Each mortgage lender has dozens of loan programs. And there must be hundreds of lenders. We work with 50 lenders or so. And each lender may have a different interpretation or guideline for each category of the loan. These categories would be related to credit, income, appraisal, assets and debt ratios.
Imagine the hundreds or even thousands of permutations, possibilities and variables that exist when someone wants to know if they can get a certain loan program. The amount of research is enormous. The knowledge that the average loan officer has to know is almost impossible to maintain.
I have cut and pasted below one set of loan rules. This is only for one type of loan, from one lender. It is absurd to have to know all this data and know how to apply it. Imagine trying to know this data for dozens of loan programs spread out across 50 banks or more. But this is what we are tasked with every day. I live in a constant state of paranoia that I have missed a guideline, interpreted a rule incorrectly, or not recited a requirement to a client that they need to know. I always remember that the client is putting a large earnest money deposit on the line. And clients are signing legal paperwork saying they can and will buy a home with the loan they have chosen through me. Well, to say it is nerve wracking is putting it mildly.
Do not read the below, I repeat, DO NOT read the below loan program data. It is simply illustrative. I do not intend for you to read it. You will hurt yourself. Your eyes will glaze over. You will get migraines. You may shorten your lifespan by many years. DO NOT READ. Simply gloss over it, scroll through it, and see how being a loan officer is not unlike an IRS officer trying to learn and interpret the IRS code. It’s a fools errand. This may give you a better idea of why you hear of so many horror stories in the mortgage industry, last minute paperwork requests, settlement delays, or loan denials. This is a perfect example of why it is important to shop service first, and price second. This is why I have a team of people working for me, as opposed to trying to do it on my own, which is how most loan officers approach the business. Get ready to shake your head:
FHA loan – Fixed Rate
updated April 13, 2011
Product Features:
Fixed Rate – Fully Amortized: Level payments of principal and interest for 15, 20, 25 or 30 years.
ARM – Fully Amortized: Treasury ARM – Non-convertible 1 year adjustable rate mortgage with a 30 year amortization. Following the initial fixed interest period for 1, 3, 5, or 7 years, the interest rate is subject to change once every 12 months, at which time the mortgage payments will be adjusted to amortize the outstanding principal balance over the remaining term of the mortgage
Section of the Act:
Section 203(b) Basic Home Mortgage Insurance
Section 251 Adjustable Rate
Section 234(c) Condominium
Section 238(c) Military Impact Areas
Loan amounts exceeding the FHA Standard Basic Loan Limits must close/fund/disburse on or before September 9, 2011
AUS overlays required regardless of approval. See Underwriting/DU or Underwriting/LP. Click for more on:
LTV MATRICES
ORIGINATION / PROCESSING / UNDERWRITING
LTV Matrix
Acreage
Leasehold Estates
Second Home
Age Restricted Properties
Loan Amount/LTV
Secondary Financing
Appraisal Mortgage Insurance
Seller/Interested Party Contributions
FHA Streamline Refinance
ARM Program Information
Non-Borrowing Spouse
Source of Funds
FHA Good Neighbor Next Door
Bankruptcy / Foreclosure
Non-Occupant Co-Borrower
Tax Deferred Exchange
FHA REO Guidelines
Borrower Eligibility
Non-Salaried Borrower
Temporary Buydown
Case Numbers
Non-U.S. Citizen
Term
SALES EDGE
Condos / PUDs
Number of Properties
Third Party Originations
Construction / Perm
Occupancy
Trusts (Inter Vivos)
Wholesale
Building on Own Land
Premium Pricing
Underwriting
New Construction
Prepayment Penalty
Contract for Deed
Property Types (Eligible/Ineligible)
Land Contract
Co-Signer
Ratios/Qualifying Rate
MF_CAT
Credit Score
Refinance
CLOSING / SERVICING
Special Feature
Declining Markets
Fees Resale Restricted Properties
Geographic Restrictions
Reserves
Gifts
Resident Aliens
Homebuyer Education
Investment Property
Acreage
If the plot contains excess land: Appraiser to describe the excess land, but not include it in the appraised value. Excess land should be appraised separately, but not included in the final mortgage calculation. The following states are restricted to a maximum of 40 acres:
Idaho
Montana
South Dakota
Age Restricted Properties: Use of applicable Special Feature Code is mandatory. See end of this section for additional information. Eligible only as follows:
Primary Residence
Purchase and Rate/Term Refinance transactions
1 unit properties
DU Approve/Eligible or LP Accept/Eligible
Condominiums, approved per Condominium Approval Methods (Policy and Procedures, 7-705)
Ineligible loan products and features include:
Investment Properties
Cash-Out Refinance
Appraisal requirements:
The appraisal must reflect the impact that the restrictions have on the value and must be supported by comparables with similar restrictions; and
Must reflect the existence of the restriction and comment on any impact that the restriction has on the property’s value and marketability
Title and Insurance requirements:
The source and terms of the restriction must be included in the public land records and must be readily identifiable
The borrower(s) must be made aware of the existence of the restriction. Resale Restriction Notice is to be signed by borrower(s) at loan closing.
The following Special Feature Codes are required:
631: Resale Restrictions survive foreclosure or deed-in-lieu of foreclosure
987: Age Restricted Properties
Resale Restriction Identifier “3” is to be selected in TMO REGIST5 or UO0S011.
Appraisal
Appraiser
Appraiser must:
Not have any interest, direct or indirect, in the property being appraised:
See Appraisal – Retail or Appraisal – Wholesale (Policy and Procedures, 7-705)
Perform the site inspection of subject property and all comparables and sign the appraisal report:
The selected appraiser can NOT sign the appraisal report as the reviewer
Appraisal trainees can NOT sign the appraisal
VA Appraisals accepted only if the appraiser is on the FHA Roster of Appraisers (except on condominiums)
Appraisal
To ensure compliance with the Home Valuation Code of Conduct (HVCC) and requirements of the Office of the Comptroller of Currency (OCC), see Appraisal Policy – Retail or Appraisal Policy – Wholesale (Policy and Procedures, 7-705) for:
Appraisal policies including, but not limited to, appraisal ordering, appraiser independence and copy of appraisal to borrower
A new FHA appraisal is required for each refinance transaction requiring an appraisal
See New Construction for documentation requirements
If new subdivision, HUD has three procedures for determining whether to accept application for proposed dwellings in new subdivisions:
Local Area Certification
Developer Certification
Improved Area Procedure. Refer to HUD Handbook 4135.1
See Age of Appraisal/AVM Retail or Wholesale (Policy and Procedures, 7-705)
Appraisal Update Report must be ordered prior to expiration of the original appraisal
See Transferred Appraisals – Retail or Transferred Appraisals – Wholesale
See Flip Transactions (Policy and Procedures, 7-707) for second appraisal requirements
See Fees
Loan Processor/Coordinator
Complete the Appraisal Logging Screens in FHA Connection once the appraisal is received
See FHA Connection Appraisal Logging Procedures
Direct Endorsement (DE) Underwriter
Use professional judgment and rely upon prudent underwriting practices in determining when a property’s value requires adjustment or property condition might require additional inspections and/or repairs;
Underwriter’s CHUMS number must be manually written on the FHA Underwriting and Transmittal Summary (LT) following the appraisal review
If the DE underwriter concludes the appraisal report findings or required repairs are inconsistent or unacceptable:
The appraiser may be contacted and/or the appraisal report returned to the appraiser for reconsideration, or
A Review Appraisal to confirm value may be ordered from a HUD approved appraiser, or
See Fees
DE underwriter may adjust the value or remove/add repairs when necessary
See Review Appraisal – Retail or Review Appraisal – Wholesale (Policy and Procedures, 7-705)
If value is determined to be less than the value per the appraisal or required repairs have been removed/added, the DE underwriter is to:
Update TMO to show the lesser of the value which will ensure the HUD-92900-LT and Conditional Commitment Direct Endorsement Statement of Appraised Value (HUD-92800.5B) display the correct adjusted value.
Complete HUD-54114, Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal Report. The appraisal report should not be “marked up” or changed in any manner.
Scan supporting documentation including review appraisal
For properties located in a declining market, see Declining Markets/Value (Policy and Procedures, 7-709)
List any physical deficiency or adverse condition requiring repair, alteration or further inspection on the HUD-92800.5B, Conditional Commitment Direct Endorsement Statement of Appraised Value:
When a final inspection is required, loan may close based on a verbal confirmation; however the written, final inspection must be obtained and included in the closing file. Refer to Conditions (Policy and Procedures, 8-802).
If an AUS excessive value/rapid appreciation message is received, the value must be warranted. See AUS Messages Related to Excessive Property Valuation Retail or Wholesale (Policy and Procedures, 7-705).
Loan Prospector: For one (1) unit properties, see Underwriting/LP
Proposed construction, condominium projects, or planned unit developments (PUDs), must meet criteria in HUD Handbooks 4135.1, 4145.1, 4150.1 and 4265.1:
Refer to New Construction for any additional requirements
See Geographic Restrictions
Repair/Inspection Requirements:
FHA permits “as-is” appraisals on existing properties
Repair requirements are limited to only those items that pose a threat to the security/safety of an occupant and/or jeopardize the soundness and/or structural integrity of the property. Items may include, but are not limited to:
Inadequate access/egress from bedrooms to exterior of home
Leaking or worn out roofs
Evidence of structural problems
Defective paint surfaces in homes constructed pre-1978
Defective exterior paint surfaces in homes constructed post-1978 where the finish is otherwise unprotected
Conditions that will continue to require automatic inspection include, but are not limited to:
Standing water against the 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 (e.g., settlement or bulging foundation wall)
FHA no longer mandates automatic inspections for the following items and/or conditions for existing properties:
Wood Destroying Insects/Organisms:
See Well, Septic and Termite (Policy and Procedures, 8-801)
See Closing Requirements for Subterranean Termite Treatment Builder’s Certification and Guarantee
Well (individual water system) – test or inspection required if mandated by state or local jurisdiction; if there is knowledge that 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:
Corrosion of pipes (plumbing)
Areas of intensive agriculture within 1/4 mile
Coal mining or gas drill operations within 1/4 mile
Dump, junkyard, landfill, factory, gas station, or dry cleaning operation within 1/4 mile
Unusually objectionable taste, smell or appearance of well water (superseding Mortgage Letter 95-34 that requires well water testing in the absence of local or state regulations)
Note: When well tests are necessary, testing standards outlined in Handbook 4150.2, Chapter 3, Paragraph 3-6, A-5a, still remain in effect and supersede Mortgagee Letter 95-34
Less than the required minimum of 50 feet from a septic tank; 100 feet from a septic drain field and 10 feet from any property line:
Must follow local or state requirements if more strict
If local or state requirements are less strict must document file provided not < 75 feet separation from the septic drain field and 10 feet from the property line
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
Flat and/or unobservable roof
ARM Program Information
Margin:
Use Program Code for Margin chosen
Type: Program Code: Margin:
1 Yr ARM F200 2.00
F225 2.25
3/1 ARM FH32 2.00
F325 2.25
5/1 ARM FH75 1.75
F175 1.75
FA25 2.25
FH25 2.25
7/1 ARM F725 2.25
Index: Weekly average yield on U.S. Treasury Securities adjusted to constant maturity of one year.
Lifetime Interest Rate Floor: The Margin
Interest Rate Cap Per Adjustment: 1 Yr ARM, 3/1 ARM and 5/1 ARM
1% at first adjustment
1% at each subsequent adjustment
5/1 ARM and 7/1 ARM
2% at first adjustment
2% at each subsequent adjustment
Lifetime Interest Rate Cap: 1 Yr ARM, 3/1 ARM and 5/1 ARM
5% over initial note rate
5/1 ARM and 7/1 ARM
6% over initial note rate
Interest Rate Change Date: 1 Yr ARM
First adjustment may be:
12 to 18 months after first payment. Only four adjustment dates allowed: January 1, April 1, July 1, October 1
See Government 1 Yr ARM Interest Rate Change Date Matrix
Subsequent adjustments occur every 12 months
Payment adjustments occur 30 days after interest rate adjustment
3/1 ARM
First adjustment may be:
36 to 42 months after first payment date. Only four adjustment dates allowed: January 1, April 1, July 1, October 1.
See Government 3/1 Yr ARM Interest Rate Change Date Matrix
Subsequent adjustments occur every 12 months
Payment adjustments occur 30 days after interest rate adjustment
5/1 ARM
First adjustment may be:
60 to 66 months after first payment date. Only four adjustment dates allowed: January 1, April 1, July 1, October 1.
See Government 5/1 Yr ARM Interest Rate Change Date Matrix
Subsequent adjustments occur every 12 months
Payment adjustments occur every 30 days after interest rate adjustment
7/1 ARM
First adjustment may be:
72 months after first payment date. Ginnie Mae permits only four adjustment dates: January 1, April 1, July 1, October 1.
See Government 7/1 ARM Interest Rate Change Date Matrix
Subsequent adjustments occur every 12 months
Payment adjustments occur every 30 days after interest rate adjustment
Conversion Option:
None
Qualifying:
See Ratios/Qualifying Rate
Bankruptcy / Foreclosure
See Bankruptcy/Foreclosure (Policy and Procedures, 7-702)
Borrower Eligibility
Individual or Inter Vivos Trusts. See Trusts (Policy and Procedures, 7-705).
See Non-U.S. Citizen
Military Personnel: Considered occupant owners and are eligible for maximum financing if a member of the immediate family will occupy the property as a principal residence, even if the individual serving in the military is stationed elsewhere.
No corporations or other business entities. No estates.
Identity of Interest: Transactions between family members, business partners or business affiliates. These transactions are restricted to a maximum of 85% LTV; however, maximum financing is allowed in the following situations:
Family member purchasing another family member’s principal residence:
Family member purchasing another family member’s investment property:
Maximum mortgage is the lesser of either 85% of appraised value or sales price
The 85% may be waived if family member has been a tenant in the property at least 6 months immediately predating the sales contract. A lease or other written evidence must be obtained to verify occupancy.
Current tenant renting a property at least 6 months immediately predating the sales contract. A lease or other written evidence must be obtained to verify occupancy. No other Identity of Interest relationship may exist.
Employee of builder purchasing one of a builder’s new homes or model as a principal residence
Sales by corporations transferring an employee out of an area and the corporation purchases the employee’s home and sells it to another employee
See Borrower Eligibility in FHA Streamline Refinance Transactions
See Borrower Eligibility in HUD’s “Good Neighbor Next Door”
See Investment Property in FHA-REO
Case Numbers
Assign
See Mortgage Insurance
FHA Case Numbers are assigned via the Case Number Assignment function of the FHA Connection (FHAC). ID and password are required for access.
Wholesale only: See How to Order FHA Case Numbers (PPT File)
Items to be entered in FHAC for case number assignment will include:
Social Security Number(s):
See Documentation for acceptable evidence of SSN that must be in the loan file
See Social Security Number Requirements (Policy and Procedures, 7-702)
See Social Security Number Validation below
Full legal name(s) – The name recognized by FHA Connection is the name that the loan must be processed and closed
Date(s) of birth
The Roster Appraiser’s license or certification number:
If unable to locate a Roster Appraiser using the license or certification number, use FHAC Appraiser List screen to search by name and state
Numbers must match exactly when ordering case number
Social Security Number Validation – Loans can not be approved until the SSN of all borrowers are validated and the loan file documented:
See FHA Transactions under Social Security Number Requirements (Policy and Procedures, 7-708)
For cases where borrower information is changed after the case number is assigned, the validation process must be repeated
Multiple Case Numbers
A Case Query based on subject borrower(s) and subject property must be performed in FHA Connection to resolve potential issues that could hinder insuring the loan
For guidelines and procedures see:
Resolving Multiple Case Numbers Retail and Wholesale (Policy and Procedures, 6-602)
Update
The FHA Case Number data can be corrected at any time before the case is insured via the FHA Connection’s Update Existing Case screen
Refinance Authorization
The Refinance Authorization screen allows access to the Upfront Mortgage Insurance Premium information (UFMIP):
Used and refundable amounts of premium;
Netting authorization required on all FHA to FHA refinance transactions. The netting authorization is good for sixty (60) days, must be valid at loan closing and must reflect Refinance Authorization Number from FHA Connection.
Canceling a Case Number
The case number must be canceled when:
FHA mortgage insurance will not be obtained
The appraisal has expired
An appraisal has not been obtained and the loan is not closing as an FHA loan
Cancellation requests must be on company letterhead and include the following:
Case number to be canceled
Reason for cancellation
Borrower’s name and property address
Requestor’s name and telephone number
Signature of lender representative
If applicable, date the appraisal was completed and appraiser’s name
See Reinstating cancelled case numbers (Policy and Procedures, 6-602)
Condos / PUDs
See Property Types (Eligible/Ineligible)
See Condominiums (Policy and Procedures, 7-705)
See Project Insurance Requirements (Policy and Procedures, 7-705)
Condos
Questions regarding condos and condo approvals should be directed to the FHA Resource Center:
See Condos (Policy and Procedures, 7-705) for other options
For condominium project approval, see FHA Approval Methods (Policy and Procedures, 7-705)
Project approval is not required for the following, however, the Condominium Rider must be executed at closing for:
Site Condos (Detached)
Condo Streamline Refinance – See Condos/PUDs in FHA Streamline Refinance
HUD REO Condo
Spot Loans:
Spot Loan approval process has been eliminated
See FHA or DELRAP Approvals in Condominiums (Policy and Procedures, 7-705)
PUDs
HUD no longer requires approval of PUD’s
See Planned Unit Developments (Policy and Procedures, 7-705)
Construction / Perm
Construction must be complete at the time of closing:
Final inspection is required
See Conditions (Policy and Procedures, 8-802)
See Property Tax for New Construction in Underwriting/Manual
See Closing Requirements for new construction with multiple contracts
Building on Own Land
Considered a purchase transaction
See FHA Building On Own Land Worksheet to determine LTV limits:
Worksheet may be completed along with the HUD-92900-LT and submitted to underwriting
See checklist(s) in New Construction section below to determine maximum financing
If borrower receives cash out in excess of $250, the loan is considered a Cash-Out Refinance and is subject to applicable LTV limits:
Reimbursement of the borrower’s own cash expenditures during construction is not considered cash-out if borrower provides cancelled checks and paid receipts to substantiate the out of pocket expenses.
New Construction
New Construction is defined as:
Proposed or never occupied and <12 months from issue date of Certificate of Occupancy or equivalent
Accurate TMO input is required to ensure the Construction section is correctly completed on the loan Transmittal, FHA 92900-LT:
See New Construction (Policy and Procedures, 6-601) for data entry information
See Appraisal for additional requirements
See Property Type (Eligible/Ineligible)
See Closing Requirements for new construction with multiple contracts
Obtain the following required documents, as appropriate, based on the stage of construction at the time of appraisal:
Property appraisal made: Under the following conditions:
Subject to Plans and Specification Proposed Construction <=90% Complete Documentation Checklist
Subject to Repairs/Alterations Under Construction Property >90% Complete Documentation Checklist
100% Complete <1 Year Old Never occupied Existing / New Construction 100% Complete <1 Year Old Documentation Checklist
Existing unsold new construction <1 year old where property has been foreclosed
If subject property has been foreclosed upon the transaction should be handled using the same criteria and guidelines for a second or subsequent sale, in addition to the following:
Building Permit and Certificate of Occupancy to support LTV >90%:
Not applicable if LTV <90%
Evidence that present owner is exempt under FHA’s Flip guidelines:
See Flip Transactions in Underwriting/Manual
If builder has filed bankruptcy:
Review title commitment to verify property is not attached in the bankruptcy and the title is free, clear and marketable
Underwriter must indicate on the Conditional Commitment and Loan Transmittal:
File has unique or special underwriting considerations. Subject borrower is a second or subsequent purchaser due to property foreclosure.
Clear termite certification, if applicable:
Refer to HUD’s Pest Control Tip Zones to determine if termite inspection or soil/wood treatment requirements apply for the state where the property is located
Resale must be an arms length transaction
These guidelines do not guarantee HUD will insure the loan. Guidance and direction should be obtained from each Regional HOC.
Contract for Deed
Allowed as purchase or refinance if the borrower does not receive cash at closing
Maximum financing is available
Equity in the property is considered the same as Building on Own Land, plus allowable closing costs, or the total acquisition costs
Land Contract
Any loan that includes the payoff of a land contract must be treated as a cash-out refinance
See Refinance (Cash-Out)
Co-Signer
Income, assets, liabilities, and credit history are included in determining credit worthiness:
To include any co-signer income, occupying borrower must have acceptable credit history or acceptable non-traditional credit. See Credit in Underwriting/Manual for non-traditional or insufficient credit underwriting guidelines.
All qualifying income may not be from co-signer
Wholesale only: At least one occupying borrower must have traditional credit and meet the minimum credit score requirement per product guidelines regardless of co-signor’s credit scores
Limited to 75% LTV:
Maximum financing allowed on 1-unit properties only if related by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of a family-type, longstanding, and substantial relationship not arising out of the loan transaction
Allowed subject to the co-signer:
Not having an interest in the transaction (i.e. seller, real estate agent, builder)
Co-signer will not have ownership interest in the property (does not take title) and is not required to sign the sales contract
Must execute the Note, all required application authorizations and disclosures including 1003 application
The financial contribution by the co-signer, and the number of properties similarly owned may indicate that an investor transaction exists and family members are acting as “straw buyers.”
Credit Score
Purchase, Rate/Term, Cash-Out, Streamline Refinance with credit qualifying:
Minimum Credit Score regardless of underwriting method or loan amount:
Retail: 620
Wholesale: 640
Exceptions are not allowed
All loans with credit scores must be scored by TOTAL Scorecard:
See Credit Score (Policy and Procedures, 7-708)
For loans with one or more borrower(s) without a credit score, see:
Non-Traditional Credit guidelines in Underwriting/Manual
Non-Traditional Credit (Policy and Procedures, 7-702)
See Risk Factor matrices in Compensating Factors (Policy and Procedures, 7-707)
See Underwriting/Manual
Declining Markets
See Declining Markets/Value (Policy and Procedures, 7-707)
Documentation
Social Security Numbers for each borrower on the transaction must be BOTH validated AND documented:
Acceptable evidence of validation is provided through FHA Connection. See Case Numbers/Assign:
See MLHL’s Social Security Number Requirements (Policy and Procedures, 7-708)
Acceptable documentation must reflect the entire social security number.
Evidence includes:
Social Security Card (card must be signed)
SSN award letter
Current paystub that includes borrower’s name and SSN
(computer generated)
W-2 (computer generated)
1099 (computer generated)
Tax Returns – only if verified as received and accepted by IRS
Automated VOE
401K and other bank/financial statements that include borrower’s name and SSN
Bankruptcy Release papers
Service providers including those with direct access to the Social Security Administration (Currently, Rapid Reporting, IncoCheck, National Verification Services & Sysdome)
See Underwriting/Manual for checking Credit Alert Interactive Voice Response System (CAIVRS) on all borrowers; the Limited Denial of Participation (LPD) and the Government Services Administration (GSA) List of Parties Excluded from Federal Procurement or Nonprocurement Programs to insure that NO PARTY TO THE TRANSACTION appears on either list.
Blanket certification allowed. Use Blanket Certification of Original Documents form.
IRS 4506-T must be processed for all borrowers. See IRS 4506-T (Policy and Procedures, 7-708).
See FHA (Policy and Procedures, 6-602) and FHA Processor and Closer Checklist for loan file documentation assistance
Verbal verification of employment (VVOE) must be completed within ten calendar days of the date closing documents are signed
See Salaried Verbal Verification or Self-Employed/Non-Salaried Verbal Verification
See Verbal Verifications (Policy and Procedures, 7-707)
See Disclosures (Application)
See Documentation (Policy and Procedures, 7-707)
For Wholesale loans in Colorado, Massachusetts, Minnesota and Nevada; see State Transaction Restrictions (Policy and Procedures, 7-706)
Down Payment
3.5% cash investment based on the lesser of the sales price or appraised value:
Borrower paid closing costs may not be considered when calculating the required down payment
Down payment may come from the following sources:
Borrower
Gift – see Gifts for additional requirements
Collateralized Loan
Rent Credit
Employer Assistance Plans:
If the plan requires that a lien is placed on the property, it must be treated as Secondary Financing and may not be used to pay any portion of the required down payment
See Secondary Financing
Commission on Subject Sale (must be licensed real estate agent)
Down Payment Assistance (DPA) from grants, community seconds or municipalities:
<$417,000 maximum first lien loan amount
Any third party or entity that is reimbursed directly or indirectly by the seller or any other person or entity that financially benefits from the transaction is unacceptable:
See Down Payment Assistance (DPA) & MCC Approval Guidelines and Procedures for approval process and required documentation:
If the payment structure of a DPA is questionable, Director – Mortgage Underwriting to submit to the Vice President, Risk Management, for approval.
Loans with Down Payment Assistance are considered a higher risk:
Avoid layering of risk. See Risk Factor (Policy and Procedures, 7-707).
Analyze appraisal to insure value is not inflated to cover additional expense
Underwriter must identify the non-profit organization, donor’s TIN#, and the dollar amount received in the Comment Section of the HUD-92900-LT
MLHL’s Government Insuring Department will enter the DPA, second lien or gift/grant, and TIN (Tax ID Number) into FHA Connection
Closing Requirements for DPA’s:
DPA amount is to be shown on the HUD-92900-LT as follows:
If second lien, on line 12k (Secondary Financing) of the (HUD-92900-LT)
If gift/grant, amount and source on 12i. The case binder must include a copy of the executed second lien Note/Deed of Trust or original executed gift letter, as applicable.
Evidence of wire transfer going to closing agent to be obtained
Down Payment provider to be shown on the HUD-1
See Secondary Financing even if “silent” or “soft” second lien
See Source of Funds
Sweat Equity is not allowed per MLHL policy
See Loan Amount/LTV for maximum allowed loan amount
See Mortgage Insurance for 97.50% limitation if UFMIP financed
Energy Efficient Mortgages
Allowed on 1-4 Primary Residence Purchase and Refinance transactions:
For 2-4 unit properties, the maximum EEM dollar amount is for all units (not per unit)
The FHA Energy Efficient Mortgage (EEM) program allows borrowers to finance 100% of a “cost effective” energy package, defined as property improvements that make the property more energy efficient
A “cost effective” energy package consists of improvements (including maintenance) that will cost less than the present value of the energy saved over the useful life of the improvements
Energy efficient improvements may include, but are not limited to:
Energy saving equipment
Active and passive solar technologies
The borrower is not required to qualify with the increased loan amount or provide additional funds for down payment
If the energy improvements are “cost effective”, the borrower may finance energy efficient improvement costs, subject to certain dollar limitation and without a second appraisal:
The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements
The maximum amount of the costs that may be added to the mortgage amount is the lesser of 5% of:
The property value, or
115% of the Median Area Sales Price of a single family dwelling using the latest quarterly average or
150% of the conforming loan limit
See Mortgagee Letter 2005-21, 2009-18 and FHA Handbook 4155.1 and 4155.2 for additional information
Home Energy Ratings System
A qualified home energy rater, using a tool known as a Home Energy Rating System (HERS), must determine rating based upon a physical inspection of the property:
The energy consultant must be an independent entity, not related, directly or indirectly, to the seller of the property, the prospective borrower or the contractor who installed the energy efficient improvements
The energy consultant may be a:
Utility company
Local, state or federal government agency
Private entity approved by a local, state or federal government agency specifically for the purpose of providing home energy ratings on residential properties
Non-profit organization experienced in conducting home energy ratings on residential properties
The home energy rater, using the HERS, provides a written home energy rating report to the homebuyer/homeowner and lender. The report must contain the following information:
Property address
Borrower name
FHA case number, if available
Lender name
Property type
Property status: New construction or existing property
Existing Construction:
Date of physical property inspection
Description of the energy features currently in the property
New construction:
Date that the plans were reviewed
Description of proposed energy efficient features
Description of energy features must include, at a minimum:
Insulation R value in ceilings, walls and floors
Infiltration levels and barriers (caulking, weather-stripping and sealing)
Windows (storm windows, double pane, triple pane, etc.) and doors
Heating (including water heating) and cooling systems
Description of the improvements recommended to improve the energy efficiency of the property
For new construction, cost effective improvements must be over and above the requirements of 2000 International Energy Conservation Code (IECC)
Estimated costs of the energy improvements
Useful life and the costs of any maintenance over the useful life
Present estimated annual utility costs before installation of the energy efficient improvements
For new construction, the estimated annual utility costs of a reference house built to 2000 IECC
Estimated annual utility costs after installation of the energy efficient improvements
Estimated annual savings in utility costs after installation of the energy efficient improvements
Printed name(s) and signature(s) of the person(s) that inspected the property, prepared the report and the date the report was finalized
The following certification, signed by the person(s) who inspected the property and prepared the report, must accompany the report:
“I certify to the best of my knowledge and belief, the information contained in this report is true and accurate and I understand that the information in this report may be used in connection with an application for an energy efficient mortgage to be insured by the Federal Housing Administration of the United States Department of Housing and Urban Development”.
The fee for the property inspection, Home Energy Savings System (HERS) Report and any post-installation tests may be included in the financed energy package if entire package is cost effective. If not cost effective, fees are considered allowable closing costs:
Fee charged must be common and customary for the area
Processing Requirements – New and Existing Construction
In FHA Connection, select either New Construction/HERS Improvements or Existing Construction/HERS Improvements:
See New Construction for definition
Process and qualify the borrower using standard FHA underwriting guidelines and qualifying ratios
If the borrower elects to add the costs of the energy efficient improvement to the mortgage, the following steps must be taken:
Obtain report prepared by a HERS representative or energy consultant
Using the report and the EEM Worksheet, determine that the energy efficient improvements are “cost effective” as follows:
Calculate the present cost of the energy improvement, including maintenance costs (if any) over the useful life of the improvements and the present value of the energy savings over the useful life of the energy improvements
The maximum amount of allowed costs that can be added to the base loan amount, without a second appraisal and without recalculating the qualifying ratios may not exceed the lesser of 5% of:
The property value, or
115% of the Median Area Sales Price of a single family dwelling (use latest quarterly average in right column), or
150% of the conforming loan limit
The FHA Maximum Mortgage Limit may be exceeded by the cost of the energy efficient improvements
Calculate the UFMIP on the full mortgage amount including the cost of the energy improvements
New Construction Only (in addition to the above guidelines):
If the energy improvements are not priced as an option on the sales contract, ensure that the builder identifies the costs in the contract
The qualifying ratios are calculated based on the sales price less the cost of the energy package
The energy package includes those cost effective energy improvements over and above the requirements of the 2000 IECC:
See Building Energy Codes Program
The appraisal does not need to reflect the value of the energy package
Debt-to-Income Ratios – Manually Underwritten:
DTI ratios up to 33%/45% are allowed on the following:
New construction
Existing properties built to the 2000 IECC
Properties being retrofitted to meet the 2000 IECC
Streamline Refinance:
Monthly P & I on the new loan (including the cost of energy efficient improvements) may exceed the monthly P & I on the current mortgage provided the estimated monthly energy savings as shown on the HERS report exceeds the increase in the P & I
Streamline Refinance without an appraisal:
The original principal balance is used in place of the appraisal value
Mortgage insurance will be calculated on the full mortgage amount including the cost of the energy improvements
If the work that is done differs from the approved energy package, a change order and a revised HERS Report must be submitted to the DE Underwriter for approval:
If the changes still meet the cost effectiveness test, no further analysis is required
If the changes are not cost effective, the funds for the work not included in the approved energy package must be used to pay down the loan principal
Underwriting Requirements
If loan receives an “approve” or “accept” through FHA’s TOTAL Mortgage Scorecard prior to adding the energy-efficient improvement, provided that:
The DE underwriter certifies that he/she has reviewed the calculations associated with the energy efficient improvements, and found the mortgage and the property to be in compliance with FHA’s underwriting instructions
The certification must be included in the remarks section of the HUD-92900-LT or on a separate document in the case binder and must reflect the cost of the energy package and the final loan calculations
The fee for the property inspection, Home Energy Savings System (HERS) Report and any post-installation tests may be included in the financed energy package if entire package is cost effective. If not cost effective, fees are considered allowable closing costs:
Fee charged must be common and customary for the area
The following loans must be identified in TMO as an Energy Efficient Mortgage by entering a “Y” in the “Is this an Energy Efficient Mortgage?” field on the @O4S91A screen in TMO:
Any loan for new construction in which energy efficient improvements are financed, regardless of whether the borrower needs the expanded underwriting criteria to qualify
Any loan that is processed, underwritten and closed as an Energy Efficient Mortgage
Completion of Improvements
Existing property:
The installation of the energy package does not need to be completed before FHA insures the mortgage
An Escrow Holdback must be established
New construction:
Must be completed prior to loan closing
Escrow Holdback
See FHA Mortgage Letter 2005-21
Allowed for no more than 90 days after loan closing for installation of the energy efficient improvements
The escrow account may be administered by the lender, a utility company, a non-profit organization or a government agency
The escrow account must be insured and established at a financial institution supervised by a Federal agency
The borrower may not be paid for labor (sweat equity) on work they perform
The borrower may not receive cash back at closing
If the improvements are not installed within 90 days, MLHL must apply the funds held in escrow to the principal balance of the mortgage
The installation of the improvements may be inspected by MLHL, the HERS or a FHA fee inspector:
The borrower may be charged an inspection fee in accordance with the local FHA Office fee schedule
MLHL is required to:
Complete form HUD 92300, Mortgagee Assurance of Completion (TMO packets UFMISC and UVMISC, DOC #CB6121-CB6125) to indicate that the escrow for the energy efficient improvements has been established
Notify FHA through FHA Connection that the improvements have been made and the escrow has been cleared
Escrow Holdback
See Escrow Holdbacks (Policy and Procedures, 7-705)
Underwriter must complete the FHA 92300, Mortgagee Assurance of Completion, which must include an expiration date:
A clear Certificate of Occupancy, final inspection, lender certification (if minor) or equivalent required
Underwriter must complete the Escrow Close-Out screens in FHA Connection:
Escrow Close-Out documentation must remain in the origination file
See FHA Connection help screens for assistance on certifying close-out of the escrow holdback
Authorized employee of the originator, sponsor, holder or servicer may perform the Escrow Close-Out function
See Energy Efficient Mortgage
Exceptions
See Exceptions (Policy and Procedures, 7-708)
Fees
See Fees (Policy and Procedures, 8-802)
See FHA Allowable Fee Matrix (Policy and Procedures, 8-802)
MLHL Pricing Policy must be followed. See Pricing Policy (Policy and Procedures, 4-401).
POC items, MLHL, seller, broker or third party fees should be listed on the HUD-1 Settlement Statement as a borrower’s or seller’s closing cost
Credit should be given on Lines 204-209 identifying the party paying the fee
No section 32/High Cost Mortgages:
For state specific requirements, see High Cost Loan Prevention (Policy and Procedures, 6-601)
Use Section 32 Worksheet if no state specific requirement
Geographic Restrictions
Alaska and Hawaii not allowed
Texas:
Cash-out refinance not allowed
See Texas Home Equity – First Lien loan product description
For Wholesale loans in Colorado, Massachusetts, Minnesota and Nevada, see State Transaction Restrictions (Policy and Procedures, 7-706)
See Acreage
For specific state restrictions, see Geographic Restrictions (Policy and Procedures, 7-705)
For additional restrictions, see Mortgage Branch Originating Loans Outside Your State (Policy and Procedures, 4-401)
Gifts
See Gifts/Grants (Policy and Procedures, 7-701) for acceptable sources
See Down Payment
Gift funds as Reserves:
Manual Underwriting: Not allowed
AUS Underwriting: Excess gift funds may be considered as cash reserves subject to proper documentation
Gifts to pay off debts may only be provided by a family member
Employer Assistance Plans may be treated as a gift subject to the following:
Funds may cover closing costs, mortgage insurance premium, or any portion of the down payment
No adjustment to maximum mortgage amount is required
If provided after loan closing, borrower must provide evidence of sufficient cash to close
Salary advance is not acceptable and would be considered an unsecured loan
Gift of Equity:
Allowed only if seller is related to borrower:
Explain/document relationship if different last name
Equity credit must be indicated on the HUD-I
All other standard FHA gift requirements apply
Homebuyer Education
FHA encourages (but does not require) homebuyer counseling for first-time homebuyers
See Homebuyer Education (Policy and Procedures, 7-707)
Investment Property
The only investment property transactions allowed are:
2-4 units with borrower occupying 1-unit of subject property:
3-4 units must be self-sufficient:
Maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100%
For additional requirements, see FHA Handbook 4155.1 and 4155.2
HUD Real Estate Owned (REO) properties:
See FHA REO loan product description
FHA Streamline Refinances without appraisal (only) on current investment property:
See FHA Streamline Refinance loan product description
Rental of Existing Primary Residence:
See Income in Underwriting/Manual
See Number of Properties
Calculating Rental Income
Net rental income for 3-4 unit properties must be calculated as follows:
Appraiser’s estimate of fair market rent, or
Gross rent(s) minus the Vacancy/Repair factor used by the jurisdictional HOC.
See Vacancy, Collection and Maintenance Cost Factors
2 unit property:
Rental income from borrower occupied unit may not be used in calculation
3-4 unit property:
Rental income from all units (including borrower occupied unit) may be used in calculation
Calculation of housing and DTI ratios:
Net rental income may be used for qualifying purposed only. It may not be used to offset the mortgage payment.
If net rental income is positive, add it to the borrower’s monthly gross income
If net rental income is negative, consider it a recurring monthly obligation
Calculate the housing ratio by dividing the housing expense for the borrower’s current principal residence by the monthly gross income
Calculate the DTI ratio by dividing the borrower’s total monthly obligations, including any net loss from the subject property, by the borrower’s total monthly gross income
Leasehold Estates
See Leaseholds (Policy and Procedures, 7-705)
Loan Amount/LTV
Loan Amount
Minimum: No Minimum
Maximum: Base loan amounts (without financed MIP) must meet all of the following criteria:
See Underwriting/DU or Underwriting/LP
See HUD website for maximum base loan amount (without financed MIP):
FHA Mortgage Limits are based on number of units and the property location
In no event may the loan amount exceed:
1 unit – $729,750
2 unit – $934,200
3 unit – $1,129,250
4 unit – $1,403,400
If 2011 loan limit exceeds 2010 limit, credit approval must be dated on or after January 1, 2011
If base loan amount exceeds the FHA Standard Basic Loan Limit for the applicable county, loan must close/fund/disburse on or before September 9, 2011.
Loan amounts must conform to above guidelines and be insurable at time of loan closing
Loan limits vary by program, number of units, non-occupying co-borrower, identity of interest, construction by the borrower on own land or as a general contractor, payoffs of land contracts, properties under construction or less than a year old. These limitations apply to both purchase and refinance transactions.
See FHA Handbook 4155.1 and 4155.2 for additional information
See Down Payment
See Refinance (Cash-Out and Rate/Term) and FHA Streamline Refinance Transactions for guidelines
Maximum LTV
Maximum loan amounts (without financed MIP) for purchase transactions are also subject to the applicable loan-to-value limit
96.50% LTV maximum loan amount based on the lesser of appraised value/sales price, but can not exceed the HUD statutory county loan limit
Financed UFMIP:
Base loan amount plus financed UFMIP can not exceed 97.50% of the appraised value
See Mortgage Insurance
Loans in which the borrower has re-occupied a previous investment property for less than 12 months prior to the application date must be treated as a Rate/Term Refinance with maximum 85% LTV
LTV Ratio based on closing costs average by State is no longer applicable
See Down Payment
Mortgage Insurance
Case Numbers assigned between April 5, 2010 and October 3, 2010:
Upfront MIP
(UFMIP) Annual (Monthly) – Based on LTV*
(excluding UFMIP) and loan term
>15 Year Term <15 Year Term
Purchase
Rate/Term Refinance (credit qualifying), Streamline Refinance, and Cash-out Refinance
See below for exclusion
2.25%
>95.00% = .55
<95.00% = .50 >90.00 = .25
<90.00 = None
* LTV must be computed to two decimals (e.g., 95.65)
Case Numbers assigned between October 4, 2010 and April 17, 2011:
Upfront MIP
(UFMIP) Annual (Monthly) – Based on LTV*
(excluding UFMIP) and loan term
>15 Year Term <15 Year Term
Purchase
Rate/Term Refinance (credit qualifying), Streamline Refinance, and Cash-out Refinance
See below for exclusion
1.00%
>95.00% = .90
<95.00% = .85 >90.00 = .25
<90.00 = None
* LTV must be computed to two decimals (e.g., 95.65)
Case Numbers assigned on or after April 18, 2011:
Upfront MIP
(UFMIP) Annual (Monthly) – Based on LTV*
(excluding UFMIP) and loan term
>15 Year Term <15 Year Term
Purchase
Rate/Term Refinance (credit qualifying), Streamline Refinance, and Cash-out Refinance
See below for exclusion
1.00%
>95.00% = 1.15
<95.00% = 1.10 >90.00 = .50
<90.00 = .25
<78.00 = None
* LTV must be computed to two decimals (e.g., 95.65)
Note: Applications disclosed with the previous premium for which a case number is not assigned prior to April 18, 2011 require re-disclosure of the new MIP within 3 business days of the changed circumstance. In this case, the changed circumstance is considered to be the April 18, 2011 effective date of the new MIP.
Upfront Premiums (UFMIP):
May be financed or the entire amount paid in cash at closing
Base loan amount plus financed UFMIP can not exceed 97.50% of the appraised value:
If result >97.50%, base loan amount must be lowered or if a refinance partial payment of closing costs is required
Applicable for a purchase or refinance transaction requiring an appraisal
Annual Premiums (Monthly):
Monthly MIP will automatically terminate when the LTV reaches <78% subject to the following:
LTV must be based on the lesser of the original sales price or appraised value (a new appraisal will not be considered)
Initial term >15 years with MIP payments made for >5 years
Initial term <15 years regardless of the length of time borrower has paid MIP
Loans closed prior to January 1, 2001 are not eligible for termination of MIP
The upfront and annual premiums above do not apply on a purchase or refinance transaction for the following:
Military Impact Areas (MIA’s), further defined below:
Secretary of Defense must have certified that there is a need for additional housing in the area and that there are no plans to close or relocate the military base during the five (5) years following the certification.
Currently six counties are designated as Military Impact Areas by HUD:
Georgia: Bryan, Camden and Liberty Counties
New York: Jefferson, St. Lawrence, and Lewis Counties
UFMIP is not required
Annual premium is .50
Loans must be identified in TMO as being under Section 238(c) and ADP Code 774 for Direct Endorsement (DE)
Non-Borrowing Spouse
See Non-Borrowing Spouse (Policy and Procedures, 7-702)
Non-Occupant Co-Borrower
Income, assets, liabilities, and credit history are included in determining credit worthiness:
Non-occupant co-borrower income may not be used to determine ratios if the occupant borrower has insufficient credit or only Tier II and Tier III credit references
See Non-Traditional Credit (Policy and Procedures, 7-702)
Wholesale only: At least one occupying borrower must have traditional credit and meet the minimum credit score requirement per product guidelines regardless of non-occupant co-borrower’s credit scores
Not allowed on Cash-out Refinance transactions
>1-unit limited to 75% LTV
1-unit is limited to 75% LTV unless the following described relationships can be verified/documented:
Maximum financing is allowed if the non-occupying co-borrower is related by blood, marriage or law (spouses, parent, child, siblings, stepchildren, aunts/uncles/nieces/nephews, etc.) or for unrelated individuals that can document evidence of a family-type, long-standing, and substantial relationship not arising out of the loan transaction, or a long standing family friend not associated with the transaction.
If a parent is selling to child, the parent can not be the co-borrower with the child unless <75% LTV
A non-occupying co-borrower(s) may have a joint interest in the subject property along with their FHA principal residence
Must execute the loan application (1003), required authorizations and disclosures, sales contract, security instrument, mortgage note and all closing documents
Caution should be followed with these transactions:
Possible investment transactions or straw buyers, particularly in cases wherein the non-occupying borrower’s financial contribution is large and he owns rental properties
Non-Salaried Borrower
Commissioned
See Commissioned Income (Policy and Procedures, 7-704)
Self-Employed
A borrower with a 25% or greater ownership in a business is considered self-employed
A minimum of two years of self-employment history is required
If self-employed less than two years, but not less than one year, sufficient information must be obtained to determine the applicant’s experience or other qualifications to run the business successfully
See Self-Employed Income (Policy and Procedures, 7-704)
Non-U.S. Citizen
Permanent Resident Aliens
See Permanent Resident Alien (Policy and Procedures, 7-703)
The subject property must be the borrower’s principal residence, or if an eligible secondary residence or investment property, the borrower’s principal residence must be located in the United States
Non-Permanent Resident Aliens
An Employment Authorization Document (EAD) is required:
The EAD may not expire within one year of loan closing:
If the EAD will expire within one year of loan closing, the borrower is eligible if there is a documented history of residency status renewals
If the EAD will expire within one year of loan closing and there is no history of renewals, the borrower is not eligible
See Employment Authorization Document (Policy and Procedures, 7-703)
Principal Residence only
Borrower must have a social security number
The likelihood of continued employment/income is required
Foreign Nationals
Not eligible
Borrower(s) with Diplomatic Immunity
Not eligible
Number of Properties
See Number of Loans (Policy and Procedures, 7-707)
The maximum number of units regardless of financing type or ownership is seven (7) when the subject property is a part of, or adjacent or contiguous to, a project, a property or group of properties owned by the borrower
Occupancy
Primary Residence:
A borrower can have only one principal residence at any time
A borrower owning a principal residence with a HUD-insured mortgage that he or she intends to keep may not purchase another principal residence with HUD mortgage insurance unless:
The borrower is relocating (not within reasonable commuting distance of the current principal residence)
The borrower’s number of dependents has increased to the point where the present house no longer meets the family’s needs. The following conditions apply in this instance:
Satisfactory evidence must be provided to evidence the increase in dependents
An explanation from the borrower as to why the present house no longer meets the borrower’s needs
The borrower must also pay down the outstanding mortgage balance on the present property to 75% LTV or less (excluding MIP). If the original HUD appraisal is not available, a conventional or VA appraisal not more than 6 months old can be used for establishing loan to value.
Vacating a Jointly-Owned Property:
If the borrower is vacating a residence that will remain occupied by a co-mortgagor, the individual vacating the property is permitted to obtain another FHA-insured mortgage
Rental of Existing Primary Residence:
See Income in Underwriting/Manual
Second Homes, with restrictions. Not a vacation home.
Investment Property, with restrictions
See FHA Streamline Refinance Transactions
Premium Pricing
See Premium Pricing (Policy and Procedures, 6-601)
Prepaids (including accrued interest on refinances) and closing costs may be paid out of premium pricing and not counted in seller/interested party contributions:
The amount paid on the borrower’s behalf for each item may not exceed the allowable fee recognized by the HUD office having jurisdiction where the property is located
These items must be itemized on both the GFE and HUD-1, and they must be identified as being paid through premium pricing on the borrower’s behalf
Premium pricing may not be used to fund the mortgage payment (or the interest) or any portion of the down payment
Prepayment Penalty
None
Property Types (Eligible/Ineligible)
Eligible
Single Family Attached and Detached
2-4 unit properties:
See 3-4 Unit Properties (Policy and Procedures, 7-705)
Condos
PUDs
See Log Homes (Policy and Procedures, 7-705)
On and off-frame Modular Homes:
See Modular Homes (Policy and Procedures, 7-705)
Existing property is defined as:
<12 months old and previously occupied OR >12 months regardless of occupancy. The age of the property is based on the issue date of Certificate of Occupancy or equivalent.
Accurate TMO input is required to ensure the Construction section is correctly completed on the Loan Transmittal, FHA 92900-LT:
Screen REGIST5 will reflect “N” (No) for New Construction or OTC
Screen REGIST6 Building Status field is populated from entries on Screen REGIST5
See Flip Transactions in Underwriting/Manual
See New Construction for definition, documentation and TMO requirements
Mixed Use property:
1-4 unit properties
Nonresidential may not exceed 25% of total floor area. Storage areas or similar spaces must be included in total nonresidential area
See Mixed Use (Policy and Procedures, 7-705)
Windstorm Shelters
Age and Resale Restricted Properties
Ineligible
Recreational Condos
Co-ops, Manufactured Homes
Model Home Leaseback
Condotels, including PUDs with Condotel features
Segmented ownership properties
Commercial enterprises, boarding houses, tourist houses, private clubs, fraternity/sorority houses
See Ineligible Properties (Policy and Procedures, 7-705)
Rate/Price Adjustment
As stated on daily Rate Sheet
A change in the interest rate requires underwriting resubmission
Ratios/Qualifying Rate
Ratios
AUS (DU/LP):
Retail:
Fixed: 42% housing ratio/50% DTI ratio regardless of AUS approval
ARMs: 38% housing ratio/50% DTI ratio regardless of AUS approval
Wholesale: 36% housing ratio/50% DTI ratio regardless of AUS approval
Housing ratios can be exceeded with documented HUD Compensating Factors and DE Underwriter approval
DTI exceptions will not be allowed
Manual Underwriting:
Retail: 31% housing ratio/43% to 50% DTI ratio allowed with Compensating Factors
Wholesale: 31% housing ratio/43% DTI ratio
Housing ratios can be exceeded with documented HUD Compensating Factors and DE Underwriter approval
DTI exceptions will not be allowed
Secondary Financing from First Time Homebuyers Tax Credit Advance (see Secondary Financing for eligibility):
Payments must be included in ratios unless deferred for >36 months
See Exclusion of Debts in Underwriting/Manual
See Debts in Underwriting/Manual for prior housing payment and Bridge Loan
See Non-Borrowing Spouse if community property state
Qualifying
Fixed:
Note Rate
ARMs:
1 Year ARM:
LTV’s <95%: Note Rate
LTV’s >95%: Initial Rate plus 1% (i.e. anticipated 2nd year rate)
3/1, 5/1, and 7/1 ARM:
Note Rate
Borrower should exhibit the potential for increase in earnings to offset the potential increases in interest rate and payment
See Temporary Buydown
Refinance (Cash-Out)
Owner-occupied Primary Residence Only
Properties with no outstanding liens are eligible
Full processing/credit qualifying is required:
Payments can increase without limitation
New appraisal required
0 x 30 late payments in the last 12 months or the life of the loan if less than 12 months
Existing mortgage must be current for the month due prior to closing and the month of closing
If payment for the month of closing has not been made the payment can be included in the loan payoff amount at closing
Buyout of certain property co-owners allowed as a Rate/Term Refinance:
See Buyout of Spouse/Domestic Partner/Heir (Policy and Procedures, 7-706)
Any co-borrower or co-signer added to the note must occupy the property:
Non-occupant borrowers/co-signers may not be added to the note
See Credit Score for requirements
See Property Listed for Sale (Policy and Procedures, 7-707)
See Geographic Restrictions
In refinancing a loan, there must be a net tangible benefit to the borrower. See Borrower Net Financial Benefit (Policy and Procedures, 6-601)
For Wholesale loans in Colorado, Massachusetts, Minnesota and Nevada, see State Transaction Restrictions (Policy and Procedures, 7-706)
Maximum Mortgage Amount
Complete the FHA Cash-Out Refinance Worksheet along with the HUD-92900-LT and submit in file to underwriting
Only UFMIP can be added to the maximum mortgage amount:
The base loan amount plus UFMIP can not exceed 86.00% of the appraised value
See Mortgage Insurance for calculations
85% LTV (without UFMIP) maximum regardless of loan amount:
If owned >12 months prior to borrower’s application, based on appraised value
If owned <12 months, based on lesser of original sales price or appraised value
Exception to 12 month ownership: If acquired by inheritance and property will be heir’s Primary Residence, based on appraised value
Subordinate Financing:
Effective with new FHA case number assignments on or after September 7, 2010:
85% maximum CLTV on new, existing or modified subordinated liens
FHA Statutory Loan Limits apply to the first lien only
Effective with new FHA case number assignments prior to September 6, 2010:
New Lien: 85% maximum CLTV
Existing and Modified Lien: No maximum CLTV
Second lien must be resubordinated and payment included in qualifying ratios
See Refinance with Existing Subordinate Financing
No seasoning requirements apply
See Calculating MIP Refund, in Refinance Steps
Refinance (Rate/Term)
Full processing/credit qualifying is required:
Payments may increase without limitation
New appraisal required:
Any appraisal requirements, including repairs, must be satisfied prior to loan closing
See Appraisal for Second Appraisal requirements
Existing mortgage must be current for the month due prior to closing and the month of closing
If payment for the month of closing has not been made the payment can be included in the loan payoff amount at closing
VOM or other documentation required which verifies the principal balance, date loan originated, name of original borrower and type of loan
See Buyout of Spouse/Domestic Partner/Heir (Policy and Procedures, 7-706)
Cash back at closing limited to <$500
Non-occupant co-borrowers may be added:
See Non-Occupant Co-Borrower for requirements
See Appraisal for DU refinance valuation messaging
See Property Listed for Sale (Policy and Procedures, 7-705)
In refinancing a loan, there must be a net tangible benefit to the borrower. See Borrower Net Financial Benefit (Policy and Procedures, 6-601).
For Wholesale loans in Colorado, Massachusetts, Minnesota and Nevada, see State Transaction Restrictions (Policy and Procedures, 7-706)
Maximum Mortgage Amount
Complete the FHA Rate/Term Refinance Worksheet along with the HUD-92900-LT and submit in file to underwriting
Financed UFMIP
Maximum mortgage amount plus UFMIP can not exceed 98.75% of the appraised value:
Maximum base mortgage amount (without financed UFMIIP) is the lesser of:
The new base loan amount as determined below; or
HUD Statutory Loan Limit for the County; or
97.75% LTV based on the appraised value; or
If property acquired <1 year and loan is not HUD insured, original sales price plus documented repairs multiplied by the LTV factor
Determine the new base loan amount by deducting the lesser of the UFMIP refund (per Net Authorization) or the new UFMIP from the TOTAL of the following:
Payoff on existing loan including unpaid principal balance and interest charged when the payoff is not received on the first day of the month
Delinquent interest, late charges or escrow shortages may not be included
Prepayment penalties assessed on a conventional mortgage or FHA Title 1 loan
Financed closing costs, discount points and prepaid expenses
Subordinate financing if purchase money and/or seasoned >12 months
If subordinate financing is a HELOC, draws >$1,000 in the last 12 months may be included only if used for acquisition, repair or rehabilitation of the subject property
Subordinate Financing:
Effective with new FHA case number assignments on or after September 7, 2010:
97.75% maximum CLTV on loans with new, existing or modified subordinated liens
FHA Statutory Loan Limits apply to the first lien only
Effective with new FHA case number assignments prior to September 6, 2010:
No maximum CLTV on loans with new, existing or modified subordinated liens
Existing second lien must be resubordinated and payment included in qualifying ratios
See Refinance with Existing Subordinate Financing
No seasoning requirements apply
See Calculating MIP Refund in Refinance Steps
Refinance Steps
See Refinance Procedures (Policy and Procedures, 4-402)
Calculating MIP Refund:
Refunds (credits) are only allowed on FHA to FHA refinance transactions within first three years of the existing loan.
The following chart may be used to calculate an estimated refund:
Upfront Mortgage Insurance Premium Refund Percentages
Month of Year
Year
1
2 3 4 5 6 7 8 9 10 11 12
1
80
78 76 74 72 70 68 66 64 62 60 58
2 56 54 52 50 48 46 44 42 40 38 36 34
3 32 30 28 26 24 22 20 18 16 14 12 10
Actual UFMIP refunds can be verified through FHA Connection:
After ordering the new refinance case number, the Case Number Assignment Results screen will provide:
Case Number:
Enter new FHA case number on TMO screen REGIS8A
Enter old FHA case number on TMO screen UO0S11A
Refinance Authorization:
Enter UFMIP percentage for the new refinance loan on TMO screen FHASTRL
Original property value to be used in calculating the LTV for monthly MI premium on Streamline Refinance transactions without an appraisal
Authorization Number (netting authorization)
Enter the first five (5) digits of the thirteen (13) digit number on TMO screen UO0S11A
Expiration Date – Authorization is valid for 60 days and must be current at loan closing
See Mortgage Insurance
Refinance (Streamline)
See FHA Streamline Refinance Transactions
Refinance with Existing Subordinate Financing
See Refinance with Existing Subordinate Financing (Policy and Procedures, 7-706)
See Property Listed for Sale (Policy and Procedures, 7-707)
In refinancing a loan, there must be a net tangible benefit to the borrower. See Borrower Net Financial Benefit (Policy and Procedures, 6-601).
See FHA Streamline Refinance Transactions
The maximum credit limit of a HELOC must be resubordinated and included in the CLTV calculation
Relocation Guidelines
Allowed
See Relocation Mortgages (Policy and Procedures, 7-706)
See Trailing Spouse/Domestic Partner Income (Policy and Procedures, 7-704)
Resale Restricted Properties
See Resale Restrictions (Policy and Procedures, 7-705):
For legal review process to be followed, and;
To determine eligibility of Resale Restriction and Sponsor:
Allowed for fully amortizing products only, if:
Resale restrictions terminate automatically upon foreclosure or deed-in-lieu of foreclosure, or;
The standard method of calculating the LTV is used, or;
3rd party notification is or is not required
Eligible only as follows:
Primary Residence
Purchase and Rate/Term Refinance transactions
1 unit properties
DU Approve/Eligible or LP Accept
Condominiums, approved per Condominium Approval Methods (Policy and Procedures, 7-705)
LTV calculation:
The standard method of calculating the LTV must be used
Appraisal requirements:
Comparables used must include two (2) properties outside the subdivision/project if in initial sale stage
When resale restrictions terminate automatically upon foreclosure or deed-in-lieu of foreclosure, the appraisal should reflect:
The market value without resale restrictions
The sales price
The following statement: “This appraisal is made on the basis of a hypothetical condition that the property rights being appraised are without resale and other restrictions that are terminated automatically upon the latter of foreclosure or the expiration of any applicable redemption period, or upon recordation of a deed-in-lieu of foreclosure”
The borrower(s) must be made aware of the existence of the resale restrictions. Resale Restriction Notice is to be signed by borrower(s) at loan closing.
Loans must be underwritten by a Director – Mortgage Underwriting or Level III designee
Special Feature Codes – a minimum of one (1), but possibly two (2) Special Feature Codes will apply:
998: Resale restriction terminates automatically and does not use the alternative LTV calculation
997: If third party notification is required
Reserves
See definition of Reserves (Policy and Procedures, 7-701)
Manual Underwriting:
See Non-Traditional Credit in Underwriting/Manual
1-2 units: 1 month PITI in reserves (MLHL requirement)
3-4 units: 3 months PITI in reserves
Minimum of 3 months required in order to use reserves as a compensating factor
Excess gift funds may not be used as reserves
AUS Underwriting:
Documented reserves will be identified by DU/LP
1-2 unit properties: Determined by AUS
3-4 unit properties: Minimum of 3 months reserves required
Loans that do not have sufficient reserves will receive ineligible findings and are not allowed
Excess gift funds may be used as reserves
In determining if an asset can be included as cash reserves or cash to close, the underwriter must judge:
Whether or not the asset is liquid or readily converted to cash and can be converted absent of retirement or job termination
Retirement accounts such as 401(k)s, IRAs, thrift savings plans, etc., may be included in the underwriting analysis up to 60 percent (to account for withdrawal penalties and taxes) of the vested value. 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. Otherwise, the funds can not be considered through FHA TOTAL.
Funds borrowed against these accounts may be used for loan closing, but are not to be considered as cash reserves
“Assets” such as equity in other properties and the proceeds from a Cash-Out Refinance on the subject property are not to be considered as cash reserves
Resident Aliens
See Non-U.S. Citizen
Second Home
Secondary residence must not be a vacation home; must be occupied as a Primary Residence
Only one secondary residence at any time
Permitted only when the regional HOC agrees that an “undue hardship” exists, and affordable rental housing is not available in the area or within reasonable commuting distance to work, see FHA Handbook 4155.1 and 4155.2 for further information. DE lenders can not grant hardship exceptions.
Limited to 85% LTV
Secondary Financing (Subordinate Financing)
CLTV:
Purchase Transactions:
May exceed FHA statutory loan limits if second lien is provided by a government agency or HUD approved non-profit agency
May not exceed 100% of the cost to acquire the property unless government agency provided subordinate financing. If government agency provided subordinate financing, the cost to acquire may exceed the appraised value:
Cost to acquire includes sales price, allowable borrower-paid closing costs, discount points, repair and rehabilitation expenses and prepaid expenses
For refinance transactions with secondary financing, see:
Refinance (Cash-Out)
Refinance (Rate/Term
Subordinate financing can be obtained from::
Government Agency
HUD Approved Non-Profit Agency
Other Organizations and Private Individuals:
FHA statutory loan limits only to the first lien only
CLTV can not exceed applicable LTV ratio
See repayment terms below
Relative:
Defined as a child, parent, grandparent or spouse. Child includes son, stepson, daughter, stepdaughter, legally adopted son or daughter and foster children.
May lend on a secured or unsecured basis, up to 100% of the homebuyer’s required cash investment which may include the down payment, closing costs, prepaid expenses and discount points
CLTV may not exceed 100% of the lesser of the property value or sales price, plus normal closing costs, prepaids and discount points
Relative may borrow the needed funds from an acceptable source or from own savings. Only relative may be the note holder.
Balloon repayment from a relative must be >5 years
No cash back to borrower at closing
Repayment terms:
Fixed rate with scheduled monthly payments of essentially the same level dollar amount each month:
ARMs are not allowed
Interest only payment is not allowed
Balloon repayment must be >10 years
No prepayment penalty after giving lender 30 days advance notice
Executed copy of secondary financing documentation must be in the loan file
Secondary Financing from the advance of a Homebuyer Tax Credit:
Available only to members of the military and certain other federal employees
Sales contract must be signed on or before April 30, 2011 and loan must close/disburse on or before June 30, 2011
Underwriter must condition for final closing date deadline
Branch is responsible for securing Secondary Financing sources and obtaining MLHL approval:
Secondary Financing may be acquired from an eligible federal, state or local government agency or FHA approved non-profit agency
The secondary financing source must be approved per MCC/DPA Approval Guidelines and Procedures. Contact your regional Director – Bank Operations for details:
See MCC/DPA/Grant Program Procedures
Not allowed on loan amounts >$417,000
Borrowers should consult a tax advisor and/or refer to IRS Form 5405 for complete eligibility requirements
Eligible borrowers include first-time homebuyers who have had no property ownership during the three (3) years prior to the closing/disbursement date of the subject loan, including property owned jointly with a spouse
Guidelines include, but are not limited to the following:
Property may not be purchased from a related person or entity
First-time Homebuyers may receive credit up to the lesser of $8,000 or 10% of the purchase price based on IRS calculations. Consult a tax advisor or IRS Form 5405.
Second lien may be a “soft” (silent) with deferred payments:
Payment must be included in ratios if payments are required initially or are deferred less than 36 months
Second Lien may not have a balloon payment due in <10 years
Funds may be used only for down payment, closing costs, and prepaid expenses. No cash back to the borrower.
MLHL will not advance funds through the purchase of Tax Credits
Soft or silent second liens that create a lien against the property must be entered in to TMO as secondary financing and not a gift:
See MCC/DPA/Grant Program Procedures to determine if program approval by Product Communications/Secondary Marketing and assignment of a product code is required for a Community Seconds:
SILENT SECONDS DO NOT REQUIRE A PRODUCT CODE:
Silent Seconds have no scheduled repayments and are forgiven under program guidelines
See Down Payment for Down Payment Assistance treated as secondary financing
Seller/Interested Party Contributions
Seller/Interested party contributions are limited to the lesser of 6% of sales price or appraised value
Seller/Interested party contributions can NOT be applied to the borrower’s minimum down payment requirement
Any costs that are normally the responsibility of the purchaser are considered a contribution if paid by an interested party to the transaction. Contributions such as temporary/permanent interest rate buydowns, payment of condominium fees or contributions to closing costs (including prepaids) or other mortgage financing costs may be paid by interested parties within the limit:
Interested parties include, but are not limited to the builder, property seller, developer and real estate agent
See Fees for advanced payment of HOA dues
See Seller or Interested Party Contributions/Concessions (Policy and Procedures, 7-701)
Source of Funds
All required funds must be verified. See Documentation of Funds (Policy and Procedures, 7-701):
Use Documentation of Funds Worksheet
Acceptable sources of funds include:
Earnest Money
For documentation requirements, see Earnest Money (Policy and Procedures, 7-701)
Bank statement or verification of deposit (VOD) required if deposit amount exceeds 2% of sales price or appears excessive based on borrower’s savings history
Savings and checking accounts
Gift funds
Savings bonds
IRAs and Keogh
Stocks and Bonds
Collateralized loans
See Debts in Underwriting/Manual for prior housing payment and Bridge Loan
HUD-1 proceeds from the sale of a currently owned property
Trade Equity on a currently owned property
Sale of personal property when accompanied by an appraisal or published value estimate
Employer guaranteed relocation proceeds
Employer assistance plans that are not a salary advance
Rent credit when documented per HUD guidelines. See Rent Credit (Policy and Procedures, 7-701).
Commission from the sale of the property, if the borrower is entitled to the commission of the property being purchased
Disaster relief grants and loans
Cash on hand – All of the following apply:
Funds must be deposited and verified in a financial institution or held by the escrow/title company prior to closing,
Budget evidencing ability to accumulate funds,
Letter of explanation from borrower on how funds were accumulated and the amount of time taken to do so,
Underwriter to review reasonableness based on income, time period, spending habits, and no history of using financial institutions
Sweat Equity is not allowed, per MLHL policy
See Down Payment
See Gifts
See Reserves
Tax Deferred Exchange
Investment property only
See Tax Deferred Exchange (Policy and Procedures, 7-701)
Temporary Buydown
Not allowed on ARM
Fixed rate, primary residence, purchase transactions only
Qualification based on note rate
2/1, 1/1 and 1/0 annual buydowns are allowed:
The bought down (effective) rate may never be less than 1%
Temporary buydowns may not result in a reduction of more than two percentage points (2%) below the Note rate
Temporary buydowns may not result in more than a 1% annual increase
Rate buydowns less than the maximum indicated will be allowed in .125% increments
Buydown funds may come from seller, borrowers, or lenders:
Temporary Buydown funds from seller are considered Seller/Interested Party Contributions
Written buydown agreement and schedule must be in the file at submission
See Temporary Buydown Calculator for aid in calculating temporary buydowns:
See Temporary Buydown Instructions for details on how to use the Temporary Buydown Calculator
Term
Fixed: 15 to 30 Year Term
ARM: 30 Year Term
See FHA Streamline Refinance Transactions
Third Party Originations
Correspondent Lender originated allowed
Wholesale allowed:
See Closing Requirements
Wholesale Correspondent allowed:
See Government Loan Purchases (Policy and Procedures, 10-1003)
For Wholesale loans in Colorado, Massachusetts, Minnesota and Nevada, see State Transaction Restrictions (Policy and Procedures, 7-706)
Trusts (Inter Vivos)
Living Trusts are eligible for HUD financing as long as the individual borrower remains beneficiary and occupies the property as a principal residence
See Trust (Policy and Procedures, 7-703)
Underwriting / DU
Approval Levels allowed (Acceptable Findings):
Approve/Eligible required
Credit approvals using 2010 limits must be dated on or after January 1, 2010:
Loans submitted to DU in 2009 using the 2010 loan limits MUST be resubmitted in 2010
3-4 unit properties: Loans that receive an Ineligible finding due to insufficient reserves are not allowed
In counties in which the 2011 loan limit is higher than the 2010 limit, loans will receive an Approve/ineligible due to excessive loan amount until DU is updated:
Ineligible findings due to excessive loan amount are not allowed after DU is updated to reflect the 2011 loan amounts. The timing of the update has not been determined.
Underwriter must confirm accuracy of the loan amount based on 2011 loan limits and indicate confirmation of the loan amount on the Loan Transmittal Summary
Credit approvals using 2011 limits must be dated on or after January 1, 2011
Loans submitted to DU in 2010 using 2011 loan limit MUST be resubmitted in 2011
For loans that receive a Refer recommendation, see Underwriting/Manual
Overlays required regardless of DU Approval:
Retail:
Fixed: 42% housing ratio/50% DTI ratio
ARMs: 38% housing ratio/50% DTI ratio
Wholesale: 36% housing ratio/50% DTI ratio
Housing ratios can be exceeded with documented HUD Compensating Factors and DE Underwriter approval
DTI exceptions will not be allowed
See Credit Score for minimum requirements
Underwriter to determine accuracy of loan amount
Social Security Number(s) must be validated and documented prior to loan approval:
See Case Numbers/Assign for social security number validation
See Documentation for Social Security Number documentation and validation
Verify loan file contains evidence that FHA connection was queried for Multiple Case Numbers
Confirm underwriter’s CHUMS number was manually written on the FHA Underwriting and Loan Transmittal Summary (LT) following the appraisal review
Mortgage Insurance:
See Mortgage Insurance
DU Findings will provide the UFMIP and monthly premium
The underwriter must confirm the accuracy of the UFMIP
Base loan amount plus financed UFMIP can not exceed 97.50% of the appraised value:
DU Procedures:
See ARM Plan Numbers for TMO or DU on the Web
See Appraisal for DU purchase and refinance valuation messaging
For all other requirements, see Underwriting/Manual
Underwriting / LP
Approval Levels allowed (Acceptable Findings):
Accept/Eligible required
3-4 unit properties: Loans that receive an Ineligible finding due to insufficient reserves are not allowed
Accept/Ineligible due to excessive loan amount is allowed only if loan amount is within acceptable limits. See Loan Amount/LTV.
In counties in which the 2011 loan limit is higher than the 2010 limit, loans will receive an Accept/Ineligible due to excessive loan amount until LP is updated
LP is scheduled to be updated on January 2, 2011
Loans that are submitted to LP prior to the update must be resubmitted and must receive Accept/Eligible findings
Credit approvals using 2011 limits must be dated on or after January 1, 2010
For loans that receive a Refer recommendation, see Underwriting/Manual
Overlays required regardless of LP Approval:
Retail:
Fixed: 42% housing ratio/50% DTI ratio
ARMs: 38% housing ratio/50% DTI ratio
Wholesale: 36% housing ratio/50% DTI ratio
Housing ratios can be exceeded with documented HUD Compensating Factors and DE Underwriter approval
DTI exceptions will not be allowed
See Credit Score for minimum requirements
Underwriter to determine accuracy of loan amount
Social Security Number(s) must be validated and documented prior to loan approval:
See Case Numbers/Assign for social security number validation
See Documentation for Social Security Number documentation and validation
Verify loan file contains evidence that FHA connection was queried for Multiple Case Numbers
Confirm underwriter’s CHUMS number was manually written on the FHA Underwriting and Loan Transmittal Summary (LT) following the appraisal review
The Loan Prospector Feedback Certificate will provide Home Value Explorer (HVE) Point Value Estimate data on one (1) unit properties, if available
Loans that receive the following feedback message must follow MLHL’s existing guidelines for AUS Messages Related to Excessive Property Valuation Retail or Wholesale (Policy and Procedures, 7-705):
Message Code: Y6
Feedback Message: Review for Accuracy: The Estimated Value of Property or Net Purchase Price submitted for this transaction may be excessive for the local market. The appraisal should be carefully reviewed for this transaction.
Mortgage Insurance:
See Mortgage Insurance
LP Findings will provide the UFMIP and monthly premium
The underwriter must confirm the accuracy of the UFMIP
Base loan amount plus financed UFMIP can not exceed 97.50% of the appraised value:
LP Procedures:
See Appraisal for LP purchase and refinance valuation messaging
For all other requirements, see Underwriting/Manual
Underwriting / Manual
Manual
Underwriting Flip
Transactions Income Assets Credit Debts Additional
Information
Manual Underwriting:
Required for the following:
Refer Findings
Erroneous Credit
Streamline Refinance transactions
In counties in which the 2011 loan limit exceeds the 2010 limit, Underwriter must confirm accuracy of the loan amount based on 2011 loan limits and indicate confirmation of the loan amount on the Loan Transmittal Summary
Credit approvals using 2011 limits must be dated on or after January 1, 2011
All borrowers must be screened using the CAIVRS system (except streamline refinances):
Access CAIVRS via the FHA Connection
CAIVRS authorization code for each borrower must be on the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT) for FHA refi and non-owner occupied in series UO4P300
If CAIVRS indicates the borrower is presently delinquent, has a debt owed to the Federal Government, or has had a claim paid within the previous three years on a loan made or insured by HUD, the borrower is not eligible
Exceptions may be granted under the following circumstances:
Assumptions: If the borrower sold the property, with or without a release of liability, to a mortgagor who subsequently defaulted, an exception can be made as long as the borrower was not in default at the time of the assumption
Divorce: A borrower may be eligible if the divorce decree or legal separation agreement awarded the property to the former spouse. If a claim was paid on a mortgage at the time of the divorce, the borrower is not eligible.
Bankruptcy: The property was included in bankruptcy caused by circumstances beyond the borrower’s control
Interthinx FraudGUARD (previously LPD/GSA Lists)
Effective for applications dated (Retail) or loan numbers assigned in TMO (Wholesale) on or after November 15, 2010
Interthinx FraudGUARD report is required for all loans:
Processor/Coordinator must order the report prior to initial submission to Underwriting
Underwriter/Decisioner orders refreshed report prior to final approval
Closer orders a refreshed report prior to drawing closing documents and no more than 10 calendar days before the date closing documents are signed by the borrower
Loans with more than four borrowers:
Order a second report with the remaining borrowers by entering the loan number with a two in place of the leading zero
See Interthinx FraudGUARD (Policy and Procedures, 6-601) for additional guidelines
Effective for applications dated (Retail) or loan numbers assigned in TMO (Wholesale) prior to November 15, 2010
MLHL must ensure that NO PARTY TO THE TRANSACTION appears on either the “Limited Denial of Participation” (LDP) or the “Government Services Administration List of Parties Excluded from Federal Procurement or Nonprocurement Programs” (GSA):
If the name of the borrower, seller, listing/selling real estate agents or loan officers appears on either list, the loan is not eligible for mortgage insurance:
The posted date should be entered for LPD/GSA on screen @O4S092 and TMO will indicate “Yes” on the Loan Transmittal Summary
If seller’s name appears on the LDP list and the property being sold is the seller’s Primary Residence, an exception can be made to continue
If all parties involved in transaction do NOT appear on the list, the field for LDP/GSA on screen @O4S092 should remain void:
DO NOT type anything in this field. TMO will indicate “No” on the Loan Transmittal Summary.
See HUD website to access LDP
See Excluded Parties List System to access GSA
Mortgage Insurance Premiums (MIP)
All loans to borrowers with a credit score must be submitted to DU/LP prior to manual underwriting:
See Mortgage Insurance
DU/LP Findings will provide the UFMIP and Annual Premium
The underwriter must confirm the accuracy of the UFMIP
Base loan amount plus financed UFMIP can not exceed 97.50% of the appraised value:
UFMIP and Annual (Monthly) Premiums for manually underwritten loans will be the same as for DU/LP Approved loans
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Flip Transactions
See Flip Transactions (Policy and Procedures, 7-707)
Buying and selling properties for a considerable profit within a short period is considered “property flipping”
If seller can not be identified as an approved entity, the loan is not eligible for the 90 day exemption. This includes sellers who are:
Mortgage Insurance companies
Trust or an LLC transferred back to individual name with no change in value
Entry required in FHA Connection:
In the Prior Sale Information section of the Appraisal Logging Screen, select one of the following from the dropdown menu:
Prior Sale/Transfer within 3 Years
Foreclosure within 3 Years
No Sale/Transfer within 3 Years
If either the Prior Sale or Foreclosure options are selected, enter the following information:
Date of Prior Sale/Transfer
Price of Prior Sale/Transfer
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Income:
See Income (Policy and Procedures, 7-704)
See Trailing Spouse/Domestic Partner Income (Policy and Procedures, 7-704)
See Energy Efficient Mortgage
Rental Income:
Rental of existing Primary Residence:
Rental income from a vacated Primary Residence may not be considered as qualifying income except under either of the following circumstances:
Relocations:
Relocating with new employer, or being transferred by current employer to an area not within reasonable and locally recognized commuting distance
Properly executed lease agreement, signed by homebuyer and lessee, for at least one year’s duration after the subject loan is closed
Evidence the security deposit and/or first month’s rent was paid to the homeowner
Gross rental income must be reduced by the appropriate vacancy factor as determined by the regional FHA Homeownership Center. See Vacancy, Collection and Maintenance Cost Factors.
Sufficient Equity in Vacated Property:
LTV <75% as determined by either an appraisal (<6 months old) OR by calculating the LTV using the unpaid principal balance and the original sales price
Full appraisal or exterior-only appraisal acceptable
Gross rental income must be reduced by the appropriate vacancy factor as determined by the regional FHA Homeownership Center. See Vacancy, Collection and Maintenance Cost Factors.
If existing Primary Residence is insured by FHA, eligibility for a second FHA insured mortgage can only occur under the exemptions described in FHA Handbook 4155.1 and 4155.2
Existing rental property:
Two years signed tax returns required. Depreciation may be added back to the net income or loss shown on Schedule E.
If property was acquired since the last income tax filing and not shown on Schedule E, a current signed lease or other rental agreement must be provided:
Gross rental income must be reduced for vacancies and maintenance. See Vacancy, Collection and Maintenance Cost Factors.
A separate schedule of real estate is not required provided all properties are shown on the Uniform Residential Loan Application (URLA)
Rent received from additional units in a 2-4 unit owner occupied property may be used for qualifying purposes. See Investment Properties
If borrower owns >6 units, a map disclosing the locations must be submitted evidencing compliance with 7-unit limitation. See Number of Properties.
Boarder Income is acceptable if related by blood, marriage or law
Income can be considered if shown on the borrower’s last two years tax returns. If not shown on tax returns, can only be used as a compensating factor if adequately documented.
Non-Taxable Income:
If the source of income is not subject to federal taxes (e.g., certain types of disability and public assistance payments, etc.), the amount of continuing tax savings attributable to the non-taxable income source may be added to the borrower’s gross income:
The percentage of income that may be added may not exceed the appropriate tax rate for that income amount. Additional allowances for dependents are not acceptable:
If borrower is not required to file a federal income tax return, the tax rate to use is 25%
The underwriter must document and support the adjustments made (i.e., the amount the income is “grossed-up”) for any non-taxable income source
See Child Support – (Policy and Procedures, 7-704):
Properly documented child support may be grossed up under the same terms and conditions as other non-taxable income sources
Periods less than 12 months may be acceptable, provided the payer’s ability and willingness to make timely payments is adequately documented
See Non-taxable Income (Policy and Procedures, 7-704)
Mortgage Credit Certificate (MCC):
See Mortgage Credit Certificate (Policy and Procedures, 6-601 and 7-704)
Subsidy can be considered as acceptable income if verified in writing
It can either be added to the gross income or used to directly offset the mortgage payment before calculating the qualifying ratio
A copy of the MCC is required in the loan file
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Assets:
See Assets (Policy and Procedures, 7-701)
See Down Payment
See Gifts
See Source of Funds
See Reserves
Credit:
For Credit History, see:
Credit Score for minimum requirements:
For loans with one or more borrower(s) without a credit score, see Non-Traditional Credit guidelines
Credit History (Policy and Procedures, 7-702)
Credit (Policy and Procedures, 7-702)
Credit Report Requirements:
To prevent identity theft, credit reports that reflect only a portion of the Borrower’s social security number are acceptable:
The loan application must include the full nine digit social security number
A “Three Repository merged” (TRMCR) is the minimum credit report required
A Residential Mortgage Credit Report (RMCR) is required if:
Borrower(s) dispute accounts on the Three Repository Merged Credit Report (TRMCR) as not his/hers/theirs
The borrower(s) claim that collections, judgments or liens reflected as open on the TRMCR have been paid and can NOT provide separate documentation to support
The borrower claims that certain debts shown on the TRMCR have different balances and/or payments, but can NOT provide current statements (less than 30 days old) to support
The underwriter determines that it would be prudent to use a RMCR in lieu of a three repository merged report to properly underwrite the loan
Lenders must retain in the file copies of each credit report ordered for each borrower. Any discrepancies between the credit reports must be noted and inconsistencies reconciled.
Non-Traditional Credit is allowed and must be developed for borrowers without an established credit history, or borrowers who do not use traditional credit:
Wholesale only: At least one occupying borrower must have traditional credit and meet the minimum credit score requirement per product guidelines
Non-traditional credit references should be verified by the credit bureau and reported on a non traditional credit report (NTMRC) in the same manner as traditional credit references
Actual credit score must be entered in TMO and justification for loan approval documented:
For borrowers with non-traditional credit, enter “222”
See Non-Traditional Credit (Policy and Procedures, 7-702) for Tier I, II or III documentation requirements
Tier I credit references must be exhausted prior to considering credit in Tier II or III
12-month credit history must include:
0x30 day late on housing payment history
Only 1×30 day late on Tier II references
No collection accounts/court records reported (other than medical) within past 12 months
Underwriting requirements are:
31%/43% ratios based only on borrowers occupying the property and obligated on the loan. Co-signer or non-occupant borrower’s income is not considered.
Compensating factors not allowed
2-months cash reserves required from borrower’s own funds (cash gift from any source is not allowed)
Review and final approval by Director – Mortgage Underwriting or Level 3 Underwriter required
DU/LP Refer Findings:
See Credit Score for underwriting requirements
Compensating Factors are required to justify loan approval. Acceptable compensating factors are as follows:
Demonstrated ability to pay housing expenses equal to (or minimal increase) greater then the proposed new monthly expense
Investing 10% or more down payment toward the purchase
Demonstrated ability to accumulate savings and a conservative attitude toward credit use
Substantial cash reserves (at least three months PITI) after closing. See Reserves.
Previous credit history reflects borrower’s ability to devote a greater portion of income to housing expenses
Receives documented compensation/income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits
Substantial non-taxable income (if no adjustment made previously in the ratio computations)
Potential for increased earnings, as indicated by job training or education in borrower’s profession
Home being purchased is a result of the relocation of primary wage-earner and the secondary wage-earner has an established history of employment, is expected to return to work and there are reasonable prospects for securing employment in a similar occupation in the new area. Availability of potential employment opportunities must be documented.
Underwriters must state in “remarks” section of the Loan Underwriting and Transmittal Summary (LT) (TMO packets UO4P304 and UO4P305 for FHA refi and non-owner occupied) the compensating factors/ justification to support loan approval. Applicable documentation must be in file.
FHA Denied Loans:
The DE Underwriters must complete the Mortgage Credit Reject screen in FHA Connection for all FHA denied applications
See Case Numbers
See General Underwriting Policy (Policy and Procedures, 8-801)
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Debts:
Manually underwritten loans must be reviewed by underwriter to determine acceptability of risk
Retail: >31% housing ratio or >43% to <50% DTI allowed with Compensating Factors.
Wholesale: >31% housing ratio/43% DTI
Housing ratios can be exceeded with documented HUD Compensating Factors and DE Underwriter approval
DTI exceptions will not be allowed
See Ratios/Qualifying Rate for ARM loans:
Borrowers should exhibit the potential for increase in earning to offset the potential increases in interest rates and payments
Exclusion of Debts:
Installment loans with <10 months remaining, however, payments more than $100 must be counted if amount of debt affects the borrower’s ability to make the mortgage payments during the months immediately after loan closing
Revolving debts may not be excluded from the debt ratio regardless of number of months remaining
Student loans with deferred payments greater than 12 months from date of closing do not have to be included in the DTI
Community Property States:
If the divorce decree awarded the property and responsibility for payment to the former spouse, the underwriter must:
Determine that the file contains adequate evidence to exclude the debt and disregard any late payments, if applicable
All other debts may be excluded with a copy of the divorce decree
Federal Debt:
Delinquencies on ANY federal debt such as student loan, SBA Loan, delinquent Federal Taxes, he/she is not eligible for FHA financing until the debt is satisfied, brought current, or a satisfactory repayment plan is made between the borrower and the Federal Agency owed. Verification must be in writing.
Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA insured mortgage. If scheduled repayments are to be made, the payment must be included in the qualifying ratios.
Prior housing payment and Bridge Loans:
Existing property PITI, HOA dues, and Bridge Loan payment must be included in DTI ratio unless sale of existing property will close prior to or simultaneously with this transaction
See Debts (Policy and Procedures, 7-702)
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Additional Information:
The FHA Resource Center is available for assistance via telephone (800/225-5342) or email (hud@custhelp.com)
Property Taxes for New Construction:
Realistic property tax estimates that reflect the total value of land and improvements once they are assessed by the local government must be used when qualifying the borrower. Such estimates may be obtained from reliable sources such as the appraiser, comparable sales data, or the assessor’s office.
Verify loan file contains evidence that FHA connection was queried for Multiple Case Numbers
See Interthinx FraudGUARD (Policy and Procedures, 6-601) for additional guidelines
Confirm underwriter’s CHUMS number was manually written on the FHA Underwriting and Transmittal Summary (LT) following the appraisal review
Confirm verbal verification of employment (VVOE) was completed within ten calendar days of the date closing documents are signed
See Verbal Verifications (Policy and Procedures, 7-707)
See Case Numbers/Assign for social security number validation:
Loan can not be approved without validation documentation
See Credit Score for minimum requirements
See Documentation for Social Security Number documentation and validation
See Fees for acceptable/unacceptable fees
See Non-Occupant Co-Borrower requirements
See Refinance (Cash-Out) for LTV limitation
See Seller/Interested Party Contributions
See Temporary Buydown for requirements
Energy Efficient Mortgagees:
The following loans must be identified in TMO as an Energy Efficient Mortgage by entering a “Y” in the “Is this an Energy Efficient Mortgage?” field on the @O4S91A screen in TMO:
Any loan for new construction in which energy efficient improvements are financed, regardless of whether the borrower needs the expanded underwriting criteria to qualify
Any loan that is processed, underwritten and closed as an Energy Efficient Mortgage
For Wholesale loans in Colorado, Massachusetts, Minnesota and Nevada, see State Transaction Restrictions (Policy and Procedures, 7-706)
Closing / Servicing
Advance Mortgage Payments
Requiring advance mortgage payments is prohibited as a condition for approving FHA loans. Borrowers are not allowed to write post-dated checks, give cash, or otherwise make mortgage payments in advance of the borrowers mortgage payment requirements under the security instrument.
Assumability
HUD has placed certain restrictions on the assumability of insured mortgages originated since 1986. Depending on the date of loan origination, a creditworthiness review of the assumptor by HUD or the DE underwriter may be required. Mortgages originated:
before December 1, 1986, generally contain no restrictions on assumability.
on or after that date may require a creditworthiness review of the assumptor or contain other requirements.
Any person assuming an insured mortgage subject to the HUD Reform Act of 1989 must be found creditworthy by HUD of a DE lender. This policy applies to borrowers who take title to the property subject to the mortgage without assuming personal liability for the debt and to those borrowers who assume and agree to pay the mortgage.
Closing Requirements
Closing documents to be drawn by MLHL on TMO
For mortgage payoff requirements, see FHA Processor and Closer Checklist in FHA (Policy and Procedures, 6-602)
Closing Costs:
See Fees for allowable/non-allowable fees
Interest credits are allowed:
See Interest Credit (Policy and Procedures, 8-801)
Per diem interest is calculated on a 365 day year:
See Interest – Per Diem Calculation (Policy and Procedures, 8-802)
Loans must be processed and closed using Borrower(s) legal name. The name recognized by FHA Connection is the name under which the loan must be processed and closed.
Closer or Funder must confirm the verbal verification of employment was completed within ten calendar days of the date closing documents are signed
See Salaried Verbal Verification or Self-Employed/Non-Salaried Verbal Verification
See Verbal Verifications
See Interthinx FraudGUARD (Policy and Procedures, 6-601) for additional guidelines
See Non-Borrowing Spouse (Policy and Procedures, 8-801)
New constructions with multiple contracts are subject to:
Amended escrow instructions detailing purchase price and all upgrade contracts to equal total acquisition costs
HUD-1 reflecting sales contract price and upgrade contract(s) cost as separate line items
Total acquisition cost must be identified as purchase price in TMO, FHA Connection and AUS
See Sales Contract / Purchase Contract (Policy and Procedures, 7-707)
See Down Payment for closing requirements if loan includes a Down Payment Assistance (DPA)
Wholesale:
Closing documents to be drawn by MLHL on TMO
MLHL can draw closing documents in Broker’s name:
If Broker has been approved to draw their own documents, see Broker Drawn Documents (Policy and Procedures, 8-801)
Documents must meet the requirements as indicated in the Legal Documents and Disclosures (Closing) sections
See Yield Spread Premium (Policy and Procedures, 8-801)
Appraisal:
For additional closing/post closing requirements, see Appraisal
MLHL Closing Policies must be followed. See Closing General Requirements (Policy and Procedures, 8-801). This section includes but is not limited to the following:
Community Property States
Escrows/ Impounds
Hazard and Flood Insurance
HUD-1 Settlement Statement
Insured Closing Letters
Interest Credits
Loan Amount
New York Modification Requirements
Power of Attorney
Right of Rescission
Signature Requirements
Surveys
Third Party Service Provider Fees
Title Insurance
Well, Septic & Termite
For additional closing and funding requirements:
See Internal Procedures (Policy and Procedures, 8-802)
See Funding (Policy and Procedures, 8-803)
See Delivery (Policy and Procedures, 8-804)
Flood Insurance Requirements:
New Construction:
Floodplain requirements for new constructed 1-4 unit dwellings are listed below:
The lender must determine if the property improvements (dwelling and related structures/equipment essential to the value of the project and subject to flood damage) are located in the 100-year floodplain as designated by FEMA maps
If the property improvements are in the 100-year floodplain, before submitting for insuring to HUD, the lender must obtain one of the following:
Final Letter of Map Amendment (LOMA)
Final Letter of Map Revision (LOMR)
Elevation Certificate signed by the builder documenting that the lowest floor (including basement) of the property improvements is built at or above the 100-year flood elevation in compliance with National Flood Insurance program criteria
The signed Elevation Certificate must be submitted with the Builder’s Certification of Plans, Specifications, and Site (HUD-92541 2/99)
Flood insurance is required when an Elevation Certificate is obtained because the property is still located in a flood plain
Flood insurance is not required if a LOMA or LOMR is provided covering the site location
Existing Construction:
Standard FHA requirements
Subterranean Termite Treatment Builder’s Certification and Guarantee:
Builder’s Guarantee – For all new homes, HUD forms: NPCA-99-A and 99-B or NPMA-99-A and 99-B must be completed by the builder and provided to MLHL at closing. The builder is required (effective 4/28/01) to disclose the following:
If builder is using pressure preservatively treated wood, the box next to “Wood” on Form NPCA-99-A must be checked and add the statement “Complies with Mortgagee Letter 2001-04 for use of preservatively treated wood”
If building does not require termite protection, such as when using all steel, masonry, or concrete building components, in the space at the right of the “Soil” box on Form NPCA-99-A, add the statement “Masonry (steel, or concrete) construction, no treatment needed. Complies with Mortgagee Letter 2001-04.”
New Construction Subterranean Termite Soil Treatment Report – If the property is treated with a soil termiticide, the Report must be completed by the licensed pest control company and provided to MLHL at closing
For additional information, see Well, Septic and Termite (Policy and Procedures, 8-801).
Temporary Buydown Agreement:
If applicable, must be fully executed at closing
Power of Attorney (P.O.A.):
Power of Attorney may be used , including page 4 of the Addendum to the URLA and the final URLA if it is signed at closing. See Power of Attorney (Policy and Procedures, 8-801).
Escrows
Required except where prohibited by law
No waivers allowed
Escrows must conform to RESPA “Escrow Accounting Procedures” under the “Aggregate at Closing” method and must be reflected on the HUD-1
Legal Documents
See Legal Documents Matrix
Servicing (Released/Retained)
Retained
Late charge: 4%/ 15 days
MLHL’s Investor Code: Not applicable
MF_CAT:
MFCAT
DESCRIPTION
30F FHA 20, 25, 30 yr Fixed
30FBD FHA 20, 25, 30 yr Fixed with Buydown
15F FHA 15 yr Fixed
15FBD FHA 15 yr Fixed with Buydown
F30J FHA 30 yr Fixed (>$417,000/conforming limit) > 15 & <=30 yr term
30FBJ FHA 30 yr Fixed w/Buydown (>$417,000/conforming limit) > 15 & <=30 yr term
5R2B FHA REO 15 yr Fixed 203(b)
3R2B FHA REO 30 yr Fixed 203(b)
RE3J FHA REO 30 yr Fixed (>$417,000/conforming limit)
F200 FHA 1 yr Treasury ARM with 2.00 Margin (1/1/5 caps)
F225 FHA 1 yr Treasury ARM with 2.25 Margin (1/1/5 caps)
FH32 FHA 3/1 Treasury ARM with 2.00 Margin (1/1/5 caps)
F325 FHA 3/1 Treasury ARM with 2.25 Margin (1/1/5 caps)
FH75 FHA 5/1 Treasury ARM with 1.75 Margin (1/1/5 caps)
F175 FHA 5/1 Treasury ARM with 1.75 Margin (2/2/6 caps)
FA25 FHA 5/1 Treasury ARM with 2.25 Margin (2/2/6 caps)
FH25 FHA 5/1 Treasury ARM with 2.25 Margin (1/1/5 caps)
F725 FHA 7/1 Treasury ARM with 2.25 Margin (2/2/6 caps)
COP1 HUD’s “Good Neighbor Next Door” 30 yr Fixed
COP5 HUD’s “Good Neighbor Next Door” 15 yr Fixed
C200 HUD’s “Good Neighbor Next Door” ARM w/ 2.00 Margin
C225 HUD’s “Good Neighbor Next Door” ARM w/ 2.25 Margin
Codes
Doc Type – TMO
DOC TYPE
DESCRIPTION
1
Full/Alt Doc
MF_CAT
See Servicing
Program Codes
See Program Codes
Special Feature Codes
Not applicable
Disclosures / Exhibits
Attachments
FHA Streamline Refinance Transaction
FHA Good Neighbor Next Door
FHA REO Guidelines
Disclosures (Application)
Application disclosures must be provided to the applicant(s) within three (3) business days of the receipt of the application. See Application (Policy and Procedures, 6-601).
For disclosure requirements at application, see the following section in Disclosures-Application (Policy and Procedures, 6-601):
Retail Application Disclosure Instructions:
Additional Information on FHA Disclosures
Wholesale Application Disclosure Instructions:
Additional Information on FHA Disclosures
Additional program disclosures are as follows:
Adjustable Rate Mortgages – FHA 1 Year Treasury ARM 2.00 Margin (1/1/5 caps)
Adjustable Rate Mortgages – FHA 1 Year Treasury ARM 2.25 Margin (1/1/5 caps)
Adjustable Rate Mortgages – FHA 3/1 Treasury ARM 2.00 Margin (1/1/5 caps)
Adjustable Rate Mortgages – FHA 3/1 Treasury ARM 2.25 Margin (1/1/5 caps)
Adjustable Rate Mortgages – FHA 5/1 Treasury ARM 1.75 Margin (1/1/5 caps)
Adjustable Rate Mortgages – FHA 5/1 Treasury ARM 2.25 Margin (2/2/6 caps)
Adjustable Rate Mortgages – FHA 5/1 Treasury ARM 1.75 Margin (2/2/6 caps)
Adjustable Rate Mortgages – FHA 5/1 Treasury ARM 2.25 Margin (1/1/5 caps)
Adjustable Rate Mortgages – FHA 7/1 Treasury ARM 2.25 Margin (2/2/6 caps)
Disclosure must be signed by borrower(s)
Disclosures (Closing)
For disclosure requirements at closing, see the following sections in Disclosures-Application (Policy and Procedures, 6-601):
Retail
Wholesale
Exhibits
ARM Plan Numbers
TMO
DU on the Web
Blanket Certification of Original Documents
Checklist for Spot Loan Approvals
Documentation of Funds Worksheet
FHA Connection Guide
FHA Handbook 4155.1
FHA Handbook 4155.2
FHA Processor and Closer Checklist
FHA Proposed / Under Construction <=90% Complete Documentation Checklist
FHA New Construction Property >90% Complete Documentation Checklist
FHA Existing / New Construction 100% Complete <1 Year Old Documentation Checklist
FHA Refinance Comparison
FHA Rate/Term Refinance Worksheet
FHA Cash-Out Refinance Worksheet
FHA Streamline Refinance Maximum Mortgage Calculator
FHA Building On Own Land Worksheet
Government 1 Yr ARM Interest Rate Change Date Matrix
Government 3/1 ARM Interest Rate Change Date Matrix
Government 5/1 ARM Interest Rate Change Date Matrix
Government 7/1 ARM interest Rate Change Date matrix
IRS Form 5405
List of Closing Costs Average by State
Loan Underwriting and Transmittal Summary (HUD-92900-LT)
Salaried Verbal Verification
Sample Gift Letter
Section 32 Worksheet
Self-Employed/Non-Salaried Verbal Verification
Temporary Buydown Calculator
Temporary Buydown Instructions
Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.
