FHA Makes “Economic Event” an “Extenuating Circumstance” and It’s About Time!

FHA Makes “Economic Event” an “Extenuating Circumstance”

 

By: Tracey Rumsey, Staff Underwriter & Karen Deis, Publisher, www.MortgageCurrentcy.com

Well, it took 6 years – but FHA has decided that a job loss or decrease in income can now be considered an “extenuating circumstance,” which means additional business for you.

It’s great news for borrowers – but don’t jump the gun – at least not just yet!
This new FHA Mortgagee Letter (13-26)  released on August 15, 2013 and effective immediately now makes “Economic Event” (i.e., job loss, reduction in income, etc.) an acceptable extenuating circumstance.

And no, it was not previously allowed.
The good news:  This new guidance allows for a borrower to obtain a new FHA mortgage 12 months after a foreclosure, short sale or other derogatory event with re-established credit and housing counseling.
But, here are some of the issues you may run into: 
1. You don’t know if investors will accept this new guidance.

2. The borrower must document the decrease in income.

a. Decrease in income is defined as at least 20% loss of income that lasted for a period of 6 months or more.

b. Loss of job is defined as the “month” the borrower lost their job.

c. Recovery is defined as re-establishing credit for at least a 12-month time period.

d. Decrease in “household” income means “all individuals” residing in the primary residence at the time of the job loss.  (So, even if a spouse is not on the loan but lost their job, they still qualify for an extenuating  circumstances waiver.)

e. If job loss, written VOE showing date of termination.

1. If company is no longer in business, will need a written termination notice or public document showing the business was closed or start date of unemployment income.

2. If loss of income, VOE showing decrease from year to year, or signed tax returns or W-2 forms showing prior income, and compare to decrease in income of at least 20%.

3. If “seasonal income,” must have had a two-year history of receiving seasonal income and verification of loss of income (20%) or loss of job.

3. The borrowers must have satisfactory credit.

a. No late payments over the last 12 months, including housing, revolving, installment debts.

b. If they still have an existing mortgage, it’s okay if the mortgage was brought current with a loan modification, but still must have been paid on time for 12 months.

c. Non-traditional credit is okay, as long as the borrower has an on-time pay history over the last 12 months.

d. No collection accounts other than medical or identity theft issue.

e. Borrowers must have had satisfactory credit PRIOR to job loss or income decrease.

d. If judgments appear on credit report (and have been paid), they must also be a direct result of the job loss or income decrease.

f. If foreclosure, short sale or deed-in-lieu, must show proof that it was a direct result of income decrease or job loss.

g. If bankruptcy, must be at least 12 months from the date of discharge. Must be related to the economic event.
3. The housing counseling MUST happen a minimum of 30 days PRIOR TO LOAN APPLICATION. Depending on your institution’s definition of ‘application’, this could be difficult.

  1. A list of non-profit housing counseling services can be found at www.hud.gov or call 800-569-4287.
  2. Can be conducted by telephone, internet or in person.
  3. Counseling service must provide “specific” documentation and completion certificate signed by both the counseling service and the borrower
  4. Housing counseling fees paid by borrower or other agency that subsidizes housing counseling fees
  5. 4. If the foreclosure or short sale was on an FHA loan and there is a CAIVRS claim, a “Back to Work” waiver is available, but can’t be requested until full underwriting is complete.  (Interpretation:  More delays.)
  6. . Reverse Mortgages are not covered by this rule.

INTERPRETIVE COMMENTS: 

  • Check      with your lenders and see how they are planning to handle this new      “extenuating circumstance” and what documents they may require. HUD is      very, very specific as to the documents that are required to meet the      economic event underwriting rules.
  • Get  the word out to clients who are in the “derogatory waiting period” zone.
  • Let   your real estate agents know about the new change.

By the way, there are two other new Mortgagee Letters released regarding final guidance on collections and judgments.   But complete details can be found in in the September 10th issue of www.MortgageCurrentcy.com

What you don’t know–can cost you a commission!

What You Don’t Know—Can Cost You a Commission!

By: Karen Deis, Publisher, MortgageCurrentcy.com

Before I get started on the mortgage rule and regulation updates from the last 30 days, I wanted to mention that there is a free article for you this month about the Consumer Finance Protection Bureau’s proposed no point, no fee rules, with an example of how it would work in real life!  http://www.mortgagecurrentcy.com/free-article-list.php

Okay, so a couple of FHA updates for you.

FHA has a little-known area in their appraisal section in regard to what they call unique properties.  HUD has given guidelines when it comes to log homes, extra small homes, lower than normal ceiling heights, and so on.

If a property has excess land, you’ll find guidelines on how to get an FHA loan.  Also covered are commercial use of property and homes that have been moved to a new foundation.  You’ll find a Mortgage Talking Points ™article to email and share with your real estate agents with all the details.

There is a new HUD Mortgagee letter regarding documentation required to verify social security income.  Basically, they are now in line with Fannie and Freddie that if the award letter has no expiration date, the lender is to consider that the income is likely to continue.  This is great news for everyone, and loan officers and Underwriters finally have something to cover their backsides with specific documentations.  Keep this 12-15 Mortgagee Letter handy until they get the Handbook updated.

Oh, one last thing – it really doesn’t need an article written about it, but is important nevertheless – FHA updated their Total Scorecard Users Guide.  It’s been updated on the website, including the video training class called FHA Total Score Card – 8 Deal Killers.  If you are a subscriber, it’s included.  If not, you can access it for $9. http://www.mortgagecurrentcy.com/video_training/course_list.php  

Now, on to a big announcement for some of you in high-cost areas.  VA has increased quite a few loan limits, so take advantage!  Comb those “VA jumbo” past contacts and see if there are any Veterans you can help out with purchases and refinances. The higher amounts are for purchase contracts and refis between August 6 and December 31, 2012. 

If there is one article that you need to read in this issue, it’s Fannie’s announcement 2012-07 with a ton of updates that will go into effect with the release of DU 9.0 on October 20, 2012.

The biggest change here:  FNMA is retiring the Comprehensive Risk Assessment Worksheet that it created years ago to assist lenders in assessing risk on a manually underwritten loan.  Now FNMA is moving many of these tips and risk awareness/parameters to their Eligibility Matrix, which include DTI and minimum credit score flexibility restrictions.

You’ll also want to read the latest HARP 2.0 FAQ’s that came out on August 16.  They did not highlight the changes in bold this time around, so we had to go back to the previous one to find out what was changed and what was added.  There were a total of 5 updates.

One of the questions has to do with subordinated financing, which will be updated when DU 9.0 is live on Oct 20th.  The other biggie has to do with reps and warranties – which is a huge gift Fannie is giving to lenders and underwriters.

And, if you are doing Rural Housing loans, we sent an email to subscribers a couple of weeks ago that the money for refi’s is all gone for the fiscal year ending October 1st.

And if you have a purchase transaction sitting there waiting for a loan commitment for USDA, it has to have a conditional commitment by Sept 30 or new annual and guarantee fees go into effect.  If the files aren’t committed by then, you must redisclose.

Call your local USDA office and find out their backlog. You may also want to warn your clients and real estate agents that there is a good possibility that they may have to pay a higher fee.

One last thing – we have posted the latest NMLS list of licensing and continuing ed requirements, by state.  Check out the document and see what’s required in your state.

Remember, “Getting a loan approved and closed IS rocket science.” You can read all the articles for just $1.  Click Here to Access. http://www.mortgagecurrentcy.com/subscription_options.php

 

FHA Mortgage Insurance Premium Changes 2012

Up Front and Annual Mortgage Insurance Premium (UFMIP and annual MIP) Increases for all FHA Loan transactions and Decreased for Certain Streamline transactions.

As announced March 6th, 2012 in Mortgagee Letter 12-4 and illustrated in the chart below.

Up Front and Annual Mortgage Insurance Premium (UFMIP and annual MIP) Increases.FHA logo

FHA increased the upfront mortgage insurance premium (UFMIP) by .75 bps for all purchase and refinance transactions with case numbers assigned on or after April 9, 2012. This increase applies regardless of the amortization term or LTV ratio.  FHA will continue to permit financing of this charge into the mortgage and will continue to calculate actual premium charges against the base loan amount before adding any financed UFMIP.

FHA increased the annual mortgage insurance premium (MIP) by .10 bps for all purchase and refinance transactions with case numbers assigned on or after April 9, 2012.

 

FHA Mortgage Insurance Premium Changes 2012

Mortgage Insurance Premiums
Loans > 15 years
Case #’s prior to April 8, 2012 UFMIP=100bps
Case #’s on or after April 9, 2012 UFMIP = 175bps
Annual Premium
LTV Case #s Through April 17, 2011 Case #s On/After
April 18, 2011 through April 8, 2012
Case #s On/After
April 9, 2012
<=95.00 percent 85 bps 110 bps 120bps
>95.00 percent 90 bps 115 bps 125bps
Loans <= 15 years and above 78%
Case #’s prior to April 1, 2012 UFMIP=100bps
Case #’s on or after April 1, 2012 UFMIP = 175bps
Annual Premium
LTV Case #s Through April 17, 2011 Case #s On/After April 18, 2011 through
April 8, 2012
Case #s On/After
April 9, 2012
<=90.00 percent None 25 bps 35bps
>90.00 percent 25 bps 50 bps 60bps

Note: SF forward mortgages with amortization terms of 15 years or less, and a loan-to-value (LTV) ratio of 78 percent or less, remain exempt from the Annual MIP (see Mortgagee Letter 2011-35).

Increase to Annual Mortgage Insurance Premium on Mortgages with a High Outstanding Base Loan Amount

FHA is also exercising its pre-existing statutory authority to add an additional 25 bps to mortgages with base loan amounts exceeding $625,500. This change is effective for case numbers assigned on or after June 11, 2012.

Note: Jumbo/High Balance guidelines will be updated at a later date to reflect the June changes.

Term >15 Years
Base Loan Amount LTV Effective Annual MIP
< $625,500 < 95% June 11, 2012 120bps
< $625,500 > 95% June 11, 2012 125bps
Above $625,000 < 95% June 11, 2012 145bps
Above $625,000 > 95% June 11, 2012 150bps
Term <= Years with LTV above 78%
< $625,500 < 95% June 11, 2012 35bps
< $625,500 > 95% June 11, 2012 60bps
Above $625,000 <=90% June 11, 2012 60bps
Above $625,000 >90% June 11, 2012  

STREAMLINE TRANSACTIONS:

Note: Streamline guidelines will be updated at a later date to reflect the June changes.

Decrease to Annual Mortgage Insurance Premium on Certain Streamline Refinance Transactions

For all SF Forward Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be 55 bps, regardless of the base loan amount. The endorsement date is on the Case Query screen in FHA Connection. This change is effective for case numbers assigned on or after June 11, 2012.

Decrease to Up-Front Mortgage Insurance Premium on Certain Streamline Refinance Transactions

For all SF Forward Streamline Refinance transactions that are refinancing existing FHA loans that were endorsed on or before May 31, 2009, the UFMIP will decrease from 1 percent to 0.01 percent of the base loan amount. The endorsement date is on the Case Query screen in FHA Connection. This change is effective for case numbers assigned on or after June 11, 2012.

TexasMortgageLender.com

Do The Mortgage Rule Updates Want to Make your Brain Explode? More HARP

If This Just Doesn’t Want to Make Your Brain Explode…

Can you guess how many rule updates affected JUST the
origination side of the business from January 1st to December 31st,
2011?

Just guess!

Ok, I’ll tell you—it’s 259, or an average of 21 rule updates per month.  To get it down to the ridiculous, that’s 1
rule update for EVERY working day of the year.

Now, about the elephant in the room—HARP, or Home Affordable
Refinance Program. Fannie held a conference call and what’s clear to us is that
there are MORE questions than answers these days.

In fact, Fannie published an updated
FAQ for HARP and their DU Refi & DU Refi Plus loans.  Here are the new questions and answers
published as of December 20, 2011.  We
chose only the ones that affect loan officers and the processing of the loan.

Q. 23. (New) Does standard Selling
Guide
policy related to the 4506-T apply to Refi Plus and DU Refi Plus
transactions?

Standard Selling Guide policy related to the 4506-T applies to Refi Plus loans if the
payment is increasing more than 20% and to all DU Refi Plus loans since
borrower income must be verified for qualification purposes. It is not
applicable to Refi Plus loans when the payment is not increasing more than 20%
since verification of borrower income is not required.

Q 26. (Updated)  Why was the “reasonable ability to repay”
representation and warranty removed?

The “Reasonable Ability
to Repay” terminology has been removed from the DU Refi Plus and Refi Plus
Underwriting Requirements sections of the Guide because these sections already
describe the specific underwriting requirements that are applicable to each
transaction.

Under Refi Plus (manual underwriting) eligibility is based primarily on the payment history of the
existing mortgage and the borrower benefit provisions. Additionally, effective
with applications dated December 1, 2011, if a borrower’s payment increases
more than 20% then the borrower will have to be re-qualified. Under DU Refi
Plus, DU applies the standards for ensuring the borrower has a reasonable
ability to repay. For these reasons the lender is not responsible for meeting
additional “reasonable ability to repay” standards.

Q 59. (Updated) Even if no new
project review is required for a Refi Plus (manual underwriting) loan secured
by a condominium or cooperative, must the lender still confirm adequate
insurance coverage for the project or unit?

No confirmation of
insurance coverage is required for Refi Plus (manual underwriting). The
lender’s original project review would have included confirmation of the
required insurance coverage, and there are existing processes required by the
Servicing Guide to monitor and ensure such insurance coverage remains in force

Q 83. (Updated) If a loan is
originally submitted to DU, can it be converted to manual Refi Plus?

Yes. Loan casefiles
originally submitted to DU may be converted to a Refi Plus (manual) transaction
for any reason and without regard to the DU recommendation. In all cases, if
the lender is converting a loan from a DU Refi Plus to a Refi Plus (manual
underwriting) transaction, the lender must be the current servicer of the loan
and the loan must comply with all Refi Plus (manual underwriting) requirements.

Q 84. (Updated) For a loan to
be eligible for DU Refi Plus, the borrower(s) and subject property address on
the loan casefile must match an existing eligible Fannie Mae loan. Are there
any existing Fannie Mae loans that are not eligible to be refinanced using DU
Refi Plus?

Certain existing loans will not be identified by DU as eligible for DU Refi Plus. They
include, but are not limited to: loans purchased by Fannie Mae on or after June
1, 2009; loans currently subject to any outstanding repurchase request (see Q82
for related information); some loans that were subject to some form of
secondary-market credit enhancement (see Q56); and government mortgages.

Although these loans may not be eligible to be refinanced using DU Refi Plus, they may be eligible
for other Fannie Mae refinance options.

The last time we checked, there were about 30 questions, and now we are up to 100 even. The 5 listed  are the new and updated ones that affect loan
originators and processors.    We expect a bunch more as the program gets rolled out to everyone in March, 2012.  We will keep you updated on the new questions
as they are updated.

Home Affordable Refinance
FAQ’s 12-20-11

https://www.efanniemae.com/sf/mha/mharefi/pdf/refinancefaqs.pdf

More rule updates can be
found www.MortgageCurrentcy.com where you can give it a test drive for just $1