Written by : Glenn Michaels, Op-Ed Writer
My previous two articles were about the changes taking place at the FHA with the replacement of HUD – 4155.1 and HUD – 4155.2 and numerous Mortgagee Letters with the Single Family Handbook (SFH) 4000.1 below are additional changes that everyone needs to be aware of.
Required Document Standards: The new manual introduces new documentation requirements for cash out refinances, no cash out refinances, simple refinances, and streamline refinances. The new guidelines require specific documentation to evidence occupancy requirements and the maximum mortgage amount. Lenders must review the borrower’s employment documentation or obtain utility bills to evidence occupancy requirements. Next, if the mortgage on the property is not being reported on the borrower’s credit report or is not in the name of the borrower evidence is required to show that the borrower has paid the mortgage on time for the previous twelve (12) months. Finally lenders must receive the payoff statement for each mortgage of record on the property relating to the maximum mortgage amount.
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Underwriting: There are many changes to underwriting and the Single Family Handbook clarifies more items and removes the lender’s discretion. The Single Family Handbook makes changes to the age of documentation, credit analysis, the treatment of liabilities and projected liabilities, employment and income documentation and earnest money and cash to close requirements.
Age of Documentation: All documentation is good for 120 days regardless if the property is new or existing construction. The date we use is the disbursement date. The disbursement date differs if the transaction is refinance or if the property is in a Deed of Trust state. Remember there is a three (3) day Right of Rescission on refinance transactions and in Deed of Trust states there is a “dry” closing followed by a “wet” closing. Remember the expiration date is now the date of disbursement not the actual date of closing unless the funds are disbursed at the closing.
Credit Analysis: The new Single Family Handbook changes the credit analysis . The handbook defines “major derogatory credit” and alters when a non – traditional mortgage credit report is required.
Major Derogatory Credit: The current handbooks do not define what a “major derogatory credit” item is. The new Single Family Handbook now does define it. Under the new rules”major derogatory credit” is now payments made more than 90 days after the due date or three or more payments made more than 60 days after the due date.
Non – traditional Mortgage Credit Report (NTMCR): This is used whenever a lender uses alternative credit items to qualify a borrower. Alternative credit may include a review of the borrower public records check, verification of credit information from published addresses and telephone numbers and copies of the most recent 12 months of canceled checks or equivalent proof of Payment.
Treatment of Liabilities and Projected Obligations: The new handbook alters the treatment of recurring debt deferred debt, medical debt, alimony, child support and revolving accounts. Changes to the treatment of recurring debt and deferred debt are discussed more in depth.
Recurring Debt: Currently the guidelines allow a lender not to count the installment debt payment to the debt to income ratio if there is 10 months or less remaining on the debt. The new handbook made a change to this rule. If an installment debt has 10 months or less left on the loan or if the monthly payment is 5% or the borrowers monthly gross income the debt does not count in the debt to income calculation. The borrower may not pay down the debt to not count the debt in the qualifying ratios.
Deferred debt: The current rule allows the exclusion of the debt if a loan is deferred 12 months or more. The new handbook requires lenders to include all deferred accounts in the qualifying ratios regardless of the time of the deferment. Lenders must use either the stated payment amount or 5% of the balance fir qualifying purposes.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
