaid expenses and closing costs may not be included nor
added to the properties appraised value.
Reference: See the Lender Credit subtopic in the Contributions by Interested
Parties topic for additional information.
Section 2.22
October 31, 2014
Page 50 of 222
No Cash-Out with an Appraisal (Rate and Term Refinances)
General
•
•
The existing mortgage being refinanced can be either a current FHA,
conventional, or VA loan.
Requires an appraisal, full processing documentation and underwriting.
Occupancy
Owner-occupied only.
The Maximum
Insurable
Mortgage
•
The maximum insurable mortgage is based on the lesser of one (1) of the
following two (2) calculations:
• multiply the appraised value of the property by 97.75%, or
Note: If the property was acquired less than one year before the loan
application and is not already FHA-insured, the lesser of the current
appraised value or original sales price of the property must be used.
•
•
the sum of the existing first lien, Pro Rata MIP (if paying off an FHA
mortgage, up to two [2] months) closing costs, prepaid expenses, borrower
paid discount points, purchase money seconds, junior liens (not used to
acquire the property) over 12 months old (i.e. 12 permanent mortgage
payments made), prepayment penalties, accrued late charges, escrow
shortages, borrower paid repairs required by the appraisal minus any refund
of UFMIP (prepaid expenses are limited to per diem interest and
hazard/flood insurance, property taxes and mortgage insurance impound,
regardless of whether the lender refinancing the existing loan is also the
servicing lender for that mortgage), and
the base loan amount may not exceed the maximum county loan limits for
the property.
Note: Any appraisal requirements, including, repairs, must be complied
with before the mortgage is eligible for insurance endorsement.
Reference: See the FHA Refinance Loan Amount Worksheet (COR 0333a)
for assistance in calculating the loan amount.
Maximum Cash
Back to the
Borrower
•
•
The borrower may not receive cash back in excess of $500 at closing.
Delinquent interest may not be included. The refinance does not permit a
borrower to obtain cash back by not making a mortgage payment when due.
Reference: See the Lender Credit subtopic in the Contributions by Interested Parties
Section 2.22
October 31, 2014
Page 51 of 222
No Cash-Out with an Appraisal (Rate/Term), continued
Mortgage and
Payoff
Requirements
•
•
The mortgage being refinanced must be current for the month due.
The payment does not need to be paid for the month in which the loan
closes/funds
Note: If the closing/funding rolls over to the following month, the prior month’s
payment cannot be included in the loan amount.
Subordinate
Liens
•
The amount of the existing first mortgage may include the interest charged by
the servicing lender when the payoff will not likely be received on the first day of
the month (as is typically assessed on FHA-insured mortgages).
•
Subordinate liens, including credit lines, may remain outstanding provided the
FHA loan and subordinate lien meets the criteria outlined in the topic “Secondary
Financing” of this product description.
If disbursements from an equity line exceed a total of $1,000 within the past
twelve (12) month period and the funds were used for purposes other than
repairs and rehabilitation of the subject property, the line of credit cannot be
included in the new mortgage.
Subordinate financing, except purchase money seconds, must be seasoned
twelve (12) months (i.e. twelve [12] permanent mortgage payments made) to be
included in the loan amount.
New and existing subordinate financing is permitted up to a maximum TLTV of
97.75%.
•
•
•
Spousal BuyOuts
•
•
•
Seasoning
Requirement
•
•
The amount of “specified equity” in a spousal buy-out is considered property
related indebtedness and can be included in the new mortgage.
The “specified equity” must be documented in a recorded property settlement
agreement or divorce decree.
If the borrower is newly separated and no property settlement agreement has
been prepared, a legally recorded document prepared by an attorney specifically
outlining the division of equity is acceptable to HUD.
If the subject property was purchased less than one (1) year prior to loan
application and is not already FHA-insured, the maximum loan will be
determined by using the lesser of the appraised value or the original sales price
(plus the cost of any repairs or rehabilitation, with proper documentation).
If the subject property was purchased more than one (1) year prior to loan
application, the maximum loan will be determined from the appraised value.
Section 2.22
October 31, 2014
Page 52 of 222
Streamline Refinances (STM to STM Transactions Only)
General
•
•
•
•
Loan Terms
Streamline refinances are designed to lower the monthly principal and interest
(P&I) on a current FHA mortgage and must involve no cash back to the
borrower, except for minor adjustments at closing not to exceed $500.
SunTrust Mortgage offers the following types of streamline refinance
transactions:
• Credit Qualifying Streamline Refinance with an appraisal, and
• Credit Qualifying Streamline Refinance without an appraisal.
For credit qualifying transactions, SunTrust to SunTrust FHA streamline
refinances are eligible for conforming and jumbo loan amounts. Unless
otherwise stated, the guidelines below apply for both conforming and jumbo loan
amounts.
Streamline refinances are not eligible if the existing loan is with a lender other
than SunTrust Mortgage. The existing loan being paid off must be held with
SunTrust Mortgage.
Streamline Refinance without an appraisal:
• The maximum loan term is the lesser of 30 years or remaining term plus 12
years.
Streamline Refinance with an appraisal:
• 10, 15, 20, 25, and 30 year fixed rate
Note: A reduction in the loan term without a net tangible benefit must be processed,
underwritten, and closed as a no cash-out (rate/term) refinance.
Section 2.22
October 31, 2014
Page 53 of 222
Streamline Refinances (STM to STM Transactions Only), continued
Maximum Loan
Amount
Streamline Refinance without an Appraisal
• The maximum total loan amount may not exceed the outstanding principal
balance, plus up to 60 days of interest due on the current mortgage (delinquent
interest cannot be included), minus the applicable refund of the UFMIP, plus the
new UFMIP.
Notes:
• Discount points may not be included in the new mortgage. If the borrower
has agreed to pay discount points, document in the file that the borrower has
the assets to pay the discount point, along with any other financing costs
that are not included in the new loan amount.
• Delinquent interest, late charges or escrow shortages may not be included
in the outstanding principal balance of the mortgage being paid off for the
maximum mortgage calculation.
• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard
and/or flood insurance escrows are netted from the unpaid principal balance
of the FHA loan being paid off (i.e. principal balance cannot be reduced by
escrow account balance). Refunds of any tax and insurance escrow account
balances are paid directly to the borrower within 30 days after the existing
loan is paid off.
• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard,
and/or flood insurance escrows are transferred (rolled) from the unpaid
principal balance of the FHA loan being paid off, to the new loan, in order to
fund the new escrow account. Refunds of any tax and insurance escrow
account balances are paid directly to the borrower within 30 days after the
existing loan is paid off.
•
•
The borrower(s) for a non-owner occupied property, even if originally acquired as
principal residences by the current mortgagors, may only refinance the
outstanding balance of the existing mortgage.
FHA will compute a new LTV by dividing the new loan amount, exclusive of any
UFMIP, by the lower of the sales price or appraised value that is in their Single
Family Insurance System (SFIS) database for the existing loan being refinances.
If there is missing information in the database and a computed value is not
possible, only then will the new LTV default to 89.99%.
Section 2.22
October 31, 2014
Page 54 of 222
Maximum Loan
Amount,
(continued)
Streamline Refinance with an Appraisal
• The maximum total loan amount may not exceed the lower of:
• Outstanding principal balance, plus up to 60 days of interest due on the
current mortgage (delinquent interest cannot be included), minus the
applicable refund of the UFMIP, plus closing costs, plus prepaid items to
establish the escrow account, plus the new UFMIP, or
• 97.75% of the appraised value of the property, plus the new UFMIP.
Notes:
• Discount points may not be included in the new mortgage. If the borrower
has agreed to pay discount points, document in the file that the borrower has
the assets to pay the discount point, along with any other financing costs
that are not included in the new loan amount.
• Delinquent interest, late charges or escrow shortages may not be included
in the outstanding principal balance of the mortgage being paid off for the
maximum mortgage calculation.
• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard
and/or flood insurance escrows are netted from the unpaid principal balance
of the FHA loan being paid off (i.e. principal balance cannot be reduced by
escrow account balance). Refunds of any tax and insurance escrow account
balances are paid directly to the borrower within 30 days after the existing
loan is paid off.
• SunTrust Mortgage will not purchase any FHA loan where the tax, hazard,
and/or flood insurance escrows are transferred (rolled) from the unpaid
principal balance of the FHA loan being paid off, to the new loan, in order to
fund the new escrow account. Refunds of any tax and insurance escrow
account balances are paid directly to the borrower within 30 days after the
existing loan is paid off.
• The base loan amount may not exceed the maximum county loan limits for
the property.
•
Any refund of UFMIP on the old mortgage (if originally financed) must be
subtracted from the existing first lien (i.e., current loan payoff) in calculating the
new mortgage amount.
Section 2.22
October 31, 2014
Page 55 of 222
Net Tangible
Benefit
The borrower must receive one of the following net tangible benefits from the new
transaction:
• a 5% reduction to the principal and interest (P&I) of the mortgage payment plus
the annual MIP, or
• refinancing from an ARM to a fixed rate mortgage.
Reducing the term of the mortgage alone is not a net tangible benefit. The table
below illustrates the net tangible benefit requirements for streamline refinances.
Refinancing when the
first mortgage is initially
for the Trustee from a …
Fixed Rate
One-Year ARM
Hybrid ARM During
Fixed Period
Hybrid ARM During
Adjustable Period
GPM
…to a Fixed Rate
…to a Hybrid ARM
Reduction of at least
5% percent of P&I and
MIP
New interest rate no
greater than two
percentage points
above the current
interest rate of the ARM
MIP
New interest rate no
greater than two
percentage points
above the current
interest rate of the
Hybrid ARM
MIP.
Reduction of at least 5%
percent of P&I and MIP
If the streamline
refinance is completed
without an appraisal,
the new mortgage
amount may exceed the
statutory limit by the
accrued negative
amortization and the
new UFMIP.
New interest rate at least two
percentage points
below the current interest rate
of the ARM
percent of P&I and MIP
New interest rate at least two
percentage points
below the current interest rate
of the ARM
percent of P&I and MIP.
If the streamline refinance is
completed without an appraisal,
the new mortgage amount may
exceed the statutory limit by the
accrued negative amortization
and the new UFMIP.
Notes:
• Mortgage payment includes principal, interest, and monthly MIP.
• A reduction in loan term without a net tangible benefit requires the loan to be
underwritten and closed as a rate and term (no cash-out) refinance.
Section 2.22
October 31, 2014
Page 56 of 222
Seasoning
Requirement
On the date of the new FHA case number assignment,
• the borrower must have made at least six (6) payments on the existing SunTrust
Mortgage FHA first mortgage and any subordinate financing
• at least six (6) full months must have passed since the first payment due date of
the refinanced first mortgage and any subordinate financing, and
Example: The FHA case number on the mortgage being refinanced was closed
on or before December 1st, and the borrower's first payment on that mortgage
was due on January 1st. The lender may request assignment of an FHA case
number for the refinancing mortgage no earlier than July 1st.
•
at least 210 days must have passed from the closing date of the current
mortgage being refinanced.
Maximum Cash
Back to
Borrower
Streamline refinances are designed to lower the monthly principal and interest (P&I)
on a current FHA mortgage and must involve no cash back to the borrower except
for minor adjustments at closing not to exceed $500.
Secondary
Financing
•
Eligible
Occupancy/
Property Types
•
New subordinated financing is not allowed on any Streamline refinance
transactions
Existing secondary financing may be subordinated, but it must be seasoned six
(6) months (i.e., six (6) permanent mortgage payments made) prior to the date of
the date of the new FHA case number assignment with 0x30 day late payments.
•
The maximum TLTV is 105%:
•
•
Eligible for owner occupied, secondary, and investment properties.
Investment properties and second homes are only eligible for conforming
streamline refinances without an appraisal.
Note: Condominium Projects where the approval has been withdrawn must be a
refinance without an appraisal.
Section 2.22
October 31, 2014
Page 57 of 222
Employment/
Income
Verification
Standard employment/income documentation requirements must be met as outlined
in the Income topic subsequently presented in this product description.
Qualifying
Ratios
•
Standard qualifying ratios must be met as outlined in the Qualifying
Ratios/Compensating Factors subtopic subsequently presented in this product
description.
Note: Streamline refinances are not eligible for TOTAL Scorecard, they must be
traditionally underwritten.
Credit
Requirements
•
Minimum credit scores for all borrowers on streamline refinances are:
• 640 for loan amounts =/< $417,000, and
• 680 for loan amounts > $417,000.
Note: Credit scores must be entered into FHA Connection.
Mortgage
Payment
History
Borrowers that have made 12 or more regular payments must meet the following
requirements as of the date of loan application:
• a 12 month payment history, and
• the payment history reflects no more than zero times 30 day late, in the
preceding 12 months
• Borrowers that have made less than 12 regular payments at time of loan
application must meet the following requirements:
• a payment history for the life of the loan, and
• the payment history does not reflect any late payments.
Asset
Documentation
Requirements
Standard asset documentation requirements must be met as outlined in the Case
Requirements topic subsequently presented in this product description.
Buydowns
Buydowns are not eligible with streamline refinances.
Appraisal
Requirements
Streamline refinances may be done with or without an appraisal.
Section 2.22
October 31, 2014
Page 58 of 222
Loan
Application
A full application is required.
CAIVRS
•
•
Streamline refinances can be insured with or without an appraisal, and without
HUD’s Credit Voice Alert Interactive Response System (CAIVRS).
Documentation of CAIVRS codes is not required.
LDP/GSA List
•
The underwriter comments section of the FHA Loan Underwriting and
Transmittal Summary must reflect LDP/GSA information.
TOTAL
Scorecard
•
Streamline Refinance transactions are eligible for traditional underwritten and
should not be submitted through TOTAL Scorecard (DU).
Exception: If a streamline refinance is inadvertently submitted through TOTAL
Scorecard, the loan must be traditionally underwritten, and the DE underwriter
remains responsible for insuring all HUD and SunTrust Mortgage Credit
streamline refinance guidelines are met (i.e., mortgage payment history,
seasoning, etc.). Underwriters must also use their CHUMS ID for page three of
the HUD/VA Addendum to Uniform Residential Loan Application (HUD 92900-A),
FHA Connection, and the FHA Loan Underwriting and Transmittal Summary
(HUD 92900-LT) for streamline refinances.
Mortgage
Insurance
Reference: See the MIP Premiums for Streamline Refinances ONLY subtopic
subsequently presented in the Mortgage Insurance topic for additional information on
mortgage insurance for streamline refinance transactions.
Section 2.22
October 31, 2014
Page 59 of 222
Secondary Financing
General
•
•
•
•
•
TLTV
Calculation
•
•
Any financing other than the FHA first mortgage that creates a lien against the
property is considered secondary financing, even those with “soft” or “silent”
seconds (i.e., has no monthly repayment provisions or other features forgiving
the debt).
Documentation from the provider of the secondary financing must show the
amount of funds provided to the borrower and copies of the loan instruments are
to be made part of the case binder file.
FHA reserves the right to reject any secondary financing that does not serve the
needs of the intended borrower or where it believes the costs to the participants
outweigh the benefits derived by the homebuyer.
All existing subordinated financing, whether it will be subordinated to the new
SunTrust mortgage or will be paid off by the new SunTrust mortgage (unless
FHA’s more restrictive twelve (12) month period applies), must be seasoned for
at least six (6) months (i.e., six (6) permanent mortgage payments made) prior to
application for the new SunTrust mortgage.
Secondary financing subject to negative amortization is not acceptable.
The combined TLTV for a Purchase, Streamline Refinance, and Rate/Term
Refinance transaction includes the proposed FHA first mortgage total loan
amount (including any financed UFMIP) and any secondary financing, when
secondary financing exists.
The combined TLTV for a Cash-out Refinance transaction includes the
proposed FHA first mortgage base loan amount (excluding any financed
UFMIP) and any secondary financing.
Section 2.22
October 31, 2014
Page 60 of 222
Secondary Financing, Continued
Automated
Underwriting
Systems (AUS)
Information
The following table shows information specific to AUS.
•
•
•
Community
Seconds/
Down Payment
Assistance
Programs
•
Federal, State
and Local
Governmental
Agencies
•
•
•
•
Fannie Mae DU
In all cases, the first mortgage data
must include secondary financing
data so that the TLTV is accurate.
Lenders must determine, outside of
DU, the open date of any existing
secondary financing to determine if
it is eligible for inclusion in the new
loan for rate/term refinances.
If secondary financing is a HELOC,
the TLTV is based on the total
available credit line, regardless of
the balance.
•
•
•
Freddie Mac LP
In all cases, the first mortgage data
must include secondary financing
data so that the TLTV is accurate.
Lenders must determine, outside of
LP, the open date of any existing
secondary financing to determine if
it is eligible for inclusion in the new
loan for rate/term refinances.
If secondary financing is a HELOC,
the TLTV is based on the total
available credit line, regardless of
the balance.
Costs incurred for participating in a down payment assistance secondary
financing program may only be included in the amount of the second lien.
If new subordinated financing is being provided by a nonprofit, government entity
or other business entity, the following is required:
• Employer Identification Number (EIN) must be noted on the appropriate
line(s) of the “Mortgage Information” section of the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT), and
• The correct provider must be marked in the box below the EIN.
• When the “Other” box is marked as the provider of secondary financing, the
type of provider (i.e. employer, labor union) must also be identified.
Secondary financing may be provided for the borrower’s full amount of down
payment.
The second lien must be made or held by the eligible governmental body or
instrumentality.
The first and second mortgages cannot result in cash back to the borrower at
closing.
Section 2.22
October 31, 2014
Page 61 of 222
Federal, State
and Local
Governmental
Agencies,
(continued)
•
•
•
•
•
•
•
•
The sum of all financing cannot exceed 100% of the “cost to acquire” the
property. “Cost to acquire” is defined as the sales price plus allowable
borrower paid closing costs, discount points, prepaids, and repair and
rehabilitation expenses. It does not include buydown funds, funds to pay
off personal debts, or unallowable closing costs, such as tax service fees.
• The maximum TLTV for SunTrust is 105%.
The “cost to acquire” may exceed the appraised value of the property under
these types of government assistance programs.
The FHA insured first mortgage cannot exceed the FHA statutory limit for the
area where the property is located. The combined indebtedness, however, may
exceed the FHA statutory limit.
The source, amount, and repayment terms of the secondary financing must be
disclosed in the mortgage loan application and the borrower must acknowledge
that he/she understands and agrees to the terms.
The payment of the second mortgage is included in both the housing and debt
ratios.
Documentation must be obtained that shows the Government Entity incurred
prior to or at closing an enforceable legal liability or obligation to fund the
borrower’s required Minimum Cash Investment.
Acceptable forms of
documentation include, but are not limited to, the following:
i. A cancelled check, evidence of wire transfer or other draw request showing
that prior to or at the time of closing the Government Entity had authorized a
draw of the funds on its account provided towards the borrower’s required
Minimum Cash Investment from the Government Entity’s account; or
ii. A letter from the Government Entity, signed by an authorized official,
establishing that the funds provided towards the borrower’s required
Minimum Cash Investment were funds legally belonging to the Government
Entity at or before closing
Government agency programs must be limited to borrowers with incomes of no
more than 115% of median income to be eligible for FHA financing. Borrowers
with incomes above 115% of median and up to 140% of median income, will be
acceptable for FHA financing if approval is obtained from the jurisdictional HOC
to use the higher median.
Where the Government Entity cannot legally or operationally ensure that
secondary financing is “made” by the Government Entity, FHA will permit the
secondary financing component to be made by an FHA-approved mortgagee or
FHA-approved non-profit on behalf of the Governmental Entity provided the
mortgagee or non-profit is not a prohibited source and the Government Entity
holds the secondary financing prior to endorsement of the first mortgage for FHA
insurance until further notice. Mortgagees must document that the secondary
financing is held by the Government Entity prior to submission of the mortgage to
HUD via the Direct Endorsement process for insurance, or the endorsement of
the mortgage for insurance through the Lender Insurance process.
Section 2.22
October 31, 2014
Page 62 of 222
Non-Profit
Corporations
•
•
•
•
A non-profit corporation, that is considered an instrumentality of the government
and meets the criteria below may provide secondary financing when certain
conditions are met.
If the non-profit agency is considered an instrumentality of government, the
guidelines indicated in the above section (Federal, State and Local Governmental
agencies) must be followed.
Non-profit agencies not meeting either of the preceding criteria may provide
secondary financing only after the borrower has met the normal down
payment requirement of 3.50% of the acquisition cost and the combined
dollar amount of the first and second mortgages do not exceed the statutory
limit for the area where the property is located.
• The maximum TLTV for SunTrust is 105%.
The non-profit corporation must be approved by HUD to provide secondary
financing and appear on HUD’s list:
https://entp.hud.gov/idapp/html/f17npdata.cfm
Note: HUD may add or remove nonprofit entities from this list, it is important to
view the most current list at all times.
Note: Nonprofit organizations assisting with a government entity’s secondary
financing program must also have HUD approval and appear on HUD’s Nonprofit
Organization Roster unless there is a documented agreement that:
1) The functions performed are limited to the government entity’s secondary
financing program; and
2) The secondary financing legal documents (Note and Deed of Trust) name
the government entity as the Mortgagee.
• A letter from the government entity evidencing the relationship between the
government entity and nonprofit must be included in the case binder. The letter
must be on the government entity’s letterhead and contain:
• FHA case number for the first mortgage
• Complete property address
• Name, address and Tax ID for the nonprofit
• Name of the borrower(s) to whom the nonprofit is providing secondary
financing
• Amount and purpose for the secondary financing
• Statement indicating whether the secondary financing:
• Will close in the name of the government entity, or
• Will be closed in the name of the nonprofit and held by the government
entity
Section 2.22
October 31, 2014
Page 63 of 222
Non-Profit
Corporations
(Continued)
•
Secondary financing information is required to be entered in the FHAC in
accordance with the Nonprofit Matrix (Attachment A within the Mortgagee Letter
2014-08)
• In order for a non-profit corporation to obtain HUD approval, the local FHA office
must approve the non-profit corporation which must meet the following
requirements:
• must be type described in Section 501(c)(3) as exempt from taxation under
Section 501(a) of the IRS code of 1986, and
• have two(2) years’ experience as a provider of housing for low and moderate
income persons, and
• have a voluntary board with no part of the net earnings of the organization
benefiting any member, founder, contributor, or individual.
•
• If the non-profit agency is not listed on the HOC web site, the non-profit agency
is not eligible at this time. Approval must be granted from the local HOC. The
non-profit may submit an application for approval following instructions
established by the local HOC.
• Additional guidelines are as follows:
• the approval is effective for two (2) years, after which time the non-profit
must submit updated program information to HUD for renewal, and
• the non-profit organization must furnish HUD’s approval or re-certification
letter to include in the loan submission package to underwriting if they are
not already listed on HUD’s roster.
Click here to access FHA Mortgagee Letter 2002-22 for additional information on
down payment assistance programs operated by Governmental Agencies and Nonprofits using subordinate financing.
Section 2.22
October 31, 2014
Page 64 of 222
Other
Organizations
and Private
Individuals
•
•
The repayment terms of the second mortgage must meet the following
requirements:
• it cannot provide for a balloon payment before ten (10) years unless the
property is sold or refinanced, and
• it must permit prepayment by the borrower, without penalty, after giving the
lender 30 days advance notice, and
• the required monthly payment under both the insured mortgage and the
second mortgage or lien, plus other housing expenses and all recurring
charges, cannot exceed the borrower’s reasonable ability to pay. Any
periodic payments due on the second mortgage are due monthly and are
substantially the same in amount.
The combined first and second mortgages cannot exceed the applicable LTV
based on type of transaction or the maximum mortgage limit for the area.
Reference: See the topic Refinances for additional information.
Family Member
Loans
•
•
Family members may lend up to one hundred percent (100.00%) of the required
down payment on a secured or unsecured basis to the borrower to assist with
the costs of acquiring a home (i.e., down payment, closing costs, prepaid
expenses, and discount points). HUD defines family member for this purpose as
only those listed below:
• child, stepchild, parent, or grandparent of the borrower or borrower’s spouse,
• legally adopted sons or daughters (and a child who is a member of
borrower’s household, if placed by an authorized agency for legal adoption
by the borrower), or
• foster children.
The following terms and conditions apply when the borrower is obtaining a loan
from a family member:
•
if the loan from the family member is secured by the subject property,
whether borrowed from an acceptable source or the family member’s own
savings, only the family member provider may be the note holder (i.e.,
cannot be parent and brother). Additionally, the homebuyer (our borrower)
cannot be a co-obligor on that note.
•
the combined amount of financing may not exceed 100% of the lesser of the
property’s value or sales price, plus normal closing costs, prepaid expenses,
and discount points.
•
the maximum TLTV for SunTrust is 105%.
Section 2.22
October 31, 2014
Page 65 of 222
Family Member
Loans,
(continued)
•
•
•
•
•
•
FHA Loan
Underwriting
and Transmittal
Summary
(HUD-92900-LT)
although the family member may lend one hundred percent (100.00%) of the
cash requirements, cash back to the homebuyer (except for refund of
earnest money deposit) at closing is unacceptable.
the secondary financing payments are included in the total debt-to-income
ratio (i.e., the back-end ratio) for qualifying purposes.
the second lien may not have a balloon payment within five years from the
date of execution.
if the family member providing the secondary financing borrowers those
funds, the source may not be any entity with an identity of interest in the sale
of the property. This includes the seller, builder, loan officer, real estate
agent, etc.
mortgage companies that have retail banking affiliates may have that entity
make a loan to the family member providing the secondary financing to the
homebuyer (our borrower). However, the loan may not have more favorable
terms and conditions than to other borrowers.
an executed copy of the document outlining the terms of secondary
financing must be maintained in the lender’s file and also provided in the
FHA case binder file.
The following items need to be indicated on the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT):
• 2nd mortgage proceeds,
• 2nd mortgage monthly payment, and
• Underwriter comments - provide details on 2nd mortgage (i.e., lender, term,
payment).
Section 2.22
October 31, 2014
Page 66 of 222
SunTrust
Internal
Employees:
Tracking
Secondary
Financing in
MLCS
For all loans where secondary financing , including community seconds, is present,
the following information must be appropriately identified in MLCS for tracking
purposes:
• 03-11 flow
• MOE Screen - “Other Lien Indictor” as “1” second lien (not combo); FTHB
field (Y) if applicable; and input amount of secondary financing in “Loan
Amount” under “Other Financing Info,” and
• M82 Screen (Government Only) - complete “amount of secondary financing”
input amount of secondary financing; “NP/Gov’t EIN field” - input EIN of
secondary financing provider; “source secondary financing” field with one of
the following source codes from the table below:
Code
01
02
03
04
05
06
08
09
10
11
12
Section 2.22
Secondary Financing Source
Originating Lender
Other Financial Institution
Federal Government Program
State Government Program
Local Government Program
Employer
Not Applicable
Property Seller
Other
Non Profit Organization
Relative
October 31, 2014
Page 67 of 222
Documenting a
Modified HELOC
The following table shows information regarding the modification of Home Equity
Lines of Credit (HELOCs).
Non-AUS Loans
•
Lenders in some cases must reduce the available line
of credit on a HELOC to meet the new first mortgage’s
TLTV and the HTLTV requirements. Obtain one of the
following forms of documentation to show a modified
line amount for a HELOC:
1. A complete and recorded Modification Agreement
(fully executed by the HELOC lender and all
borrowers under the HELOC).
2. In the event the recorded modification agreement is
not back from recordation, an unrecorded
modification agreement fully executed reflecting the
instrument number or other evidence of submission
for recordation stamped by the recorders’ office
(certified by the clerk of court).
3. A written agreement between the HELOC lender
and the borrower agreeing to the reduction in the
credit line amount to a specific amount as of a
particular date. All borrowers must sign the written
agreement.
4. A cover letter from the HELOC lender on company
letterhead reflecting a signature from the
appropriate company representative that includes
confirmation of the reduced credit line to a specific
amount as of a specific date, along with evidence
of the borrower’s request/consent to the reduction
(preferably in writing).
Fannie Mae DU
“Approve/Eligible”
Loans
•
Non-AUS
guidelines apply.
Freddie Mac LP
“Accept/Eligible”
Loans
•
Non-AUS
guidelines
apply.
Note: Obtain items 1 or 2 for the best evidence of
documenting this change whenever possible. Items 3
and 4 are acceptable when the first two are not
available. In this case, it is mandatory to maintain
appropriately signed documentation.
•
If you cannot obtain one of the above forms of
documentation, use the original line amount of the
HELOC to calculate the TLTV/HTLTV for the new first
mortgage.
Section 2.22
October 31, 2014
Page 68 of 222
Geographic Restrictions
Introduction
The following table shows applicable geographic restrictions.
State
Restriction
Florida
•
•
Georgia
Properties containing Georgia Power Company leasehold agreements are not eligible
for financing with SunTrust.
As a result of state legislation, primary residences are not eligible if the transaction is
determined to be a “subprime home loan”.
Cash-out refinances not eligible.
New York
Texas
Condominiums located in the state of Florida are not eligible.
Cash-out refinance transactions are limited to a LTV/TLTV of 80.00%.
Reference: See Section 1.02: Eligible Mortgage Loans of the Correspondent Seller Guide for SunTrust
specific geographic restrictions that may apply to Alaska, Texas and Hawaii.
Section 2.22
October 31, 2014
Page 69 of 222
Occupancy/Property Types
General
HUD will accept 1-4 family units. The mortgaged premises must be a detached or
semi-detached dwelling, row dwelling, townhouse, or unit within a condominium
project or PUD.
Primary
Residences
•
•
The primary borrowers, for the majority of the calendar year, must occupy the
property.
Occupancy must take place within 60 days after signing the security instrument,
with continued occupancy for one (1) year.
Reference: See the Transactions Affecting Maximum Mortgage Calculations
subtopic previously presented in the Loan Terms topic for additional information.
Three and Four
Unit Properties
•
•
•
•
•
•
Three and four-unit properties, regardless of occupancy status, must be selfsufficient, i.e., the maximum mortgage is limited so that the ratio of the monthly
mortgage payment divided by the monthly net rental income does not exceed
100 percent.
The monthly payment is defined as principal, interest, taxes, and insurance,
including mortgage insurance (PITI), as well as any homeowner’s association
dues, computed at the note rate (no consideration for buydowns may be given).
Net rental income is the appraiser’s estimate of fair market rent from all units,
including the unit chosen by the borrower for occupancy, less the FHA office’s
allowance for vacancies and maintenance (or 25% if the local FHA has not
established a separate allowance).
The above calculation is used only to determine the maximum loan amount.
Borrowers must still qualify for the mortgage based on income, credit, cash to
close, and the projected rents received from the remaining units. The projected
rent may only be considered as gross income for qualifying purposes; it may not
be used to offset the monthly mortgage payment.
The borrower must have a reserve of three (3) months’ mortgage payments
(PITI) after closing on all transactions. The following assets are not considered
cash reserves:
•
equity in other properties,
•
proceeds from a cash-out refinance (if this is the subject transaction),
•
gift funds, and
•
funds that are borrowed against a liquid account (i.e., 401k loan).
FHA’s Hotel and Transient Use Certification (HUD form 92561) must be signed
by the borrower and included in the case binder file.
Section 2.22
October 31, 2014
Page 70 of 222
Occupancy/Property Types, Continued
Second Homes
•
Second homes are not eligible for HUD financing; however, HUD will grant a
hardship exception on a case-by-case basis. The maximum LTV for such cases
is limited to 85%. Such an exception must be requested through the local HOC
in writing and must meet the conditions listed below.
Note: Second homes (if allowed) are limited to 75% LTV/TLTV in the State of
Florida.
•
•
•
•
•
•
The secondary residence must not be a vacation home or otherwise used
primarily for recreational purposes.
The borrower must require the secondary residence due to seasonal
employment, or employment relocation, or other circumstances not related to
recreational use.
There must be a demonstrated lack of affordable rental housing in the area to
meet the needs of the borrower or to be within a reasonable commuting distance
of the borrower’s employment. Documentation to support this must include:
•
satisfactory explanation from the borrower of his/her need and that rental
housing meeting these needs is not available, and
•
written evidence from local real estate professionals showing a lack of rental
housing.
HUD conditional commitments issued on or after February 5, 1988 but before
January 27, 1991 must bring the outstanding mortgage down to 85% LTV.
Commitments issued after January 27, 1991 may not be assumed as second
homes.
The original appraised value or current appraised value may be used to
determine LTV.
Automated Underwriting System (AUS) Information
• Second homes are not eligible for DU or LP.
Section 2.22
October 31, 2014
Page 71 of 222
Investment
Properties
•
•
•
•
Investment properties are eligible for HUD-insured mortgages under the
following programs or circumstances:
• purchases of HUD owned REO properties, when permitted by the local FHA
office selling the property (the max LTV is 75% for one-family dwellings and
85% for 2-4 family dwellings), and/or
• streamline refinances without an appraisal
SunTrust requires borrowers financing an investment property MUST reside in
the state where the subject property is located, EXCEPT when the property is
located within a 100 mile radius of the borrower’s primary residence.
Investors who meet the credit guidelines may assume mortgages on properties
purchased under these programs. This includes those mortgages on investment
properties that were purchased prior to 1989 that have since been streamline
refinanced.
Rate/Term and Cash Out refinance transactions are NOT eligible.
Reference: See the Streamline Refinance topic previously presented for additional
information.
Investment properties are not eligible for DU or LP.
Section 2.22
October 31, 2014
Page 72 of 222
Condominiums
General
• Correspondent clients that have a Direct Endorsement underwriter on staff may
approve condominium projects using the Direct Endorsement Lender Review and
Approval Process (DELRAP) or make the decision to submit the condominium
project to HUD for the HUD Review and Approval Process (HRAP).
• Only FHA loans secured by HUD approved condominium projects within the past
2 years of original HUD approval may continue to be originated by the
Correspondent client, except in the State of Florida.
• SunTrust requires a minimum square footage of 600 square feet for
condominiums.
Note: Condominium units less than the 600 square foot minimum will be
considered on a case by case basis in urban areas where similar units are readily
marketable.
The appraisal must include comparables supporting market
acceptance.
•
Condominium units must include a kitchen serviced by full-sized appliances, and
cannot include any form of built-in sleeping accommodations.
Reference: See the Condominium and PUD Approval Requirements document for
Planned Unit
Developments
(PUDs)
•
•
PUDs do not require pre-approval by FHA or the underwriter.
A PUD is defined as a mixed-use residential development of single-family
dwellings in conjunction with rental, condominium, cooperative or town house
properties. A residential development should be processed as a PUD if it has
the following minimum characteristics:
•
a homeowner association that holds either title in fee or a lease of prescribed
length on the common area,
•
mandatory membership of all unit owners (or units) in the association,
•
the right of all unit owners to participate by vote in the operation of the
association,
•
lien supported assessment of the members to meet the association’s
budgeted operating costs (special assessments may be handled differently),
and
•
the appraisal for a detached PUD must be ordered as a detached PUD, not
as a single family residence.
Section 2.22
October 31, 2014
Page 73 of 222
HUD REO
Properties
All HUD REO property requirements must be met in order for SunTrust Mortgage,
Inc. to purchase the loan.
203(b) with
Repair Escrow
Property repairs must be complete for SunTrust to purchase the loan.
Note: SunTrust is not currently accepting the FHA 203(k) Streamlined Refinances
offered by HUD.
Leasehold
Estates
Reference: See General Section 1.10: Leasehold Estate Guidelines of the
Correspondent Seller Guide for a complete overview of leasehold estate
requirements.
Resale/Deed
Restrictions
Reference:
See General Section 1.16: Resale/Deed Restrictions of the
Correspondent Seller Guide for a complete overview of Resale/Deed Restrictions
requirements.
Manufactured
Housing
Manufactured homes are not eligible for financing through SunTrust Mortgage.
Properties
Purchased at
Auction
Reference: See the Properties Purchased at Auction in Section 1.25 Properties
Purchased at Auction in the Correspondent Seller Guide for guidelines.
Section 2.22
October 31, 2014
Page 74 of 222
Properties
Recently Listed
for Sale
•
•
The appraiser must note on the appraisal if a property was listed for sale in the
last 12 months.
•
If the property is currently listed for sale when the appraisal is completed, the
appraiser must note that it is currently listed for sale.
If a property was listed for sale in the last 12 months and the borrower was the
owner of the property at the time it was listed for sale, the following applies:
•
for Rate/Term refinances:
•
the property must be taken off the market on or prior to the application
(i.e., 1003) date,
Note: If the property is currently listed for sale, documentation must be
provided that the listing agreement is terminated (it is NOT okay just to take
the “For Sale” sign down)!
when the subject property is the borrower’s primary residence, the
borrower must confirm in writing their intent to occupy the subject
property by signing an occupancy affidavit at closing, and
•
the current maximum LTV/TLTV ratios for the transaction apply.
for cash-out refinances:
•
the property must have been taken off the market for at least 90 days
prior to loan application, and
•
if the property was listed for sale within the six (6) months preceding the
application (i.e., 1003) date, the maximum LTV/TLTV is limited to 70%.
•
•
Short Sale
Property
Properties with
City or County
Restrictions
•
Ineligible
Property Types
The property types listed below are ineligible for HUD financing by SunTrust.
• Commercial enterprises
• Boarding houses
• Hotels and motels
• Tourist houses
• Private clubs
• Bed and breakfast establishments
• Fraternity or sorority houses
• Sinkhole Home (even if repaired)
• Cooperatives
• Manufactured Housing
•
All properties must meet city or county restrictions (i.e., a restriction that requires
all city/county employees to live within the city/county limits).
It is the lender’s responsibility to verify that any restrictions are met to assure
HUD’s issuance of the Mortgage Insurance Certificate (MIC).
Section 2.22
October 31, 2014
Page 75 of 222
Eligible Borrowers
AUS
Information
•
•
For Fannie Mae DU, the number of borrowers on a loan is limited to 4.
For Freddie Mac LP, the number of borrowers on a loan is limited to 5.
Borrowers 60
Years of Age
•
Borrowers 60 years of age or older may borrow the required down payment for
purchasing a principal residence, provided the guidelines listed below are met.
•
The donor or lender is a relative of the borrower, a close friend with clearly
defined interest in the borrower, the borrower’s employer, or an institution
established for humanitarian or welfare purposes.
•
The donor or lender is not one whose interest is solely in the sale of the
property, such as a builder or seller, or any person or organization
associated with them.
•
The principal amount of the insured mortgage loan, plus the Note or other
evidence of indebtedness in connections with the property, may not exceed
100% of the value plus prepaid expenses.
•
The note or other evidence of indebtedness may not bear interest exceeding
that of the insured mortgage.
•
Evidence that these conditions are met must accompany the application.
Co-Borrowers
•
A co-borrower is eligible under the following conditions:
must be on the title, note and security instrument.
the co-borrower’s income, liabilities, assets and credit history is used to
determine creditworthiness,
•
the co-borrower does not have an interest in the transaction (i.e., seller,
builder or real estate agent), exceptions may be granted if seller and coborrower/co-signer are related to the owner by blood, marriage or law),
•
if the parent is selling to a child, the parent cannot be co-borrower with the
child on the new mortgage unless the loan-to-value is 75.00% or less, and
•
the co-borrower must be eligible for participation (not suspended or debarred
or owe any delinquent Federal debts).
Non-occupant co-borrowers must have a principal residence in the U.S. unless
otherwise exempted (i.e., military service with overseas assignments, U.S.
citizens living abroad). While FHA does not object to legitimate transactions
where non-occupant borrowers assist in the financing of the property, this
arrangement may not be used by non-occupant borrowers to develop a portfolio
of rental properties. A non-occupant co-borrower is only eligible on a one (1)
unit property.
Non-occupant co-borrowers or co-signers are not permitted on cash-out
transactions.
When there are two (2) or more borrowers, but one or more will not occupy the
property as a principal residence, the maximum mortgage is usually limited to
75.00% LTV; however, maximum financing is available for borrowers related by
blood, marriage or law that meet the requirements shown in “Maximum Loan
Amount.”
•
•
•
•
•
Note: All references to co-borrowers, including the 75.00% LTV limits, apply equally
to co-signers (except co-signers do not take title or sign the security instrument).
Section 2.22
October 31, 2014
Page 76 of 222
Eligible Borrowers, Continued
Co-Borrowers,
(continued)
References:
• See Co-signers subtopic subsequently presented in this topic for additional
information.
• See the subtopic Maximum Loan Amount and LTV in the topic Loan Terms for
additional information on non-occupying co-borrowers and Identity of Interest
transactions.
Corporations,
Partnerships or
Sole
Proprietorships
HUD will not insure loans made solely in the name of a business entity or trust (i.e.,
corporation, partnership, or sole proprietorship) except for streamline refinances in
which the mortgage was originally insured in the name of a business. However,
there are rare instances where the local HUD office will make exceptions. Some of
the guidelines are as follows:
• one (1) or more individuals along with the business entity must be analyzed for
creditworthiness.
• the individual(s) and the business entity must appear on the mortgage note.
• the business entity, trust or individual(s) may appear on the property deed or
title.
• all parties appearing on the property deed or title must also appear on the
security instrument.
• the subject property is investment property and must conform to the guidelines
and limitations of investment property.
• local HUD office prior approval is required with documentation evidencing
approval in file.
Reference: See the HUD 4155 for additional information for non-profit organizations.
Co-Signers
•
•
•
•
•
A co-signer does not have an ownership interest in the property (does not take
title) but is liable for repaying the obligation and must sign all documents with the
exception of the security instruments.
The co-signer’s income, assets, liabilities, and credit history are considered in
determining creditworthiness for the mortgage.
The co-signer must complete and sign the application.
All other items applicable to co-borrowers also apply to co-signers.
Non-occupant co-signers are not permitted on cash-out transactions.
Section 2.22
October 31, 2014
Page 77 of 222
First Time
Homebuyers
Definition
A first-time homebuyer is an individual who meets any of the following criteria:
• An individual who has had no ownership in a principal residence during the three
(3) year period ending on the date of purchase of the property. This includes a
spouse (if either meets the above test, they are considered first-time
homebuyers).
• A single parent who has only owned a principal residence with a former spouse
while married.
• An individual who is a displaced homemaker and has only owned a principal
residence with their spouse.
• An individual who has only owned a principal residence not permanently affixed
to a permanent foundation in accordance with applicable regulations.
• An individual who has only owned a property that was not in compliance with
state, local, or model building codes and which cannot be brought into
compliance for less than the cost of constructing a permanent structure.
Counseling Requirement
• HUD still recommends housing counseling for the purchase of a property.
However there is no reduction in UFMIP for attending housing counseling.
HUD
Employees
•
•
Loan applications for HUD employees may be processed and underwritten by
the lender; however, they must be submitted to the attention of the Processing
and Underwriting Division Direction at the jurisdictional HOC for final signoff and
approval PRIOR to closing.
SunTrust will accept a Purchase, Streamline Refinance, Rate/Term or Cash Out
Refinance transaction.
Note: Streamline refinance applications do not require final HUD sign-off prior to
closing.
Section 2.22
October 31, 2014
Page 78 of 222
Living Trusts
Living trusts are eligible for HUD financing under the following conditions:
• the borrower must remain the beneficiary,
• the borrower must occupy the subject property as a primary residence,
• the trust must provide reasonable means to assure the lender that it will be
notified of any subsequent change of occupancy or transfer of beneficial interest,
• the trust must appear on the security instrument (i.e., mortgage, deed of trust, or
security deed),
• the individual borrower must appear on the security instrument when required to
create a valid lien under state law (otherwise, he/she is not required to appear),
and
• the owner-occupant, if any, and other borrower(s) must appear on the Note
along with the trust; however, the individual borrower is not required to appear
on the property deed or title.
Military
Personnel
Military personnel are eligible for maximum financing if a member of the immediate
family will occupy the subject property as a principal residence, even if the active
duty borrower is stationed elsewhere.
Section 2.22
October 31, 2014
Page 79 of 222
Non-Permanent
Resident Aliens
Reference: See Section 1.24: Non-Permanent Resident Alien Guidelines in the
Correspondent Selling Guide for additional non-permanent resident alien guidelines.
NonPurchasing
Spouses
•
•
•
•
•
•
If it is required by state law in order to perfect a valid and enforceable first lien,
the non-purchasing spouse may be required to sign either the security
instrument or documentation evidencing that he/she is relinquishing all rights to
the property.
If the non-purchasing spouse executes the security for such reasons, he/she is
not considered a borrower for HUD’s purposes and does not need to sign the
loan application.
Except for those obligations specifically excluded by state law, the debts of the
non-purchasing spouse must be considered in the qualifying ratios if the
borrower resides in a community property state or the property to be insured is
located in a community property state.
If the borrower resides in a community property state or the property is located in
a community property state, a credit report must be obtained.
The non-purchasing spouse’s credit history is not to be considered a reason for
credit denial.
HUD requires that DE underwriters know the state laws concerning community
property and apply them appropriately to ensure that there is no increased risk to
HUD.
Section 2.22
October 31, 2014
Page 80 of 222
Ownership in
Unit Limitation
•
•
•
•
Parties in Title
•
•
•
If the borrower owns any type of financial interest (any type of ownership
regardless of type of financing) in seven (7) or more rental dwelling units when
the property is part of, adjacent to or contiguous to a property, subdivision, or
group of properties owned by the borrower, he/she is not eligible for FHA
financing on a property located within the contiguous area.
A contiguous area is typically defined as an area with a two (2)-block radius (i.e.,
condo project or PUD).
Each dwelling unit in two-, three-, and four-family properties counts towards the
seven-unit limitation. The rental units in an owner-occupied two-, three-, or fourunit property also count toward this limitation.
Hotel and Transient Use Certification (HUD form 92561) signed by the borrower
must be obtained for every application on a two, three and four family dwelling,
OR a single family dwelling which is one of a group of five or more dwellings held
by the same borrower.
Non-borrowing spouses or other non-borrowing parties may hold title to an FHA
insured property; however, a valid and enforceable first lien on the property
under state law is still required.
All parties appearing on the property deed or title must also appear on the
security instrument (i.e., mortgage, deed of trust, security deed).
The only exception would be in the event of a Living Trust. The Trust must
appear on the security instrument (i.e., mortgage, deed of trust, security deed).
The individual borrower(s) is not required to appear on the property deed or title.
Reference: See Living Trusts within this topic for additional information.
Section 2.22
October 31, 2014
Page 81 of 222
Permanent
Resident Aliens
•
•
•
•
•
•
Lawful Permanent Resident aliens are given the same consideration as United
States citizens.
A permanent resident alien is an individual who is lawfully accorded the privilege
of residing permanently in the United States.
Each borrower on the loan transaction must have a valid social security number.
• SunTrust does not allow the use of an Individual Tax Identification Number
(ITIN) in lieu of a valid SSN. An ITIN is a nine digit number, beginning with
the number 9, issued by the IRS for tax reporting purposes to non-U.S.
citizens who are not eligible to obtain an SSN.
The borrower must have evidence of permanent residency and indicate on the
Uniform Residential Loan Application (URLA) that he/she is a lawful permanent
resident alien.
The United States Citizenship and Immigration Services (USCIS) within the
Department of Homeland Security issues evidence of lawful permanent
residency.
The following documentation is acceptable proof of permanent resident status:
• USCIS Form I-551 Alien Registration Receipt (green card), with an
unexpired date on the front,
• USCIS Form I-551 Conditional Alien Registration Receipt, with an unexpired
USCIS I-751 Petition to Remove Conditions of Residence (green card by
marriage), or
• An unexpired passport with an unexpired stamp reading “Processed for I551. Temporary Evidence of Lawful Admission for Permanent Residence.
Valid until [date]. Employment Authorized.”
Note: A “green card” that has no expiration date (issued between March 1977 and
January 1987) is acceptable with no additional requirements.
•
•
If the green card will expire within six (6) months after closing, the borrower must
provide the following:
• A copy of the filed USCIS I-90 Application to Replace Permanent Resident
Card, and
• A copy of the USCIS I-797 Notice of Action for the I-90.
Borrowers with a conditional green card (issued for two years) cannot apply for
renewal earlier than three months prior to the expiration date. SunTrust
Mortgage requires the borrower to file one of the following forms prior to loan
application:
• I-751 Petition to Remove Conditions of Residence (green card by marriage),
or
• I-829 Petition by Entrepreneur to Remove Conditions.
Section 2.22
October 31, 2014
Page 82 of 222
Income
General
Income
• HUD generally requires all income to continue through, at a minimum, the first
three (3) years of the mortgage loan. If the borrower intends to retire during this
period, the effective income must be the amount of documented retirement
benefits, social security payments, etc.
• Borrowers that change jobs frequently within the same line of work, who
continue to advance in income or benefits, should be considered favorably. In
this instance, income stability takes precedence over job stability.
Automated Underwriting Systems (AUS) Information
Fannie Mae DU
The DU Findings Report will provide
specific messages on the following
income types when identified correctly:
• base salary for salaried borrower,
• base salary for self-employed
borrower,
• commission, bonus, and overtime
income,
• positive net rental income,
• social security and disability income,
• alimony and child support, and
• pension or retirement income.
Freddie Mac LP
•
•
The LP Feedback Certificate will
provide specific messages on base
salary for salaried and selfemployed borrowers.
For all other income types,
standard FHA guidelines apply.
Section 2.22
October 31, 2014
Page 83 of 222
Income, Continued
Salaried or
Hourly Wage
Income
•
•
Obtain a written Verification of Employment (VOE) and the most recent paystub, or
All of the following documentation is required:
• Pay stubs for the most recent 30 day period,
• W-2’s for the previous two (2) years,
• Signed and dated telephone verification of employment from the current
employer(s),
• Lender certification original documents were examined and including the name,
title and telephone number of person with whom employment was verified, and
• signed IRS form 4506-T.
Fannie Mae DU/ Freddie Mac LP
Current Employment
Obtain the most recent pay stub showing at least one month of year-to-date earnings and any one of the following:
•
written verification of employment (VOE) from current employer, or
•
verbal verification of employment from current employer, must document the individual verifying employment, or
•
electronic verification acceptable to FHA.
Employment History
Verification of applicant’s previous 2-year employment history is required.
Employment with the same employer for the previous 2 years does not require direct verification if all of the following
conditions are met:
•
current employer confirms a 2 year employment history, or a paystub reflects a hiring date, and
•
only base pay is used to qualify (no overtime or bonuses), and
•
the borrower executes form IRS 4506-T for previous 2 years.
If employment has changed in the previous 2 years and/or not all conditions above can be met, one or a combination
of the following are required to verify the applicants 2 year employment history:
•
W-2(s)
•
VOE(s)
•
Electronic verification acceptable to FHA
•
School – college transcripts
•
Military – discharge papers
Section 2.22
October 31, 2014
Page 84 of 222
Income, Continued
Alimony, Child
Support or
Maintenance
Payments
•
•
•
•
•
Income received from alimony, child support or maintenance payments must
continue the first three (3) years after closing.
A copy of the divorce decree, legal separation agreement, voluntary agreement,
or court order specifying the amount of support and the period of time over which
it will be received is required.
Evidence (i.e., deposit slips, bank statements, front and back of canceled
checks, court records or Federal tax returns) must be provided to reflect that the
funds have been received for the last 12 months.
Period of less than 12 months may be acceptable provided the payer’s ability
and willingness to make timely payments is adequately documented.
Properly documented child support income may be grossed up under the same
terms and conditions as other non-taxable sources.
Reference: See the subtopic Non-Taxable Income subsequently presented in
Automated
Underwriting
Systems (AUS)
Information
•
The following table shows information specific to AUS for Alimony, Child Support or
Maintenance Payments.
Fannie Mae DU
If “Approve/Eligible,” the following is
required:
•
A copy of the front page of the divorce
decree,
•
Copies of applicable pages from the
divorce decree that provide details of
support payments, including verification
that the income will continue for at least
three (3) years after loan closing, and
•
Verification of receipt of income for the
last three (3) months, Bank statements
or cancelled checks are acceptable.
•
Freddie Mac LP
If “Accept,” the following is required:
•
A copy of the front page of the divorce
decree,
•
Copies of applicable pages from the divorce
decree that provide details of support
payments, including verification that the
income will continue for at least three (3)
years after loan closing, and
•
Verification of receipt of income for the last
three (3) months.
Section 2.22
October 31, 2014
Page 85 of 222
Income, Continued
Automobile
Allowances and
Expense
Account
Payments
•
•
•
•
•
•
Capital Gains
•
•
Only the amount that an auto allowance and/or expense account exceeds actual
expenditures can be considered as income.
Income is documented with the most recent two (2) years’ tax returns (IRS Form
2106 - Employee Business Expenses).
The employer must verify that the allowance/account will continue.
The borrower’s car payment is treated as a recurring debt and cannot be offset
by the car allowance.
If there is a loss between the allowance and actual expenditures, that amount is
considered a recurring debt and counted in the total debt ratio.
If the borrower uses the standard per-mile rate in calculating auto expenses, as
opposed to the “actual cost” method, the portion that the IRS considers
depreciation may be added back to income.
Capital gains (or loss) as shown on Schedule D of the Individual Tax Returns
(IRS form 1040) generally occurs only one (1) time and should not be considered
in determining effective income.
If the borrower has a constant turn over of assets resulting in gains or losses, the
capital gain or loss may be considered in determining the income, provided the
borrower has at least three (3) years’ tax returns evidencing capital gains.
Example: An individual who purchases old houses, remodels them and sells them
for a profit.
Commission
Income
Commission income can be used to qualify the borrower if the following guidelines
are met:
• the borrower must furnish the most recent two (2) years’ Federal tax returns,
along with his/her most recent pay stub.
• the commission income is averaged over the two (2) year period.
• commission income showing a decrease requires significant compensating
factors to justify loan approval.
• any un-reimbursed business expenses (Schedule A of tax returns) must be
deducted from the borrower’s income.
• income received between one (1) and two (2) years may be considered if the
underwriter is able to make a sound rationalization for acceptance and can
document the likelihood of continuance.
Employer
Differential
Payments
If the employer subsidizes the mortgage payment, the amount of the payments is
considered gross income. It may NOT be used to offset the mortgage payment
directly, even if the employer pays the servicing lender directly.
Section 2.22
October 31, 2014
Page 86 of 222
Income, Continued
Employment by
Family-Owned
Business
•
Gaps in
Employment
If a borrower has a gap of employment spanning one (1) month or more, an
explanation from the borrower is required. Allowances for seasonal employment,
such as is typical in the building trades, etc., may be documented by the lender.
The borrower must provide the normal documentation for employment, income
pay stub(s) and evidence of not being an owner of the business. This evidence
may include one of the following:
•
a signed copy Federal personal tax returns, and/or
•
a signed copy of the Federal corporate tax return showing ownership
percentages (usually evidenced on the Schedule K-1), if applicable.
Automatic Underwriting Systems (AUS) Information
Fannie Mae DU
If “Approve/Eligible,” an explanation of
employment gaps greater than six
months that have occurred in the last
two years is required.
Government
Assistance
Programs
•
•
•
Section 8 Home
Ownership
Vouchers
Freddie Mac LP
If “Accept,” an explanation is required if
the gap was more than 60 days.
Government assistance in the form of workman’s compensation, welfare
programs, payments for foster children, unemployment income, etc. may be
used to qualify the borrower.
Documentation must be provided from the agency paying benefits to verify that
the benefits are likely to continue for at least three (3) years after closing. If
continuance of such income is not expected for three (3) years, it may be
considered as a compensating factor.
Unemployment income must be documented for two (2) years. Reasonable
assurance of its continuance is also required. This applies to individuals
employed on a seasonal basis, such as farm workers, resort employees, etc.
Procedures for loan applications where the homebuyer receives a monthly
homeownership assistance payment under the housing choice voucher
homeownership program (Section 8) are shown below.
• All Section 8 subsidized mortgage loans must have “88” entered as the program
identification code in the FHA Connection or its functional equivalent.
• FHA will assume that the subsidy will continue for at least three (3) years so that
it may be considered effective income.
• The methods for qualifying the borrower are shown below.
•
The homeownership assistance payment must be paid directly to the
homeowner/borrower.
•
The amount of the monthly subsidy may only be considered as income in
determining the borrower’s qualifying ratios.
•
Qualifying instructions for this scenario are shown below.
Section 2.22
October 31, 2014
Page 87 of 222
Income, Continued
•
Section 8 Home
Ownership
Vouchers
(continued)
•
The amount of the non-taxable subsidy that is received directly by the
homeowner may be grossed up by 25%.
The amount of the subsidy plus 25% of that subsidy may be added to the
borrower’s income from employment and/or other sources in calculating the
qualifying ratios.
Note: Although HUD allows the homeownership assistance payments to be
made directly to the servicing lender to offset the mortgage payment,
SunTrust servicing is unable to facilitate the procedure for receiving or
allocating these funds. Therefore, the requirements shown above must be
adhered to for eligibility purposes, without exception.
•
Interest and
Dividend
Income
•
•
•
•
All other FHA requirements (i.e., employment stability, credit history, down
payment s, etc.) as shown in this product description apply.
Evidence required showing that the borrower still owns the assets generating the
income used to qualify.
Interest and dividend income must be documented as received for the past two
(2) years.
A two (2) year average is required to use such income to qualify for the
mortgage.
Two (2) years signed Federal tax returns or account statements must be
provided. Funds used for down payment and/or closing costs must be
subtracted before the interest is calculated.
Military Income
In addition to base pay, military personnel may be entitled to additional forms of pay
provided its continuance is verified in writing:
• flight or hazard pay,
• BAS, Basic Allowance for subsistence (rations),
• clothing allowance,
• proficiency pay, and
• BAH, Basic Allowance for housing.
Mortgage
Credit
Certificates
•
•
If a government entity subsidizes a mortgage payment, either through direct
payments or tax rebates, these payments are considered as acceptable income
if verified in writing.
Either type of subsidy may be added to gross income or used to offset the
mortgage payment before calculating the qualifying ratios.
Section 2.22
October 31, 2014
Page 88 of 222
Income, Continued
New
Employment
•
•
•
Non-Taxable
Income
If a borrower is about to begin a new job, there must be a guaranteed, nonrevocable contract, fully executed by employee and employer, to begin the new
position within 60 days of closing, and the income is acceptable for qualifying
purposes.
If the loan will close more than 60 days before the employment begins, the loan
is not eligible for endorsement until the lender provides a pay stub or other
acceptable evidence has actually begun the new job.
There must be sufficient, verified income/cash reserves to support debt during
the interim between closing and start of employment.
Non-taxable income may be “grossed-up” by using the same tax rate the borrower
used to calculate income tax from the previous year. . If the borrower is not required
to file a federal income tax return, the tax rate to use is twenty-five percent (25.00%).
Fannie Mae DU
Non-AUS guidelines apply.
Note
Receivable
Income
•
•
•
Income received from the repayment of a note must be verified by a copy of the
note to establish the amount and length of payments.
Payments must continue for the first three (3) years after closing.
Evidence (i.e., front and back of canceled checks, deposit slips or Federal tax
returns) must be provided evidencing that the funds have been received
consistently for the past 12 months.
Note: If the borrower is not the original payee on the note, the lender must establish
that the borrower is now the holder in due course, and able to enforce the note.
Fannie Mae DU
Section 2.22
October 31, 2014
Page 89 of 222
Income, Continued
Overtime/
Bonus Income
Overtime and bonus income is treated as salaried income.
Reference: See Salaried or Hourly Wage Income previously presented in this topic
Overtime or bonus income may be used to qualify the borrower if it meets the
following guidelines:
• There must be a two (2) year history.
• The likelihood that the overtime or bonus income will continue must be verified
on the written verification of employment or telephone certification of
employment.
• The income is averaged over the most recent two (2) year period. If there is a
decline in income, there must be justification for using it as qualifying income.
• If the income is not consistent from year to year, more than two (2) years’
income must be averaged to calculate an acceptable qualifying income.
• If received less than two (2) years, the income may be acceptable if it can be
documented that it will continue.
• The VOE must show likelihood of continuance.
• A trend must be established and analyzed.
• The reason for using the income for qualifying purposes must be justified and
documented in writing.
Section 2.22
October 31, 2014
Page 90 of 222
Income, Continued
Part-Time
Income
(Second Job
Income)
•
•
•
•
•
•
Projected
Income
•
•
•
HUD defines part-time income (second job income) as income from a job taken
in addition to a borrower’s regular employment that supplements the borrower’s
income.
If a borrower’s regular employment is less than the typical 40 hour work week,
the stability of that income should be evaluated as any other regular, on-going
primary employment.
Part-time income from second job may be used if it can be verified as having
been uninterrupted for the previous two (2) years and if it has a strong likelihood
of continuation.
A seasonal part-time or second job (such as that received by a person who
works part-time at a department store during the Christmas shopping period) can
be considered as uninterrupted if the borrower has worked in the same job “in
season” for the past two years and expects to be rehired for the next season.
(i.e., umpiring baseball games in summer).
Income from a part-time position that has been received for less than two (2)
years may be included as effective income provided that the continuance of such
income can be verified, and use of this income is justified and documented in the
file.
Income that does not meet these requirements may be considered as a
compensating factor.
Projected or hypothetical income is not acceptable for qualifying purposes.
However, exceptions to this rule are permitted as shown below.
•
Income from bonuses, cost-of-living adjustments, or performance raises
(must be well documented with verification from the borrower’s employer)
may be used if documentation verifies that it will be received within 60 days
after closing.
•
Income from an accepted (but not yet started) job with a guaranteed, nonrevocable contract for employment beginning within 60 days of loan closing
may be used in qualifying.
•
However, it must be verified that there will be sufficient income or cash
reserves to support the mortgage payment and other obligations during the
interim period between loan closing and start of employment. (i.e., teachers
whose contracts begin with the new school year, or physicians who will
begin residency after the loan is scheduled to close.)
If the loan will close more than 60 days before the borrower’s employment
begins, the loan is NOT eligible for insuring until receipt of a pay stub or other
acceptable evidence that the borrower has begun the new job.
Section 2.22
October 31, 2014
Page 91 of 222
Income, Continued
Recent Return
to Work Force
Borrowers who have been out of the work force for a significant period of time may
use income they receive from returning to work provided the following guidelines are
met:
• the borrower must be employed in his/her current job for at least six (6) months,
• a two-year work history prior to the absence from the work force (i.e., written
verification of employment or W-2’s) must be documented, and
• income from employment may only be considered as a compensating factor if
these requirements cannot be met.
Rental Income
•
•
Rent received for other properties owned by the borrower is acceptable if
documented that the rental income is stable.
Rent received from additional units in the subject property (if a 2-4 unit property)
may be used for qualifying purposes.
References:
See the subtopic Rent Loss Insurance for additional information and
requirements when using rental income.
•
See the subtopic Conversion of Existing Primary Residence to Rental
Property or Second Home for additional information on rental income.
•
•
•
•
Net rental income is calculated by taking the gross rents, minus the twenty-five
percent (25.00%) reduction (or local office’s percentage reduction for vacancies
and repairs), then subtract the monthly payment of PITI.
If this yields a positive number, add it to the borrower’s monthly gross income; if
negative, consider it a recurring monthly obligation.
Rental income is verified using one (1) of the following documentation methods:
•
Schedule E of IRS Form 1040 (any depreciation is added back to the net
income or loss reflected on the Schedule and the current ownership of the
properties listed on Schedule E must be compared to the real estate owned
section of the loan application), or
Note: To be considered stable income, when tax returns are used to
calculate the rental income and a current lease (or agreement to lease) is
not provided, the 24-month rental history must be free of any unexplained
gaps greater than three (3) months.
•
current leases (if the property was acquired since the last income tax year
and is not listed on Schedule E, a current signed lease or other rental
agreement must be provided and the gross rental is reduced by 25%* to
allow for vacancies and maintenance before calculating net rental income).
Note: Please check your HOC for their specific vacancy factor.
Section 2.22
October 31, 2014
Page 92 of 222
Income, Continued
Rental Income,
(continued)
•
•
Income from “boarders” is acceptable when it is received from a relative and can
be shown on the borrower’s Federal tax returns. Otherwise, it may be used as a
compensating factor.
If six (6) or more units are owned in the same general area, a map disclosing the
locations must be submitted evidencing compliance with FHA’s seven (7) unit
limitation.
Reference: See Ownership in Unit Limitation in the topic Eligible Borrowers for
Rent Loss
Insurance
When rental income is being used to qualify AND the subject property is secured by
a 2-4 unit primary residence or 1-4 unit investment property, SunTrust will require the
borrower to obtain rent loss insurance to cover at least six (6) months of gross
monthly rent.
Notes:
• Rent loss insurance is not required if rental income from the subject property is
not being used to qualify.
• Rent loss coverage must be included as a part of the hazard insurance policy as
an endorsement. The yearly hazard insurance premium must include the
additional premium the borrower must pay for this coverage. The rent loss
coverage provided in the hazard insurance policy must cover a minimum of six
(6) months of gross monthly rent.
Note: If the insurance company will not issue an endorsement to the hazard
insurance policy for the rent loss coverage, the acceptance of a separate
insurance policy will be considered on a case-by-case basis. Current published
hazard insurance policy requirements (i.e., policy term, policy prepayment,
escrow collection, etc.) will apply for the separate policy.
•
Rent loss insurance covers rental losses that are incurred during the period that
a property is being rehabilitated following a casualty.
Section 2.22
October 31, 2014
Page 93 of 222
Income, Continued
Retirement and
Social Security
Income
•
•
•
•
Retirement income must be verified with documentation from the former
employer or with the most recent Federal tax returns.
The income must continue for at least three (3) years after closing; otherwise, it
can be used only as a compensating factor.
Income received from the Social Security Administration (SSA) which can
include Supplemental Security Income (SSI), Social Security Disability Income
(SSDI) and Social Security Income must be verified with a copy of the last Notice
of Award letter or equivalent document that establishes award benefits to the
borrower AND one (1) of the following:
•
Most recent federal tax returns
•
Most recent bank statement evidencing receipt of income from the SSA
•
A Proof of Income Letter, also known as a Budget Letter or Benefits Letter
•
A copy of the borrower’s Social Security Benefit Statement, SSA
1099/1042S
Documentation should establish the income is likely to continue for at least three
(3) years after the date of the mortgage application. However, if the Notice of
Award or equivalent document does not have a defined expiration date the
income can be considered likely to continue.
Notes:
•
Pending or current re-evaluation of medical eligibility for benefit payments is
not considered an indication the benefit payment is not likely to continue.
•
Inquiries into or request for additional documentation concerning the nature
of the disability or medical condition of the borrower are not allowed.
Section 2.22
October 31, 2014
Page 94 of 222
Income, Continued
Self-Employed
Borrowers
General Information
• Individuals who own twenty-five percent (25.00%) or more interest in a business
are considered self-employed.
Effective Income
• The total net profit of the business if a sole proprietorship with depreciation or
depletion added back to the adjusted gross.
• The amount of the draw or bonus taken from the capital account if the business is
a partnership plus the borrower’s share of the net profit. or
• The amount of wages or salary as shown on the W-2 if the business is a
corporation, plus any bonus or other compensation, deducting any spousal
income.
Income Analysis
• Establish an earnings trend over the previous two (2) years. Three (3) years may
be used if all three (3) years tax returns are provided.
• Quarterly tax return income may be included through the period covered by the
tax filings. If no quarterly returns, the income shown on the P&L statement may
be included provided the income stream is consistent with the previous years’
earnings. If the P&L shows an income stream considerably greater than previous
years, the analysis must be based solely on the income verified through the tax
returns.
• Careful analysis of the business’ financial strength, the source of its income, and
the general economic outlook for similar businesses in the area.
• A borrower whose business shows a significant decline in income over the period
analyzed is not acceptable, even if current income and debt ratios meet HUD
guidelines.
• A borrower’s withdrawal of cash from the business may have a severe negative
impact on the ability of the business to continue operating and must be carefully
considered in the analysis.
Length of time in business
• If the borrower has been in business for at least two (2) years, income may be
considered stable and effective.
• If the borrower has been in business between one (1) and two (2) years, he/she
must have at least two (2) years previous employment or a combination of one (1)
year employment and formal schooling or training in the occupation.
• If the borrower has been in business less than one year, income is not eligible due
to lack of earnings history.
Section 2.22
October 31, 2014
Page 95 of 222
Income, Continued
Self-Employed
Borrowers,
(continued)
Documentation
• Signed and dated Federal individual income tax returns with all schedules for the
two (2) most recent previous years (if current year taxes have been filed, proof of
filing may be required (i.e., canceled checks or IRS stamp on the tax return).
• Signed and dated current financial statement, including a year-to-date balance
sheet and income statement.
• If the business is a corporation or partnership signed and dated Federal
business tax returns for the most recent two (2) years with all schedules (if
current year taxes have been filed, proof of filing may be required, i.e., canceled
checks or IRS stamp on the tax return).
• Business credit report on corporations and “S” corporations.
Reference: See HUD Handbook 4155.1 Mortgage Credit Analysis for Mortgage
Insurance on One-to-Four Unit Mortgage Loans, Chapter 4 Section D for
additional information on analyzing Individual, Corporate, “S” Corporation, and
Partnership tax returns.
•
•
•
Fannie Mae DU/Freddie Mac LP
Generally, standard FHA guidelines apply with some exceptions on documentation requirements.
The borrower must provide two (2) years of individual federal tax returns and corporate partnership
federal tax returns (if applicable to business).
If “Approve/Eligible” or “Accept/Eligible,” the borrower is not required to provide business tax returns
if ALL of the following can be met:
• Individual Federal tax returns show increasing self employed income over the past two (2)
years,
• Funds to close are not coming from business accounts,
• The loan is not a cash out refinance.
Note: A business credit report is not required for a corporation or “S” corporation.
•
•
A profit and loss statement (P&L) and a balance sheet is required if more than a calendar quarter
has elapsed since date of most recent calendar year or fiscal-year end tax return was filed by the
borrower. If income used to qualify the borrower exceeds the two-year average of tax returns, an
audited P&L or signed quarterly tax returns obtained from the IRS are required.
If one borrower is self-employed while another on the same loan is salaried, the DU Findings Report
will provide an employment message for the self-employed borrower (ignore the employment
message for the self-employed borrower and provide self-employed documentation as identified in
the rest of the message).
Section 2.22
October 31, 2014
Page 96 of 222
Income, Continued
Foreign Income
•
•
•
•
•
•
•
•
•
Borrower must be US citizens receiving foreign employment income generated
from a non-U.S. employment source.
Borrower(s) must provide a two (2) year history of receipt, as well as a three (3)
year continuance after loan application must be established for the income to be
used to qualify.
These guidelines apply to primary residence and second homes only.
Investment property transactions are not eligible for using foreign income to
qualify.
Non-US source of income may not include sanctioned countries administered by
OFAC.
Foreign income must be supported by:
• the most recent two (2) years signed U.S. federal tax returns, and
• standard income documentation and requirements, based on source and
type of income (i.e., year-to-date paystub and W-2s or other comparable
documents).
The income must be translated into US dollars.
Foreign tax returns translated into U.S. dollars are NOT acceptable.
Underwriter must use due diligence in determining continuance of income and
focus on borrower’s occupation, tenure, past employment history, probability of
continued employment.
Notes:
• AUS is not able to recognize foreign income, therefore, these changes will need
to be applied outside of AUS.
• Foreign Nationals are not eligible borrowers.
Section 2.22
October 31, 2014
Page 97 of 222
Income, Continued
Tip Income
•
•
•
Must have been received for at least the most recent two (2) years.
Documentation that the current employer expects the tip income to continue is
required.
Tip income should be averaged over the past two (2) years to determine the
amount of income that may be considered in qualifying the borrower.
Note: Tip income must be entered in DU as “Other Types of Income.”
Temporary
Leave and
Short-term
Disability
Income
•
•
•
•
Temporary leave from employment is generally short in duration and may
encompass various circumstances such as maternity, medical, short-term
disability, or other temporary leaves with or without pay.
The period of time that a borrower is on temporary leave is determined by
various factors such as applicable law, employer policies, and short term
insurance and/or benefit terms.
Leave from work ceases being considered temporary when the borrower does
not intend to return to the current employer or does not have a commitment from
the current employer to return to work.
Underwriters must determine the allowable qualifying income as follows:
• If the borrower will return to work prior to the first mortgage payment, then
the borrower’s regular employment income that will be received upon their
return to work may be used for qualifying.
• If the borrower will return to work after the first mortgage payment, then the
borrower’s temporary leave income is used for qualifying.
Notes:
• Documentation evidencing amount, duration, and consistency for all
temporary leave income sources must be obtained when used for qualifying.
• Verify the borrower’s pre-leave income and employment, regardless of leave
status.
• Obtain documentation from current employer confirming the borrower’s
statutory right to return to work (or employer’s commitment to permit the
borrower to return to work), the confirmed date of return, and the borrower’s
post-leave employment and income.
• Obtain written statement signed by the borrower confirming that they will
return to their current employer and stating the confirmed date of return.
• When a borrower is currently receiving short-term disability payments that
will decrease to a lesser amount within the next three (3) years because they
are being converted to long-term benefits, the amount of the long-term
payments must be used in determining the borrower’s stable income.
Section 2.22
October 31, 2014
Page 98 of 222
Income, Continued
Temporary
Leave and
Short-term
Disability
Income,
(continued)
•
In addition to the above guidelines, the following applies for worker’s
compensation:
• Benefits that have a defined expiration date must have a remaining term of
at least three (3) years from the date of the mortgage application in order to
be used for qualifying the borrower.
• A copy of the borrower’s disability policy or benefits statement must be
obtained to verify the amount of the disability payments and to determine
whether there is a contractually established termination or modification date.
• A statement from the benefits’ payer (insurance company, employer, or other
qualified and disinterested party) must be obtained to confirm the borrower’s
current eligibility for the disability benefits.
Fannie Mae DU
Non-AUS guidelines apply, except as
follows:
• If
using
borrower’s
regular
employment income, the amount is
entered into DU using the applicable
income type.
• If using borrower’s temporary leave
income, the amount is entered into
DU as “Other Monthly Income”
under “Other Types of Income”
Freddie Mac LP
Non-AUS guidelines apply, except as
follows:
• If
using
borrower’s
regular
employment income, the amount is
entered into DU using the applicable
income type.
• If using borrower’s temporary leave
income, the amount is entered into
DU as “Other Monthly Income”
under “Other Types of Income”
Trailing Spouse
•
The use of trailing co-borrower income is not permitted.
Trust Income
•
A copy of the Trust Agreement or the Trustee’s statement confirming the
amount, frequency and duration of payments must be provided.
The income must continue for at least three (3) years after closing.
Lump sum distributions made before loan closing may be used for down
payment or closing costs if they are verified by a copy of the check or the
Trustee’s letter that shows the distribution amount. If a distribution was made
that reduces the Trust income, the reduction must be taken into consideration in
computing the income.
•
•
VA Benefits
•
•
•
Income received in the form of VA benefits must be documented by a letter or
distribution form from the Veterans Administration.
The income must continue for at least three (3) years after closing.
Education benefits are not acceptable income, as it offsets education expenses.
Section 2.22
October 31, 2014
Page 99 of 222
Income, Continued
Borrowers on
Strike
The guidelines below apply to a borrower who is currently out of work due to a strike
at his/her place of employment.
• The file must contain evidence that the borrower has returned to work.
• The branch must be sure that the information obtained is from a reliable source.
• One of the following methods may be used for confirmation:
• a written verification from the employer confirming the borrower is back to
work, or
• a verbal verification with either the Human Resources Department, Payroll
Department or the borrower’s supervisor.
Note: The Correspondent Lender must verify and obtain the information directly
with the employer (no third party documentation).
Layoffs and
Plant Closings
•
•
•
Borrowers may be considered on a case-by-case basis if the borrower has a
minimum of one (1) year guaranteed employment remaining when he/she has
been notified of a pending layoff or closing.
Underwriters are to use caution when approving these loans and document each
file justifying why an approval was issued. When the plant closing or layoffs are
effective in less than one (1) year, FHA recommends that the loan not be
approved.
The guidelines shown in the table below are provided to assist in reviewing the
applications from a borrower who is affected by job eliminations.
Note: Marginal loans are not acceptable under these circumstances.
Guidelines for Reviewing Borrower
Applications Affected by Job
Eliminations
Analyze the overall strengths of the file
(i.e., credit, assets, ratios), including, but
not limited to, the items shown in the
example.
Examples
•
•
•
•
•
•
Are the ratios low enough to support the loan if the
borrower had to take a lesser paying job?
Has the borrower exhibited a savings pattern? This is
of particular interest if the borrower’s current income is
unlikely to be equaled by a new employer.
Will the borrower have cash reserves available as a
cushion for any period of unemployment following
closing?
Has the borrower established a satisfactory credit
history?
What has been the borrower’s employment history?
What is the remaining length of time of guaranteed
employment?
Note: The client will need to monitor the time frame for
sections of the business that are laying-off (or closing)
first.
Section 2.22
October 31, 2014
Page 100 of 222
Income, Continued
Layoffs and Plant Closings, continued
Guidelines for Reviewing Borrower
Applications Affected by Job
Eliminations
Consideration of what other income is
coming into the household that is
verifiable.
Obtain statements from the borrower
addressing the concerns due to the
pending layoff including but not limited to
those shown in the example.
Examples
•
•
•
•
•
•
•
•
•
•
Does borrower have second job?
Does borrower receive income from rental properties?
Does borrower have any undisclosed stable income?
Does a non-applicant spouse have stable income?
Does the co-borrower have additional stable income
not disclosed?
Alternative plans,
Job skills,
What prospects are available for those skills in the area
with other employers,
How does borrower plan to repay the mortgage, and
Other employment possibilities in the area, salary
prospects within commuting distance.
Section 2.22
October 31, 2014
Page 101 of 222
Income, Continued
Documentation
General
• Faxed documentation may be used if the following applies:
• the employer’s name and source of information is clearly identified on the
form,
• the document includes a name and telephone number of the individual with
the employer who can verify the accuracy of the data, and
• the lender verifies the document’s authenticity by reviewing, among other
things, the information included in the banner of the fax and conducting a
telephone verification.
• Employment documentation downloaded from an Internet website may be used
if the following applies:
• The Verbal Verification of Employment (COR 0050a or COR 0050b) form
must include the name and title of the Correspondent client’s employee
performing the verification of employment for all FHA loan programs.
See Section 1.38: Verbal Verification of Employment
Reference:
Guidelines in the Correspondent Seller Guide for additional documentation
requirements for employed, self-employed and military borrowers.
•
•
•
•
the employer’ name and source of information is clearly identified,
the printed pages of the document reflect the URL address with the date
and time it was printed, and
• the lender verifies the document’s authenticity by reviewing, among other
things, the information included on any header, footer and banner of the
printout and verifies the existence of the website from which the document
was derived.
The documents must be identifiable as belonging to the borrower.
An IRS form 4506-T must be executed by the borrower(s) for all loans at
application and again at closing.
Reference: See General Section 1.37: Income Validation Guidelines in the
Correspondent Seller Guide for a table of applicable income validation
documentation and additional information.
Section 2.22
October 31, 2014
Page 102 of 222
Income, Continued
Written
verifications
•
•
•
Alternate
documentation of
employment
•
•
•
•
•
If written verification forms are used, the lender’s file must contain the original
form (or a faxed form) with an original signature of the party completing the
form.
Verification forms must pass directly between the lender and creditor without
being handled by a third party.
When using a written verification of employment, the file must also contain a
most recent (at time of application) pay stub. This must be provided at the time
of underwriting.
Pay stub(s) covering the most recent 30 day period. The pay stub must show
the borrower’s name, social security number and year-to-date earnings.
W-2’s for the most recent two (2) years.
Telephone certification of current employment, signed and dated by lender.
Certification that original documents were examined and the name, title, and
telephone number of the person with whom employment was verified.
Standard employment documentation must be used if the employer will not give
telephone confirmation of employment or if the W-2 and/or paystub(s) indicate
inconsistencies.
Note: Pay stubs are required before FHA will guarantee the loan.
Allowable Age of
Federal Income
Tax Returns
•
•
Application Date
October 15th1, current
year minus one to April
14th2, of current year
For some types of sources of income, copies of federal income tax returns
(personal returns and, if applicable, business returns) are required. The “most
recent year’s” tax return is defined as the last return scheduled to have been
filed with the IRS.
The following table describes which tax-related documentation to obtain
depending on the application date and disbursement date of the mortgage loan.
Disbursement Date
14th2, current year
April 15th1, current year
to June 30th, current
year
Documentation Required
The most recent year’s tax return is required based on IRS
filing deadlines. The use of a Tax Extension is not permitted.
The previous year’s tax return (the return due in April of the
current year) is recommended, but not required.
The lender must ask the borrower whether they have
completed and filed their return with the IRS for the previous
year. If the answer is yes, the lender must obtain copies of
that return. If the answer is no, the lender must obtain copies
of tax returns for the prior two years.
Section 2.22
October 31, 2014
Page 103 of 222
Income, Continued
Allowable Age of Federal Income Tax Returns, (continued)
Application Date
2
14th , of current year
2
to
October
14th ,
current year
Disbursement Date
July 1st, current year to
2
October 14th , current
year
to
December
31st,
current year
•
•
The most recent year’s tax return, OR all of the following:
A copy of the IRS Form 4868 (Application for Automatic
Extension of Time to File U.S. Individual Income Tax
Return) filed with the IRS,
Note: The lender must review the total tax liability
reported on IRS Form 4868 and compare it with the
borrower’s tax liability from the previous two years as a
measure of income source stability and continuance. An
estimated tax liability that is inconsistent with previous
years may make it necessary to require the current
returns in order to proceed.
•
2
year to April 14th ,
current year plus one
January 1st, current
year plus one to April
2
14th , current year plus
one
October 15th1 current
2
year to April 14th ,
current year plus one.
plus one to June 30th,
current year plus one.
July 1st, current year
plus one to October
2
14th , current year plus
one.
IRS Form 4506-T transcripts confirming “No Transcripts
Available” for the tax year, and
• Returns for the prior two years.
The most recent year’s tax return is required. The use of a
Tax Extension is not permitted.
The most recent year’s tax return is required based on IRS
filing deadlines. The use of a Tax Extension is not permitted.
The previous year’s tax return is recommended, but not
required. The lender must ask the borrower whether they
have completed and filed their return with the IRS for the
previous year. If the answer is yes, the lender must obtain
copies of that return. If the answer is no, the lender must
obtain copies of tax returns for the prior two years.
• The most recent year’s tax return, OR all of the following:
• A copy of the IRS Form 4868 (Application for
Automatic Extension of Time to File U.S. Individual
Income Tax Return) filed with the IRS,
Note: The lender must review the total tax liability
reported on IRS Form 4868 and compare it with the
borrower’s tax liability from the previous two years
as a measure of income source stability and
continuance. An estimated tax liability that is
inconsistent with previous years may make it
necessary to require the current returns in order to
proceed.
Section 2.22
October 31, 2014
Page 104 of 222
Income, Continued
Allowable Age of Federal Income Tax Returns, (continued)
Application Date
year to April 14th2,
current year plus one
Disbursement Date
July 1st, current year
•
IRS Form 4506-T transcripts confirming
plus one to October
Transcripts Available” for the tax year, and
14th2, current year plus
•
Returns for the prior two years.
one.
1.
Or the actual April/October filing dates for the year in question as published by the IRS.
2.
Or the day prior to the April/October filing dates for the year in question as published by the IRS.
“No
Note: For business tax returns, if the borrower’s business uses a fiscal year (a year ending on the last day of any
month except December), the lender may adjust the dates in the above chart to determine what year(s) of business
tax returns are required in relation to the application date/disbursement date of the new mortgage loan.
Section 2.22
October 31, 2014
Page 105 of 222
Liabilities and Qualifying Ratios
Alimony and
Child Support
•
•
•
The lender can choose to treat the payment of alimony one (1) of two (2) ways:
• as a reduction from the borrower’s gross income, or
• as a monthly obligation.
The lender should choose whichever method benefits the borrower the most.
Child support must be treated as a monthly obligation.
Authorized
User Account
Credit report tradelines that list a borrower as an “authorized user” are not required
to be considered in the underwriting decision or the debt-to-income (DTI) ratios.
Condominium
Fees
•
With proper verification, that portion of the condo fee that clearly covers the
utilities may be subtracted from the mortgage payment before computing ratios.
Contingent
Liability
•
A contingent liability exists when a borrower holds a joint obligation with another
person or persons.
Obligations where the borrower is a co-signer must be listed as the borrower’s
debt, unless the borrower can provide conclusive evidence from the debt holder
that there is no possibility the debt holder will pursue debt collection against
him/her should the other party default.
The information listed below applies to contingent liabilities.
Mortgage Debt: If a borrower is obligated on an outstanding HUD, VA or
conventional mortgage secured by a property which has been sold by
assumption, contract for Deed or traded within the last twelve (12) months
without a release of liability, or a property was transferred because of divorce,
contingent liability must be considered a recurring liability unless the following
circumstances apply:
• the Servicer of the assumed loan provides a payment history showing that
the mortgage has been current during the previous twelve months, or
• an appraisal or closing statement from the sale of the property supports a
value that results in a seventy-five percent (75.00%) LTV ratio (i.e., the
outstanding balance on the mortgage loan, minus any UFMIP, cannot
exceed seventy-five percent (75.00%) of the appraised value or sales price).
•
•
•
Note: A copy of the divorce decree ordering the former/separated spouse to
make payments or the assumption agreement and the deed showing transfer of
title out of the borrower’s name is required.
•
Co-Signed Obligations: If the borrower is a co-signer, or otherwise coobligated on a car loan, student loan, mortgage, or any other obligation,
contingent liability applies unless the lender obtains documented proof that the
primary obligor has been making payments during the previous 12 months on a
regular basis and does not have a history of delinquent payments on the loan.
Section 2.22
October 31, 2014
Page 106 of 222
Liabilities and Qualifying Ratios, Continued
Contingent
Liability,
(continued)
The following table shows information specific to AUS for Contingent Liabilities on
Mortgage Debt.
•
Fannie Mae DU
If “Approve/Eligible,” the following is
required:
• obtain a copy of the divorce
decree ordering the other
spouse to make payments, or
• the assumption agreement and
the deed showing transfer of title
out of the borrower’s name.
Note: There is no twelve (12) month
payment history requirement.
•
Freddie Mac LP
If “Accept,” the following is required:
• obtain a copy of the divorce
decree ordering the other
spouse to make payments, or
• the assumption agreement and
the deed showing transfer of
title out of the borrower’s name.
Note: There is no twelve (12) month
payment history requirement.
Section 2.22
October 31, 2014
Page 107 of 222
Conversion of
Existing
Primary
Residence to
Rental Property
or Second
Home
•
When a borrower vacates a principal residence in favor of another principal
residence, the rental income, reduced by the appropriate vacancy factor as
determined by the jurisdictional FHA HOC, may be considered in the
underwriting analysis, under the circumstances listed below.
• The housing payments for the current primary residence and the new
proposed primary residence must be included in the debt to income
calculation.
• Underwriters are not permitted to include rental income from a primary
residence being vacated in favor of another principal residence unless one
of the following applies:
• the homebuyer has a 75% LTV/TLTV or less, as determined by a current
(dated within sixty [60] days of the Note date for the new transaction)
residential appraisal (may be exterior-only) on the current primary
residence, OR
Note: SunTrust requires borrowers with a current 2-4 unit primary
residence that will be converted to an investment property to meet the
25% required equity position to utilize the rental income from ANY of the
property’s units, regardless if the units were previously occupied by the
borrower or not.
•
• the homebuyer is relocating with a new employer, or being transferred by
the current employer to an area that is not within a reasonable
commuting distance.
• Evidence of a properly executed lease agreement of at least one year in
term after the loan closing date and evidence of the security deposit
and/or the first month’s rent was paid to the homeowner must be in the
loan file.
Traditionally underwritten loans must document the following reserve
requirements:
• three (3) months reserves on BOTH properties, if the homebuyer cannot
provide evidence of a seventy-five percent (75.00%) LTV/TLTV or less on
the current primary residence,
• two (2) months reserves on BOTH properties, if the homebuyer can provide
evidence of a seventy-five percent (75.00%) LTV/TLTV or less on the current
primary residence.
Note: TOTAL Scorecard will determine reserve requirements for AUS approved
transactions.
Section 2.22
October 31, 2014
Page 108 of 222
Energy
Efficient
Properties
(EEH)
Ratios may be exceeded by up to two percent (2.00%) (becoming 33/45%
respectively) if the property is an Energy Efficient home.
Installment
Debt
•
Note: All properties exceeding the applicable International Energy Conservation
Code (IECC) are considered energy efficient and eligible for the two percentage
points increase in qualifying ratios.
•
Generally, installment debt with less than ten (10) remaining payments is not
considered in the qualifying ratios. If the debt is other than a fixed installment,
the underwriter must verify that the monthly installments plus interest are equal
to an amount that can be paid off within ten (10) months. Reliance solely on the
credit report is insufficient. Thus, it will be necessary to obtain a copy of the
borrower’s pay statement, or other documentation, to determine the interest rate
and number of payments required to satisfy the debt.
If the monthly payment on debts with less than ten (10) remaining payments is
large enough to seriously affect the borrower’s ability to make the mortgage
payment in the months immediately following closing, the monthly payment must
be included in the debt ratios. An exception may be granted if the borrower has
sufficient cash reserves after loan closing to supplement his/her income for
payment of the debt.
•
•
Fannie Mae DU
If a liability has less than ten (10)
remaining payments and the payment is
less than $100, it is not counted in the
borrower’s debt ratio.
All other liabilities listed on the 1003 will
be considered in the borrower’s ratio.
•
Freddie Mac LP
All liabilities listed on the 1003
will be considered in the
borrower’s ratio.
Section 2.22
October 31, 2014
Page 109 of 222
Obligations Not
Considered as
Debt
•
•
•
•
•
•
•
•
Federal/state/local taxes,
FICA or other retirement contributions such as 401Ks (including repayment of
debt secured by these funds),
Commuting costs,
Union dues,
401(k) payments,
Automatic deductions to savings accounts,
Child care, Other voluntary deductions, and
Open accounts with zero balances.
Fannie Mae DU
Projected Debt
If a debt, such as a student loan or balloon note, is scheduled to begin repayment or
to become due within the first 12 months of loan closing, the client must include the
monthly obligation or take into consideration the note when qualifying the borrower.
Property Taxes,
Insurance and
HOA
Assessments
•
•
The taxes, insurance and HOA assessments, if applicable, due on a property
owned or being purchased by a borrower must always be considered in the
borrower’s debt to income ratios, including properties that are currently owned
free and clear.
• If the transaction is new construction, the lender must use a reasonable
estimate of the real estate taxes based on the value of the land and
completed improvements.
• The lender must qualify the borrower based on real estate taxes for
improved property as provided by the title company and/or the specific
county assessor’s office.
• In certain states, taxes may have been capped for the current seller,
however when calculating the monthly payment, lender must use the new tax
projection which can often come from the title company.
• The amount of taxes will be reduced based on federal, state, or local
jurisdictional requirements. However, the taxes may not be reduced if an
appeal to reduce them is only pending and has not been approved.
• If there is a tax abatement on the subject property that will last for five years
or less from the note date, qualify the borrower at the full tax rate.
• For tax abatements that last for more than five years, the borrower must
be qualified based on the highest tax amount due during the first five
years.
Generally, it is assumed that, if the mortgage has been reported to the credit
repositories, the payment includes taxes and insurance. This assumption also
includes mortgages that are not on the credit report and other verification has
been provided.
Section 2.22
October 31, 2014
Page 110 of 222
Property Taxes,
Insurance and
HOA
Assessments,
(continued)
•
If the mortgage is with a private individual, it is assumed that the payment does
NOT include taxes and insurance.
Reference: See Privately Held Mortgages subsequently presented in the Credit
Requirements topic for additional information regarding payment verification
requirements for privately held mortgages.
•
•
If the borrower discloses that the mortgage payment does not include taxes
and/or insurance or the mortgage is with a private individual, you must obtain
documentation of the actual taxes, insurance, and if applicable, HOA fees.
Other properties owned by the borrower identified on the loan application as a
condominium, PUD, or townhouse must document HOA fees, even if the
mortgage payment reflects on the credit report.
Section 2.22
October 31, 2014
Page 111 of 222
Qualifying Rate
Qualifying
Ratios /
Compensating
Factors
Fixed Rate Mortgages
• Fixed rate loans-qualify at Note rate.
• Temporary buydowns on fixed rate loans qualify at the Note rate.
•
•
Standard qualifying ratios are 31%/43 and are applicable when borrowers have no
compensating factors.
Standard qualifying ratios may be exceeded only if HUD acceptable compensating
factors are documented and recorded on the FHA Loan Underwriting and Transmittal
Summary (HUD-92900-LT) as presented in this table:
Maximum
Qualifying Ratios
37%/47%
40%/50%
40%/40%
Acceptable Compensating Factors
One of the following:
• Three (3) months PITIA for 1-2 unit properties or six (6) months
PITIA for 3-4 unit properties.
• PITIA of the new mortgage payment is the lesser of $100 or 5%
higher than previous total monthly housing payment and there is a
documented twelve (12) month housing payment history with no
more than 1 x 30 day late payment (more restrictive HUD and/or
SunTrust housing payment history requirements may be
applicable). The borrower must have a current housing payment
for this compensating factor to apply.
• Residual Income
Two of the following:
• Three (3) months PITIA for 1-2 unit properties or six (6) months
PITIA for 3-4 unit properties.
• PITIA of the new mortgage payment is the lesser of $100 or 5%
higher than previous total monthly housing payment and there is a
documented twelve (12) month housing payment history with no
more than 1 x 30 day late payment (more restrictive HUD and/or
SunTrust housing payment history requirements may be
applicable). The borrower must have a current housing payment
for this compensating factor to apply.
• Borrower receives significant additional income not considered
effective income (i.e., part-time or seasonal income verified for
more than one year but less than two years).
• Residual Income
Borrower has established credit lines in his/her own name open for at
least six (6) months but carries no discretionary debt (i.e., monthly total
housing payment is the only open installment account and pay off in full
of at least two other credit lines that can be documented for at least the
previous six (6) months).
Note: A residual income worksheet must be attached to the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT) reflecting the calculation of residual income
when used as a compensating factor.
Section 2.22
October 31, 2014
Page 112 of 222
Qualifying
Ratios /
Compensating
Factors,
(continued)
•
•
•
•
The housing ratio includes the PITIA of the new mortgage, mortgage insurance,
homeowner’s association dues, and payments on secondary financing.
Taxes included in the PITIA for proposed/new construction properties must be
based on “improved” property taxes.
The debt ratio includes housing ratio items, installment loans, revolving credit,
other mortgage payments and any other monthly debt.
Victims of a Presidentially-Declared Major Disaster Area may have a debt ratio
up to 45% without compensating factors. This debt ratio may be exceeded with
appropriate compensating factors. Evidence that the borrower resided in the
disaster area during the occurrence must be provided. This remains in effect for
up to one-year from the date of the President’s declaration. Check the FEMA
website to obtain specific affected counties and corresponding declaration dates
for the Major Disaster Areas.
•
•
Fannie Mae DU
If “Approve/Eligible,” no explanation
is required for qualifying the
borrower at ratios above FHA
guidelines when this occurs.
The maximum DTI for SunTrust on
any AUS approved transaction is
50.00%, regardless of AUS findings.
•
•
Freddie Mac LP
If “Accept,” no explanation is
required for qualifying the borrower
at ratios above FHA guidelines when
this occurs.
The maximum DTI for SunTrust on
any AUS approved transaction is
50.00%, regardless of AUS findings.
Section 2.22
October 31, 2014
Page 113 of 222
Undisclosed
Debt
•
•
•
•
Information disclosed on the loan application must be accurate and current
through loan closing. This information includes (but is not limited to) any
additional credit applied for or incurred during the application process and
through loan closing.
If the borrower indicates new debt has been incurred which is not present on the
initial application or on the credit report, documentation must be obtained from
the borrower which indicates the balance and payment of the debt. This
information must be included as a liability on the 1003 and the borrower must be
requalified and/or the loan re-priced based on this new information.
If any additional liabilities or an increase in existing credit is revealed during the
loan application process, SunTrust Mortgage, Inc., is required to re-qualify the
borrower based on this new information.
Requalification may included, but is not limited to, obtaining a new credit report
including an updated credit score, which may impact the qualifying interest rate
and pricing, as well as, the borrower’s ability to qualify based on current program
information.
Note: At this time, SunTrust will NOT be pulling a new credit report prior to
purchase to validate if the borrower has incurred any additional liabilities.
Reference: See the “Inquiries” subtopic subsequently presented in the “Credit
Requirements” topic for additional information
Revolving
and/or OpenEnd Debt
•
•
Monthly payments on revolving or open-end accounts, regardless of balance,
must be included in the borrower’s monthly debt payment. If there is no balance,
there is not monthly payment.
In the absence of a stated payment, the greater of 5% of the outstanding
balance or $10 will be used as the required monthly payment.
Section 2.22
October 31, 2014
Page 114 of 222
Student Loans
If the debt repayment is scheduled to begin within twelve months from the date of the
mortgage loan closing, the anticipated monthly obligation must be included in the
debt ratio, unless written evidence that the debt will be deferred to a period outside
this timeframe is provided.
Notes:
• Student loans cannot be used towards the transaction as either income or assets.
• If the RMCR or In-file Credit Report does not reflect a monthly payment amount,
a copy of the Note or a letter from the lender must be used to determine the
monthly payment amount.
Student Loans
in Forbearance
• If a student loan is deferred and repayment is scheduled to begin within twelve
months from the date of the mortgage loan closing, the anticipated monthly
obligation must be included in the debt ratio, unless written evidence that the debt
will be deferred to a period outside this time-frame is provided.
Notes:
Student loans in forbearance are technically in default and must always be
included in the borrower’s debt ratios.
•
Student loans cannot be used towards the transaction as either income or
assets.
•
If the RMCR or In-file Credit Report does not reflect a monthly payment
amount, a copy of the Note or a letter from the creditor must be used to
determine the monthly payment amount.
•
Unverified
Liabilities
•
•
If there are liabilities disclosed by the borrower but not on the credit report,
independent verification is required.
Verification of such liabilities is based on underwriting discretion upon full
analysis of the loan file. The underwriter must determine if verification is
necessary to support an approval (if not verified, an explanation is required as to
why the liability is immaterial).
Fannie Mae DU
If “Approve/Eligible” and liabilities
disclosed by the borrower are not on the
credit report, the liability must be verified
according to non-AUS guidelines.
•
•
Section 2.22
Freddie Mac LP
If “Accept” and liabilities disclosed
by the borrower are not on the credit
report, the liability must be verified
according to non-AUS guidelines.
If the verification reflects that the
account is currently more than 90
days past due, the loan must be
downgraded to a “Refer”.
October 31, 2014
Page 115 of 222
Credit Requirements
General
•
•
The overall analysis of a borrower’s credit should be performed using the
following “hierarchy” order:
•
payment history for current and previous housing payments,
•
payment history for installment debts, and then
•
payment history for revolving accounts.
Generally, an individual with no late housing or installment debt payments should
be considered as having an acceptable credit history unless there is derogatory
credit on revolving accounts.
Fannie Mae DU
If a borrower’s current address is outside
of the United States, DU will not issue a
recommendation. The loan must then
be traditionally underwritten.
Bankruptcy
Freddie Mac LP
If a borrower’s current address is
outside of the United States, LP will not
issue a recommendation.
The loan
must then be traditionally underwritten.
Documentation
• Copy of the bankruptcy petition,
• Schedule of Debts and Discharge, and
• Written explanation from borrower.
Note: Documentation of the bankruptcy is not required if, TOTAL Scorecard
approves the transaction and the findings do not need to be manually downgraded to
a “Refer” and traditionally underwritten.
Chapter 7 [liquidation] Bankruptcy
• Bankruptcy must have been discharged for at least two (2) years.
• If bankruptcy is discharged for at least one year (but not less than 12 months), it
may be acceptable if it occurred due to extenuating circumstances beyond the
borrower’s control (i.e., death of principal wage earner, or serious long-term
illness) and are not likely to recover,
• Provide documentation that the borrower’s current situation indicates that the
events that led to the bankruptcy are not likely to reoccur.
• The borrower must have re-established good credit, or has chosen not to incur
new credit obligations,
• In lieu of an established credit history, credit letters covering the past 12 months
from two of the following are acceptable: telephone, cable, gas or electric
companies, etc.
Section 2.22
October 31, 2014
Page 116 of 222
Credit Requirements, Continued
Bankruptcy,
(continued)
Chapter 7 [liquidation] Bankruptcy, continued
• There cannot be any new derogatory credit information, unless TOTAL
Scorecard approves the transaction and the credit report accurately reflects the
derogatory credit information.
Note: If the bankruptcy included a foreclosure, the more restrictive three (3)
year wait still remains in effect. This three (3) year waiting period is based on
the date the claim is paid.
Reference: See Foreclosures subsequently presented within this topic for additional
information.
Chapter 13 Bankruptcy
• A borrower paying off debts under a court approved wage earner’s plan pursuant
to Chapter 13 of the Bankruptcy Act may be eligible if he/she is:
•
otherwise acceptable,
•
bankruptcy payments are included in the ratios,
•
one (1) year of the pay-out period has elapsed,
•
the performance under the plan has been satisfactory, and
•
the borrower receives court approval to enter into the mortgage transaction.
• The borrower must have re-established good credit, or has chosen not to incur
new credit obligations,
• In lieu of an established credit history, credit letters covering the past 12 months
from two of the following are acceptable: telephone, cable, gas or electric
companies, etc.
• There cannot be any new derogatory credit information.
Note: Bankruptcy information through the Public Access to Court Electronic
Records (PACER) service that matches the credit report is acceptable to FHA.
However, if the borrower does not meet the standard requirement of two years (three
years if part or a foreclosure), additional documentation may be required.
Reference: See the “PACER” website at http://www.pacer.gov/login.html for more
information
Section 2.22
October 31, 2014
Page 117 of 222
Bankruptcy,
(continued)
To be eligible for AUS submission, the Chapter 13 Bankruptcy must have been
discharged for at least two years.
•
•
Fannie Mae DU
Typically, the loan will receive an
“Approve/Ineligible” in DU if there is a
bankruptcy less than two (2) years or
foreclosure less than three (3) years on the
credit report.
If “Approve/Eligible”, the loan must be
manually downgraded to a “Refer” and
traditionally underwritten if the following
applies:
• the
information
was
reported
incorrectly on the credit report, or
• the information was not reflected on
the credit report but disclosed by the
borrower, or
• the
credit
report
(or
other
documentation) does not show a
Chapter 13 Bankruptcy has been
discharged for at least two (2) years.
Freddie Mac LP
Standard FHA guidelines apply.
Section 2.22
October 31, 2014
Page 118 of 222
Collections
•
•
•
•
•
Collection accounts must be evaluated to determine if they will affect the
borrower’s ability to repay the mortgage and are a result of:
•
a borrower’s disregard for financial obligations;
•
a borrower’s inability to manage debt; or
•
extenuating circumstances.
All manually underwritten loans, including TOTAL Scorecard “Refer”
recommendations that reflect outstanding collection accounts regardless of the
outstanding amount require the borrower provide a letter of explanation and
supporting documentation. The explanation and documentation must make
sense and be consistent with other credit information in the file.
If individual or multiple collection accounts for all borrowers have a singular or
cumulative balance equal to or greater than $2,000 (excluding medical
collections/charge-offs) one of the following must be met:
•
The accounts must be paid in full and an acceptable source of funds must
be verified at or prior to closing.
•
Payment arrangements with the creditor(s) must be documented with a
credit report or letter from the creditor verifying the monthly payment and the
payment must be included in the borrower’s debt-to-income (DTI) ratio.
•
If unable to document payment arrangements, the borrower(s) must qualify
using a monthly payment of 5% of the outstanding balance of each
collection.
Account balances reduced to a judgment by a court, must be paid in full or
subject to a repayment plan with a history of timely payments.
The borrower(s) must have re-established credit, as reflected on the credit report
in the file.
Note: Unless excluded by state law, collection accounts of a non-purchasing
spouse in a community property state are included in the cumulative balance.
Section 2.22
October 31, 2014
Page 119 of 222
Disputed
Accounts
•
•
•
•
•
•
•
A letter of explanation and documentation supporting the basis of the dispute
must be provided by the borrower with the exception of medical accounts. This
documentation must be analyzed by a D.E. Underwriter to determine consistency
with other credit information and if the disputed account should be considered in
the underwriting analysis.
TOTAL Scorecard “Accept/Approve” loans with borrowers disputing derogatory
credit accounts reporting on the credit report, must be downgraded to a “Refer”
and manually underwritten if the cumulative outstanding balance of all disputed
derogatory credit accounts of all borrowers is equal to or greater than $1,000.
The following disputed accounts are excluded from the $1,000 limit:
•
medical accounts,
•
non-purchasing spouses in community property states,
•
resulting from identity theft, credit card theft, and unauthorized use, and
•
non-derogatory disputed accounts.
Derogatory accounts are defined as charge-off accounts, collection accounts, or
accounts with a late payment in the last 24 months.
Disputed derogatory accounts resulting from identity theft, credit card theft, or
unauthorized use, requires appropriate supporting documentation, such as a
credit report, letter from the creditor, or police report disputing the fraudulent
charges.
Non-derogatory accounts are defined as disputed accounts with a zero balance,
with late payments aged 24 months or greater, or accounts that are current and
paid as agreed.
The payment account indicated on the credit report must be used in computing
the debt-to-income (DTI) ratio unless the borrower can provide documentation of
a lower payment.
Section 2.22
October 31, 2014
Page 120 of 222
Consumer
Credit
Counseling
•
•
•
•
If a borrower is in a Consumer Credit Counseling Program, HUD views such a
borrower in the same terms as a borrower who has gone through a Chapter 13
bankruptcy.
If the borrower has been paying at least 12 months satisfactorily and the
borrower receives written permission from the counseling agency to enter into
the mortgage transaction, the borrower may be acceptable.
Since some creditors may still report the borrower as delinquent, even though
they have agreed to accept a lower payment, this must be considered in the
analysis of the borrower’s overall credit.
These cases should be analyzed on a case-by-case basis. It is a judgment call
on the part of the DE underwriter after analyzing all the factors. The borrower
being in a Consumer Credit Counseling program is viewed as neither a positive
nor a negative.
Note: TOTAL Scorecard will not recognize the borrower being in a Consumer
Credit Counseling program.
The underwriter should ensure HUD/FHA
requirements are met.
Section 2.22
October 31, 2014
Page 121 of 222
Credit Alert
Interactive
Voice
Response
(CAIVRS)
System
General Information
• The CAIVRS code is required on all FHA loans except streamline refinances.
• The CAIVRS system will verify if the borrower(s) has had an insurance claim
paid in the three (3) years prior to loan application on a previous HUD-insured
mortgage or if there is a current delinquency on a HUD-insured mortgage.
• If CAIVRS results show a claim delinquency, the borrower is generally not
eligible for a FHA-insured mortgage. (see “Eligibility Exceptions” below.)
• The CAIVRS system may be accessed by electronic response when ordering
the FHA Case Number in FHA Connection.
• The authorization code and message provided for each borrower by the CAIVR
system must be written on the FHA Loan Underwriting and Transmittal
Summary (HUD-92900-LT).
• HUD does not allow credit bureaus to obtain the CAIVRS numbers.
• Lenders may not rely on a clear CAIRVS approval when in possession of
independent evidence of delinquent federal obligations and must document the
resolution of any conflicting information.
• If there is a delinquency code, the lender must contact the appropriate HUD
HOC in order to obtain the necessary information to determine if the borrower
qualifies for the FHA mortgage:
HOC
Philadelphia HOC
Atlanta HOC
Denver HOC
Santa Ana HOC
Phone Number
1-215-656-0578, ext. 3059
1-888-696-4687 (select an option)
1-800-543-9378
1-888-827-5605, ext. 3171
Eligibility Exceptions
• If the default or claim was caused by one of the following, the borrower(s) is
eligible to receive another HUD-insured mortgage providing the appropriate
documentation supporting the borrower(s) eligibility is attached to the FHA Loan
Underwriting and Transmittal Summary (HUD-92900-LT):
• Assumption: if the borrower sold the property with or without a release of
liability, to an individual who subsequently defaulted, the borrower is eligible
provided he/she can prove the loan was not in default at the time of the
assumption,
Section 2.22
October 31, 2014
Page 122 of 222
Credit Alert
Interactive
Voice
Response
(CAIVRS)
System,
(continued)
Eligibility Exceptions, continued
• Divorce: if there was a default on a mortgage awarded to a former spouse and
the divorce decree or legal separation agreement awarded the property to that
spouse (if a claim was paid, the mortgage must have been in default after the
divorce decree or separation agreement was signed), or
• Bankruptcy: if the property was included in a bankruptcy that was caused by
circumstances beyond the borrower’s control.
Alpha Code Definitions
• A = No activity
• B = Title I claim and/or Title II default
• C = Title I and/or claim
• D = One or more Title II defaults
• E = One or more Title I claims
Steps to Cure Problems
If the code is “B-E” the borrower must contact the HUD Field Office for direction.
Instructions given by the HUD Field Office must be provided by the borrower and
must be followed to “cure” the problem.
Credit Inquiries
•
•
•
Documentation of inquires is based on underwriting discretion upon full analysis
of the loan file.
All inquiries within the last 90 days must be indicated on the credit report and
explained in writing by the borrower. Any new debt must be verified and
included in the debt ratio.
If the credit report reflects credit inquiries from lenders (including SunTrust Bank,
Inc.) within 120 days of the credit report date, explanation for all inquiries
referenced, except for the inquiry made by the originating lender that is directly
related to the subject mortgage loan application, is required.
Note: An explanation for the credit inquiry made by the originating lender that is
directly related to the subject mortgage loan application is not required.
•
If the explanation reveals that new debt has been incurred which is not present
on the initial application or on the credit report, documentation must be obtained
from the borrower which indicates the balance and payment of the debt. This
information must be included as a liability on the 1003 and the borrower must be
requalified and/or the loan re-priced based on this new information.
Note: At this time, SunTrust will NOT be pulling a new credit report prior to purchase
to validate if the borrower has incurred any additional liabilities
Section 2.22
October 31, 2014
Page 123 of 222
Credit Reports
A merged in-file credit report from three (3) repositories is acceptable in lieu of a full
Residential Mortgage Credit Report (RMCR).
• Credit Reports with truncated SSN’s (Example: xxx-xx-1234) are acceptable
under the following guidelines:
• The credit report must reflect a minimum of the last four digits of the
borrower’s social security number,
• the mortgage application (1003) must have the complete 9 digit social
security number,
• the borrowers name, social security number and date of birth must be
validated through FHA connection or its equivalent, and
• lenders are responsible for verifying each borrower’s social security number
as well as each borrower’s identity.
• All copies of all credit report must be retained along with a written analysis of
the reasons for any discrepancies between the credit reports. If any
information is received that is inconsistent with the information on the credit
report, the inconsistency must be reconciled.
• SunTrust will not accept a Non-Traditional credit report (NTMCR) to offset
derogatory references found in the borrower’s traditional credit, such as
collections and judgments.
Reference: See the HUD Handbook 4155.1 Mortgage Credit Analysis for Mortgage
Insurance on One-to-Four Unit Mortgage Loans, Chapter 1 for additional information
on TRMCRs, RMCRs and NTMCRs.
•
•
•
•
•
•
•
•
Joint credit reports may be ordered for borrowers who are married to each
other.
If there are two (2) or more borrowers who are not married to each other,
individual credit reports must be ordered for each borrower, even if they live
together and co-mingle accounts.
A merged in-file credit report from three repositories is obtained through DU.
All credit reports for all borrowers must be reviewed.
The feedback certificate must identify the borrower’s credit report used for
TOTAL’s risk evaluation.
If the subject property is located in a community property state and the borrower
has a non-purchasing spouse, individual credit reports are required. The nonpurchasing spouse’s report should be ordered outside of DU.
Credit Report Expiration Date: The credit documents may be up to 120 days old
at the time the loan closes unless the transaction is for new construction, in
which case, the documents can be 180 days old.
DU will return a message identifying the final date the loan can close based on
the date the credit report will expire.
Section 2.22
October 31, 2014
Page 124 of 222
Escrow
Waivers
Waiver of tax and/or insurance escrow is not allowed.
Minimum Floor
Credit Score
Requirements
•
•
A minimum floor credit score of 640 is required on all non-jumbo FHA loan
programs including DU “Approve/Eligible” loans.
ALL borrowers are required to meet this new minimum floor credit score on all
non-jumbo FHA loan programs.
Reference: See the Streamline Refinance subtopic previously presented for
additional information on credit score requirements on FHA Streamline
refinances.
Notes:
• DU “Approve/Ineligible” loans require an Underwriter to sign off on the loan.
All borrowers are required to have a minimum 640 credit score in this case.
• All data that has been input into the AUS engine MUST be validated and
deemed accurate.
• If the FHA product description includes a minimum credit score HIGHER
than the minimums outlined above, the HIGHER restriction still applies.
•
•
•
•
If a borrower does not have traditional credit references with which to generate a
credit score, the borrower is considered “unscoreable,” and is not eligible for
financing with SunTrust.
The credit scores must be entered into the FHA Connection (or its functional
equivalent).
Credit scores not entered by TOTAL Scorecard are entered at the Insurance
Application process by the Post-Closing Department.
Only one credit score is required for an occupant borrower for the loan to be
eligible for the FHA TOTAL Scorecard.
Note: Once a mortgage loan is scored through TOTAL Scorecard the credit
bureau scores remain permanent (unless re-scored through TOTAL) and cannot
be changed with manual input.
Debts Omitted
or Not Verified
on Credit
Report
The lender must obtain a separate written verification (this includes accounts listed
as “will rate by mail only” or “need written authorization”).
Section 2.22
October 31, 2014
Page 125 of 222
Delinquent
Federal Debt
•
•
A borrower is not eligible for a HUD insured loan if he/she has any outstanding
Federal debt (this includes debt of borrower sponsor, general contractor, and all
principal of these entities), until the delinquent account is brought current, paid,
or satisfied.
Federal debts include direct loans, HUD-insured mortgage loans, VA-insured
mortgages, student loans, Small Business Administration loans, delinquent
federal taxes, or judgments/liens against property for a debt owed the Federal
Government.
Note: For FHA loan transactions, in addition to reviewing the credit report for
delinquent federal debt, lenders may process the IRS Form 4506-T for account
transcripts for the most recent two-year period. As part of your underwriting
process, you may choose to review account transcripts in conjunction with
reviewing the credit report and checking CAIVRS. DE Underwriters must
continue to follow current guidance associated with delinquent federal debt.
•
•
•
•
A borrower with prior Federal defaults or claims must submit an explanation of
the circumstances surrounding the delinquency with the following documents:
detailed explanation of how delinquent debt was incurred,
letterhead advice from affected agency, signed by an officer and stating that the
delinquent debt is current or that satisfactory arrangement for repayment has
been made, and
lender’s reason(s) for recommendation of the borrower (can include worksheets
and remark sections from processing documents or a cover letter).
Exception
• A tax lien may remain unpaid if the lien holder subordinates the lien to the HUD
insured mortgage and payment on the lien is included in the qualifying ratios.
• If the lender has evidence that the IRS has demanded a first-lien position, the
lien must be satisfied prior to closing.
• The IRS routinely takes a second lien position on a principal residence without
the necessity of independent documentation.
• Eligibility for FHA mortgage insurance will not be jeopardized by outstanding IRS
tax liens remaining on the property UNLESS there is information that the IRS
has demanded a first-lien position.
Note: Although eligibility for an FHA mortgage may be established by the
actions described above, the overall analysis of the creditworthiness must
include consideration of a borrower’s previous failure to make payments to the
Federal agency in the agreed to manner and must document its analysis of how
the previous failure does not represent a risk of mortgage default.
•
•
Delinquent payments must be explained in writing by the borrower to the
satisfaction of the underwriter. Supporting documentation may be required.
Documentation of late payments is based on underwriting discretion upon full
analysis of the loan file.
Section 2.22
October 31, 2014
Page 126 of 222
Duplicate
Public Records
•
If it is unclear from the credit report that an item is duplicated, each item should
be treated individually and appropriate documentation must be obtained.
Foreclosure/
Deed in Lieu of
Foreclosure/
Short Sale
•
A foreclosure, deed-in-lieu of foreclosure or short sale within the three (3) year
period prior to loan application is not acceptable on a HUD insured loan. If the
foreclosure was part of a bankruptcy, the more restrictive three (3) year wait
remains in effect.
There is an exception if the foreclosure was on the borrower’s principal
residence and was the result of extenuating circumstances beyond borrower’s
control (i.e., death of the principal wage earner, or serious long-term illness).
In the case of an exception, the borrower must have re-established new credit
with no derogatory credit since the foreclosure and he/she provide a letter from
the lender who held the lien showing no outstanding liability.
Inability of a borrower to sell his/her home when transferred from one area to
another is not an acceptable reason for foreclosure or deed-in lieu.
•
•
•
Judgments,
Garnishments,
and Liens
FHA Non-AUS
• Judgments, garnishments, and liens must be evaluated to determine if they will
affect the borrower’s ability to repay the mortgage and are a result of:
• a borrower’s disregard for financial obligations,
• a borrower’s inability to manage debt, or
• extenuating circumstances.
• All manually underwritten loans, including TOTAL Scorecard “Refer”
recommendations that reflect judgments, garnishments, and/or liens, regardless
of the outstanding amount, require the borrower to provide a letter of explanation
and supporting documentation. The explanation and documentation must make
sense and be consistent with other credit information in the file.
• Judgments, garnishments, and/or liens typically must be paid in full at or prior to
closing.
• An exception may be made to the payoff of a court-ordered judgment,
garnishment, and/or lien if the following can be documented:
• The borrower has an agreement with the creditor to make regular and timely
payments, and
• Payments have been made according to the agreement, and
• A minimum of three (3) months of scheduled payments have been made
prior to credit approval. Prepayment is not allowed.
• The borrower must qualify with the payment amount included in the debt-toincome (DTI) ratio.
• The creditor is willing to subordinate that judgment to the insured first lien
mortgage.
Section 2.22
October 31, 2014
Page 127 of 222
Judgments,
Garnishments,
and Liens,
(continued)
•
The borrower must have reestablished credit, as reflected on the credit report in
the file.
Note: Judgment, garnishment, and lien paid in full and exception guidance in lieu of
payoff applies to a non-purchasing spouse in a community property state, unless
excluded by state law.
Non-AUS Guidelines apply.
Mortgage/
Rental Payment
Histories
•
•
The borrower’s housing payment history is significant when evaluating credit.
The lender must determine the borrower’s housing payment history through a:
• credit report,
• verification of rent directly from the landlord (for landlords with no identity-ofinterest with the borrower),
• verification of the mortgage directly from the mortgage servicer, or
• the review of canceled checks that cover the most recent 12 month period.
Note: The lender must verify/document the previous 12 months housing history
even if the borrower states they are living rent-free.
•
•
•
Mortgages with less than 6 months of payment history are not eligible for a cashout refinance.
Properties owned free and clear are eligible for cash-out refinances.
Traditional underwriting is required for streamline refinance, second home, and
investment property transactions or if the credit report used by TOTAL Scorecard
does not accurately reflect the mortgage payment history.
Reference: See Privately Held Mortgages subsequently presented for additional
information regarding payment verification requirements for privately held
mortgages.
Section 2.22
October 31, 2014
Page 128 of 222
Mortgage/
Rental Payment
Histories,
(continued)
•
•
•
Typically, the loan will receive an “Approve/Ineligible” if there are any 30/60/90 day late payments in
the last 12 months on the credit report.
If “Approve/Eligible,” rental payment history verification is not required.
If “Approve/Eligible,” the loan must be manually downgraded to a “Refer” and traditionally
underwritten if the following applies:
• The information was reported incorrectly on the credit report; or
• The account was not reflected on the credit report but direct verification outside of DU reflects
more than 1x30 day late in the last 12 months.
• The loan is a cash-out refinance and any mortgage trade line, including mortgage line-of-credit
payments, during the most recent 12 months reflects
• Any mortgage delinquencies in the most recent 12 month period, or
• With less than 6 months payment history on the existing mortgage, or
• Currently delinquent.
Reference: See Privately Held Mortgages subsequently presented for additional information regarding
payment verification requirements for privately held mortgages.
Section 2.22
October 31, 2014
Page 129 of 222
Privately Held
Mortgages
A “privately held mortgage” is a mortgage or trust deed which is granted to a borrower
with private monies and is between an individual investor, partnership, LLC, trust, etc.,
who has interest in the property and/or the person who purchased the property.
If a borrower is refinancing a privately held mortgage, the following payment
verification requirements apply:
• A mortgage payment history of 12 months must be met.
• At a minimum, at least six (6) months mortgage payments on the current
privately held mortgage must be verified. The remaining six (6) months can
come from a previous mortgage or rental verifications.
• The privately held mortgage payments must be verified with either cancelled
checks or bank statements (if the payment is automatically withdrawn from
the borrower’s account).
• If less than the minimum six (6) months mortgage payments on the current
privately held mortgage are verified and the property is a 1 unit primary
residence, then the following applies:
• The borrower’s previous mortgage or rental payments may be used to
supplements the required twelve (12) month payment history, but may not
be used solely to satisfy the required payment history.
• If previous mortgage or rental payments are used to supplement the
required twelve (12) month payment history, then the previous mortgage
or rental history must reflect no more than 1x30 late in the supplemental
history.
• The borrower’s previous rental history may be used to supplement the
twelve (12) month history only if the rental payments are consistent with
or within 20% of the total proposed PITIA mortgage payment.
• If a mortgage payment is not required for the current privately held mortgage,
then non-AUS guidelines apply for ratio and reserve requirements.
• If the property is a 2-4 unit primary residence, the minimum six (6) month
mortgage payment history on the current privately held mortgage must be
verified, no exceptions.
• Evidence must be included in the loan file that the lien being paid off is a
current recorded lien against the subject property.
• All other FHA credit history requirements apply.
Note: These guidelines apply for all traditionally underwritten AND AUS
processed FHA loans.
Non-Traditional
Credit
If a borrower does not have traditional credit references with which to generate a
credit score, the borrower is considered “unscoreable,” and is not eligible for financing
with SunTrust.
Section 2.22
October 31, 2014
Page 130 of 222
Recent and
Undisclosed
Debts
•
•
Suspensions
and
Debarments
•
•
•
The purpose of any recent debts must be determined as the indebtedness may
have been incurred to obtain part of the required down payment on the property
being purchased. Unsecured debt may not be used for down payment.
The borrower must also provide a satisfactory explanation for any significant
debt that is shown on the credit report but not listed on the loan application.
A borrower who is suspended, debarred, or otherwise excluded from
participation in HUD’s programs is not eligible for a HUD insured mortgage.
This is verified on HUD’s “Limited Denial of Participation (LDP) List” and the
government wide General Services Administration’s (GSA) “List of Parties
Excluded from Federal Procurement or Non-procurement Programs”. The results
of reviewing these two lists must be documented on the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT) to confirm that the LDP/GSA lists
have been checked.
The listing/selling Realtors, Builder, seller, and loan officer must also be verified
on the LDP/GSA lists.
LDP/GSA lists can be accessed via FHA Connection or the Internet web site.
Exception: If the seller(s) is on the GSA list but the property being sold is the
seller’s principal residence, the transaction is eligible for HUD financing
(assuming that all other parties are eligible).
Section 2.22
October 31, 2014
Page 131 of 222
Documentation
Age of Credit Documents
• If the property is existing, credit documents (credit reports, employment, income
and asset documentation) cannot be older than 120 days from the Note date.
• If the property is new construction, credit documents (credit reports,
employment, income and asset documentation) cannot be older than 180 days
from the Note date.
• The expiration date for the documents is based on the origination date on the
document and not on the underwriting date.
• All accounts with a balance must have been checked with the creditor within 90
days of the credit report. All inquiries made within the last 90 days must also be
included on the credit report.
Written, Faxed, or Internet Verifications of Employment and Assets
• If written verification forms are used, the lender’s file must contain the original
form (or a faxed form) with an original signature of the party completing the form.
• Verification forms must pass directly between the lender and creditor without
being handled by a third party.
• Faxed or Internet downloaded documents may be used as long as the following
requirements are met:
• Name of employer or depository/investment firm and the source of the
information are clearly identified, and
• The lender insures the authenticity of the document by examining, the
information included at the top or banner portion of the fax, or the uniform
resource locator (URL) address and date and time printed on internetdownloaded documents. The lender must also verify the existence of the
website from which the documents were derived.
• Faxed documents must also clearly identify the name and telephone number of
the individual at the employer or financial institution responsible for verifying the
accuracy of the data.
• Internet downloaded document must provide the same information as a standard
original statement, including:
• Account holder,
• Account number,
• Detailed transaction history, and
• Account balance.
• Documents relating to credit, employment or income of the borrowers that are
handled by, transmitted from or through interested third parties (i.e., real estate
agents, builders, sellers) or by using their equipment are not acceptable and may
not be used as documentation.
Section 2.22
October 31, 2014
Page 132 of 222
Alternate
Documentation
Verification of Mortgage/Rental
One (1) of the following is acceptable:
• most recent 12 month history as reflected on the credit bureau report,
• most recent 12 months canceled checks (front and back),
• previous year end statement and canceled checks year-to-date (front and back),
or
• written verification of mortgage or rental.
Credit Report
• An in-file credit report is acceptable, as long as it provides information from three
(3) repositories.
• If an in-file cannot meet HUD’s requirements, a full RMCR is required.
Section 2.22
October 31, 2014
Page 133 of 222
FHA Social Security Number Validation
Social Security
Number
Validation and
Effect on Case
Number
Assignments
General
• FHA will validate Social Security Numbers (SSN) for consistency with borrower
names and dates of birth as a further means of reducing identify theft and fraud
to protect the insurance funds managed by FHA.
• This service is only for FHA loans, and may not be used to verify Social Security
Numbers (SSN) for other financing types.
Reference: See the FHA Case Number Assignment and Cancellation subtopic in the
Overview topic for additional information.
Lender’s Responsibilities
• The modified Addendum to Uniform Residential Loan Application (HUD-92900A), pages 1 and 2 must be used for all new loan applications to provide
disclosure to and consent by the borrower to verify his/her SSN, as well as each
borrower’s
identity.
.
See
http://portal.hud.gov/hudportal/documents/huddoc?id=92900-a.pdf for revised
form 92900-A.
• The borrower’s name, SSN and birth date are entered by the lender at the
borrower/address screen through the FHA Connection (FHAC) on all loans
except proposed new construction.
• It remains the lenders responsibility to verify each borrower’s SSN and identity.
• Loans may not be closed or endorsed without an approved validation by FHA.
Reference: See “Social Security Numbers” in the topic “Application, Disclosures
and Consumer Compliance” for additional information.
FHA’s Online Validation System
• FHA’s on-line system provides an overall confidence rating. An acceptable
confidence rating allows a case number to be assigned and the lender may
continue to process the loan.
• Validation will also be performed when the borrower name, date of birth or SSN
is changed after the case number has been assigned. If the validation fails, a
case warning will remain on the loan and the lender will need to resolve the
inconsistency before the mortgage may be endorsed.
• If an acceptable confidence rating is NOT received, one of the following actions
may be taken by the lender:
• Correct any or all of the three data fields to trigger additional verification
attempts, if incorrect date, or
• If it is believed the data is correct, override the online validation, continue
with all other data entries into FHA Connection. The results of this action are
shown below.
Section 2.22
October 31, 2014
Page 134 of 222
FHA Social Security Number Validation, Continued
Social Security
Number
Validation and
Effect on Case
Number
Assignments,
(continued)
FHA’s Online Validation System, continued
• The application is placed in the “holds tracking” mode resulting in an overnight
validation attempt with the SSA’s database.
• If successful, a case number is normally assigned the next day following
successful verification by SSA; however, a two-day case number assignment
may occur.
• If the overnight matching with SSA fails, FHA will communicate the information
regarding mismatched data fields, including transposed numbers, date of birth
inconsistency, complete failure to match, etc. No case number will be issued.
Evidence System is in Error
• The lender may provide documentation to the jurisdictional Homeownership
Center (HOC) if the borrower produces conclusive documentation that the SSA
database is in error (i.e., borrower name change following recent marriage).
• If the HOC staff believes the documentation to be valid, it will manually issue a
case number.
Section 2.22
October 31, 2014
Page 135 of 222
Cash Requirements
General
In all cases, the source of funds for closing must be verified with acceptable
documentation including AUS loans.
Fannie Mae DU
All assets entered in DU must be verified.
•
•
Freddie Mac LP
All assets entered in LP must be verified.
If the transaction is a refinance and the borrower is
required to bring cash to closing, the source of closing
funds must be verified if closing costs are greater than
4% of the loan amount. If closing costs are 4% or less,
verification of the source of funds is not required.
Advance
Mortgage
Payments
Prohibited
FHA does not permit a lender, as a condition for making a FHA mortgage, to collect
advance payments of the mortgage. Borrowers are not to be required to write postdated checks, give cash, or otherwise make mortgage payments in advance of the
borrower’s mortgage payment requirements under the security instrument.
Borrowers at
Least 60 Years
Old
Reference: See the Borrowers 60 years of Age subtopic in the Eligible Borrowers
Cash Reserve
Requirements
General
• Borrower assets, other than those necessary to cover closing funds (including
payoffs that are a condition of loan approval), must be liquid or readily converted
to cash (absent requirement or job termination) in order to be considered as
cash reserves).
• If assets not considered for cash reserves are used for closing, they should be
considered assets only for the amount that is required for closing. Additional
funds would not be considered “cash reserves.”
Cash Reserve Requirements
• There are no cash reserve requirements except under the following conditions:
• three (3) months PITIA reserves are required on all transactions for 3-4 unit
properties,
• one (1) month PITIA reserves are required on all manually underwritten
conforming loan transactions for 1-2 unit properties,
• two (2) months PITIA reserves are required on all Jumbo transactions for 1-2
unit properties, or
• cash reserves may be needed for a compensating factor if debt ratios
exceed the guidelines.
Section 2.22
October 31, 2014
Page 136 of 222
Cash Requirements, Continued
Cash Reserve
Requirements,
(continued)
Assets Not Considered Cash Reserves
• The following assets are not considered “cash reserves”:
• equity in other properties (not including a primary residence being sold with
proceeds applied to the purchase of the subject property) or incidental cash
received at settlement from other loan transactions,
• proceeds from a cash-out refinance (if this is the subject transaction),
• gift funds, and
• funds that are borrowed from any source.
Note: Any gift funds that remain in the borrower’s account following closing, subject
to proper documentation, may be considered as cash reserves when scoring the
mortgage application through TOTAL Scorecard.
Cash Reserves from Retirement Accounts
• A portion of the borrower’s retirement account may be used as cash reserves
when scoring a mortgage application through TOTAL Scorecard subject to the
conditions listed below:
• only 60% of the VESTED amount of the account may be used to account for
withdrawal penalties and taxes.
• the lender must document the existence of the account with the most recent
depository or brokerage account statement.
• evidence must be provided that the retirement account allows for
withdrawals for conditions other than in connection with the borrower’s
employment termination, retirement, or death.
• retirement funds that can only be withdrawn under the conditions noted
above may not be used as cash reserves.
• any retirement funds that are also used for loan settlement must be
subtracted from the amount included in cash reserves.
Section 2.22
October 31, 2014
Page 137 of 222
Cash on Hand
Cash at Home
• Borrowers must be able to demonstrate the ability to save such funds.
• The cash must be verified as deposited in a financial institution or held by the
escrow/title company.
• The borrower is responsible for providing satisfactory evidence of the ability to
accumulate such savings (i.e., explanation of how funds were accumulated and
over what period of time and a completed budget plan).
• The reasonableness of the accumulation of the funds based on the borrower’s
income stream, the time period during which the funds were saved, the
borrower’s spending habits, documented expenses and history of using financial
institutions. (Individuals with checking and/or savings accounts are less likely to
save money at home than those with no history of such accounts.)
• Income that is not reported to the IRS cannot be used for source of cash saved
at home.
Cash From Private Savings Clubs
• Private savings clubs include those used by numerous ethnic groups.
• The borrower must be able to adequately document the accumulation of his/her
assets held with the club.
• There must exist, at minimum, account ledgers, receipts from the club, to enable
a lender to receive verification from the club treasurer, as well as identification of
the club that would permit you to re-verify the information provided.
• The underwriter must be able to determine that it was reasonable for the
borrower to save the money claimed and that there is no evidence that these
funds are borrowed funds with an expectation of repayment.
Checking &
Savings
Accounts and
Certificates of
Deposit
The borrower must provide one of the following:
• most recent monthly bank statement showing the previous month’s ending
balance if received monthly. If previous month’s balance is not shown, the most
recent 2 monthly statements are required (in some cases, the AUS Findings
Report may require 2 months), or
• most recent quarterly bank statement, if received quarterly.
Explanations are required for large deposits on bank statements that may require
additional documentation.
•
Note: If the borrower does not hold the deposit account solely, all nonborrower’s on the account must provide a written joint access letter stating that
the borrower has full access and use of the funds.
Section 2.22
October 31, 2014
Page 138 of 222
Large Deposits
•
•
•
A large deposit could be a single deposit or multiple deposits over a period of
time, which in aggregate, results in a large deposit. “Period of time” equals the
period covered by the bank statements reviewed by the underwriter which, in
aggregate, results in a large deposit.
We consider the following a large deposit:
• Single deposits that represent 10% of the borrower’s gross monthly income.
• If the bank account is joint with another borrower then review single
deposits of 10% or more of the joint borrower’s gross monthly income.
• If joint borrowers have separate account(s) then review single deposits
of 10% or more of the individual borrower’s gross monthly income.
• Self-employed borrower gross income is the monthly qualifying income
used for the self-employed borrower.
• Multiple aggregated deposits which represent 20% of the borrower’s gross
monthly income for the period covered on the bank statement.
• If the bank account is joint with another borrower then review multiple
deposits of 20% or more of the joint borrower’s gross monthly income.
• If joint borrowers have separate account(s) then review multiple deposits
of 20% or more of the individual borrower’s gross monthly income.
• Self-employed borrower gross income is the monthly qualifying income
used for the self-employed borrower.
• Account balance greater than the average balance over the previous two
months.
The following large deposit documentation requirements apply:
• Require a satisfactory signed letter of explanation from the borrower in all
circumstances regardless if funds are needed for closing.
• A letter of explanation is not required if funds are transferring from one
account to another (i.e., checking to savings, money market to savings
or checking, etc.) and both sides of the transfer(s) are tracked on the
bank statement(s) in the file.
• The appropriate level of due diligence must be used to ensure large deposits
are not the result of undisclosed debt or because of incentives from a seller,
realtor, builder, or developer.
• Using the funds in question for down payment, closing cost, earnest money
deposit, or reserves, requires additional supporting documentation to verify
the source of funds.
• If funds in question are not being used for down payment, closing costs,
earnest money deposit, or reserves, and due diligence has been performed
to ensure the funds are not from an unacceptable source, the underwriter
may deduct the large deposit from the balance of the account and allow
remaining funds to be used to qualify.
• When reducing the asset balance by the amount of the large deposit, the
reason for the change in the asset amount requires documentation, and
update to AUS (if applicable) with the adjusted asset balance, and rerun of
AUS to update the AUS decision.
Section 2.22
October 31, 2014
Page 139 of 222
Large Deposits,
(continued)
•
When identifying the source of deposits take into consideration:
• Do the deposits reflect a normal deposit pattern from an identifiable source?
• Are the total monthly deposits consistent with the borrower’s income and
earnings profile?
• Does the borrower have direct deposits over a period of time which, in total,
result in a large deposit?
• Is the deposit possibly a loan?
• Are there credit inquiries which may be a red flag?
• Was the account recently opened?
Commission
From Sale
•
If the borrower is a licensed real estate agent entitled to a real estate
commission from the sale of the property being purchased, those funds may be
used as part of the down payment, a letter from the Real Estate Agency must
state how much will be credited to the Sales Agent (after any commission split or
deduction of other fees) at closing on the HUD-1.
A family member entitled to the commission may also gift the funds to the
borrower.
There is no required adjustment to the maximum mortgage.
•
•
Credit Card
Financing
•
The actual cost of a credit report and appraisal may be charged on a credit card
when these cost are paid outside of closing under then following conditions:
• a payment for the amount charged is included in the total debt ratio, and
• the borrower has sufficient assets (documentation in file) to pay charged
fees, in addition to funds needed for other closing costs and the down
payment.
Section 2.22
October 31, 2014
Page 140 of 222
Disaster Relief
Grants and
Loans
•
•
Down Payment
•
•
•
Earnest Money
Deposit
•
•
•
•
Employer
Assistance
Plans
•
•
•
Employer
Guarantee
Plans
Eligible grants and loans that may be used for the down payment with no
adjustment to the maximum mortgage include the following:
• grants or loans from state and federal agencies that provide immediate
housing assistance to individuals displaced due to natural disaster, and
• secured or unsecured disaster relief loans administered by the Small
Business Administration (SBA).
If the SBA loan is secured by the subject property, it must be subordinate to the
HUD insured first mortgage lien and the monthly payment must be included in
the debt ratios.
HUD requires a minimum down payment of three and one half percent (3.50%).
The minimum down payment is based on the lesser of the appraised value or
sales price (without considering closing costs) minus any required adjustments.
The minimum down payment must be provided from borrower’s own cash funds
(“own cash” is defined as inclusive of gifts, loans from family members, or loans
from a governmental agency or instrumentality).
The earnest money deposit (EMD) amount and source of funds must be verified
if it is two percent (2.00%) or more of the sales price, if it appears excessive
based on the borrower’s previous savings pattern or if the borrower is “tight” on
closing funds.
A copy of the canceled check (front and back) must be provided and the source
of the funds must be verified.
A certification from the deposit holder acknowledging receipt of funds is
acceptable as long as it accompanies separate evidence of the source of funds.
Evidence of source of funds includes a verification of deposit or bank statement
showing at the time the deposit was made the average balance was sufficient to
cover the amount of the EMD.
If the employer, in order to entice or keep a valuable employee, pays the
borrower’s closing costs, mortgage insurance premium, or any part of the down
payment, no adjustment to the maximum mortgage amount is required.
If the employer does this as a reimbursement after closing the borrower must
show evidence of sufficient funds to close.
Salary advances are not allowed as these are considered an unsecured loan.
If the employer guarantees to purchase the borrower’s previous residence, as the
result of relocation, the borrower must submit evidence of a relocation agreement
and the net proceeds guaranteed.
Section 2.22
October 31, 2014
Page 141 of 222
Gift/Grant
Funds
General Information
• A gift may be used for 100% of the borrower’s closing costs and down payment.
• Gift funds cannot be used as reserves. If the borrower is receiving a gift for
more than the amount to close, the “excess” cannot be used as reserves. Only
the amount of funds that will be used for closing should be shown as gift funds
not received, or as an asset.
Note: Any gift funds that remain in the borrower’s account following loan closing,
subject to the proper documentation, may be considered as cash reserves when
scoring the mortgage application through TOTAL.
•
•
•
•
•
•
Eligible donors include the following:
• Federal/State/Local government agency or instrumentality,
• close relative of the borrower,
• close friend with a clearly defined and documented interest in the borrower,
• a corporation established for humanitarian, welfare, or charitable purposes,
or
• borrower’s employer or labor union.
The donor of the gift cannot be a person or entity whose interest is in the sale of
the property (i.e., builder or seller, real estate broker, marketing agent, or any
person/corporation/organization associated with them). Gifts or credits from
these sources are considered inducements to purchase and must be subtracted
from the contract sales price.
Only family members may provide equity credit as a gift on a property being sold
to other family members. This must be reflected on the HUD 1.
If a gift is being provided by a nonprofit, government entity or other business
entity, the following is required:
• Employer Identification Number (EIN) must be noted in the appropriate
line(s) of the “Mortgage Information” section of the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT), and
• the correct provider box must be marked below the space where the EIN is
entered.
When the “Other” box is marked as the provider of gift funds, the type of provider
(i.e. employer, labor union) must also be identified.
Lenders must approve all “gift programs” administered by charitable
organizations. The program must meet all HUD regulations and guidelines.
Copies of the organization’s paperwork, program criteria, website, and sample
forms, and any other applicable information will be reviewed.
Section 2.22
October 31, 2014
Page 142 of 222
Gift/Grant
Funds,
(continued)
General Information, continued
Notes:
• Nonprofit entities are not allowed to provide gifts to homebuyers for the
purpose of paying off installment loans, credit cards, collections, judgments,
and similar debts.
• Soft seconds are shown as second mortgages and not as a gift.
Documentation Requirements
• Documentation of gift funds must include the following:
• A gift letter with donor’s and borrower’s signature that specifically states the
following information:
• dollar amount given,
• no repayment is necessary,
• the donor’s name, address, telephone number and relationship to
borrower,
• the address of the property being purchased/refinanced
• donor’s signature, and
• the gift letter must state, “We ARE AWARE OF THE FOLLOWING : I/We
fully understand that it is a Federal crime punishable by fine or
imprisonment, or both, to knowingly make any false statements when
applying for this mortgage, as applicable under the provision of Title 18,
United States Code, Section 1014 and Section 1010.”
Note: It is not acceptable to notate the loan file/application with the above gift
donor information in lieu of a gift letter.
•
•
If the gift funds transfer before closing, the following documentation is
required:
• a copy of the donor’s canceled check or other withdrawal document
showing that the withdrawal is from the donor’s account, and
• the borrower’s deposit receipt and bank statement showing the deposit.
• When gift funds are transferred at closing, the lender is responsible for
obtaining the following verifications:
• the closing agent’s receipt of the gift funds from the donor for the amount
of the gift, and
• evidence that those funds came from an acceptable source.
• If the gift funds transfer at closing and the transfer of funds is by certified
check from the donor’s account, the donor must provide the following
documentation:
• a bank statement reflecting the withdrawal from the donor’s personal
account, and
• a copy of the certified check.
If the gift funds transfer at closing and the donor purchased a cashier’s check,
money order, or other official bank check, the donor must provide a withdrawal
document or canceled check for the amount of the gift to verify that the funds
came from the donor’s personal account.
Section 2.22
October 31, 2014
Page 143 of 222
Gift/Grant
Funds
(continued)
Documentation Requirements, continued
• If the donor borrowed the gift funds and cannot provide the documentation from
his/her bank or other savings account, the donor must provide evidence that
those funds were borrowed from an acceptable source (i.e., not from a party to
the transaction including the mortgage lender). Donor’s may borrow gift funds
from any other acceptable source provided that the borrowers are not obligors to
any note to secure money borrowed to give the gift.
• “Cash on hand” or “mattress money” is not an acceptable source of the donor’s
gift funds. The source of funds must be verifiable.
Note: Gift letters do not need to be redone if the gift amount is less than stated.
•
•
•
•
Fannie Mae DU
If “Approve/Eligible,” a gift letter and
documentation of the transfer of funds
is not required if all of the following
applies:
• gift funds were deposited into the
borrower’s account by no later
than the first time of DU
submission; and
• the loan application lists the
donor’s name, address, phone
number and relationship to the
borrower, as well as the amount
of the gift.
If “Approve/Eligible” and gift funds
were
not deposited into
the
borrower’s account by the first time of
DU submission, standard FHA
guidelines apply.
If “Approve/Ineligible,” or “Refer,”
reduced documentation may be used
if allowed by the findings report and
approved by the DE Underwriter.
If the borrower is receiving a gift for
more than the amount to close, the
“excess” may be considered as cash
reserves when scoring the mortgage
application through TOTAL.
•
•
•
Freddie Mac LP
If “Accept,” a gift letter and
documentation of the transfer of
funds is not required if all of the
following applies:
• gift funds were deposited in the
borrower’s account by no later
than the first time of LP
submission; and
• the loan application lists the
donor’s name, address, phone
number and relationship to the
borrower, as well as the amount
of the gift.
• If “Accept” and gift funds were
not
deposited
into
the
borrower’s account by the first
time
of
LP
submission,
standard FHA guidelines apply.
If “Refer”, reduced documentation
may be used if allowed by the
findings report and approved by the
DE Underwriter.
If the borrower is receiving a gift for
more than the amount to close, the
“excess” may be considered as cash
reserves when scoring the mortgage
application through TOTAL.
Section 2.22
October 31, 2014
Page 144 of 222
Seller Funded
Non-Profit
Down Payment
Assistance
Programs
The Seller Funded down payment assistance programs are not eligible.
Loans From
Family
Members
•
•
•
•
HUD will allow family member to make loans to borrowers for 100% of the funds
required for closing.
The loans may be secured or unsecured.
A family member includes a child, parent, grandparent (biological, foster or step),
sister, step-sister, brother, step-brother, legally adopted son or daughter, a child
who is a member of the borrower’s household due to placement by an
authorized agency for legal adoption, aunt, or uncle..
The following conditions must be met:
• the borrower cannot receive any cash back at closing (beyond the refund of
any earnest money deposit),
• if period payments are required, the borrower must still qualify with the
payment added to the total debt ratio (not housing ratio),
• the financing cannot provide for balloon payments within five (5) years from
the date of the note,
• if the family member borrows the funds, the initial source of loan funds
cannot be any party with an identity of interest in the sale of the property
(i.e., seller, builder, loan officer, or real estate agent), and
• a family member can borrow the loan funds from the retail banking affiliate of
a mortgage company as long as the financing made available is made under
the terms and conditions that are available to all other borrowers (special
considerations are not allowed).
Section 2.22
October 31, 2014
Page 145 of 222
Loans Secured
by an Asset
General Information
• Funds may be borrowed for the total required investment as long as satisfactory
evidence is provided that the funds are fully secured (collateralized) by
investment accounts or real property and the borrower can qualify with the
repayment. The payment is included in the total debt ratio.
HUD Acceptable Sources of Collateralized Loans
• HUD will accept collateralized loans for the total required investment as long as
satisfactory evidence is provided that the funds are fully secured by investment
accounts or real property and the borrower can qualify with the repayment. The
payment is included in the total debt ratio.
• Such assets include those listed below.
• Investment Accounts
• Real Property (i.e., cars, trucks, boats)
• Real Estate (other than the property being purchased)
• Stocks and Bonds
• Certain types of loans that are secured against deposited funds in which
repayment may be obtained through extinguishing the asset do not require
consideration of a repayment for qualifying purposes. The asset securing the
loan may not be included as assets to close or otherwise be considered as
available to the borrower. The assets listed below are included in this category.
• Cash value of life insurance policies
• Loans secured by 401(k)s
• Loans secured by a Certificate of Deposit
• Verification of the loan terms (i.e., copy of the note) must be provided. If the
loan was made after verification of deposit was completed, a copy of the
check and the borrower’s deposit receipt or bank statement must be
furnished.
• The real estate agent or broker, lender, seller or other party to the
transaction may not provide these funds.
HUD Unacceptable Sources of Collateralized Loans
• Signature loans
• Cash advances on credit cards
• Borrowing against household goods and furniture
• Other similar unsecured financing (i.e., jewelry, tools)
Section 2.22
October 31, 2014
Page 146 of 222
Mutual Funds
•
•
•
• two (2) months of account statements if received monthly, or
• most recent quarterly account statement, if received quarterly.
Proof of liquidation is required.
Explanations (with additional documentation) are required for large deposits.
balance if received monthly. If previous month’s balance is not shown most
• If “Approve/Eligible” or “Accept/Eligible,” proof of liquidation is not required.
Explanations (with additional documentation) are required for large deposits.
Note: If the borrower does not hold the deposit account solely, all non-borrower’s
on the account must provide a written joint access letter stating that the borrower
has full access and use of the funds.
Real Estate
Proceeds
•
•
•
The net proceeds from the sale of a currently owned property may be used for
the down payment requirement.
A fully executed HUD-1 Settlement Statement must be provided as satisfactory
evidence of the proceeds to the borrower.
If the borrower has not settled on the property prior to the underwriting of the
loan, it must be a condition of the loan approval.
Section 2.22
October 31, 2014
Page 147 of 222
Real Estate Tax
Credit
•
•
•
Rent Credit
•
•
•
In some states it is customary for a borrower to pay property taxes in arrears,
(and he/she may not pay property taxes on the improvements until a year or
more after closing). The credit from the seller at closing for the seller’s portion of
those taxes may be used to reduce the actual amount of cash that needs to be
brought to the closing table. It may not be used to offset minimum
investment or cash to close requirements.
The use of the tax credit only facilitates the exchange of cash. All cash to close
documentation requirements must be met such (i.e., the mortgage amount is
calculated the same, down payment requirements are the same, the verification
of the money is the same.)
Sufficient assets to close must be verified from the borrower’s own funds without
consideration to the tax credit. However, the borrower only needs to bring funds
to the closing for the amount of the bottom line on the HUD-1, Settlement
Statement, after the tax credit has been applied.
The cumulative amount of the rental payments that exceed the appraiser’s
estimate of fair market rent may be considered towards the borrower’s down
payment.
Both the rent-with-option to purchase agreement and the appraiser’s estimate of
market rent must be included in the case binder file.
If the sales agreement provides for a rent credit or a reduced rent and states that
the credit is to apply toward the down payment requirement, one of the following
applies:
• if the rent paid prior to the sale is less than the appraiser’s estimate of rental
value, the difference between the rent paid and the appraiser’s estimate
(multiplied by the number of months the borrower was living in the property)
is deducted from the contract sales price,
• if the rent paid prior to the sale exceeds the appraiser’s estimate of rental
value, the amount paid in excess of the appraiser’s estimate (multiplied by
the number of months the borrower was living in the property) is applied
towards closing funds, or
• if the borrower occupied the property (or one owned by the seller) “rent free”
as an inducement prior to the sale, the appraiser’s estimate of rental value
(multiplied by the number of months the borrower was living in the property)
is deducted from the sales price.
Note: Exceptions may be granted in a situation whereby a builder fails to
deliver a property at an agreed-to-time and then permits the borrower to
occupy that or another unit for less-than-market rent “temporarily” until
construction is complete.
Section 2.22
October 31, 2014
Page 148 of 222
Retirement
Funds
•
•
•
•
•
The borrower must provide all of the following:
• copy of the most current retirement account statement,
• if non-AUS underwriting, include the following items
• copy of the check representing account funds, and
• copy of the deposit receipt where funds were deposited into the borrower’s
account) or copy of the bank statement reflecting the deposit).
If TOTAL, documentation of terms and conditions to include the following:
• evidence that the account allows for withdrawals for conditions other than
that related to the borrower’s employment or death, and
• that the borrower qualifies for withdrawal and/or borrowing, and
• evidence of liquidation is not required.
When utilizing retirement accounts as assets (even if not using for closing), 60%
of the borrower’s vested interest may be used unless the borrower provides
documentation that a higher percentage may be withdrawn after subtracting any
federal income tax and withdrawal penalties.
If the fund is a 401k and there is an outstanding loan, the account value must be
reduced by the principal balance on the loan BEFORE using as an asset.
Funds from retirement accounts may be used as cash reserves.
Reference: See the “Cash Reserve Requirements” subtopic previously presented in
•
•
If using funds for closing, applicable withdrawal or income tax penalties must be
deducted from the account balance to determine value.
Proof of liquidation is required.
Fannie Mae DU
Proof of liquidation is not required if
“Approve/Eligible” on DU.
Sale of
Personal
Property
•
•
Freddie Mac LP
Proof of liquidation is required in LP.
If a borrower sells personal property for funds to close (i.e., cars, recreational
vehicles, stamp or coin collections), conclusive evidence of the sale and an
estimate of the value of the item being sold must be obtained.
Value must be established through the Blue Book for cars, Philatelic Association
for stamps, Numismatic Association for coins, or a qualified appraiser with no
financial interest in the transaction who could provide a written appraisal of the
item. The lesser of the estimate of value or actual sales price is used as assets
to close.
Section 2.22
October 31, 2014
Page 149 of 222
Savings Bonds
•
•
•
Stocks and
Bonds
•
•
•
Government issued bonds are given to the value at the original purchase price.
Exceptions may be made if eligibility for redemption and the redemption value
are confirmed.
The borrower’s receipt of the funds at redemption must be verified.
The value of securities must be verified through the borrower’s stockbroker or
financial institution.
If statements are available, the borrower must provide one of the following:
• two (2) months of account statements, if received monthly, or
• most recent quarterly account statement if received quarterly.
Evidence of liquidation and borrower’s receipt of the funds must be documented.
balance if received monthly. If previous month’s balance is not shown most
• If “Approve/Eligible” or “Accept/Eligible,” proof of liquidation is not required.
Note: If the borrower does not hold the deposit account solely, all non-borrower’s
on the account must provide a written joint access letter stating that the borrower
has full access and use of the funds.
Sweat Equity
•
•
•
•
Labor performed or materials furnished by the borrower prior to closing are
considered the equivalent of a down payment to the extent of the estimated cost
of the work or materials.
Work completed prior to the appraisal or after closing is not eligible for sweat
equity.
Sweat equity may be “gifted” subject to both the gift requirements and the sweat
equity requirements.
The following requirements apply to sweat equity:
• on existing construction, only the repairs and/or improvements listed on the
appraisal are eligible. (work or materials provided before the appraisal are
not eligible),
• on proposed construction, the tasks the borrower will perform during
construction are indicated in the sales contract,
Reference: See Section 1.05b: Reviewing Sales Contracts in the
Section 2.22
October 31, 2014
Page 150 of 222
•
Sweat Equity,
(continued)
•
•
•
•
Trade Equity
•
•
•
•
•
the borrower must demonstrate his/her ability to complete the work in a
satisfactory manner and the contributory value of the labor is documented
through either an appraiser’s cost estimate or through a cost estimating
service such as “Marshall and Swift” or through the local HUD office,
the work does not include delayed work (on-site escrow), clean up, debris
removal and other general maintenance (these are not sweat equity items),
the borrower does not receive any cash back at closing,
sweat equity is provided only on the subject property (work performed on
other properties must be in cash and properly documented), and
if the borrower furnishes materials, verification of the source of funds used to
purchase and the market value of the materials is provided.
The borrower may agree to trade his or her real property to the seller as part of
the down payment.
The amount of the borrower’s equity contribution is determined by subtracting all
liens against the property being traded (including real estate commission) from
the lesser of that property’s appraised value or sales/trade price.
An appraisal on the trade property is required as well as evidence of ownership.
The appraisal must be a residential appraisal (conventional, FHA, or VA) and
cannot be more than six (6) months old.
If the property being traded has an FHA mortgage, assumption processing
requirements and restrictions apply.
Reference: See Assumptions in the topic Loan Terms for additional information.
Documentation
Verification of Deposit
• A written verification of deposit and a most recent bank statement are used to
verify savings and checking accounts.
• Credible explanations (and/or documentation) are required for large deposits on
bank statements and recently opened accounts for the source of those funds.
Alternate documentation
• Bank statements for the most recent two (2) month consecutive period if
received monthly, or most recent quarterly bank statement, if received quarterly.
• ATM slips cannot be used as verification of assets.
Section 2.22
October 31, 2014
Page 151 of 222
Contributions by Interested Parties
Lender Credit
Lender credit resulting from premium pricing is allowable by HUD under the
requirements shown below.
• Lender credit may be applied to closing costs, prepaid items and discount points;
however, it may not exceed the allowable fee permitted by the jurisdictional FHA
Home Ownership Center (HOC).
• Lender credit cannot be applied to down payment nor to outstanding obligations
of the borrower, including missed (delinquent) mortgage payments.
• Lender credit is not considered a seller concession and is not subject to any
limitations.
• If lender credit is applied to closing costs that are being financed into the loan in
a refinance transaction, the amount of these closing costs must be deducted
from the total acquisition before calculating the maximum base loan amount.
• Lender credit must be used to reduce the principal balance if the premium
pricing agreement establishes a specific dollar amount for closing costs and
prepaid expenses with any remaining funds, in excess of actual costs, reverting
to the borrower.
Reference: See General Section 1.35: Compliance Overview of the Correspondent
Section 2.22
October 31, 2014
Page 152 of 222
Contributions by Interested Parties, Continued
Seller
Contributions
•
•
•
Sellers (or other interested third parties such as real estate agents, builders, or
developers) may contribute up to 6% of the sales price towards actual closing
costs, prepaid expenses, discount points and other financing concessions
allowable by HUD.
HUD does not require or permit the presentation or disclosure of “seller-paid
credits” on the Good Faith Estimate (GFE).
Seller credits must be entered as a “lump sum credit” on the HUD-1.
Note: When the seller makes a contribution to more than one expense for the
borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum
payment.”
•
•
•
•
•
•
•
•
•
•
Seller contributions may not be used toward borrower’s outstanding obligations.
Contributions from sellers or other interested third parties to the transaction that
exceed six (6) percent of the lesser of the property’s sales price or appraised
value, sales price, or other financing concessions, are to be treated as
inducements to purchase, thereby reducing the amount of the mortgage. Each
dollar exceeding the six (6) percent limit must be subtracted from the property’s
sale price before applying the appropriate loan-to-value (LTV) ratio.
Job Loss Insurance is considered a “sales concession,” but does not require a
dollar-for-dollar reduction from the sales price when calculating the LTV and TLTV
ratios.
The dollar-for-dollar reduction to the sales price also applies when gift funds do
not meet FHA requirements.
All DU loans submitted to SunTrust Mortgage must reflect zero in the new
interested party contribution field and underwriters will manually calculate the
limits.
Items typically paid by the seller (i.e., real estate commissions, charges for pest
inspections, fees paid to release a deed of trust) are not considered contributions.
If a seller (builder) is paying HOA dues or taxes that come due during the first
year of the mortgage, the borrower must qualify on the full PITI (including the
monthly tax escrow and HOA fee). In addition, when determining the borrower’s
three and one half (3.50%) downpayment, these “advance” payments cannot
lower the borrower’s cash to close.
Real estate broker fees paid to a buyer-broker by the seller on behalf of the
borrower are not considered a seller concession as long as the seller is paying the
sales commission that is typical for that market. The HUD-1 Settlement
Statement must be reviewed to ensure that the seller did not pay a sales
commission separately inclusive of the buyer-broker fee.
If the seller is charged for closing costs that are “unallowable” to the borrower by HUD
(i.e., underwriting fee, tax service fee, or document review fee), the payment on such
costs must be OUTSIDE of seller contributions listed on the contract. In addition,
these “unallowable” costs should not be reflected on the GFE.
Unacceptable fees for seller contributions:
•
•
one (1) year golf course fees,
initiation fees into a club, etc.
Reference: See Section 1.13: Interested Party Contributions Limits in the Correspondent
Section 2.22
October 31, 2014
Page 153 of 222
Contributions by Interested Parties, Continued
Seller-Paid
Interest
Payment
Reduction /
Ease-In
Payment
Reduction
Feature
•
•
•
•
The seller-paid interest payment reductions are also known as the “Ease-In
Payment Reduction” feature for SunTrust Mortgage marketing purposes.
Seller-paid interest payment reductions are available only on fixed rate loans.
Temporary buydowns are ineligible when the seller-paid interest payment
reduction is utilized.
It is similar to a buydown and must be in a fixed amount (amount of interest
applied to the PITI cannot change from month to month).
The borrower(s) qualify at the note rate using the full PITI.
Reference: See the Ease-In Payment Reduction Feature topic for more information
regarding seller-paid interest payment reductions.
Section 2.22
October 31, 2014
Page 154 of 222
HUD Allowable Closing Costs
General
•
The homebuyer may pay customary and reasonable costs that are necessary to
close the mortgage loan.
Note: Discount points may be acquisitioned on some refinances, but never on
purchase loans. Discount points may not be used to meet the buyer’s minimum
investment requirements.
•
•
•
All closing costs, including any costs paid outside of closing (POC), lender credit,
or seller contribution items, must be itemized on the HUD-1.
FHA will not allow “mark-up’s” (i.e., charging a fee to the mortgagor for an
amount greater than that charged by the service provider). Only the actual cost
for a service may be charged to the mortgagor.
It is expected that “Actual Costs” will not exceed what is reasonable and
customary for the area.
Notes:
• All fees and charges must comply with Federal and State disclosure laws
and other applicable laws and regulations.
• The Lock-In Confirmation must be executed by the borrower(s) at least
15 days prior to the date of the Note, if a commitment fee is collected.
Section 2.22
October 31, 2014
Page 155 of 222
HUD Allowable Closing Costs, Continued
Allowable
Costs/ Not
Included in
Acquisition
Closing costs and related information, pertaining to the fees that may be charged to
the borrower AND NOT INCLUDED IN THE ACQUISTION COST, are shown in the
table below
Allowable Fees/Costs Not
Included in Acquisition
Appraisal Fees
Appraisal Management
Company (AMC) Fees
Reasonable Discount Points
Escrow
Deposit
(Property
Taxes and Assessments, and
Insurance Premium)
Hazard Insurance Premium
Interest
Related Information
The fee for the actual completion of an FHA
appraisal may not include a fee for management
of the appraisal process, or any other activity
other than the performance of completing the
appraisal report.
• Any management fees charged by an AMC
or other third party must be for actual
services related to ordering, processing or
reviewing of appraisals performed for FHA
financing.
• AMC and other third party fees must not
exceed what is customary and reasonable
for such services provided in the market area
of the property being appraised.
May be financed in the mortgage on a refinance,
but may not be part of the three and one half
percent (3.50%) down payment on a purchase
transaction.
• Buyer may pay a maximum of two (2)
months.
• May be financed in the mortgage on a
refinance, but may not be part of the three
and one half percent (3.50%) down payment
on a purchase transaction.
• Actual cost for first year only (plus 2 months,
subject
to
aggregate
adjustment
requirements.)
•
•
Note: May be financed in the mortgage on
refinances, but not as part of the three and
one-half (3.50%) down payment.
Actual cost.
Calculated on 360 days per year basis.
Interest may only be collected from the
mortgagor from the date the mortgage
proceeds are actually disbursed by the
mortgagee.
Section 2.22
October 31, 2014
Page 156 of 222
HUD Allowable Closing Costs, Continued
Unallowable
Costs
Below is a list of unallowable closing costs and fees, which MAY NOT BE
CHARGED to the borrower.
Unallowable Fees/Costs
Finders fees & kickback
payments
Commitment Fee
Tax service fee
Fees
Charged
by
Nonapproved Mortgage Brokers
Related Information
UNALLOWED in transaction
Unallowed if the loan has not been locked at
least 15 days prior to the date on the Note.
Buyer cannot be charged.
FHA does not permit loan origination services to
be performed by non-approved mortgage
brokers.
Note: FHA considers a mortgage broker as “a
person (not employee or exclusive agent of a
lender) who brings a borrower and lender
together to obtain an FHA loan, and who
provides settlement or closing services.”
Section 2.22
October 31, 2014
Page 157 of 222
Mortgage Insurance
General
An annual Mortgage Insurance Premium (MIP) is charged and collected in monthly
installments on most FHA loans. The percentage amount of the annual premium is
based upon the LTV and the term of the mortgage.
There is also an initial Upfront Mortgage Insurance Premium (UFMIP) required on
certain FHA loans which can be financed in the loan amount or paid in cash at
closing. If any of the UFMIP is paid in cash, then the entire amount must be paid in
cash.
Reference: See the Determining UFMIP subtopic subsequently presented in this
topic for additional information on the rounding of the UFMIP.
Remittance
Period for
Payment of UpFront Mortgage
Insurance
Premium
(UFMIP)
•
Determining
UFMIP
•
•
•
•
•
Effective with closings on or after November 1, 2005, the period for remittance of
the FHA Up-Front Mortgage Insurance Premium (UFMIP) is being reduced from
fifteen (15) days to ten (10) days.
The remittance period begins the date of the loan settlement, or the date of
disbursement of mortgage proceeds, whichever is greater.
Lenders must include late charges for UFMIP remittances received by HUD
more than 10 calendar days after they become due. UFMIP payments received
more than 30 calendar days after the due date will result in additional charges.
UFMIP is determined by multiplying the initial premium percentage by the base
loan amount. The total FHA-insured mortgage amount is limited to 100% of the
appraised value, and the UFMIP is required to be included within that limit.
The UFMIP must be either:
• entirely financed into the mortgage, with the mortgage amount rounded
down to a whole dollar (with the exception of instances in which the borrower
chooses to pay of to $49.99 of the UFMIP in cash, in which case it would not
then be reflected in the total mortgage amount), or
• paid entirely in cash and all mortgage amounts must be rounded down to a
multiple of $1.00.
The mortgage amount must be rounded down to a multiple of $1.00, regardless
of whether the UFMIP is financed or paid in cash. The UFMIP amount, that is
part of the total mortgage amount, is not considered when determining
compliance with statutory loan limits or LTV limits. The base mortgage amount
must comply with the requirements. The total mortgage amount may exceed this
limit by the financed UFMIP amount.
Note: Any UFMIP amounts paid in cash are added to the total cash settlement
amount.
Section 2.22
October 31, 2014
Page 158 of 222
Mortgage Insurance, Continued
UFMIP Refunds
All refunds for FHA upfront mortgage insurance premiums have been eliminated,
except for FHA-to-FHA refinance transactions.
If the borrower is refinancing their current FHA loan to another FHA loan within three
(3) years from the date of closing, a refund credit may be applied to the new loan
transaction. The amount of the refund cannot exceed the new UFMIP being charged
on the new loan transaction.
Use FHA Connection to determine the UFMIP refund the borrower is eligible for.
Streamline
Refinance
•
•
For loans without an appraisal, use FHA’s computed value from the existing loan
to calculate the LTV.
If FHA does not have a computed value, only then may 89.99% be considered
as the LTV.
Reference: See the Streamline Refinance topic previously presented for additional
information.
Section 2.22
October 31, 2014
Page 159 of 222
Mortgage Insurance, Continued
Annual
Mortgage
Insurance
Premium
Cancellation
FHA Case Numbers Assigned On or After June 3, 2013
For Case Numbers assigned on or after June 3, 2013, follow the guidelines below:
• Any mortgage with an original principal obligation (excluding financed Up-Front
MIP(UFMIP) =/< 90%, the annual MIP will be assessed until the end of the
mortgage term or for the first 11 years of the mortgage term, whichever occurs
first.
• Any mortgage involving an original principal obligation (excluding financed
UFMIP) with an LTV > 90%, the annual MIP will be assessed until the end of the
mortgage term or for the first 30 years of the term, whichever occurs first.
FHA Case Numbers Assigned Prior to June 3, 2013
FHA’s annual mortgage insurance premiums will automatically be canceled under
the following conditions:
• For mortgages with terms greater than 15 years, the annual mortgage insurance
premiums will be canceled when the LTV ratio reaches 78% provided the
mortgagor has paid the annual mortgage insurance premiums for at least 5
years.
• For mortgages with terms of 15 years or less the annual mortgage insurance
premiums will be cancelled when the LTV ratio reaches 78%, regardless of the
length of time the borrower has paid the annual mortgage premiums.
• FHA determines when the 78.00% LTV ratio is reached based on the lesser of
the sales price or appraised value at origination (new appraised values will not
be considered).
• Cancellation of the annual MIP is normally based on the scheduled amortization
of the loan. However, in cases where the loan payments have been accelerated
or modified, cancellation can be based on the actual amortization of the loan.
Under this circumstance a borrower may request cancellation from their loan
servicer.
Note: The borrower cannot order a new appraisal to meet the 78.00%
threshold. HUD will only base the LTV calculation off of the lesser of the sales
price or appraised value that is in their data-base when the loan is closed.
Gross Loan
Amount
When UFMIP is financed into the loan amount, the total loan may exceed HUD’s
maximum loan limit for the area by the amount of UFMIP.
Special
Considerations
•
•
•
•
•
The origination fee is calculated on the base loan amount only.
The discount points are calculated on the gross loan amount.
The entire UFMIP premium may be paid by a person other than the borrower.
However, if any part is paid by a non-borrower, the entire UFMIP must be paid in
cash. If the non-borrower is the seller, the amount paid must be considered a
sales concession subject to FHA limits.
If the borrower is paying UFMIP, it must be 100% financed or 100% paid in cash.
The UFMIP is a pre-paid finance charge to be disclosed on the Good Faith
Estimate and in the Truth-In-Lending Disclosure whether it is financed or paid in
cash.
Section 2.22
October 31, 2014
Page 160 of 222
Appraisal Requirements
General
•
The following appraisal forms are now mandatory for FHA loans:
• Uniform Residential Appraisal Report (Fannie Mae Form 1004) for all 1 unit
single family dwellings
• Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all
individual condominium units
• Small Residential Income Property Appraisal Report (Fannie Mae Form 1025)
for all 2-4 unit single family dwellings
Reference: See Section 1.07: Appraisal Guidelines in the Correspondent Seller
Guide for additional information about UAD requirements.
•
Appraisal reports must include color photographs.
Note: FHA has required color photographs as part of the Appraisal Exhibits since
06/29/2000 (Notice H 00-12 section 4-1).
•
•
Facsimile (faxed) appraisal reports are not acceptable.
All property conditions, including repairs, alterations and/or required inspections
must be reported within the appropriate section of the applicable Fannie Mae
appraisal reporting form.
Note: FHA does not require any home to have any appliances to be eligible for
FHA financing.
•
Upon receipt of a completed appraisal report prepared on one of the revised
Fannie Mae forms, the underwriter/processor must note any physical deficiency or
adverse condition requiring repair, alteration or further inspection on Conditional
Commitment Direct Endorsement Statement of Appraised Value (form HUD92800.5B).
All loans must have a FHA case number assigned to the subject property.
HUD assigns case numbers through FHA Connection.
References:
• See FHA Social Security Number Validation for information relating to the
assigning of FHA case numbers.
• See the FHA Case Number Assignment and Cancellation subtopic in the
•
•
New FHA case numbers are required if the borrower changes properties.
The FHA case number must be provided to the appraiser before the appraiser
may release the appraisal to the lender.
Section 2.22
October 31, 2014
Page 161 of 222
Appraisal Requirements, Continued
General,
(continued)
•
•
•
•
•
•
•
HUD allows for the lender selection of the appraiser, however, the appraiser must
be on FHA’s most current approved appraiser list and must perform the inspection
of the subject property as well as all comparables. This same appraiser’s
signature is required as “appraiser” on the left side of page 2 of the appraisal
report (URAR). A supervisory signature is not permitted. . Reference can be
made in the “Comments” section of the URAR regarding a trainee’s assistance
with the appraisal.
Underwriters (or other members of lenders staff) are not to mark on the URAR.
The Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal Report
(HUD form 54114) is used for comments.
HUD requires that the DE lender notify the borrower of the property’s appraised
value before the credit file is underwritten. HUD will accept a simultaneous review
of the appraisal and mortgage credit application if the DE lender discloses to the
borrower that the DE underwriter may adjust the appraised value.
The simultaneous review notification requirement is met by one of the following
forms:
• the Appraised Value Adjustment Disclosure (Form LGEN0067L1)-which prints
off with HUD/VA Addendum to Uniform Residential Loan Application, or
• an initial URLA Addendum (92900a) if completed and fully executed prior to
the underwriting of the loan.
New construction properties must have at least one comparable from outside the
subdivision. All builder sales must not be used in the same subdivision.
New construction properties that are 90% complete, with only minor finish work
remaining, may be appraised without the appraiser having plans and
specifications.
For new construction where the house is 100% complete at the time of the
appraisal, the appraiser must take a clear photograph (in addition to the standard
appraisal photos) of each diagonally opposite front and rear corner of the house to
record adequate grading and drainage of the site.
Notes:
• "Complete" means everything is complete including the installation of buyer
preferences (flooring, appliances, etc.), utilities are on and fully functioning
and all site improvements completed at the time of appraisal (Ready for
Occupancy).
• If the appraiser makes no repair or correction conditions, the appraisal serves
as the final inspection.
•
•
If the appraisal is ordered as “proposed construction” and is fully completed, a
final inspection is still required regardless if property is 100% complete.
If the appraisal is ordered as “new construction, existing” and is 100% complete, a
final inspection is not required providing the appraiser states that “the dwelling
was built in accordance with the submitted plans and specifications and drainage
and grading are adequate.”
Note: For identity of interest transactions, a full appraisal is required and must
include verification of the purchase price, last sale date, and recent listing of the
subject property regardless of the feedback provided in the AUS Messaging.
Section 2.22
October 31, 2014
Page 162 of 222
Appraiser
Requirements
•
•
•
•
•
•
•
FHA has established the requirements listed below for the appraiser regarding
Seller Concessions and Verification of Sales.
Report the total dollar amount of the loan charges and/or concessions to be paid
by any party on behalf of the borrower and describe which party provided the
concession in the “Subject Section” of the appraisal report. Use of an addendum
with the heading “Loan Charges /Sales Concessions” may be required due to
limited space on the report.
Verify all sales transactions for seller concessions and report those findings in the
appraisal. If the sales cannot be verified with someone having first-hand
knowledge of the transaction (i.e., seller, buyer, or one of their representatives),
the appraiser must state how and to what extent the sale was verified.
Report the type and the amount of sales or financing concessions for each
comparable sale listed in the “Sales Comparison Analysis, Sales or Concession
Section” for each comparable listed. If no concessions exist, the appraiser must
state “none.”
Make market-based adjustments to the comparable sales for any sales or
financing concessions that may have affected the sales price. Adjustment for
each comparable sale must reflect the difference between the sales price with the
sales concessions and what the property would have sold for without the
concessions.
Provide an analysis of the current agreement of sale, contract, option or listing for
the subject property and an analysis of all prior transfers that occurred within three
(3) years prior to the effective date of the appraisal. If the contract is not provided
to the appraiser, he/she must report the steps or efforts taken to obtain the current
agreement of sale.
Provide analysis of all prior transfers of the comparable sales that occurred with
one (1) year prior to the effective date of the appraisal in the “Sales Comparison
Analysis, Sales or Financing Concessions” section. If the data is unavailable, the
appraiser must note what steps were taken during the normal course of business
to obtain and report the information.
Section 2.22
October 31, 2014
Page 163 of 222
Mortgagee
Requirements
FHA has established mortgagee requirements relating to appraisals. These
requirements are listed below.
• Provide the appraiser with a complete copy of the ratified sales contract,
including all addenda, for the subject property that is to be appraised.
• Provide the appraiser with all financing data and sales concessions for the
subject property granted by anyone associated with the transaction. Sales
concessions information must include gifts which may or may not be included in
the contract of sale.
• If a reconsideration of value is requested, the appraiser must be provided with
any amendments to the contract that occurred after the effective date of the
appraisal.
• For proposed/under construction loans with less than a 90% LTV, the lender
should provide a complete set of the approved plans and specifications the
builder submitted to the local building authority to obtain the building permits. In
the event the property is located in a jurisdiction that does not approve plans
then the plans and specifications are required.
• Appraisers must receive a fully executed, Builder’s Certification of Plans,
Specifications, And Site (HUD form 92541) before performing the appraisal on
proposed, under construction or less than one year old properties. Appraisers
must review Item 1on the form and note in the Appraisal Report any
discrepancies between the information in Item 1 and the actual conditions
observed on site. The lender is responsible to address any yes answer in Item 1.
Section 2.22
October 31, 2014
Page 164 of 222
Market
Conditions
Addendum to
the Appraisal
Report (Freddie
Mac 71/Fannie
Mae 1004MC)
Reference: See the Market Conditions Addendum to the Appraisal Report (Freddie
Mac 71/Fannie Mae 1004MC) subtopic in the Appraisal Reports and Exhibits topic
within Section 1.07: Appraisal Guidelines of the Correspondent Seller Guide for
Properties
Located in
Disaster Areas
Reference: See Section 1.31: Disaster Area Procedures of the On-Line
Correspondent Seller Guide for additional information on properties located in a
disaster area.
Properties
Located in
Declining
Market Areas
•
•
•
The subject property is considered to be in a declining area when the SunTrust
Mortgage Declining Market Index list indicates a severely declining or declining
market, or the appraiser has marked the appraisal that property values are
declining or referenced that values are declining in the appraisal comments,
including the Market Conditions Addendum to the Appraisal Report.
At least two (2) comparable sales, as similar as possible to the subject property,
that have closed within ninety (90) days prior to the effective date of the appraisal.
• In some areas this may not be possible due to lack of market information
and, in these cases, a detailed explanation is required.
At least two (2) comparable listings and/or pending sales, as similar as possible
to the subject property, are required.
• Listings and pending sales must be reported on the appraisal grid of the
applicable appraisal form in comparable position four (4) or higher.
• Listings and pending sales should bracket the listing, using both dwelling
size and sales price whenever possible to insure that these comparables are
market tested and have reasonable market exposure to avoid the use of
over priced properties as comparables.
Note: Reasonable market exposure is reflected by typical marketing times
for the neighborhood.
•
•
•
Active listings must be adjusted to reflect list to sale price ratios for the
market.
Pending sales must be adjusted to reflect the contract purchase price
whenever possible or adjust pending sales to reflect list to sale price ratios.
Original list price, any revised list prices, and total Days On the Market
(DOM), must be included.
Section 2.22
October 31, 2014
Page 165 of 222
•
•
Construction
Status Types
An explanation is required for DOM that do not approximate time frames
reported in the Neighborhood section of the appraisal reporting form or
that do not coincide with the DOM noted in the Market Conditions
Addendum to the Appraisal Report.
• Reconcile the adjusted values of active listings or pending sales with the
adjusted values of the settled sales provided.
•
If the adjusted values of the settled comparables are higher than the
adjusted values of the active listings or pending sales, the appraiser must
determine if a market condition adjustment is appropriate.
•
The final value conclusion should not be based solely on the comparable
listing or pending sales data.
Data regarding market trends is available from multiple local and nationwide
sources. Appraisers must be diligent in using only impartial sources of data.
• The appraiser must verify data via local parties to the transaction: agents,
buyers, sellers, lenders, etc.
•
If a sale cannot be verified by a party then public records or other
impartial data sources that can be replicated may be used.
•
A Multiple Listing Service (MLS) by itself is not considered a verification
source.
• Unacceptable data sources include media and other sources considered not
readily verifiable and should be able to be replicated.
• Known or reported incentives or sales concessions must be noted in the
financing section of the grid for any active or pending comparable used.
Direct Endorsement lenders are reminded that if the appraiser they selected
provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an
inflated amount, the Correspondent lender is held responsible, equally with the
appraiser, for the integrity, accuracy and thoroughness of an appraisal submitted
to FHA for mortgage insurance purposes.
•
Properties
Located in
Declining
Market Areas,
(continued)
Proposed
No concrete or permanent material has been placed.
placement of re-bar is not considered permanent.
Digging of footing and
Under Construction
From the first placement of concrete (permanent material) to 100% completion.
(Finalized and ready to occupy.)
Existing
100% complete and has an occupancy permit.
Existing less than one (1) year
Appraisal performed less than one (1) year since final occupancy permit was issued.
For model homes, age begins with issuing of permit to use as a model.
Note: Any home built less than two (2) years must list the month and year completed
in the age box on the Uniform Residential Appraisal Report (URAR). Complete is
defined as 100% complete and nothing remains to be done.
Section 2.22
October 31, 2014
Page 166 of 222
Comprehensive
Valuation
Package (CVP)
Requirements
The table below shows the CVP (appraisal package) requirements for various
property or loan types.
Comprehensive Valuation Package (CVP) Requirements
URAR (Fannie Mae
For Your Protection:
1004, 1073 and 1025)
Get a Home Inspection
(HUD 92564-CN)
Yes
No
Proposed/Under
Construction
Yes
Existing Construction <
• Yes (for a previously
12 months old
occupied home < 12
mos. old.)
• No (for a home that
has
never
been
occupied.)
Yes
Yes
Existing Property
Yes
No
Streamline Refinance
with an Appraisal
No
No
Streamline Refinance
without an Appraisal
Yes
Yes
HUD Real Estate Owned
Excess Land
•
•
•
•
•
•
•
•
Excess land occurs when the subject lot is considerably larger than typical lots in
the neighborhood, and the excess is capable of separate use.
In small communities and outlying areas different criteria must be used since the
market may readily accept a wide variance in lot sizes due to wide differences in
lot use by this segment of the market
SunTrust requires the property to be legally subdivided, with separate tax
identification numbers, prior to the appraisal being completed.
SunTrust will not finance the purchase of excess land.
SunTrust requires the property to be legally subdivided, with separate tax
identification numbers, prior to the appraisal being completed.
SunTrust will not finance the purchase of excess land.
When it has been determined that the plot contains excess land, the area of the
readily marketable real estate entity, together with the existing or proposed
improvements, is delineated and is appraised in the prescribed manner. The
excess land is described but is not appraised. A requirement is made that the
excess land be excluded from the mortgage security.
The highest and best use of the site must also be given close evaluation.
Section 2.22
October 31, 2014
Page 167 of 222
Appraisal Date
•
•
Appraisals are valid for 120 days on existing, proposed or under construction
properties and cannot be “re-used” during this period once the mortgage for
which the appraisal was ordered has closed.
The effective date of an FHA appraisal cannot be before the FHA case number
assignment date, unless:
• the appraisal was originally ordered for conventional lending, HUD REO or
government guaranteed loan purposes, but was performed by a FHA Roster
Appraiser and is being converted to a FHA insured mortgage, and
• when applicable, the certification field in the Appraisal Logging Screen in
FHA connection is completed.
Notes:
• The certification field in the Appraisal Logging Screen will only appear when
the appraisal effective date is more than ten (10) days prior to the case
number assignment date and the appraisal must have been originally
ordered for conventional lending, HUD REO or government guaranteed loan
purposes.
• For transactions where the original appraisal was not ordered for an FHA
transaction, documentation must be retained in the loan file to evidence
conversion of mortgage programs.
• The lender is responsible for ensuring that the appraisal was performed in
accordance with FHA appraisal reporting requirements. Validating this
requirement may entail a re-inspection of the property by the appraiser.
• If the original appraisal was not performed by a FHA Roster Appraiser, then
a new FHA appraisal must be ordered, and the effective date may not be
before the case number assignment date.
•
•
A new appraisal is required for each refinance transaction requiring an appraisal.
Extensions may be granted for 30 days at the option of the lender to allow for
approval of the borrower and closing of the loan subject to the items listed below.
• The borrower signs a valid sales contract or is approved for a loan prior to
the expiration date of the appraisal.
• The approval of the borrower occurs when the DE underwriter signs the FHA
Loan Underwriting Transmittal Summary (HUD-92900-LT) or the loan is
approved by TOTAL Scorecard.
• 30-day extensions are not eligible on transaction that receive a “Summary
Appraisal Update Report”.
Reference: See the Fannie Mae Form 1004D/Freddie Mac Form 442 (Appraisal
Update and/or Completion Report) subtopic subsequently presented in this topic for
additional information on updating an existing appraisal.
Section 2.22
October 31, 2014
Page 168 of 222
Assignments of
Appraisals
(Commitments)
and/or Cases
General Information
Upon written request from the borrower or the seller (if the borrower is not involved),
appraisal reports and/or mortgage credit packages may be assigned to another
lender, but does not need to include lender-processing documents.
NOTE: If processing documents are provided, the transferring lender must negotiate
the fee with the new lender, but may not charge the borrower a separate fee for the
transfer of the processing documents.
Procedures
• The transferring lender must assign the case number to the new lender using the
Case Transfer function in FHA Connection (FHAC) in order to avoid problems
with the issuance of the Mortgage Insurance Certificate (MIC).
• An FHA case number is assigned to a specific lender and property. Such
notification must be made on FHA Connection.
• The receiving mortgagee must also place in the case binder to HUD, evidence of
the CHUMS system reassignment.
• If the receiving mortgagee approves the application and submits the case for
endorsement, the case file does not need to include a copy of the original
mortgagee’s FHA Loan Underwriting Transmittal Summary (HUD-92900-LT)
from the transferring lender, but does need to include explanatory comments
from the receiving (approving) mortgagee’s underwriter.
• FHA does not require a change in either the lender’s name or the borrower’s
name when an appraisal is transferred.
• FAILURE TO COOPERATE IN THE TRANSFER/ASSIGNMENT OF CASES
JEOPARDIZES THE MORTGAGEE’S HUD APPROVAL AS WELL AS THEIR
DIRECT ENDORSEMENT APPROVAL.
• The transferring lender may be entitled to any lock-in fee collected from the
borrower at the time of application.
Fannie Mae
Form
1004D/Freddie
Mac Form 442
(Appraisal
Update and/or
Completion
Report)
•
The Appraisal Update and/or Completion Report (Fannie Mae form
1004D/Freddie Mac form 442), may be used in the following circumstances:
• to extend the validity period of an existing appraisal that is due to expire,
• to extend the validity period of an existing appraisal for new construction that
is incomplete, and
• as an additional option to report the completion of a repair and/or the
satisfaction of requirements and conditions noted in the original appraisal
report.
Section 2.22
October 31, 2014
Page 169 of 222
Fannie Mae
Form
1004D/Freddie
Mac Form 442
(Appraisal
Update and/or
Completion
Report),
(continued)
Notes:
• Only the FHA appraiser that performed the original appraisal, if currently in
good standing on the FHA Appraiser Roster, is permitted to complete a
“Summary Appraisal Update Report.”
• Any FHA appraiser that is currently in good standing on the FHA Appraiser
Roster may complete a “Certification of Completion.”
• Other methods used (i.e., contractor, home inspector and mortgagee
certifications) may continue to be used as applicable.
• Only one (1) “Summary Appraisal Update Report” may be completed per
appraisal report received.
• The effective date of the “Summary Appraisal Update Report” must be on or
before the original expiration date of the original appraisal report.
• A “Summary Appraisal Update Report” extends the original appraisal
expiration date by up to 120 days. Therefore, a loan must be closed within
120 days of the effective date of the “Summary Appraisal Update Report.”
• The Appraisal Update and/or Completion Report (Fannie Mae form
1004D/Freddie Mac form 442) may not be used when ordered by a lender
who is not identified as an intended user in the original appraisal report
unless the appraiser incorporates the original report being updated as an
attachment rather than as a reference.
• When a “Summary Appraisal Update Report” is issued, the appraiser must
include a completed Market conditions Addendum (Fannie Mae form
1004MC/Freddie Mac form 71) for the subject property that is reflective of the
current market conditions as of the effective date of the Appraisal Update
and/or Completion Report (Fannie Mae form 1004D/Freddie Mac form 442).
•
The Appraisal Update and/or Completion Report (Fannie Mae form
1004D/Freddie Mac form 442), may not be used in the following circumstances:
• the property value has declined,
• building improvements that contribute value to the property cannot be
observed from the street or a public way,
Note: FHA requires that all improvements must be observable from a
street or public way to utilize the Appraisal Update and/o9r Completion
Report (Fannie Mae form 1004D/Freddie Mac form 442).
•
•
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, or
as a substitute for the Compliance Inspection Report (HUD 92051), when
required, for new construction.
Section 2.22
October 31, 2014
Page 170 of 222
Second
Appraisal
Options
•
In instances where the first appraisal was ordered by another lender, a second
appraisal may be ordered under the following circumstances:
• the first appraisal contains material deficiencies as determined by the D.E.
Underwriter,
• the appraiser performing the first appraisal is on the Correspondent’s
Ineligible Appraiser List or the SunTrust Ineligible List,
• failure of the first lender, including cases where the first lender has since
gone out of business, to provide a copy of the appraisal to SunTrust by the
Correspondent client in a timely manner which would cause a delay in
closing, posing a potential harm to the borrower,
• Potential harm includes events outside the control of the borrower such as
loss of interest rate lock, purchase contract deadline, foreclosure
proceedings, late fees.
• Both appraisals must be retained in the case binder; however, the first
appraisal may be added to the case binder when it is received.
Notes:
• The loan file must be documented with why a second appraisal was
obtained AND both appraisals must be retained in the loan file.
• The cost of the second appraisal may be charged to the borrower.
• The lender name does not need to be changed on appraisals being
transferred from one lender to another.
• A second appraisal may NOT be ordered in an attempt to obtain a higher
property value or lesser number of deficiencies/repair requirements.
Section 2.22
October 31, 2014
Page 171 of 222
Converting VA
Appraisals to
an FHA
Appraisal
General
• HUD will accept single family (excluding condominiums) existing construction,
proposed construction, under construction, and newly constructed properties one
year old or less which were pre-approved by VA (this includes CRVs,
LNOV/LAPPs), and these properties are eligible for high ratio (greater than 90%)
loans using FHA mortgage insurance.
• VA Appraisals on existing construction must include the FHA Valuation Condition
form (HUD-92564-VC) and the Homebuyer Summary (HUD-92564-HS). This
includes properties that are appraised after construction is 100% complete but
are a year old or less.
• The appraiser must be on the FHA Roster of Approved Appraisers and be state
certified with an unexpired license.
• A HUD case number must be obtained through FHA Connection. The VA CRV
(or LAPP appraisal) is sent to underwriting at loan submission and the DE
underwriter processes the conversion and completes the 92800.5B conditional
commitment. The conditions of the VA appraisal will become conditions of the
FHA appraisal with the addition of the Lead Based Paint Hazard when
applicable.
References:
• See the subtopic, “Property Requirements” under the topic, “Appraisal
Requirements” subsequently presented in this product description for
additional requirements for lead based paint repairs and inspections.
• See the FHA Case Number Assignment and Cancellation subtopic in the
•
Circumstances under which a CRV/ may not be converted include those listed
below:
• Property has an outstanding FHA Conditional Commitment issued by HUD
for HUD employees or others issued by the DE underwriter.
• Property or site is known to be unacceptable (i.e., subject to periodic
flooding).
• FHA previously rejected property or site.
• The NOV expired before the sales contract was signed.
• Case is processed under the DE program and property does not qualify as
proposed construction.
• Property is a unit in a condominium project that does not met FHA criteria.
Section 2.22
October 31, 2014
Page 172 of 222
Converting VA
Appraisals to
an FHA
Appraisal,
(continued)
Extension of Validity Period
• FHA will not get involved in extending a VA appraisal. Generally, extension
requests are sent to the VA office of jurisdiction, which will contact the fee
appraiser involved, if appropriate, and issue an endorsement to the notice of
value, if justified. The borrower must have signed the purchase agreement
during the validity period for the extension to be considered.
• If the appraisal is for new construction, whoever is shown on the LAPP NOV
as the inspector will perform the final inspection.
• The builder must complete the Builders Certification (HUD-92541).The
information must be reviewed by the DE Underwriter who is responsible for
resolving discrepancies and inconsistencies, if any.
• The conditions of the VA appraisal will become conditions of the FHA
appraisal.
• The builder must be a VA approved builder.
• Subdivisions, PUDs, and builders do not need HUD approval.
VA Master CRV’s
• A VA master CRV may be converted to FHA; however, each case must have an
individual and separate case number.
• The builder does not need HUD approval, however, the builder must be VA
approved.
• A Builders Certification form (HUD 92541) is required.
FHA Appraised
Value
Adjustment
Disclosure
•
•
•
The FHA Appraised Value Adjustment Disclosure is signed by the borrower(s) at
the same time the HUD/VA Addendum to Uniform Residential Loan Application
(URLA) is signed.
The form must be signed and dated prior to submission to underwriting and
included in the guaranty submission package sent to HUD.
This form is not required if the initial URLA Addendum (HUD 92900-a) is
completed and signed before the loan is underwritten.
Section 2.22
October 31, 2014
Page 173 of 222
Property
Requirements
General
• HUD requires the approved appraiser to determine whether the property meets
HUD Guidelines as specified in HUD Handbook 4150.2 Valuation Analysis for
Single Family One-to-Four Unit Dwellings and Appendix D. To perform this
analysis, the appraiser must have full access to all property improvements,
including crawl space and attic.
References:
• See the HUD Handbook for specific property requirements established by
HUD.
• See the Streamline Refinance topic for additional information regarding
streamlines with an appraisal.
•
•
•
•
•
•
FHA requires that appraisers be provided with all financing data and sales
concessions for properties to be a security for an FHA-insured loan.
The appraiser must provide a meaningful explanation to support any “Best comp
available” statement.
Current owner space must contain name of actual owner and cannot just state
“Owner of record.”
Time adjustments are considered a “red flag;” however are allowed if the
rationale is documented and supported with a paired sales analysis.
Appraiser needs to inspect the exterior of all comparable sales. If the
comparables are located in a gated community and the appraiser is unable to
gain entry, other comparables need to be provided. MLS pictures are not
acceptable.
Appraisers are required to identify and report sales concessions and properly
address and/or adjust the comparable sale transactions to account for sales
concessions in the appraisal of all properties.
Section 2.22
October 31, 2014
Page 174 of 222
Unacceptable
Locations
•
•
Site Hazards
and Nuisances
•
•
The appraiser must consider factors such as location requirements, neighborhood
hazards and nuisances, site analysis, condition of physical improvements,
economic life, code enforcements, and any other criteria HUD requires.
A site is required to be rejected if the property being appraised is subject to
hazards, environmental contaminants, noxious odors, offensive sights or
excessive noises to the point of endangering the physical improvements or
affecting the livability of the property, its marketability, or the health and safety of
its occupants. Rejections may also be appropriate if the future economic life of
the property is shortened by obvious and compelling pressure to a higher use,
making a long-term mortgage impractical.
The appraiser must indicate all hazards and nuisances affecting the subject
property that may endanger the health and safety of the occupants and/or the
structural integrity or marketability of the property in the applicable section of the
appraisal form.
If hazards or nuisances are observed, the appraiser must describe the conditions
and make a requirement for repair and/or for further inspection, and prepare the
appraisal “subject to repairs” and/or “subject to inspection” in the site section of
the report. These hazards or nuisances may include the following:
• subsidence, operating and abandoned gas wells, abandoned wells, slush pits,
• heavy traffic, airport noise and hazards, runway clear zones/clear zones,
• proximity to high pressure gas, liquid petroleum pipelines or other volatile and
explosive products
• residential structures located within the fall distance of a high-voltage
transmission line, radio/TV transmission tower, etc.,
• excessive hazard from smoke fumes, odors, and stationary storage tanks
containing flammable or explosive material.
Section 2.22
October 31, 2014
Page 175 of 222
Soil
Contamination
•
•
Grading and
Drainage
•
•
•
Individual
Water Supply
and Sewage
System
•
Distances
Between
Well/Septic/Etc.
•
•
•
•
The appraiser must notate the proximity to dumps, landfills, industrial sites or
other sites that could contain hazardous wastes. Additionally to notate any readily
observable evidence of hazardous substances in the soil (on-site contamination)
and make a requirement for further inspection in the site section.
Conditions that could indicate soil contamination include pools or liquid, pits,
ponds, lagoons, stressed vegetation, stained soils or pavement, drums or odors.
If any of these conditions exist, further analysis or testing is required.
Proper drainage control measures may include gutters and downspouts or
appropriate grading or landscaping to divert the flow of water away from the
foundation.
If the grading does not provide positive drainage from the improvements, the
appraiser should make a repair requirement.
Any readily observable evidence of standing water near the property could
indicate improper drainage. IF the standing water is problematic, a repair
requirement is made in the site section of the report.
When water and sewer are private, well and septic testing is governed by state or
local requirements; however, the appraiser must note any observable
deficiencies.
The appraiser must also report on the availability of connection to public and/or
community water/sewer systems. The lender is responsible for the determination
of the feasibility for requiring connection.
The appraiser should request a copy of a survey from the homeowner, if
available, that would show the distances between well/septic drain field,
well/foundation and well/property line.
The appraiser is not required to sketch the distances but should note in the
appraisal if the distances appear to be met and note any adverse site conditions
that might warrant further inspections or due diligence.
rd
It is the lender’s decision as to whether a qualified third (3 ) party should map out
these distances. In cases where the lot is particularly small and depending on the
location of the well, the lender may want to require the survey to reflect these
distances.
Section 2.22
October 31, 2014
Page 176 of 222
Lead Based
Paint Hazards
•
•
•
For all FHA insured properties, correction is required for all defective paint
surfaces in or on structures and/or property improvements built before January 1,
1978.
The appraiser must provide a detailed description and identify the exact location
of any deficiency under physical deficiencies affecting livability.
For HUD REO properties, HUD will only order a lead-based paint evaluation for
properties constructed before 1978 and purchased with FHA-insured financing.
Notes:
• If the appraiser observes defective paint in a home that was built before 1978,
then the appraiser must enter an “X” in the “Yes” box and note all areas
affected in the physical deficiencies or adverse conditions section of the
appraisal report.
• If the appraiser does not observe defective paint in a home that was built
before 1978, an explanation is not required in the physical deficiencies or
adverse conditions section of the appraisal report.
•
For all FHA loans secured by properties built prior to 1978 where lead-based paint
is present and the appraiser noted defective paint in the home, SunTrust will
require the following:
• homeowners performing renovation, repair, or painting on their primary
residence must provide a letter stating they made the repairs.
• Any firm, renovator, contractor, or investment property owner completing the
repairs must provide a copy of the EPA or State-Lead Training Certificate in
the name of the party who performed the renovation, repair, and painting of
defective paint surfaces to be reviewed by the Underwriter.
• an inspection must be completed by an FHA Roster Appraiser or Inspector,
verifying the repairs have been completed as required by the appraiser.
Note: Inspections verifying completion of required repairs may also be performed
by an independent third party.
Private Road
Access and
Maintenance
•
For all other FHA transactions on properties built prior to 1978, all currently
published lead-based paint guidelines continue to apply.
•
•
Each property must have vehicular or pedestrian access.
The property must have an all-weather road surface. (An all-weather surface is a
road surface over which emergency vehicles can pass in all types of weather.)
Private streets or shared driveways are addressed under “offsite improvements”
and must be protected by permanent recorded easements or be owned and
maintained by a HOA.
•
Reference: See the “Private Roads” subtopic under the “Closing and Loan Settlement
Documentation” for additional requirements.
Section 2.22
October 31, 2014
Page 177 of 222
Minimum
Property
Requirements/
Minimum
Property
Standards
•
•
New construction properties must comply with HUD’s Minimum Property
Standards (MPS).
Existing construction must comply with HUD’s Minimum Property Requirements
(MPR).
Note: FHA does not require any home to have any appliances to be eligible for FHA
financing.
•
•
•
•
•
•
The appraiser must denote any deficiency in the appropriate section(s) (i.e., site
issues in site sections, improvement issues in improvement section) of the
appraisal report. The appraiser is to note those repairs necessary to make the
property comply with FHA’s MPR or MPS together with the estimated cost to
cure. The lender will determine which repairs for existing properties must be
made for the property to be eligible for FHA-insured financing.
Cosmetic repairs are not required; however, they are to be considered in the
overall condition rating and valuation of the property. (I.e., surface treatments,
beautification or adornment not required for the preservation of the property such
as worn floor finishes, carpeting, holes in window screens, small crack in a
windowpane are examples of deferred maintenance that do not require repairs
but must be reported by the appraiser.)
The physical condition of existing building improvements is examined at the time
of the appraisal to determine whether repairs, alterations or inspections are
necessary. This is essential to eliminate conditions threatening the continued
physical security of the property.
Required repairs are limited to the necessary requirements for the following:
• protect the health and safety of the occupants (Safety),
• protect the security of the property (Security), and
• correct physical deficiencies or conditions affecting structural integrity
(Soundness).
A property with defective conditions is unacceptable until the defects or
conditions have been remedied and the probability of further damage eliminated.
Defective conditions include those listed below.
• Defective construction
• Other readily observable conditions that impair the safety, sanitation or
structural soundness of the dwelling.
The appraiser must provide the reason or an indication of a particular problem
when requiring an inspection of any mechanical system, structural system, etc.
Typical conditions that require further inspection or testing by qualified
individuals or entities include those shown below:
• infestation – evidence of termites
• inoperative or inadequate plumbing, heating or electrical systems
• structural failure in framing members
• leaking or worn-out roofs
• cracked masonry or foundation damage
• drainage problems
Section 2.22
October 31, 2014
Page 178 of 222
Repair and
Inspection
Requirements
FHA now permits “as-is” appraisals and “subject to” appraisals. The table below
shows the conditions under which each category is selected in the reconciliation
section of the appraisal report.
The FHA
appraisal is
made
As Is
Reconciliation – How the appraisal is made
Under the following conditions…
•
•
•
There is/are no repairs, alterations or inspection conditions
noted by the appraiser.
The property is recommended for rejection
It is establishing the “as-is” value for a regular 203(k)
Note: Only Correspondents lenders that have a Direct
Endorsement underwriter on staff may underwrite and
submit 203(k) transactions to SunTrust for purchase
review and funding.
Subject to
Completion per
Plans and
Specifications
Subject to the
following
repairs or
alternations
•
•
•
•
•
Proposed construction where constructions has not started
Under construction but not yet complete and less than 90%
LTV
Regular 203(k) loan.
Note: Only Correspondents lenders that have a Direct
Endorsement underwriter on staff may underwrite and
submit 203(k) transactions to SunTrust for purchase
review and funding.
Repair or alteration condition(s) noted by the appraiser
Under construction, more than 90% complete with only
minor finish work remaining (buyer preference items, i.e.,
floor, coverings, appliances, fixtures, landscaping, etc.).
Note: This eliminates the need for construction exhibits.
Subject to the
following
required
inspection
Required inspection(s) noted by the appraiser
Section 2.22
October 31, 2014
Page 179 of 222
Repair and
Inspection
Requirements,
(continued)
Minor property conditions NOT requiring automatic repairs for existing
properties include but are not limited to those listed below.
• Missing hand rails
• Cracked or damaged exit doors that are otherwise operable
• Cracked window glass
• Defective paint surfaces in homes constructed post-1978
• Minor plumbing leaks (i.e., leaky faucets)
• Defective floor finish or covering (worn through the finish, badly soiled carpeting)
• Evidence of previous (non-active) Wood Destroying Insect/Organism damage
where there is no evidence of un-repaired structural damage
• Rotten or worn-out counter tops
• Damaged plaster, sheetrock or other wall and ceiling materials in homes
(constructed pre-1978)
• Poor workmanship
• Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
• Crawl space with debris and trash
• Lack of an all weather driveway surface
Property conditions that may represent a risk to the health and safety of the
occupants or the soundness of the property that will require automatic repair
conditions include, but are not limited to those listed below.
• Inadequate access/egress from bedrooms to exterior of home.
• Leaking or worn out roofs (if three or more layers of shingles on leaking or worn
out roof, all existing shingles must be removed before re-roofing).
• Evidence of structural problems (such as foundation damage caused by
excessive settlement).
• Defective paint surfaces in homes constructed pre-1978.
• Defective exterior paint surfaces in homes constructed post-1978 where the
finish is otherwise unprotected.
Inspections for the following items and/or conditions are no longer mandated
in existing properties:
• Wood Destroying Insect/Organisms: required if evidence of active infestation, if
mandated by state or local jurisdiction, if customary to the area, or if a condition
of the contract.
• Well (individual water system): test or inspection required only if there is
knowledge that well water may be contaminated, if mandated by state or local
jurisdiction, when the water system relies on a purification system due to
presence of contaminants, or when there is evidence of corrosion of
pipes/plumbing, areas of intensive agricultural within ¼ mile, coal mining or gas
drilling operations within ¼ mile, or dump, junkyard, landfill, factory gas station,
or dry cleaning operation within ¼ mile; unusually objectionable taste, smell or
appearance of the well water.
• Septic: test or inspection required only if evidence of system failure, if mandated
by state or local jurisdiction, if customary to the area, or at lender’s discretion
• Roof: Flat or unobservable roof inspections not required.
Section 2.22
October 31, 2014
Page 180 of 222
Repair and
Inspection
Requirements,
(continued)
Conditions that DO require automatic inspections include the following items
and/or conditions in existing properties:
• Standing water against foundation and/or excessively damp basements
• Hazardous materials on the site or within the improvements
• Faulty or defective mechanical systems (electrical, plumbing, or heating)
• Evidence of possible structural failure (i.e., settlement or bulging foundation
wall).
Required Use
of FHA Roster
Inspector or
Other
Authorized
Parties
FHA requires the lender to select an inspector listed on the FHA Inspector Roster
under the circumstances shown below. Lenders may access an FHA Inspector for
their area through HUD’s website.
New Construction
• If the mortgagee elects not to have inspections performed by the local
jurisdiction in accordance with Mortgagee Letter 01-27, or the local jurisdiction
does not issue a Certificate of Occupancy (or its equivalent).
• FHA requires inspections by a FHA Roster Inspector when the subject property
is new construction or manufactured housing.
•
(Mortgagee Letter 2009-51 should rescind this)When a Mortgagee Certification
is used to clear minor conditions, the Compliance Inspection Report (HUD92051) must be used by the FHA Roster Compliance Inspector.
• The FHA compliance inspector that performed the inspection must complete the
Compliance Inspection Report (HUD-92051).
• In addition to the signature of the inspector, the DE Underwriter would sign the
form in Section III when and where appropriate.
Existing Construction
Other parties eligible to perform inspections are shown below.
• A FHA Roster Inspector must conduct an inspection when structural or basic
system repairs require architectural expertise, and complete a Compliance
Inspection Report (HUD-92051).
• Inspection reports that are conducted by the FHA appraiser are completed using
the Appraisal Update and/or Completion Report (Fannie Mae Form
1004D/Freddie Mac Form 442/March 2005) in accordance with Mortgagee Letter
09-51.
• The same appraiser, who placed a repair requirement not requiring architectural
expertise, may determine satisfactory completion of the repair.
• A licensed bonded and registered engineer, a licensed home inspector, or other
professional trades person specifically registered or licensed may provide
documentation to support that all deficiencies noted by the FHA appraiser has
been acceptably corrected. These professionals may use their company’s forms
and letterhead to make the certification. The report must be reviewed by either
the FHA or the DE underwriter, as appropriate.
Section 2.22
October 31, 2014
Page 181 of 222
Reconsideration of
Appraised
Value
•
•
•
•
•
The decision for a reconsideration of value must be made by the HUD staff
review appraiser or the DE underwriter.
Before a request for reconsideration of value is accepted, the DE underwriter
must review the appraisal report and evidence to support a higher value. Three
(3) new comparables (no more than six [6] months old) must be submitted before
sending the request back to the appraiser.
A request for reconsideration of value can be submitted after receipt of the
official Conditional Commitment/Statement of Appraised Value.
Original
photographs of each comparable must accompany submission to the DE
underwriter used to support the higher value.
If the new comparables are not similar or acceptable to support the increase, the
reviewer will reject the request for reconsideration. If the reviewer does not
reject the request but the appraiser performs a review on the new comparables
and finds that incorrect information was provided on size, design, sales price,
location or closing date, the appraiser is entitled to one half of the original fee. In
such cases, the appraiser must comment on the reason for rejecting each
comparable.
If the DE underwriter agrees that the reconsideration is valid, it is sent to the
appraiser. The appraiser will process the reconsideration and send the
completed appraisal report to the underwriter for review. The underwriter must
review the appraisal report and issue the statement of appraised value to the
borrower.
Section 2.22
October 31, 2014
Page 182 of 222
Prohibition of Property Flipping
General
Property flipping is a practice whereby a recently acquired property is resold for a
considerable profit with an artificially inflated value. In an effort to preclude
homebuyers using FHA financing from becoming victims of predatory property
flipping activity, HUD has implemented a revised property flipping policy.
Overview of
FHA’s Property
Flipping Policy
FHA requires that:
• only owners of record may sell properties that will be financed using FHAinsured mortgages,
• any re-sale of a property may not occur 90 or fewer days from the last sale to be
eligible for FHA financing, and
• re-sales that occur between 91 and 180 days, where the new sales price
exceeds the previous sales price by one hundred percent (100%) or more, FHA
will require additional documentation validating the property’s value.
Note: HUD considers the re-sale date as, the date of execution of a sales
contract by a buyer that will result in a mortgage to be insured by FHA.
Sale by the
Owner of
Record
To be eligible for a mortgage insured by FHA, the property must be purchased from
the owner of record and the transaction may not involve any sale or assignment of
the sales contract. This requirement applies to all FHA purchase money mortgages
regardless of the time between re-sales.
The Correspondent Lender must obtain documentation verifying that the seller is the
owner of record and submit this to HUD as part of the insurance endorsement
binder; it is to be placed behind the appraisal on the left side of the case binder. This
documentation may include, but is not limited to:
• a property sales history report,
• a copy of the recorded deed from the seller, or
• other documentation such as a copy of a property tax bill, title commitment or
binder, demonstrating the seller’s ownership of the property and the date it was
acquired.
Section 2.22
October 31, 2014
Page 183 of 222
Prohibition of Property Flipping, Continued
Exceptions to
the 90-Day
Restriction
If the owner of record sells a property within 90 days after the date of acquisition,
that property is not eligible security for a mortgage insured by FHA unless the loan
file is documented that the transaction falls within one of the exceptions to the time
restrictions on re-sales listed below:
• Sales by HUD of it’s own Real Estate Owned (REO) properties.
• Sales by other United States Government agencies of single family properties
pursuant to programs operated by these agencies.
• Sales of properties by non-profits approved to purchase HUD-owned singlefamily properties at a discount with resale restrictions.
• Sales of properties that are acquired by the sellers by inheritance.
• Sales of properties purchased by employers or relocation agencies in connection
with relocations of employees.
• Sales of properties by state and federally charted financial institutions and
Government Sponsored Enterprises.
Note: Most state and federally chartered financial institutions are going to be
banks, savings and loans, or credit unions.
•
•
•
•
Sales of foreclosed properties by state licensed mortgage lenders.
Any entity that sells foreclosed properties on behalf of an exempt lender or
financial institution.
Sales of properties by local and state government agencies.
Sales of a previously foreclosed or abandoned property acquired, rehabilitated
and resold by an entity using funds from and performing under agreements with
state and local government agencies under a Neighborhood Stabilization
Program (NSP).
Notes:
• Properties that were HUD REOs and then rehabilitated and resold are not
eligible under this exemption.
• NSP fund providers must have established a written agreement or similar
document authorizing certain entities (for-profit and/or non-profit companies)
as a representative purchaser and rehabilitator of foreclosed and abandoned
properties.
• Documentation proving a seller is exempt from any of the property flipping
guidelines is required in the endorsement file prior to approving the loan
transaction.
•
Upon FHA’s announcement of eligibility in a notice, i.e. Mortgagee Letter (ML),
sales of properties located in areas designated by the President as federal
disaster areas, will be exempt from the restrictions of the property-flipping rule.
The notice will specify how long the exception will be in effect and the specific
disaster area affected.
Section 2.22
October 31, 2014
Page 184 of 222
Exceptions to
the 90-Day
Restriction,
(continued)
•
Re-sales
Occurring
Between 91 and
180 Days
Following
Acquisition
•
•
The exemption does not provide an exception to additional appraisal
requirements when the re-sale price is 100% or more over the price paid by the
seller when the property was acquired in the last 180 days.
Re-sales that occur under this exemption within 90 days of last acquisition with a
sales price increase of 100% or more require a second appraisal.
If the re-sale date is between 91 and 180 days following acquisition by the seller,
the lender is required to obtain a second appraisal made by another appraiser IF
the re-sale price is one hundred percent (100%) or more over the price paid by
the seller when the property was acquired.
Example: If a property is re-sold for $80,000 within six (6) months of the seller’s
acquisition of that property for $40,000, the Branch must obtain a second
independent appraisal supporting the $80,000 sales price.
•
•
•
•
The lender may also provide documentation showing the costs and extent of
rehabilitation that went into the property resulting in the increased value, but
must still obtain the second appraisal.
The cost of the second appraisal may not be charged to the homebuyer;
however may be paid by the seller.
FHA also reserves the right to revise the re-sale percentage level at which this
second appraisal is required, by publishing a notice in the Federal Register.
Requirements for the appraisals are listed below.
• A conventional appraisal is not acceptable.
• Both appraisals must be FHA appraisals prepared by independent
appraisers.
• Both appraisers must be on HUD’s roster list of Approved Appraisers and be
state certified with an unexpired license.
• Repairs on BOTH appraisals must be resolved.
• If there is a difference in value of more than 5% between the two (2)
appraisals, the appraisal with the lowest value must be used.
• The Conditional Commitment is issued based on the appraisal used by
underwriting.
• Designate the review appraisal by stamping it “REVIEW APPRAISAL.”
• Both appraisals must be entered into the FHA Connection in the fields
allocated as “First Appraisal” and “Second Appraisal.” Once the first
appraisal information is entered, the field for the second appraisal
information will appear.
• USPAP requirements must be met on both appraisals. This rule requires
appraisers to analyze any prior sales of the subject property and
comparables that occurred within specific time periods.
Section 2.22
October 31, 2014
Page 185 of 222
Re-Sales
Occurring
Between 91
Days and 12
Months
Following
Acquisition
•
•
If the re-sale date is more than 90 days after the date of acquisition by the seller
but before the end of the twelfth (12th) month following the date of the
acquisition, FHA reserves the right to require additional documentation from the
lender to support the re-sale value if the re-sale price is five percent (5.00%) or
greater than the lowest sales price of the property during the preceding twelve
(12) months.
At FHA’s discretion, such documentation may included, but is not limited to, an
appraisal from another appraiser.
Note: Please see the appraisal requirements previously mentioned in this
section for guidance.
•
FHA will announce its determination to require the additional appraisal and other
value documentation, such as an Automated Valuation Method (AVM), through a
Federal Register issuance. This requirement may be established either
nationwide or on a regional basis, at FHA’s discretion.
New Property
Flipping
Amendment
Inapplicable to
New
Construction
The restrictions in the new amendment are not applicable to a builder selling a newly
built home or building a home for a homebuyer wishing to use FHA-insured
financing.
Date of
Property
Acquisition
Determined by
the Appraiser
•
•
•
•
•
•
The Correspondent Lender may rely on information provided by the appraiser in
compliance with the updated Standard Rule 1-5 of the Uniform Standards of
Professional Appraisal Practice (USPAP). This rule requires appraisers to
analyze any prior sales of the subject property that occurred within specific time
periods, now set for the previous three (3) years for one-to-four family residential
properties.
As a result, the information contained on the Uniform Residential Appraisal
Report or other applicable appraisal report form describing the Date, Price and
Data for Prior Sales is to include all transactions for the subject property within
three (3) years of the date of the appraisal and the comparable sales within
twelve (12) months of the date of the comparable sale.
Appraisers are responsible for considering and analyzing any prior sales of the
property being appraised within three (3) years of the date of the appraisal and
the comparables that are utilized within twelve (12) months of the date of the
comparable sale.
If the most recent sale of the property occurred at least one year previously, no
additional documentation is required.
The Correspondent Lender remains accountable for verifying that the seller is
the owner of record and may rely on information developed by the appraiser for
this purpose if provided.
Any conflicts in information must be resolved and the file must be document.
Section 2.22
October 31, 2014
Page 186 of 222
Automated Underwriting Systems (AUS)
FHA TOTAL
Scorecard
•
All loans with the exception of Streamline Refinance transactions must be run
through TOTAL Scorecard.
Note: Streamline refinances must not be submitted through TOTAL Scorecard.
If a streamline refinance is submitted through an AUS system MUST be
underwritten, processed, and closed as a no cash-out (rate/term) refinance and
follow all AUS documentation recommendations in the findings.
remains responsible for insuring all HUD and SunTrust Mortgage Credit
streamline refinance guidelines are met (i.e., mortgage payment history,
seasoning, etc.). Underwriters must also use their CHUMS ID for page three of
the HUD/VA Addendum to Uniform Residential Loan Application (HUD 92900-A),
FHA Connection, and the FHA Loan Underwriting and Transmittal Summary
(HUD 92900-LT) for streamline refinances.
•
•
•
•
•
Submitting a loan using TOTAL Scorecard allows the lender to receive the
benefits of documentation reduction and credit policy revisions.
Evidence of the TOTAL Scorecard evaluation MUST be in every loan file.
Only D.E. Mortgagees with an AUS or Fannie DU or Freddie LP can directly
interface with the TOTAL Scorecard.
TOTAL only provides an “Accept” or “Refer” and the reasons for the Refer,
including which rules were triggered. The AUS vendor provides the feedback
messages.
The Scorecard eliminates the possibility of different responses for a loan that is
run through DU, and then subsequently run through LP.
Note: TOTAL stands for “Technology Open To Approved Lenders.”
Section 2.22
October 31, 2014
Page 187 of 222
Automated Underwriting Systems (AUS), Continued
Data Input
Instructions to
Access TOTAL
Scorecard in
Desktop
Originator/Desk
top Underwriter
(DO/DU)
The tables below show the data input instructions to access the FHA TOTAL
Scorecard in Desktop Originator/Desktop Underwriter (DO/DU).
Notes:
• The FHA CASE NUMBER must be a valid FHA Case Number.
• If the case number is left blank on the INITIAL submission to TOTAL Scorecard
for a “pre-qualification” loan, then the FHA Case Number MUST BE ENTERED
WITH THE FINAL SUBMISSION of data prior to loan closing.
• Failure to enter the case number in TOTAL may result in the case binder being
returned by FHA with a request for manual underwriting.
• Unless the loan is scored at least once with the FHA Case Number, FHA will not
recognize the risk assessment provided by TOTAL nor can the data fields in
CHUMS be pre-filled with information necessary for endorsement processing.
• When the data fields are not entered into CHUMS, FHA re-scores the mortgage
if the new entries indicate degradation in loan quality from those same fields
populated into TOTAL. This re-scoring may result in a downgrade of the risk
assessment from an “Approve” to a “Refer” and the file will be returned for
manual underwriting.
Agency Case Number
FHA Lender ID
DO/DU Direct Users
Government Screen: identify in the Agency Case
Number field.
Government Screen: identify in the FHA Lender ID field.
Section 2.22
October 31, 2014
Page 188 of 222
TOTAL
Scorecard
Resubmission
Requirements
•
•
•
The lender is responsible for the integrity of the data used to obtain the risk
assessment and for resubmitting the loan when material changes are discovered
or otherwise occur during loan processing.
No AUS tolerances will be acceptable to SunTrust.
SunTrust requires 100% AUS data integrity prior to loan purchase.
Note: For HMDA and Regulatory Compliance purposes, the income used in
making the underwriting decision must be consistent throughout the file. (i.e.,
AUS findings, FHA Loan Underwriting Transmittal Summary (HUD-92900-LT)
and MLCS must all reflect the same income.)
Data Input
Instructions to
Access TOTAL
Scorecard in
Loan
Prospector (LP)
The tables below show the data input instructions to access the FHA TOTAL
Scorecard in Loan Prospector (LP).
Notes:
• The FHA Case Number must be a valid FHA Case Number
• If the case number is left blank on the INITIAL submission to TOTAL Scorecard
for a “pre-qualification” loan, then the FHA Case Number MUST BE ENTERED
WITH THE FINAL SUBMISSION of data prior to loan closing.
• Failure to enter the case number in TOTAL may result in the case binder being
returned by FHA with a request for manual underwriting.
• Unless the loan is scored at least once with the FHA Case Number, FHA will not
recognize the risk assessment provided by TOTAL nor can the data fields in
CHUMS be pre-filled with information necessary for endorsement processing.
• When the data fields are not entered into CHUMS, FHA re-scores the mortgage
if the new entries indicate degradation in loan quality from those same fields
populated into TOTAL. This re-scoring may result in a downgrade of the risk
assessment from an “Approve” to a “Refer” and the file will be returned for
manual underwriting.
• The FHA Ease-In Payment Reduction Feature is NOT eligible for LP submission.
LP will not give an accurate recommendation for this product type.
Agency Case Number
FHA Lender ID
LoanProspector.com Direct Users
FHA Screen: identify in the FHA Case Number field.
User Profile Screen: identify in the FHA Lender ID field.
The entry in the User Profile Screen will become the
default entry in the FHA Lender ID field on the FHA
Screen.
Section 2.22
October 31, 2014
Page 189 of 222
AUS
Recommendations
and
Resubmissions
TOTAL Scorecard/DO/DU Recommendations
The following table provides descriptions to TOTAL Scorecard DO/DU
recommendations.
Note: HUD requires only the final AUS findings report in the file, whether it is
an “Approval” or a “Refer”.
Recommendation
Approve/Eligible
•
•
Approve/Ineligible
•
•
•
Description
If there is erroneous data in the credit report or contradictory or derogatory
information in the loan file that would justify additional investigation or
provide grounds for a decision different from the TOTAL Scorecard/DO/DU
recommendation, the underwriter is required to take appropriate action.
The loan is eligible for FHA mortgage insurance with reduced documentation
and credit requirements.
The lender must determine that the reason for the ineligibility is one that can
be resolved in compliance with FHA Underwriting, and must document the
circumstances in the underwriter comments section of the FHA Loan
Underwriting Transmittal Summary (HUD-92900-LT).
An FHA Direct
Endorsement Underwriter signature is not required on the FHA Loan
Underwriting Transmittal Summary (HUD-92900-LT), unless the loan is
downgraded to Refer in accordance with FHA Guidelines. The ZFHA should
be entered as the CHUMS ID on FHA Loan Underwriting Transmittal
Summary (HUD-92900-LT), except on streamline refinances.
If the ineligibility can be “cured” within TOTAL Scorecard/DU, the loan data
must be corrected as appropriate and the loan must be resubmitted to
TOTAL Scorecard/DU.
If the ineligibility cannot be overcome (within TOTAL Scorecard/DU or
outside of TOTAL Scorecard/DU), the loan is not eligible for FHA mortgage
insurance.
Section 2.22
October 31, 2014
Page 190 of 222
AUS Recommendations and Resubmissions, continued
Recommendation
Refer/Eligible
Refer/Ineligible
•
•
•
•
•
LP
Recommendations
Recommendation
Accept
The following table provides descriptions of LP recommendations.
•
•
Refer
Description
“Refer/Eligible” loans are underwritten to non-AUS underwriting guidelines.
Although a DE underwriter must underwrite the loan, reduced documentation
may be used if allowed by the findings report and the DE underwriter.
The reason for the ineligibility must be determined.
If the ineligibility can be “cured,” the loan data must be corrected as
appropriate and the loan must be resubmitted to TOTAL Scorecard/DO/DU.
If the ineligibility cannot be overcome, the loan is not eligible for FHA
mortgage insurance.
If the ineligibility is “cured,” see “Refer/Eligible” above.
•
Description
If there is erroneous data in the credit report or contradictory or derogatory
information in the loan file that would justify additional investigation or would
provide grounds for a decision different from the LP recommendation, the
underwriter is required to take appropriate action.
The loan is eligible for FHA mortgage insurance with reduced documentation
and credit requirements.
“Refer” loans are underwritten to non-AUS underwriting guidelines.
Note: Reduced documentation may be used if allowed by the findings report
and approved by the DE Underwriter.
•
System overrides are required when a loan application variable is revealed
during loan processing. These variables must be reviewed by a D.E.
Underwriter and a decision rendered. The variables listed below may trigger
a system override (refer).
• Front-end ratio is too high
• Back-end ratio is too high
• Bankruptcy occurred within last two years
• Foreclosure occurred within last three years
• A total of 90 days late mortgage payments in last year
Note: The 90 days late could mean one mortgage payment that was 90
days late, three payments that were each 30 days late, or a payment that
was 60 days late and another payment that was 30 days late.
Section 2.22
October 31, 2014
Page 191 of 222
AUS
Resubmissions
and Forms
Subject
General
The following table provides instruction on AUS resubmissions and forms.
•
•
Loans may be resubmitted to TOTAL Scorecard as needed before the loan is
endorsed.
Generally, if the information about the loan changes after the loan has been
submitted to TOTAL Scorecard, the loan should be resubmitted. This practice
ensures that the data submitted to TOTAL Scorecard, and then to CHUMS, is of
the best quality possible.
Note: Once the loan is endorsed, the loan may not be resubmitted to AUS for any
reason.
General
Tolerances
•
•
•
FHA provides a degree of tolerance for minor material data changes to TOTAL
Scorecard.
When assessing ...
There is no need to resubmit the loan to FHA TOTAL
Scorecard if the...
cash reserves
cash reserves verified are not more than 10% less than
what the borrower reported on the loan application.
income
verified income is not more than 5% less than what the
borrower reported on the loan application.
tax and insurance
escrows
tax and insurance escrows used at scoring do not result
in more than a 2% point increase in the payment and
debt-to-income ratios.
The terms and conditions of the closed loan and underwriting information in the
loan file must match the data on which the TOTAL Scorecard risk classification
is based, and other conditions specified in the government section of the AUS
verification messages were based.
The loan is eligible for FHA’s insurance endorsement if:
• The AUS rated the mortgage loan application as an “Accept” or “Approve”.
• The data entered into the AUS are true, complete, and accurate.
• The entire loan package meets all other FHA requirements.
The AUS Feedback/Findings Report is included in the Case Binder.
Note: The revised tolerance guidelines for Agency, Agency Plus and DU Refi
PlusTM loan transactions DO NOT APPLY to LP processed FHA transactions.
Section 2.22
October 31, 2014
Page 192 of 222
AUS
Resubmissions
and Forms,
(continued)
Income used for the loan decision is the income that is HMDA reportable.
The following table provides instruction on AUS resubmissions and forms.
Subject
Post Close
Resubmission
Tolerance
•
•
•
•
AUS Reports
•
•
•
The DE Underwriter is responsible for ensuring the integrity and accuracy of the
data used to render a decision.
The Correspondent lender must include a loan in the package to explain the
reason for the resubmission after closing.
Provided the resubmission is done prior to endorsement, resubmitting a loan to
AUS after closing is acceptable.
If a loan is resubmitted after the loan has closed or is purchased, the AUS
recommendation should be the same as the AUS recommendation prior to
closing.
• The loan must be resubmitted to the Correspondent lender’s DE
Underwriter for final sign-off.
• If the AUS recommendation changes upon resubmission, the loan must be
traditionally underwritten and must meet traditional underwriting guidelines
to be eligible for insuring.
Fannie Mae DO/DU Loans
Freddie Mac LP Loans
The
TOTAL
Scorecard/DO/DU • The LP decision is not valid without
the LP Feedback Certificate.
decision is not valid without the
DO/DU Findings Report AND the • The most current LP Feedback
DO/DU Underwriting Analysis form.
Certificate and Loan Summary
Report must be in the lender’s
The most current DO/ DU Findings
origination binder and must reflect
Report and DO/DU Underwriting
loan terms as approved and closed.
Analysis form must be in the
This includes loan files where the
lender’s origination binder and must
recommendation was “Refer” and
reflect loan terms as approved and
loan files where the loan had to be
closed. This includes loan files
where the recommendation was
“Approve/Ineligible” or “Refer” and • The LP Feedback Certificate and
loan files where the loan had to be
Loan Summary Report must also be
submitted in the lender’s FHA case
The DO/DU Findings Report and
binder and should be placed at the
top of the right side of the binder.
Underwriting Analysis form must
also be submitted in the lender’s
FHA case binder and should be
placed at the top of the right side of
the binder.
Section 2.22
October 31, 2014
Page 193 of 222
Underwriting
Issues
•
•
Regardless of the risk assessment provided, the lender remains accountable for
compliance with all FHA guidelines.
Some examples of lender accountability items provided by FHA are listed below.
• If the loan is a buydown, the lender needs to ensure the borrower is
qualifying on the note rate.
• Taxes are based on improved property on new construction cases.
• If the loan is a cash-out refinance, ensure the borrower meets the eligibility
requirements.
• Data integrity must be verified.
• Information in TOTAL must match the information in FHA Connection.
Note: HUD will run a comparison. If results are a mismatch, HUD will
downgrade the assessment and return the file to the lender.
•
•
•
Ensure FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) indicates
ZFHA as CHUMS ID if loan was approved through the TOTAL scorecard, except
on streamline refinances.
Sign HUD Form 92900-A page 3 and use ZFHA as CHUMS ID if the loan was
approved through the TOTAL Scorecard, except on streamline refinances.
Check for potential manual downgrades.
Note: A manual downgrade is similar to a system override in that they both
require review and decision by an underwriter; however, the manual downgrade
is used when either Federal eligibility issues or credit issues are discovered.
Section 2.22
October 31, 2014
Page 194 of 222
Underwriting
Issues,
(continued)
The following tables provide information on issues requiring manual downgrades.
Issue
No credit scores
•
•
Bankruptcy
• Chapter 7, and
• Chapter 13.
•
•
•
Mortgage Foreclosure or
Deed-in-Lieu of Foreclosure
within the Previous 3 years
•
Manual Downgrades
Requirements
All borrowers must meet the minimum credit score requirements
for SunTrust.
If a borrower does not have traditional credit references with
which to generate a credit score, the borrower is considered
“unscoreable,” and is not eligible for financing with SunTrust.
To be eligible for AUS processing, the Bankruptcy must have
been discharged for a minimum of 2 years.
Bankruptcies that were discharged within 2 years of the loan
application must be manually underwritten.
If a Chapter 7 Bankruptcy is discharged less than 1 year, the
borrower is not eligible for FHA.
Borrowers whose previous residence or any real property was
foreclosed within a 3-year period are not eligible for an insured
mortgage.
Reference: See “Bankruptcy” in the topic “Credit Requirements”
for exceptions and additional underwriting guidelines.
Late Mortgage Payments
•
•
•
•
•
Unrecognizable HUD Case
Number
The credit report used by DU did not accurately reflect the
mortgage payment history.
Any mortgage tradeline on a purchase or non-cash out
refinances transaction during the most recent 12 months reflects:
• 3 or more late payments of greater than 30 days, or
• 1 or more late payments of 60 days plus one or more 30 day
late payment(s), or
• 1 payment greater than 90 days late.
Any mortgage tradeline reflects less than 6 months payment
history
The borrower is disputing any account or public record unless:
• The disputed account has a zero balance or is marked “paid
in full” or “resolved”
The disputed account is less than $500 and more than 24
months old.
•
If HUD is unable to recognize the data, the file will be returned for
traditional underwriting.
•
The FHA Case Number must be valid of left blank on the initial
submission, BUT MUST BE ENTERED WITH THE FINAL
SUBMISSION OF DATA.
Section 2.22
October 31, 2014
Page 195 of 222
Underwriting Issues, (continued)
Subject
Appraisal
Review and
Approval
•
•
Approval
Authority
•
CHUMS ID
•
•
•
Fannie Mae DO/DU Loans
All FHA appraisals must be reviewed
and approved by an approved FHA DE
underwriter, regardless of the DO/DU
recommendation.
AUS specialists and Loan Officers do
not have authority to review and
approve appraisals on FHA loans.
FHA loans must be approved by an
FHA DE underwriter regardless of the
DO/DU recommendation.
For
TOTAL
Scorecard,
if
“Accept/Approve” ZFHA should be
entered on the FHA Loan Underwriting
Transmittal Summary (HUD-92900-LT)
as the CHUMS ID, except on streamline
refinances.
If “Refer,” the CHUMS ID of the FHA DE
underwriter should be entered on the
FHA Loan Underwriting Transmittal
Summary (HUD-92900-LT) as the
CHUMS ID.
If “Approve/Ineligible,” see the AUS
Recommendations and Resubmissions
subtopic previously presented for
For Mortgages Receiving an “Accept/Eligible”
•
•
•
•
•
The DE Underwriter is responsible for
Note:
ensuring the integrity and accuracy of the data used
to render a decision.
•
Note: Capacity is the ability to repay the loan at the
approved ratios.
Section 2.22
•
•
•
•
Freddie Mac LP Loans
All FHA appraisals must be reviewed
and approved by an approved FHA DE
underwriter, regardless of the LP
recommendation.
AUS specialists and Loan Officers do
not have authority to review and
approve appraisals on FHA loans.
FHA loans must be approved by an
FHA DE underwriter regardless of the
LP recommendation.
For
TOTAL
Scorecard,
if
“Accept/Approve” ZFHA should be
entered on the FHA Loan Underwriting
Transmittal Summary (HUD-92900-LT)
as the CHUMS ID.
If “Refer,” the CHUMS ID of the FHA DE
underwriter should be entered on the
FHA Loan Underwriting Transmittal
Summary (HUD-92900-LT) as the
CHUMS ID.
For Mortgages Receiving a “Refer/Eligible”
The DE underwriter is not required to personally
review the credit and/or qualifying ratios.
The DE underwriter is not required to certify that the
borrower’s credit and capacity meets FHA’s
standard requirements.
The DE underwriter must underwrite the appraisal
according to standard FHA requirements.
The TOTAL Mortgage Scorecard CHUMS number
(ZFHA) is to be recorded on forms HUD-92900-A
page 3 and the FHA Loan Underwriting Transmittal
Summary (HUD-92900-LT).
•
•
•
•
The DE underwriter is required to underwrite
both credit and capacity according to
standard FHA guidelines.
Reduced documentation may be used if
allowed by the findings report and approved
by the DE Underwriter.
The DE underwriter is required to certify that
the borrower’s credit and capacity meet
standard FHA requirements.
The DE underwriter must underwrite the
appraisal according to standard FHA
requirements.
The CHUMS ID number of the DE
underwriter is to be recorded on forms HUD92900-A page 3 and the FHA Loan
Underwriting Transmittal Summary (HUD92900-LT).
October 31, 2014
Page 196 of 222
Submission to
Freddie Mac
Loan
Prospector
(direct)
Screens
Loan Type and
Loan Term
Property
Information
The following table provides screen input instruction for the submission to Freddie
Mac Loan Prospector (direct).
Note: The FHA Ease-In Payment Reduction Feature is NOT eligible in LP. LP will
not provide an accurate recommendation for this product type.
•
•
•
•
Purpose of
Loan
Borrower
Information
Employment
Information
Assets and
Reserves
Liabilities and
Real Estate
Owned
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Data Entry
Enter FHA in the Mortgage Type field.
Enter the total loan amount in the Base Loan Amount field (excluding UFMIP)
If property is a Condo or PUD, LP will not issue any specific messages.
Standard FHA guidelines apply.
Enter the Estimated Value of Property, which is the borrower’s stated value of
the property.
Enter Purpose of Loan as either “Purchase” or “Refinance”.
Enter a full 2-year residency history for each borrower for submission to LP.
If there is a non-occupant co-borrower, the non-occupant’s monthly housing debt
will be included in the total monthly debt ratio.
Marital Status must be completed.
A full 2-year employment history for each borrower is required on the 1003
signed by the borrower (click on button “Add Borrower Employment Details”).
Enter a gift in the field “Total Gift Fund” in the asset section, whether the gift has
been received and deposited by the borrower.
Reserves must be manually calculated and enter in the field “Reserves”.
Total monthly debt must be manually calculated and enter in field “Total Monthly
Debt”.
If there is a non-occupant co-borrower, enter the non-occupant’s NONHOUSING debt in the field “Non-occupant Borrower Non-housing Debt”.
Click on button “Liability and REO Breakdown” to enter individual debts. Debts
to be excluded should be marked “Y” to Excluded?
Debts marked to be paid WILL NOT reflect in the LP Feedback, but will be
excluded from the total monthly debt ratio.
If an Installment liability has less than 10 remaining payments, LP will not count
it in the borrower’s total monthly debt ratio.
All Revolving liabilities will count in the borrower’s ratios, regardless of how
many months are left.
If a community property state and there is a non-purchasing spouse, individual
credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of LP).
If monthly debts must be added to the 1003, manually add as a lump sum to the
field Total Monthly Debt.
Section 2.22
October 31, 2014
Page 197 of 222
Submission to Freddie Mac Loan Prospector (direct)
Screens
Details of
Transaction
•
•
•
Declarations
•
FHA
•
•
•
•
User Profile
•
•
Data Entry
If a refinance and a liability is to be paid at closing, the amount to be paid at
closing should be added to Refinance line (line D).
If a purchase and a liability is to be paid at closing, do not enter the amount to
paid in the Refinance line (line D).
Identify any seller/builder contributions in the Sales Concessions field,
including:
• buyer’s FHA UFMIP,
• prepaid taxes and insurance,
• extra discount points to provide permanent interest rate buydowns,
• payoff of credit balances on behalf of the buyer, and
• any concession or combination of seller concessions that exceed six percent
of the established reasonable value of the property.
If “yes” to bankruptcy and/or foreclosure questions, LP will not issue any specific
messages and standard FHA guidelines will apply.
Enter the dollar amount of the UFMIP that is financed as part of the loan amount
in the Financed MIP field. Enter $0.00 if the FHA UFMIP is not financed.
Enter the closing costs paid by Borrower (which will appear on the LP Feedback
as the FHA Minimum Down Payment)
If there is alimony obligation, enter the applicable dollar amount, if applicable
Leave Agency Case Number field blank since FHA case number is not obtained
at application
The Agency Case Number must be included in the final 1003.
Complete entry in the FHA Lender ID field. This entry will become the default
entry in the “FHA Lender ID” field on the FHA Screen.
Section 2.22
October 31, 2014
Page 198 of 222
Submission to
DO/DU on the
Web (Direct)
Screens
Type of
Mortgage and
Terms of Loan
Construction-to
-perm
Borrower
Information
Current
Employment
Monthly
Income and
Combined
Housing
Expense
Assets
The following table shows the submission to DU Direct.
Reference: See the topic “Ease-In Payment Reduction Feature” for specific
instructions to enter a seller-paid interest payment reduction in DU Direct.
•
•
•
•
•
•
•
•
•
•
Liabilities
•
•
•
•
•
Fannie Mae’s Desktop Underwriter Data Entry
Lender Loan Number is a required field.
Enter the base loan amount (without UFMIP) in Loan Amt field.
Select “Purchase” as the “Purpose of the Loan” and enter the loan data as a
purchase transaction.
Enter a full 2-year residency history for each borrower (must be entered in the full
1003)
Enter a full 2-year residency history for each borrower (must be entered in the full
1003)
If there is a non-occupant co-borrower, the current total housing expense of the
non-occupant co-borrower will be included in the total monthly debt ratio.
Identify a gift as “Gift” in asset section, whether or not the gift has been received
and deposited by the borrower.
If the gift has been deposited into the borrower’s account, subtract the amount of
the gift from the asset balance prior to entering the asset balance.
Enter the following in Institution field (full 1003) when a gift is involved:
• donor’s name, address, phone number and relationship to borrower.
If the borrower will receive net equity from a property he/she is selling, DU will
use the calculation from the REO section. If this must be overridden, “Net
Equity” must be selected, the net equity manually calculated and the final figure
entered as an asset (this will override the REO calculation).
If an Installment has less than 10 remaining payments and the payment is less
than $100, DO/DU will not count it in the borrower’s ratios.
All Revolving liabilities will count in the borrower’s ratios, regardless of how
many months are left.
If there is a contingent liability that will not be counted (must provide proper
documentation meeting FHA guidelines), it should be marked “Omit.”
If a liability is to be paid at closing, it must be marked “to be paid at closing.” The
Details of Transaction must reflect the following information for the applicable
transaction;
• if the loan is a purchase, nothing should be on line d), or
• if the loan is a refinance, the amount to be paid at closing should be on line
d).
If community property state and there is a non-purchasing spouse, individual
credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of
DO/DU). If monthly debts must be added to the 1003, enter as a single lump
sum and identify as “debts of non-purchasing spouse” in Creditor Information
field.
Section 2.22
October 31, 2014
Page 199 of 222
Submission to DU on the Web (Direct), continued
Screens
Details of
Transaction
Additional Data
Fannie Mae’s Desktop Underwriter Data Entry
If rate/term refinance, enter total unpaid principal balances of all mortgages
included in refinance on line d (NOT including late fees, interest on the loans,
etc.).
• If purchase with debts to be paid at closing, do not enter any of the debt totals on
line d.
• If purchase, enter total prepaids to be paid by the borrower on line e. Do NOT
enter the amount to be paid by the seller.
• If rate/term refinance, enter the total prepaids, interest on existing mortgages,
accrued late fees, escrow shortages, etc., on line e. (may not include delinquent
interest).
• Enter total UFMIP on line g.
• Enter the amount of discount points to be paid by the borrower on line h).
• Enter seller-paid closing costs on line k - (these fees should NOT appear in the
“Other Credits” section on line l). Do NOT enter the amount of prepaids to be
paid by the seller. If the seller is paying prepaids, subtract the amount paid by
seller from line e.
• If a commitment fee is charged, enter amount as a negative figure in “Other
Credits” on line l
• If “yes” to bankruptcy and/or foreclosure questions, DO/DU Findings Report will
issue specific messages referencing standard FHA guidelines.
• If “yes” to borrowed down payment question, DO/DU Findings Report will issue a
message referencing standard FHA guidelines.
Subject Property Type is a required field.
Government
Information
•
•
Declarations
•
•
•
The FHA Lender ID must be completed for the FHA TOTAL Score Card.
Complete “Section of Act” and “County”. If county/city of subject property is not
listed, select a county nearest the property with the same loan limits (DO/DU
WILL NOT recognize county when selecting “ALL OTHERS”).
Borrower-paid and seller-paid closing costs do not need to be completed.
Complete Seller Concessions for any seller contributions over the allowable 6%.
Section 2.22
October 31, 2014
Page 200 of 222
Rate, Points & Lock-Ins
CRA Incentive
and Verification
Target Area
• Loan eligibility for CRA Incentive is limited to SunTrust Bank’s Community
Reinvestment Act (CRA) assessment areas. It is also based on the subject
property being located in a low-or-moderate income census tract or the
borrower’s income being equal to or lower than SunTrust’s maximum allowable
income level for the property county.
• SunTrust’s assessment areas are NOT located in all areas of the state.
Reference: Click here to access the list of eligible states and counties.
•
If the subject property is located within a SunTrust targeted state and county,
proceed with the steps listed below to determine SunTrust qualifying results of
the subject property and/or the borrower’s income.
Step
1
2
3
4
•
•
•
•
Action
Access the following website: www.suntrustgeocoder.com
Enter CORRES for password and click the Login button.
Input the property address and annual income and click the Submit button.
Print the Geocoding Results and place in loan file.
The geocoding system must be used to determine the census tract locations of
individual subject properties.
Your loan must receive a “Qualified’ message in order for it to be eligible for the
CRA incentive.
A listing of maximum income limits is provided as a supplemental tool which may
be used to inform users of the varying income limits by county, census tract, and
product. Click here for the listings of maximum income limits.
If the loan is eligible, complete the CRA Census Tract Verification form (COR
0560a).
• Email completed form to [email protected] within 48 hours
of locking the loan.
• Once the information is validated, the appropriate pricing adjustments will be
made and the new lock confirmation will be available online.
Interest Rate
and Discount
Points
Rate and price quotes are established by the Marketing Department daily and are
communicated on SunTrust’s Rate sheet.
Lock-ins
It is important that the loan type be communicated when the loan is registered and/or
locked-in.
Reference: See Section 1.03: Loan Registration and Lock-In Procedures of the
Correspondent Seller Guide for additional information concerning lock-ins.
Section 2.22
October 31, 2014
Page 201 of 222
Rate, Points & Lock-Ins, Continued
Program Code
The following table shows the program code.
Product
FHA 20 or 30 Year Fixed Rate
FHA 10 or 15 Year Fixed Rate
FHA Jumbo 30 year Fixed
FHA Fixed Rate Seller Paid Interest Payment
Reduction Feature
Seller Paid
Interest
Buydown
Program Code
F30FX
F15FX
F30JFX
F30SPI
Reference: See the topic Ease-In Payment Reduction Feature previously presented
in this product description for additional information.
Section 2.22
October 31, 2014
Page 202 of 222
Application, Disclosures and Consumer Compliance
General
All consumer disclosures or notices required by all federal, state and local laws and
regulations must be complied with. This includes, but is not limited to, the Real
Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Flood
Disaster Protection Act, the Truth-in-Lending Act, and the Fair Credit Reporting Act,
all as amended and all applicable usury limitations. Further, all consumer
disclosures relating to the mortgage loan must have been properly given on a timely
basis in compliance with applicable laws, rules and regulations.
Face-to-Face
Interview
•
•
A face-to-face interview is not required for FHA transactions.
HUD requires the lender to ask the borrower if he/she wants a face-to-face
interview. If the borrower does not desire such a meeting, it must be so noted in
the loan file.
Reference: See Section 1.05: Underwriting for additional information regarding
the “U.S. Patriot Act”.
Section 2.22
October 31, 2014
Page 203 of 222
Application, Disclosures and Consumer Compliance, Continued
Sales Contracts
•
•
The sales contracts, any amendments or other agreements and certifications are
to be included in the case binder file.
Sales contracts do not need to refer to FHA financing in order to be considered
valid by HUD. However, the contract must provide the HUD real estate
certification and the amendatory clause. These may be included in the language
of the sales contract or as a separate addendum(s) and must be signed and
dated by the borrower, seller, selling real estate agent or broker.
Note: It is SunTrust requirement, for the FHA Amendatory Clause and the FHA
Real Estate Certification forms to be signed and dated by the borrower, if not a
part of the purchase agreement (sales contract), on or before the date of the
purchase agreement.
•
•
•
The criteria of the amendatory clause are as follows:
• the sales price as stated in the contract is inserted in the amendatory clause,
• a new amendatory clause is not required if the sales price is adjusted based
on a value that is less than the sales price, providing the original sales
contract with a price matching the amendatory clause and the revised or
amended contract are included in the case binder, and
• the amendatory clause is not required on HUD REO sales, or if Fannie Mae,
Freddie Mac, Department. of Veterans Affairs, Rural Housing Services, or
other Federal, State and local government agencies, mortgagees disposing
of REO assets, or sellers at foreclosure sales and those sales where the
borrower will not be an owner-occupant (i.e., a nonprofit agency).
If there are any seller concessions, these must be stated in the contract (either
as a percentage or a dollar amount). Failure to perform a condition of the
contract will not be grounds for denying loan endorsement provided the loan
closes in compliance with all regulations and policies.
The FHA For Your Protection: Get a Home Inspection (HUD 92564-CN) must be
given to prospective homebuyers at first contact. HUD has eliminated the
requirements that the form be signed by purchasers and included in the case
binder.
Reference: See Section 1.05b: Reviewing Sales Contracts in the Correspondent
Section 2.22
October 31, 2014
Page 204 of 222
Disclosures
(Origination /
Processing /
Closing)
In addition to the standard origination/processing/closing disclosures required (i.e.,
1003, TIL, GFE, etc.), the following HUD-specific disclosures are required during the
loan application process:
Origination
Disclosures
•
•
•
For Your Protection: Get a Home Inspection (HUD-92564-CN),
FHA Amendatory Clause (if not included in sales contract),
FHA Real Estate Certification (if not part of the sales contract)
Note: It is SunTrust requirement, for the FHA Amendatory Clause and the FHA
Real Estate Certification forms to be signed and dated by the borrower, if not
part of the purchase agreement (sales contract), on or before the date of the
purchase agreement.
Reference: See the Sales Contract subtopic previously presented in this topic
•
HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A)
pages 1 and 2,
Note: Page two (2) of the loan application addendum must be signed by the
borrower and in the file prior to submission to underwriting (prior to purchase for
lenders that have a Direct Endorsement (D.E.) Underwriter on staff).
•
•
•
•
•
•
•
FHA Importance Notice to Homebuyer,
FHA Informed Consumer Choice Disclosure Notice,
FHA Notice to Homeowner- Assumption of HUD/FHA Insured Mortgages
Release of Personal Liability,
FHA Energy Efficient Mortgage Program,
Financial Privacy Act Notice,
FHA Pamphlet “Protecting Your Family from Lead in Your Home,” and
State specific disclosures, if applicable.
Section 2.22
October 31, 2014
Page 205 of 222
Processing
Documents
•
•
•
•
•
•
•
•
FHA Loan Underwriting Transmittal Summary (HUD-92900-LT),
CRA Census Tract Verification (COR 0560a)
HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A),
FHA Appraised Value Adjustment Disclosure,
FHA Energy Efficient Mortgage Worksheet,
HUD Review - Processor Checklist,
4506-T at application and closing,
Miscellaneous processing certifications to use if applicable:
• FHA New Construction Early Start Letter, if applicable (DE Correspondents
Only),
• FHA Electrical Certification,
• FHA Heating Certification,
• FHA Plumbing Certification, and
• Borrower’s Contract with Respect to Hotel and Transient Use of the Property
(HUD-92561).
Reference: See the Closing Documents subtopic later in this topic for additional
information and required forms.
Social Security
Numbers
•
•
•
Each borrower, co-borrower, or co-signer must provide the lender with evidence
of his/her social security number. While the actual social security card is not
required, the social security number can be obtained from pay stubs, the driver’s
license, passport, etc. Tax returns alone without a W2 are not sufficient
evidence of social security numbers.
Social Security numbers must be consistent throughout the file on all
documentation. Any multiple social security numbers or discrepancies must be
addressed, even if it is an obvious transposition of numbers.
All individuals eligible for legal employment in the US must have a social security
number. This applies to purchase transactions and all refinances.
• SunTrust does not allow the use of an Individual Tax Identification Number
(ITIN) in lieu of a valid SSN. An ITIN is a nine digit number, beginning with
the number 9, issued by the IRS for tax reporting purposes to non-U.S.
citizens who are not eligible to obtain an SSN.
Note: SunTrust requires that all credit reports indicate that a Social Security
validation vendor has validated the borrower’s Social Security Number.
Reference: See the FHA Social Security Number Validation for additional information.
Section 2.22
October 31, 2014
Page 206 of 222
Closing
Documents
•
•
•
•
FHA/VA Buydown Agreement (COR 0344)
FHA/VA New Construction Certification (COR 0356),
FHA/VA Lead Standard Certification for Water Systems (COR 0357)
4506-T
Power of
Attorney
•
A Power of Attorney (POA) may be used for CLOSING DOCUMENTS, (including
page 4 of the Addendum to the URLA and the final URLA if it is signed at
closing).
Any POA, whether specific or general, must comply with state laws and allow for
the mortgage note to be legally enforced in that jurisdiction.
It is the lender’s responsibility to assure that clear title can be conveyed in the
event of foreclosure.
Except for the conditions described below, the INITIAL loan application MAY
NOT be executed by using a power of attorney, i.e., it must be signed by all
borrowers.
THE INITIAL AND FINAL LOAN APPLICATION, MUST CONTAIN THE
SIGNATURES OF ALL BORROWERS AND THE INTERVIEWER.
Military Personnel on Overseas Duty or on an Unaccompanied Tour:
The lender should obtain the serviceperson’s signature of the application by mail
or fax machine.
Incapacitated Borrowers Unable to Sign the Mortgage Application:
The lender must provide evidence the signer has authority to purchase the
property and obligate the borrower. This would include a durable power of
attorney specifically designed to survive incapacity and avoid the need for court
proceedings. The incapacitated individual must occupy the property to be
insured (except on eligible investment property.)
•
•
•
•
•
•
•
•
Section 2.22
October 31, 2014
Page 207 of 222
Underwriting and Loan Submission
General
Guidelines
•
•
All loans must be submitted through TOTAL Scorecard. The case binder file must
include the complete AUS findings report.
All loans with the exception of second home, investment property, or streamline
refinance transactions must be submitted through TOTAL Scorecard if any borrower
on the loan has a credit score.
remains responsible for insuring all HUD and SunTrust Mortgage Credit guidelines
are met (i.e., mortgage payment history, seasoning, etc.). Underwriters must also
use their CHUMS ID for page three of the HUD/VA Addendum to Uniform
Residential Loan Application (HUD 92900-A), FHA Connection, and the FHA Loan
Underwriting and Transmittal Summary (HUD 92900-LT) for streamline refinances.
•
•
The underwriter/person validating both the AUS findings and the information on
the FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) must sign
Page 3 of the URLA Addendum (HUD form 92900-A) and complete any
applicable condition items.
An abbreviated version of the loan application is not acceptable; a full loan
application with all sections completed is required.
• The loan application and loan application addendums must always be signed
and dated by the borrower(s) and interviewer before the loan is submitted to
SunTrust”.
• The borrower is still required to sign the initial loan application and the
loan application addendum when the loan application is taken via the
telephone or internet.
• The interviewer must always sign the loan application and loan application
addendum.
Note: A signed faxed copy of the initial loan application and addendum may be
used to submit the file to underwriting; however, the original signed initial loan
application and addendum must be submitted prior to the time of purchase.
•
All information on the FHA Loan Underwriting Transmittal Summary (HUD-92900LT) must be completed. This includes the approval box, borrower(s) ratings,
compensating factors when applicable, CAIVRS, LDP, GSA information, and the
CHUMS code for the AUS system, if applicable. (i.e., TOTAL Scorecard is
ZFHA).
Section 2.22
October 31, 2014
Page 208 of 222
Underwriting and Loan Submission, Continued
File
Submission for
Correspondent
Lenders with
FHA DE
Underwriters
Correspondent lenders with FHA DE Underwriters are delegated to underwrite
FHA loans and are not eligible to submit these loans to SunTrust for
underwriting. Approved loans, underwritten by the correspondent lender's DE
underwriter are closed and a case binder is submitted to FHA for MIC.
•
•
•
•
•
The correspondent will prepare a case binder file for submission to HUD for MIC
after the loan has closed.
The correspondent is responsible for obtaining the MIC. HUD will send the MIC
to the correspondent, not to SunTrust. Correspondents must review the MIC for
errors. Any inaccuracies should be corrected and a new MIC issued BEFORE it
is sent to SunTrust. After the MIC has been reviewed and all information found
to be correct, the MIC is then assigned and sent to SunTrust to clear the
condition on the file.
If FHA Connection reflects a receipt, SunTrust will purchase the loan.
If FHA Connection reflects a Notice of Return (NOR), SunTrust will not purchase
the loan until the loan has been insured by HUD.
Section 2.22
October 31, 2014
Page 209 of 222
File Submission
for Sponsored
Correspondent
Lenders
Reference: See “The SunTrust Government Sponsorship Program” subtopic
previously presented in the Overview topic for additional information.
Obtaining MIC
•
•
•
Loan files must be submitted to the appropriate HOC office to obtain mortgage
insurance with in 30 days after loan closing. Files sent to the local HUD office
instead of the HOC office may be lost or will be delayed in the local HUD office
until they are batched together and sent with other files to the HOC office. In this
situation, lenders have to be concerned about late fees for late receipt of the file
as well as payment histories (loans with late payments prior to HUD’s issuance
of MIC, require a 6 month payment history of timely payments included in the file
in order for HUD to issue an MIC). Mortgage insurance approval should be
received within 90 days after closing.
HUD will send the MIC to the correspondent lender’s office, not to SunTrust. It is
the correspondent’s responsibility to obtain and assign the MIC to SunTrust
Mortgage, Inc. and send it to SunTrust promptly after receipt.
• If FHA Connection reflects a receipt, SunTrust will purchase the loan.
• If FHA Connection reflects a Notice of Return (NOR), SunTrust will not
purchase the loan until the loan has been insured by HUD.
Note: SunTrust will enforce repurchase of FHA loans that do not have MIC.
Mortgage
Record Change
(MRC)
•
•
•
•
•
•
Only the existing holder of record will be able to provide HUD with the Mortgage
Record Change (MRC) to update a new holder of record.
• Direct Endorsement lenders must transfer the Servicer/Holder of Record and
Mortgagee ID in FHA Connection prior to purchase of the loan.
• The SunTrust Mortgagee ID is 54179.
HUD’s FHA Connection (FHAC) will treat MRC submissions received prior to
endorsement, the same as they would the electronically received submissions
through Electronic Data Interchange (EDI).
Lenders may confirm HUD’s records of the holder and Servicer information by
accessing FHA Connection (FHAC)
The new HUD Query screen may be accessed by visiting
http://entp.hud.gov/a43i/html/a43qry.html.
The Portfolio Request or Case Details screens may be used in conjunction with
the new query screen to review and take corrective action, if necessary.
All MRC that are in suspense will be processed in the order in which HUD
received them.
Section 2.22
October 31, 2014
Page 210 of 222
Transfers of
Rejected Loans
•
•
If a DE lender denies a loan that is then assigned to another lender, the original
underwriter's credit analysis worksheet stating the reasons for rejecting the
borrower or property must accompany the assigned package.
If the receiving mortgagee approves the application, then the case binder must
contain the original denied worksheet with explanatory comments from the
approving mortgagee underwriter when submitted to HUD.
Section 2.22
October 31, 2014
Page 211 of 222
Closing and Loan Settlement Documentation
General
The following closing guidelines are specific to the end investor. Unless specified
below, all closing forms and documentation should follow standard SunTrust
guidelines.
The following table shows the required legal documents.
Closing Legal
Documents
Note
The most recent version of the FHA Note for a fixed
rate loan or the most recent version of the FHA ARM
loan.
Deed of Trust
The most recent FHA Security Instrument as applicable
to state requirements should be used and the last page
of the instrument should indicate that appropriate riders
are attached.
Adjustable Rate Rider
The FHA ARM Rider is used when the borrower has
applied and been approved for an FHA ARM loan.
Condominium Rider
The FHA Condominium Rider must be used when the
subject property is a condominium unit. There are no
exceptions.
PUD Rider
The FHA PUD Rider must be used when the subject
property is located in a PUD. There are no exceptions.
Non-Owner Occupancy
Rider
The FHA Non-Owner Occupancy Rider must be used
when the subject property is an investment or second
home property. There are no exceptions.
Note: FHA loans are not eligible on investment or
second home properties; however there may be
exceptions if the loan is a PD (property disposition)
loan or has received special consideration due to the
borrower’s circumstances (applicable to a home that is
categorized as a second home).
Section 2.22
October 31, 2014
Page 212 of 222
Closing and Loan Settlement Documentation, Continued
Document
Review Fee
For all loans, there is a document review fee that will be charged and will be
deducted from the proceeds at closing. Refer to the Correspondent Seller Guide,
Section 1.08: Loan Delivery and Purchase Review for information on the fee
charges.
Document
Warranties
•
•
•
•
•
•
Definition of
Allowable
Costs
•
•
•
•
Lenders must use the mortgage documents for conventional mortgage loans that
are correct for the jurisdiction, the mortgage type, the lien type and the property
type.
The lender must use the most current version and appropriate forms.
In some cases, the mortgage forms may have to be adapted to meet the lender’s
jurisdictional requirements.
Any change made to multi-state documents must comply with all applicable laws.
SunTrust relies upon your representations and warranties that the loans are
enforceable in accordance with the terms of the Correspondent Loan Purchase
Agreement and comply with all applicable laws.
Accordingly, it is advisable that forms and documents be reviewed by your legal
counsel for compliance with the laws of the state in which each loan is made.
Allowable closing costs are defined as those costs that are:
• reasonable and customary in the area,
• may be charged to the borrower, and
• included in the acquisition cost.
If the HOC publishes a maximum dollar limit on each closing cost item, any cost
that exceeds the maximum limit must be paid out of pocket by the borrower.
HUD’s definition of closing costs DOES NOT include discount points or prepaids.
If a lock-in fee is collected, the Lock-in Confirmation must be executed at least
15 days prior to the date of the Note; otherwise a lock-in fee cannot be collected.
Reference: See HUD Allowable Closing Costs in this product description for
details on allowable closing costs not included in acquisition, including those that
cannot be charged to the borrower.
Usage of
Allowable
Costs
Purchase Transactions
Borrower-paid closing costs are added to the sales price to determine the total
acquisition cost.
Refinance Transactions
Borrower paid allowable closing costs may not be added to the appraised value to
determine the total acquisition cost for refinance transactions.
Section 2.22
October 31, 2014
Page 213 of 222
Review of Final
HUD-1
•
•
•
Without exception, the final HUD-1 must be reviewed by the lender prior to
closing.
If the transaction is a purchase, the allowable closing costs to both the borrower
and the seller must be verified (any “unallowable” costs must be taken off the
HUD-1 Settlement Statement.)
If the transaction is a refinance, both of the following steps are required:
• the allowable costs must be verified (any “unallowable” costs must be taken
off the HUD-1), AND
• the mortgage amount must be recalculated if the estimated closing costs
used to calculate the mortgage result in an amount exceeding $500 based
on actual charges as reflected on the final HUD-1 for a rate/term or
streamline refinance transaction.
Reference: See the subtopic “HUD-1 Settlement Statement” in the General
Section 1.35: Compliance Overview of the Correspondent Seller Guide for
Review of Final
Loan Approval
•
All loans must close at the interest rate, term, loan amount that was approved by
TOTAL Scorecard, AUS and the Underwriter. There is no AUS or FHA
tolerance.
Reference: See the table under the heading AUS Resubmissions and Forms in
the topic Automated Underwriting Systems (AUS) Issues within the subtopic AUS
Recommendations and Resubmissions for additional information for allowable
tolerances.
•
•
If the loan received by the closer does not match the underwriting approval on
the FHA Loan Underwriting Transmittal Summary (HUD-92900-LT) and the
TOTAL Scorecard/DO/DU or LP findings, the loan is not to close until the
following actions have been completed:
• resubmission of the loan to TOTAL Scorecard/DO/DU or LP with the
appropriate revisions,
• resubmission of the new AUS report and findings, revised application (1003),
URLA Addendum (HUD 92900A – page 3) and the FHA Loan Underwriting
Transmittal Summary (HUD-92900-LT), and
• re-approval of the revised loan terms by the SunTrust Underwriter.
Compliance Inspection Reports must be signed by the underwriter on Block 4.
Reference: See the FHA TOTAL Scorecard subtopic in the Automated
Underwriting Systems (AUS) Issues topic for additional information
Section 2.22
October 31, 2014
Page 214 of 222
Repairs
General Information
Repairs and other conditions of the appraisal are to be indicated on the URAR and
the Conditional Commitment Direct Endorsement Statement of Appraised Value
(form HUD-92800.5B).
Required Repairs
General Information
• Required repairs are limited to those repairs necessary to preserve the physical
security of the property and to protect the health and safety of the occupants.
The three (3) S’s:
• Soundness-correct physical deficiencies or conditions affecting structural
integrity.
• Safety-protect the health and safety of the occupants.
• Security-protect the security of the property (security for the FHA insured
mortgage.)
• Avoid unnecessary requirements because they increase housing costs without
adding any basic amenities to the property.
• While appraisers are not to add repairs beyond FHA’s guidelines, the
Underwriter (Mortgagee) may add requirements as a condition of making the
loan. Individual mortgagees have the right to make additional requirements they
feel necessary to protect the security or soundness of the property and the
health and safety of the occupants. The applicant has the option of selecting
another lender if they feel these requirements/conditions are excessive.
Note: Only correspondent lenders that have a Direct Endorsement
underwriter on staff may underwrite and submit for purchase loan
transactions involving 203(k) or 203(b) with repair escrow transactions to
SunTrust.
Repair Escrows
Escrows for incomplete items should only occur in limited situations. HUD
Handbook 4145.1 Architectural Processing and Inspections for Home Mortgage
Insurance provides additional guidance. The only acceptable escrow would be due
to extenuating circumstance beyond the contractor or seller’s control. This would
only be weather related: i.e., inability to lay sod due to cold weather, inability to install
a roof due to continued snow, etc.
Note: Escrow of repairs on existing properties to facilitate a “quick” closing is
unacceptable.
Section 2.22
October 31, 2014
Page 215 of 222
Poor Condition
Properties
If the subject property is in such poor condition that it may be cost prohibitive or
impractical or bring it up to FHA’s minimum property requirements, the appraiser
should recommend “Rejecting” the property and,
• complete the appraisal on an “AS IS” basis, clearly marking the reports as
rejected and provide reasons for the rejection,
• provide a list of all major deficiencies and state that the list should not be
considered all inclusive, and
• provide photographs, if possible.
Properties
Located in
Disaster Areas
Reference: See Section 1.31: Disaster Area Procedures in the Correspondent Seller
Guide for additional information.
Properties
Located in a
Special Flood
Hazard Area
(SFHA)
Reference: See General Section 1.14: Hazard and Flood Insurance of the
Private Roads
Documentation
The following documentation is required:
• permanent recorded easement, and
• joint maintenance agreement or maintained by a homeowners association
Form of Road Maintenance Agreement
The Road Maintenance Agreement must be a separate recorded document.
Terms of the Road Maintenance Agreement
The following terms are required:
• the agreement includes the entire private road system to the public road
• the agreement and access must be legal and in perpetuity (i.e., run with the
land).
• the agreement states how the costs are to be shared (e.g., equally by all lots,
pro-rata, etc.). The provision for maintenance must not create an unusual or
abnormal burden upon the ownership of the subject property.
• the road is in an acceptable condition. The roadway(s) within the system must
have all –weather surface(s) (i.e., a road surface over which emergency and the
area’s typical passenger vehicles can pass at all times).
• the roadway meets local jurisdiction’s emergency service access requirements.
Section 2.22
October 31, 2014
Page 216 of 222
Private Road,
(continued)
Parties to the Road Maintenance
All of the property owners served by the private road system must be a party to the
agreement.
Waiver of Road Maintenance Agreement
The Direct Endorsement (DE) Underwriter may waive road maintenance agreement
requirements if the property abuts a publicly maintained road and the easement is a
common driveway between two (2) neighbors and it is all weather (e.g., such as in a
shared driveway in older parts of cities).
Underwriter Approval
The recorded easements and road maintenance agreement must be reviewed and
approved by the DE Underwriter and documented in the file when the loan is
submitted for mortgage insurance. A letter to the file from the DE Underwriter is the
only item to be included in the HUD’s insuring file.
Runway Clear
Zones
Existing properties located in an airport runway clear zone require a letter of
acknowledgement from the borrower.
Note: New construction properties located in a runway clear zone are not eligible for
FHA financing.
Sewage
Systems
Community Sewer Systems
HUD no longer maintains a list of approved systems. The appraiser must note on
the URAR the name of the community system(s). The branch is responsible to
ensure the community system(s) are licensed and adequate to service the property.
Appraiser’s site sketch should clearly indicate the location of individual systems and
leach fields.
Individual Sewage Systems
• For properties that cannot connect to a public system and are served by an
individual sewage system that is acceptable to the local health authority, the
system is then acceptable to HUD/FHA.
• Certifications are only required if evidence of system failure, if mandated by state
or local jurisdiction, if customary to the area, or at lender’s discretion. The
appraiser must note any readily observable deficiencies. , In those instances,
the appraiser is to condition for a certification by the local health authority, a
licensed sanitarian or an individual determined to be qualified by the DE
underwriter.
Section 2.22
October 31, 2014
Page 217 of 222
Sewage
Systems,
(continued)
Connection to a Public Sewer System
• The appraiser is required to report on the availability of connection to public
and/or community sewer system. The lender is responsible for the determination
of the feasibility for requiring connection. Generally, connection must be made
to a public sewer system or a community sewer system if connection costs to the
public or community system are reasonable (Three percent (3.00%) or less of
the estimated value of the property.) If connection costs exceed three percent
(3.00%), the existing on-site systems will be acceptable provided they are
functioning properly and meet the requirements of the local health department. If
connection is required, the loan must be sent back to underwriting for reevaluation.
Water Systems
Community Water Systems
• HUD no longer maintains a list of approved community water systems. This type
of water system is a central system owned, operated, and maintained by a
private corporation or a non-profit property owners association.
• If on community water, the appraiser must note on the URAR the name of the
water company. The lender is responsible to ensure the community system(s)
are licensed and adequate to service the property.
Individual Water Systems
Individual water supply systems (wells) may be acceptable when connection to a
public or community water system is not available and there is assurance of a
continuing adequate supply of potable water for domestic needs. The water well
must also meet the requirements of the local health authority with jurisdiction.
Water Quality
• Individual water wells are owned and maintained by the homeowner, and are
subject to compliance with all requirements of the local or State Health Authority
having jurisdiction. The appraiser is to note any readily observable deficiencies
and report on the availability of connection to public and/or community water
systems.
• A test or inspection is required under the following circumstances:
• if mandated by state or local jurisdiction,
• if there is knowledge that the well water may be contaminated,
• when the water supply relies upon a water purification system due to
presence of contaminants, or
• when there is evidence of the situations listed below:
• corrosion of pipes (plumbing)
• areas of intensive agriculture within one quarter (¼) mile
• coal minim or gas drilling operations within one quarter (¼) mile
• dump, junkyard, landfill, factory, gas station, or dry cleaning operation within
¼ mile, or
• unusually objectionable taste, smell, or appearance of well water.
Section 2.22
October 31, 2014
Page 218 of 222
Water Systems,
(continued)
Well Location
• Individual water supply systems (wells) should be checked to establish the
distance from the septic systems.
• The appraiser is to note in the appraisal if the distances appear to be met plus
note any adverse site conditions that might warrant further inspections or due
diligence.
• The lender must make a decision as to whether a qualified third party should map
out these distances.
• The lender may want to have these distances marked on a survey in cases where
the lot is particularly small, depending on the location of the well.
• The minimum acceptable distances between wells and the sources of pollution
located on either the same or the adjoining lot are shown in the table below.
Source of
Pollution
Property Line
Septic Tank
Absorption Field,
Seepage Pit,
Absorption Bed
Sewer Lines with
Permanent -tight
joints
•
•
•
•
Minimum
Horizontal
Distance (Feet)
10 feet
50 feet
Source of
Pollution
100 feet
Other sewer lines
Chemically
Poisoned Soil
Dry Well
10 feet
Other
Minimum
Horizontal
Distance (Feet)
50 feet
25 feet
50 feet
Recommendations
or requirements of
the local health
authority
Individual water systems/wells should be located ON the subject property site. If
not, they must be on an adjacent property, and evidence of water rights and
recorded maintenance agreement must be provided for acceptance of the well as
the primary source of water for an FHA insured property.
Cisterns-HUD indicates that properties served by cisterns are not acceptable for
mortgage insurance. However, the HOCs have the authority to consider waivers
in areas where cisterns are typical.
New wells must be drilled, no less than 20 feet deep, and cased. Casing should
be steel or other casing material that is durable, leak-proof, and acceptable to
(either) the local health authority and (or) the trade or profession licensed to drill
and repair wells in the local jurisdiction.
Individual Residential Water Purification Equipment-if a property is otherwise
eligible for insurance but does not have access to a continuing supply of safe and
potable water without the use of a water purification system, the requirements in
Mortgagee Letter 92-18 and 95-34 must be satisfied.
Section 2.22
October 31, 2014
Page 219 of 222
Water Systems,
(continued)
Shared Wells
Shared wells may serve existing properties which cannot feasibly be connected to an
acceptable public or community water supply system. A shared well shall have a
valve on each dwelling service line as it leaves the well. A shared well shall service
no more than four living units or properties. A shared well must have a shared well
agreement and shall be binding upon signatory parties and their successors in title.
More information on this agreement can be referenced in HUD handbook 4150.1
Valuation Analysis for Home Mortgage Insurance.
Connection to a Public Water System
• The appraiser is required to report on the availability of connection to public
and/or community water system.
• The lender is responsible for the determination of the feasibility for requiring
connection.
• Generally, connection must be made to a public water system or community
water system if connection costs to the public or community system are
reasonable (3% or less of the estimated value of the property.)
• A written estimate for the cost of connection must be obtained before the
underwriter may waive this condition. If connection costs exceed 3%, the
existing on-site systems will be acceptable provided they are functioning properly
and meet the requirements of the local health department. If no connection is
required, the loan must be sent back to underwriting for re-evaluation.
Well Waivers
Existing
Construction
•
•
•
FHA allows for a lesser distance from the well to the soil poisoned area (25 feet to
15 feet) and drain field (100 feet to 50 feet) if there is an impervious strata of clay,
hardpan, or rock.
The DE underwriter may accept these lesser distances with the proper supporting
documentation such as evidence that the ground surface is effectively separated
by an impervious strata, a professional drawing, and a “clear” water test. These
items must be placed in the FHA case binder. In this instance a Waiver is not
required.
The following exhibits are acceptable:
• a well driller’s log evidencing that the ground surface is effectively separated
by an impervious strata, or. a subsurface evaluation letter from either the local
Water Management District or Heath Department or from a qualified well
installer provided they clearly show data which would have been revealed by
the well driller’s log.
• the professional drawing must indicate the distance from the subject well to
the septic tank, lot-line, drain field and chemically poisoned soil on the subject
site as well as all adjacent adjoining and contiguous sites. If there are no
improvements on the neighboring lots, the notation of “vacant” on the drawing
is adequate.
• the water must be tested to insure the maximum allowable contamination
levels for lead, nitrates, nitrites, total nitrate/nitrite, and fecal and total coliform
are not exceeded regardless of local stipulations unless they are more
stringent.
Also adhere to conditions mandated by state and local
governments as they pertain to additional impurities.
Section 2.22
October 31, 2014
Page 220 of 222
Well Waivers
Existing
Construction,
(continued)
Well/Septic With Lesser Distances:
• The FHA Regional Homeownership Centers will accept waiver requests for
review, on a case-by case basis, in which the distance from the well is less than
15 feet, the septic tank is less than 50 feet, the septic drainfield is less than 50
feet and, the lot line is less than 10 feet if these distances are acceptable to the
local governing entity.
• The items listed below are required to submit a waiver request to FHA.
• DE Underwriter’s determination that there is adequate justification to request
a waiver. The underwriter must submit a written request (no faxes) indicating
what is to be waived along with legible copies of the exhibits.
• Appraisal (minus the certification pages) showing the availability and
feasibility of connecting to public water and/or sewer.
• Evidence indicating the depth of the extensive, continuous impervious strata.
(Not required for well to lot line waiver unless the distance from the well to any
potential source of pollution is less than the prescribed minimum distances as
shown in the chart.)
• Professional drawing with all notations as shown above.
• Clear water test as shown above.
• Evidence from the State that lab is approved to test for required parameters.
• Evidence from the Health Department of acceptance of the well in relation to
the soil-poisoned area, septic tank and drainfield.
• Termite report (well to soil poisoned area)
• A letter from the utility company acknowledging the well will not hinder their
normal operations, if the well is located in a utility easement.
Note: Copies of the HOC approval and supporting data must be in the case
binder prior to submission for endorsement.
Well Waiver,
New
Construction
•
•
Distances from the well to potential sources of pollution for new construction
properties may not be less than those prescribed in the table. Consequently, the
HOC will not accept any request for a waiver. (This includes properties that are
existing but less than one-year old.)
Lesser distances for the soil poisoned area (25 feet to 15 feet) and drainfield
(100 feet to 50 feet), if there is impervious strata of clay, hardpan or rock. The
DE Underwriter may accept these lesser distances with the proper supporting
documentation without a request for a HUD waiver.
Section 2.22
October 31, 2014
Page 221 of 222
Well Waiver,
New
Construction,
(continued)
•
•
Copies of the following exhibits must be placed in the case binder prior to
submission for endorsement.
• Evidence indicating the depth of the extensive, continuous impervious strata.
(see acceptable documentation previously shown.)
• Professional drawing with all notations as shown above.
• Clear water test as shown above.
• Evidence from the State that lab is approved to test for required parameters.
• Evidence from the Health Department of acceptance of the well in relation to
the soil-poisoned area, septic tank and drainfield.
A letter from the utility company acknowledging the well will not hinder their
normal operations, if the well is located in a utility easement.
Section 2.22
October 31, 2014
Page 222 of 222

Section 2.22 – The FHA 203(b) Loan Program

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