On Behalf of HUD & FHAWelcome to our session on theCredit UnderwritingBorrower Analysis
About Your InstructorPava J LeyrerCMC, CRMS, CMP2
FHA Subject Matter ExpertWelcome to our guest from the FHA –Lisa Ellis - who will be responding toparticipant questions and offeringadditional guidance during today’swebinar.3
Credit UnderwritingBorrower Analysis4
Course Objectives Discuss the differences in underwriting FHA andconventional loans. Understand allowable assets and borrower cashrequirements for FHA loans. Know ratios and eligibility requirements of FHAborrowers. Understand how to calculate allowable income. Understand borrower credit requirements. How to review more challenging FHA borrowers. Explain TOTAL Scorecard.5
Course OverviewTogether we will look at: FHA borrower eligibility.Different types of borrower income.Borrower qualifying ratios.Borrower credit requirements.Different types of borrower debt.Allowable assets for cash investment requirements.Allowable assets for closing.Gift funds and documentation.TOTAL Scorecard and Manual Underwriting.Case studies.6
Polling Questions How long have youbeen in the mortgageindustry? What is your positionor primaryresponsibility?7
FHA Borrower Eligibility8
Borrower Eligibility Age requirements Identification requirements(Patriot Act & SSA)HUD 4155.1 4.A.1.a-b9
Borrower Eligibility Resident Aliens Non-resident Aliens: Principal residence Valid Social SecurityNumber Eligible to work in U.S.4155.1 4.A.1.a & 4155.1 4.A.3.d-e10
Borrower Eligibility & Occupancy Occupancy Requirements: Primary residence formajority of the year. Occupy within 60 days. Identity of Interest.4155.1 Chapter 1; 4155.1 4.B.1; 4155.1 2.B.2.a-c11
Multiple FHA Loans Previous use ofFHA. General rule – Onlyone FHA-insuredloan per borrower atone time. Possible Exceptions.HUD 4155.1 4.B.2.d12
Multiple FHA Loans Other properties: Rental property Previous owneroccupied homeHUD 4155.1 4.B.2.d; ML 08-2513
Borrower Risk AssessmentMultiple Borrowers & Past History14
Co-Borrowers Take title to property. Obligated onmortgage note. Sign all securityinstruments.4155.1 4.A.1.d; 2.B.3.b15
Co-Signers Do not haveownership interest. Obligated onmortgage note. Sign all securityinstruments.4155.1 4.A.1.e-f16
Co-Borrowers & Co-Signers - Eligibility Prohibited parties. Must meet creditguidelines. Principal residencein U.S.4155.1 4.A.1.f17
Co-Signers & Co-Borrowers Non-purchasingspouse. Community propertystate.4155.1 4.A.5.a-c18
Risk Assessment CAIVRS System: Borrowers LDP Check: All Parties EPLS Check: Discontinued on 11/21/2012 SAM Check: System for AwardManagement4155.1 4.A.7; 4155.1 4.A.1.f; ML 04-39; HUD Memo 3/1/200219
Risk Assessment - CAIVRS Credit Alert Verification ReportingSystem4155.1 4.A.720
Risk Assessment - CAIVRS Eligibility exceptions: AssumptionDivorceBankruptcySeller of principal residenceDisaster victims4155.1 4.A.7.e21
Risk Assessment - CAIVRS Clearing incorrectinformation. Resolving conflictinginformation.4155.1 4.A.7.f-g22
Risk Assessment – LDP List Limited Denial of Participation4155.1 4.A.2.a; https://www5.hud.gov/ecpcis/main/ECPCIS List.jsp23
Risk Assessment - SAM System for Award Management www.SAM.gov24
Risk Assessment - SAMhttps://www.sam.gov25
Questions26
FHA Borrower IncomeCalculation &Documentation27
Borrower Income General Employment Guidelines Exceptions for military service oreducational W-2 Wage Earner Overtime & Bonus4155.1 4.D.2.b28
Borrower Income Part-time/2nd job income Commission Seasonal income Unemployment income4155.1 4.D.2.d; 4155.1 4.D.2.g; 4155.1 4.D.2.e29
Borrower Income Military Contract/Per-diem Return to workforce Maternity leave Layoffs4155.1 4.E.3.a; 4155.1 4.D.1.d30
Borrower Income – Self-EmployedType of EntitySole ProprietorTax Documentation Needed2-years Federal tax returns with Schedule CAbove, plus 2-years IRS Form 1065Partnership(Income should be matched to personal return - Schedule E)Corporations & LLC’sForm 1120 or 1120S (must show percentage ownership)Business Credit Report**Not required if approved by TOTAL Scorecard P&L Statements Balance Sheet Depreciation & Depletion4155.1 4.D.4.a-g; 4.D.6.a-c; 4.D.7.a; 4.D.8.b31
Borrower Income – Self-Employed Computing Income:Example: 2010 - 72,000 2011 - 82,000 2012 - 103,000 Use 103,000 aslong as the YTDP&L is consistent.4155.1 4.D.4.e32
Polling Question What if the YTDincome shows less thanthe previous year? How would youcalculate it?33
Borrower Income – Other Social Security Income Two programs Social Security DisabilityInsurance (SSDI) Supplemental SecurityIncome (SSI)4155.1. 4.D.2.k; ML 12-1534
Borrower Income – Other Social Security Income Federal Tax Return Most recent bank statementshowing auto deposit Benefits letter (SSA) Benefits statement(SSA-1-00/1042S form)4155.1. 4.D.2.k; ML 12-1535
Borrower Income – Other Retirement income Disability4.D.2.j; 4.E.5.a-b36
Borrower Income – Other Child Support Alimony Spousal Maintenance4155.1 4.E.1.a; 4.E.5.b37
Borrower Income – Other Rental income 3-4 unit properties Fair Market RentML 08-25; 4155.1 4.E.4.b-d; 2.B.4.c38
http://www.huduser.org/portal/datasets/fmr.html39
Borrower Income – Other Dividend or interestincome Foster care4155.1 4.E.2.a; 4.E.3.c40
Borrower Income – Other Section 8 Employer differentialpayments VA benefits Mortgage CreditCertificates (MCC’s)4155.1 4.E.3.b-c; 4155.1 4.D.2.i; 4155.1 4.E.3.d41
Borrower Income – Case Study Joe is buying a home,and wants to know whathe might qualify for. Let’s calculate hisincome.42
Borrower Income – Case StudyJoe works as a District Manager for WellcoFoods, and has been there for four years.He currently is earning 22.00 per hour,plus a shift premium of 135.60 per weeksince he covers the night shift (which hehas had to do ever since they fired Bennythree years ago). As part of his contract, healso is entitled to a production bonus. Hisbonus in 2010 was 9500 and in 2011 itwas 9700. For the first nine months 2012YTD, his paycheck stub shows a bonus of 7200.What is Joe’s usable Gross MonthlyIncome?43
Borrower Income – Case Study 22.00 x 40 880 880.00 x 52 45,760/yr 3813/mo 135.60 x 52 7,051/yr 588/mo 9500 9700 7200 26,400 26,400 / 33 months 800/mo 3813 588 800 5201 per month44
Questions45
BorrowerCredit AnalysisAre There Problems?46
Borrower Credit Analysis What is a credit profile? What is credit performance? Other credit documents: Paycheck stubsBank statementsVerification of RentVerification of Loan4155.1 4.C.1.a-c47
Borrower Credit Analysis Credit Reports Credit Reporting 1 4.C.1.d; ML 10-28; 4155.1 4.A.1.c48
Borrower Credit Analysis Credit Score requirements: 58096.5% LTV 500-579 90% LTV 500Not QualifiedBorrowers with debt ratios that exceed 43%,and who have a credit score below 620 MUSTbe manually underwritten.4155.1 4.C.1.d; ML 10-29; 4155.1 4.A.1.c; ML 13-0549
Borrower Credit Analysis Judgments Collections Tax liens Credit counseling Identity theft or disputed accounts Student loans4155.1.4.C.2.d-e; 4.C.2.i; ML 97-2650
Borrower Credit Analysis Bankruptcy Chapter 74155.1 4.C.2.g51
Borrower Credit Analysis Bankruptcy Chapter 13 Dismissal vs. Discharge CAIVRS4155.1 4.C.2.h52
Borrower Credit Analysis Past Problems: Foreclosure Short Sale Deed-in-lieu4155.1 4.C.2.f; ML 08-43; 09-52; 10-23; 12-0553
Borrower Credit Analysis Non-traditional credit: NTMCR (Non-traditionalMortgage Credit Report)4155.1 4.C.3.a-b54
Borrower Credit Analysis4155.1 4.C.3.a-b55
Borrower Credit Analysis Insufficient credit: NO compensatingfactors NO late payments Strict 31/43 ratios4155.1 4.C.3.c56
Borrower Credit Analysis Non-purchasing spouse Community propertystate Contingent liabilities Job-related expenses4155.1 4.A.5.b-c; 4155.1 4.D.5.b; 4155.1 4.C.5.a-e57
Qualifying Ratios Automated vs. Manualunderwriting TOTAL Scorecard 31% Housing (PITI) 43% Housing plusrecurring long-termdebts4155.1 4.F.2.b-c; 4155.1 4.C.4.b; 4155.1 4.C.6.b; ML 13-0558
Qualifying Ratios Compensating factors: Housing expenseDown paymentAccumulated savingsPrevious creditAdditional incomeMinimal housing expenseincrease4155.1 4.F.3.a-b; ML 13-0559
Qualifying Ratios Compensating factors: Substantial cash reserves Substantial non-taxableincome Increased earningpotential Primary wage-earnerrelocation4155.1 4.F.3.a-b60
Questions61
Borrower AssetsShow Me The Money 62
Borrower Assets Cash-to-close requirements: Cash investment Closing costs Prepaids4155.1 563
Borrower AssetsLiquid Assets Earnest Money DepositChecking/savings accountsPrivate savings club accountSavings bondsCash saved at homeNear-liquid Assets IRA, 401k, Keogh accountsStocks, bondsGift fundsEmployer assistance plansNon-liquid Assets Sale of personal propertyCollateralized loansRent creditSweat equity4155.1 5.B.1; 5.B.2-864
Borrower Assets Earnest Money Deposit Checking/savings accounts Large deposits Overdrafts/NSF Joint accounts Private savings club Savings bonds4155.1 5.B.265
Borrower Assets Cash saved at home Letter fromBorrower Does it make sense?4155.1.5.B.266
Borrower Assets Retirement accounts Stocks & bonds Employer assistanceplans4155.1 567
Borrower Assets Gift Funds: Allowable parties Gift letter Personal check Cashier’s check Wire transfer Equity gift4155.1 5.B.4 -5; ML-2006-13; ML 04-2868
Gift Letter69
Borrower Assets Sale of personal property Collateralized loans Rent credits Sweat equity4155.1 5.B.6.b; 5.B.6.f-h70
Borrower Assets Secondary financing Seller contributions Sales concessions4155.1.5.C; 4155.1.5.C.1.b71
Borrower Assets Non-profit organizations Government DPAs Secured loans againstassets4155.1 5.B.6.h; 4155.1.5.B.4.h72
Borrower Assets Unacceptable sources forsource of funds to close: unsecured signature loans. cash advances on creditcards. borrowing againsthousehold goods andfurniture.4155.1: 5.B.7.a-b73
Polling Questions Your borrower just sold ahigh-end camera for 2500and needs the money toclose. How would youdocument the funds? What if the borrower justobtained a line-of-credit forthe 2500?74
Questions75
AutomatedUnderwritingTOTAL Scorecard System76
TOTAL Scorecard How TOTAL worksRelation to AUSWhen to use TOTALData integrityThird-party dataInput into systemML 05-15; 4155.1 6.A.1.c; TOTAL Scorecard Users Guide77
TOTAL Scorecard Underwriting analysis: Review Validation What is not evaluated Resubmission and tolerances huddoc?id total userguide.pdf78
TOTAL Scorecard Documenting to the findingsreport Quality control TOTAL Scorecard User’s Guide Manual downgrades Common nts/huddoc?id total userguide.pdf Pg. doc?id total faqs.pdf Total FAQ’s 7-201279
TOTAL Scorecard Final scoring of the loan file. More information: d total userguide.pdf Or FHA training: “Fundamentals of DE Credit Review &TOTAL Scorecard”80
Questions81
Let’s Review – Borrower Eligibility Residency Status Occupancy Requirements Qualifying Ratios Risk Assessment Co-borrowers & Co-signers Non-occupant Borrowers CAIVRS/LDP/SAM Borrower Income Employment Income Self-employment Income Other Types of Income Borrower Credit Credit osureJob ExpensesCollections/Judgments Assets Cash RequirementsLiquid/Near & Non-liquidUnacceptable SourcesGift Funds TOTAL Scorecard How It Works When To Use TOTAL User’s Guide82
Completing the CourseObjective SummaryWhat did we cover? Discussed the differences in underwriting borrowers of FHAand conventional loans.Determined allowable assets and cash requirements to closean FHA loan.How to review more challenging FHA borrowers.Ratios and eligibility requirements of FHA borrowers.Understand how to calculate allowable income.Understand borrower credit requirements.Explained TOTAL Scorecard.83
Next Steps & ResourcesReminders Course Evaluation. Recorded version of webinar will beavailable on the HUD website. Webinar FAQs will be available on HUDwebsite. FHA Knowledge Database: http://portal.hud.gov/hudportal/HUD?src /FHAFAQ. Call FHA at (800) CALL FHA or email usat answers@hud.gov.84
Thanks for attending this course!We look forward to your participation in other training events. Overview of HUD/FHA Programs Home Mortgage Insurance for Disaster Victims 203(h) FHA 203(k) Rehabilitation Mortgage Insurance Program FHA Energy Efficient Mortgage (EEM) FHA Home Equity Conversion Mortgage (HECM) How to Manually Underwrite an FHA Mortgage Credit Underwriting - Loan Calculations Fundamentals of DE Credit Review & TOTAL Scorecard FHA Condominium Approval Process Fundamentals of Insurance Endorsement FHA Appraisal Requirements - Property Types How to Review an FHA Appraisal85
Credit Underwriting Borrower AnalysisThank You!86
Discuss the differences in underwriting FHA and conventional loans. Understand allowable assets and borrower cash requirements for FHA loans. Know ratios and eligibility requirements of FHA borrowers. Understand how to calculate allowable income. Understand borrower credit requirements.
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Caliber Home Loans Portfolio Manual Underwriting Guidelines Correspondent 3 UNDERWRITING GUIDELINE OVERVIEW Introduction These underwriting guidelines are designed to provide responsible credit to borrowers currently underserved by traditional Agency/Government/Prime Jumbo markets.
Request Final Underwriting and Submission to Rural Development: This option should only be selected when the underwriter has fully reviewed, underwritten, and approved . current entries. . When the Credit Status shows "Complete" this indicates GUS has an eligible credit report attached and preliminary and final underwriting .
1-100 Small Group Underwriting guidelines Designed for agents and producers Effective January 2020. 2 Important contact information Small Group Underwriting address Anthem P.O. Box 9042 Oxnard, CA 93031-9042 Small Group Underwriting New business: newsguwca@anthem.com
When Flagstar is the creditor and/or completing the underwriting of the mortgage file, t he underwriter must verify the consumer’s current income, debt obligations, and assets using the more restrictive of the Flagstar Bank Conventional Underwriting Guidelines or as required by the applicable Automated Underwriting System.
Transforming Underwriting Through Analytics March 2019 . Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. Analytics in Action Intelligent Intervention Underwriting Decision Support. willistowerswatson.com Underwriting Decision Support . Aggressive
Accounting Standard (IAS) terminology and requiring pre sentation in International Standard format. Approach – These qualifications were designed using Pearson’s Efficacy Framework. They were developed in line with World-Class Design principles giving students who successfully complete the qualifications the opportunity to acquire a good knowledge and understanding of the principles .