FHA Streamline Refinance Training
FHA STREAMLINE Training Offered by… FIRST MORTGAGE CORPORATION September 11, 2014 Desktop Underwriter is a registered trademark of Fannie Mae. Loan Prospector is a registered trademark of Freddie Mac. This presentation is a summary and is not complete. This information is for mortgage professionals only and should not be distributed to or used by consumers or other third-parties. Information is accurate as of the date shown below and is subject to change without notice. 9/11/2014 AGENDA What is an “FHA Streamline” refinance? FHA Streamline Refinance Program Purpose of the Program Program Guidelines Origination Process Flow Pricing Resources FMC Support Understanding FHA Streamlines – How we do it… What is an FHA Streamline Refinance? FHA Streamline Refinances are FHA-to-FHA rate & term refinances designed to reduce the borrower’s principal and interest payment. FHA offers the following types of processing: NO credit qualifying Streamline Credit qualifying Streamline Streamline withOUT an appraisal Streamline with an appraisal The FHA Streamline refinance option is only available to FHA customers, who have demonstrated the ability to repay their mortgage, and have verified their income and assets as part of their original loan. As a result, these borrowers may qualify to refinance without re-verifying their: o Income (Verbal VOE only) o Assets (only enough for funds to close if necessary) o Credit Rating (Unless doing full credit qualify) Understanding FHA Streamlines – How we do it… Purpose and Requirements Purpose To lower the monthly P&I on a current FHA-insured mortgage. Basic Guidelines The mortgage must already be a 203(b) FHA-insured mortgage At time of application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced Borrower’s must be current on the loan being refinanced for the month due PRIOR to the closing month For mortgage histories < 12 months, all payments must be made within the month due For mortgage histories > 12 months, no more than 1x30 late in the preceding 12 months; 0x30 in the previous 3 months from date of application Cash back to the borrower is not allowed Exception – minor adjustments at closing and may not exceed $500 Occupancy of Former Investment Property < 12 months prior to loan application date is NOT ALLOWED as a Streamline Refinance; must be done as R&T to max 85% LTV Understanding FHA Streamlines – How we do it… Net Tangible Benefit Topic Description Net Tangible Benefit – Streamline Refinances Calculation of Net Tangible Benefit is based on the Principal and Interest (P&I) and Mortgage Insurance Premium (MIP) Do not include Taxes and Insurance Net tangible benefit to the borrower is defined as: Note: A 5% reduction to the P&I of the mortgage payment PLUS the Annual MIP OR Refinance from an ARM to a fixed mortgage Reducing term of the loan in itself is NOT a tangible benefit. When refinancing to a HYBRID ARM, it may be considered a fixed rate mortgage *** See table on next page for clarification *** Understanding FHA Streamlines – How we do it… Certifications and Verifications Topic Description (SEE FMC OVERLAYS next slide…) Certifications & Verifications FHA allows the use of the abbreviated version of the URLA on NON-CREDIT QUALIFYING refinances ONLY See FMC Overlays on Next Slide Assets – Must complete assets section ONLY if assets are needed to close Sections IV, V, VI, VIII(a) – VIII(k) are left blank List on 1003 and provide verification of seasoned assets Source all large deposits Additional changes: Borrower must be current on mortgage being refinanced 12 month mortgage history required NO fico score required; if provided, must be entered into FHA Connection and/or may result in counter to full credit qualify Up to 60 days of interest can be included in the payoff at closing Understanding FHA Streamlines – How we do it… Certifications and Verifications Cont’d… FMC OVERLAYS Certifications & Verifications For FMC serviced loans, we will allow the use of the abbreviated version as stated above. For non-FMC serviced loans, we require Form 12122L 06/2011 which is a Certification of Employment addendum just to verify borrower is employed. This is done by an FMC employee Prior to Docs Borrower employment information is required on 1003 AVM’s required on Manufactured Homes - Effective October 1, 2012 verifying a max LTV of 125% Waived for borrower’s who meet the Net Tangible Benefit plus an additional $150 or more in NTB Property Inspections required for occupancy – NON FMC NOO loans ONLY • Property Inspection to verify property is occupied (not vacant) via a photo (only) from an outside agency, PLUS • Two (2) Current utility bills required with ALL FHA Streamlines • A water/trash bill is unacceptable as the main bill Property must be occupied; vacant properties are not allowed Understanding FHA Streamlines – How we do it… Additional Guidelines • In instances where there is a subordinate lien, the entire secondary lien amount must be included for the calculation of the CLTV. o For closed end seconds the original balance is used o For HELOCs, the full line amount must be considered for maximum financing. • FHA has implemented other changes to non-credit qualifying streamline refinance transactions such as a 6 month seasoning requirement to offset additional risk. o At least six payments must have been made by the due date as well as 210 days passed from the closing date of the mortgage to meet the minimum non-qualifying streamline refinance requirements. • Note that an appraisal may no longer be obtained in order to finance additional costs incurred with a NON-credit qualifying streamline refinance. o The current loan balance may only be increased by the new MIP. o BOTH an appraisal and full credit qualifying will be required to increase the loan balance to include closing costs or prepaid items Understanding FHA Streamlines – How we do it… Certifications and Verifications Topic Description Use of TOTAL Scorecard DO NOT use TOTAL Scorecard or DU on Streamline Refinances Maximum insurable amount – Non-Credit Qualifying Streamline Refinances The new BASE loan amount cannot exceed the original loan amount with UFMIP An Appraisal may no longer be obtained to finance additional costs into the new loan, beyond the sum of the outstanding principal balance plus new Up-Front MIP. Current loan may only be increased by the new MIP Exception allowed if doing a Full Credit qualify only No Credit Qualifying Streamlines Cannot add closing costs, discount items, prepaid items, or other financing costs to the new loan balance Full Credit Qualifying Streamlines WITH Appraisal Can increase insurable amount beyond outstanding principal balance plus new UFMIP If TOTAL Scorecard is used, the loan must be underwritten and closed as a rate & term (no cash out) refinance transaction Understanding FHA Streamlines – How we do it… Basic Underwriting Guidelines Minimum Credit Score Program 07: None – follow 4155.1 Chapter 6 Section C & ML 2009-32 Program FG: Minimum 620* Credit Report FMC does NOT require a credit report (Program ….07 only) except for credit qualifying streamlines If a credit report was pulled, available credit scores must be entered in FHA Connection. If more than one score is available, you must enter all available credit scores Max CLTV If subordinate financing is to remain in place, the maximum CLTV allowed is 125% For Streamline refinance transactions WITHOUT an appraisal: CLTV is based on the original appraised value of the property. For Streamline refinance transactions WITH an appraisal: CLTV is based on the new appraised value Understanding FHA Streamlines – How we do it… Basic UW Guidelines Chapter 13 Streamline transactions are not permissible while in a Chapter 13 Must show history of payments as agreed for a minimum 12 months PLUS Letter from Court stating borrower is OK to enter into a new Mortgage Obligation Properties Included in a Bankruptcy Provide page of Bankruptcy that validates BK was discharged Mortgage Credit Rating must show that the credit agency contacted a party at the current lender for the mortgage being refinanced and verified: “property was included in a BK and the secured debt was reaffirmed to the lender by the debtor” and show the phone number and person who verified the information printed on the mortgage credit rating. Borrower to provide, along with the mortgage rating, a most recent 12 month payment history print-out showing all payments were made within the required timeframe. Modifications Loans with partial claims such or a Mortgage Modification is NOT ELIGIBLE for an FHA Streamline refinance??? OK if clean pay history and cannot exceed original loan amount Understanding FHA Streamlines – How we do it… Ineligible Transactions Ineligible for Streamline Refinance Reducing the term of the mortgage Transactions that include a reduction in the mortgage term must be underwritten and closed as a rate & term refinance, and NOT as a Streamline refinance. Delinquent mortgages Delinquent mortgages are NOT eligible for Streamline refinancing until the loan is brought current. Understanding FHA Streamlines – How we do it… No Credit Qualifying Credit Qualifying FHA STREAMLINE REFINANCE Understanding FHA Streamline – How we do it… ‘NO Credit Qualifying’ Streamline A borrower is eligible for a Streamline Refinance without credit qualifying if: He/She has owned the property for at least 6 months, and, The previous borrower(s) received a release of liability at the time of the assumption • Applies to mortgages that do not contain restrictions limiting assumptions only to creditworthy borrowers. A Mortgage/Credit only supplement is acceptable to document mortgage history. A full tri-merge credit report is not required and should not be in the file. These transactions must be manually underwritten. Submission through an AU system (DU/LSC) is prohibited and will result in “Full Credit Qualify” or ineligible with some investors. Program Codes: Use program ending with …07 Program …FG: A minimum 620 credit score applies and may use a credit supplement to document the credit score only Understanding FHA Streamlines – How we do it… ‘Credit Qualifying’ Streamline Credit qualifying must be considered when: A change in the mortgage term will result in an increase in the mortgage payment by more than 20% When deletion of a borrower(s) will trigger the due-on-sale clause Following the assumption of a mortgage that Occurred less than 6 months previously, and Does not contain restrictions (i.e. the due-on-sale clause) limiting assumptions only to a creditworthy borrower(s) Following an assumption of a mortgage that Occurred less than 6 months previously, and Did not trigger the transferability restriction (the due-on-sale clause) such as in a property transfer resulting from a divorce decree, or by devise or descent Understanding FHA Streamlines – How we do it… ‘Credit Qualifying’ Streamline The following documentation is needed to determine the borrower is an acceptable risk: Verify the borrower’s income and credit report Verify stable monthly income Provide a full/tri-merged credit report on all borrowers Compute the debt-to-income ratios Determine that the remaining borrower(s) will continue to make the mortgage payments Additional documentation may be needed as required by the DE underwriter Note: • The use of a credit qualifying streamline refinance for situations in which the change in mortgage term will result in an increase in the mortgage payment is only permissible for: • Owner Occupied primary residences • 2nd home meeting HUD 4155.1 4.B.3, and • Investment properties owned by government agencies and eligible nonprofit organizations Understanding FHA Streamlines – How we do it… Without an Appraisal With an Appraisal FHA STREAMLINE REFINANCE Understanding FHA Streamline – How we do it… ‘WITHOUT’ an Appraisal Streamline Refinance WITHOUT appraisal • Maximum insurable mortgage amount cannot exceed: • The outstanding principal balance • plus up to 60 days of interest • minus the applicable refund of UFMIP • plus the new UFMIP that will be charged on the refinance • Calculation above applies only to owner occupied properties. • New BASE loan amount cannot exceed the original TOTAL loan amount of the previous loan (which includes UFMIP) • Non-owner occupant properties regardless of how it was originally acquired may only be refinanced for the outstanding principal balance. Understanding FHA Streamlines – How we do it… ‘WITHOUT’ an Appraisal Maximum CLTV (4155.1 3.C.2.f) If there is an existing subordinate lien on the property, such as a HELOC, the entire lien must be subordinated at refinance For the calculation of the CLTV ratio, use the maximum accessible credit limit of the existing subordinate lien. If subordinate financing remains in place, the Maximum CLTV is 125%, based on the original appraised value of the property per ML 2009-32 Mortgage Term (4155.1 3.C.2.b) Mortgage term is the lesser of • 30 years, or • The remaining term of the mortgage plus 12 years Appraisal At the time the case number is assigned, the “original value” must be obtained from FHA Connection or ECHO systems for a Streamline Refinance without an appraisal. If FHA does not provide the “original value” then the LTV ratio must be considered to be less than 90% for the purpose of determining the term of the annual premium. 2nd Homes & NOO Properties (4155.1 3.C.2.e) 2nd Homes and NOO properties may only be refinanced without an appraisal. NOO properties may only be refinanced as a No Credit Qualifying refinance Understanding FHA Streamlines – How we do it… ‘WITH’ an Appraisal (Full Credit Qualify Only) Streamline refinance WITH appraisal ( must be FULL Credit Qualifying ONLY) This program is used when the borrower has built up equity through an increase in the appraised value and needs to roll in closing costs and pre-paids. • Maximum loan amount is the lesser of (ML 2009-32): • The existing principal balance • • may include interest charged by the servicing lender when the payoff is not received on the 1st day of the month, but may not include delinquent interest, late charges or escrow shortages • minus the applicable refund of UFMIP • plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charge on the refinance OR • 97.75% of the appraised value of the property • plus the new UFMIP that will be charged on the refinance Understanding FHA Streamlines – How we do it… ‘WITH’ an Appraisal (Full Credit Qualify Only) Closing costs and prepaids can be rolled into the loan amount (FULL Credit qualifying WITH an Appraisal only) Prepaid expenses may include Per diem interest to the end of the month on the new loan Hazard insurance premium deposits Monthly mortgage insurance premiums, and Any real estate tax deposits needed to establish the escrow account Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, verify the borrower has the assets to pay them along with any other financing costs not included in the new mortgage amount) Understanding FHA Streamlines – How we do it… Payoff Calculation Cash Back Adding/Deleting Borrowers Manufactured Homes FHA STREAMLINE REFINANCE Understanding FHA Streamline – How we do it… ‘PAYOFF’ Calculation Items that can be included in a Streamline Refinance are: The existing unpaid principal balance Interest (allowed up to 60 days with FMC) Items that cannot be included in a Streamline Refinance are: o Delinquent Interest o Late Charges o Escrow shortages o Fax fees or other miscellaneous fees shown on the payoff o Any other debt including seasoned subordinate liens or money due an exspouse (these should be processed through a regular refinance) o Escrow refund Understanding FHA Streamlines – How we do it… Cash Back The borrower can not receive more than $500 cash back on any type of Streamline Refinance The borrower can receive cash back above $500 if the exact amount of the coverage is a refund of the mortgage fee paid in advance of closing such as an appraisal fee; documentation is needed to support the borrower paid the fee from his/her own funds Understanding FHA Streamlines – How we do it… Borrower(s) AddingAdding/Deleting or Deleting Borrowers Individuals may be ADDED to title without A credit worthiness review, AND Triggering the due-on-sale clause Individuals may be DELETED from title, only When deletion of a borrower(s) will trigger the due-on-sale clause When… An assumption of a mortgage not containing a due-on-sale clause occurred more than 6 months previously, and The assumptor can document that he/she has made the mortgage payments during this interim period, OR Following an assumption of a mortgage in which… The transferability restriction (due-on-sale clause) was not triggered, such as in a property transfer resulting from a divorce decree, by devise or descent The assumption or quit-claim of interest occurred more than 6 months previously, and The remaining owner-occupant can demonstrate that he/she has made the mortgage payments during this time 6-Mos cancelled checks required to verify remaining borrower made payments on their own Understanding FHA Streamlines – How we do it… Adding/Deleting Borrower(s) Cont’d… Must always be same borrowers as original FHA loan Only exceptions are in cases of death or divorce Divorce Remaining spouse must have been on title by themselves for at least 6 months Provide a copy of the final Divorce Decree Provide 6 months cancelled checks proving they’ve been making the payments on their own Death We must have an original death certificate at doc signing Provide 6 months cancelled checks proving they’ve been making the payments on their own In a case where Mom and Dad were co-borrowers with son or daughter and now want off the loan, a few rules must be observed. Son or Daughter must income and credit qualify. A fully completed, standard 1003/URLA will be required for this scenario, along with applicable income documentation (pay stubs, 2 years W2’s, etc.) Understanding FHA Streamlines – How we do it… Adding/Deleting Borrower(s) Cont’d… Additional Information regarding Title: When a person gets married and they have a name change, the married name MUST be validated with a “PASS” through FHA Connection. This alerts us that the SSA has been notified of the change and has been updated on their system. A copy of their SS Card reflecting their married name will also be required Vesting from the old loan MUST transfer in the same order on the new FHA Streamline loan. Eg., John Smith and Mary Smith, Husband and Wife as Joint Tenants New loan must remain in the same order Make sure the LT, 1003 and FHA Connection ALL MATCH Understanding FHA Streamlines – How we do it… Manufactured Homes (Program 07) No appraisal required with one year seasoning and satisfactory payments for the 12 months prior. Effective with case assignments pulled on or after 10/1/2012: An AVM is required reflecting no more than 125% max LTV. Exceptions: • Borrowers with an additional $150 payment reduction above their required Net Tangible Benefit • FMC Portfolio transactions An appraisal is required if less than one year seasoning to a max 96.50% Maximum LTV/CLTV with a 660 fico (see Manufactured Matrix for more variations) Maximum 2 acres (up to 5 allowed – see overlays for details) No flood zones, No dirt roads Non-occupying co-borrower not allowed Credit supplement with most recent 12 months paid as agreed No late pays Understanding FHA Streamlines – How we do it… Other Information No Cost Refinances No cost refinances, in which the lender charges a premium interest rate to defray borrower’s closing costs and/or prepaid items, are permitted Withdrawn Condominium Approvals If approval of a condominium project has been withdrawn, FHA will insure only Streamline refinances WITHOUT appraisals for that condominium project Seven Unit Exemptions An eligible investor that has a financial interest in more than seven rental units may only refinance WITHOUT appraisals 203(k) Loans All 203(k) funds must have been disbursed Buy-down Loans All funds must be used or applied to principal balance at time of pay-off Understanding FHA Streamlines – How we do it… Sample Steps The following steps ARE required for streamline refinances A copy of the original note should be obtained to verify the new loan will have the same borrowers LDP/GSA lists must be checked to verify all parties associated with the transaction are not listed. A CAIVRS is not required. A streamline authorization number must be obtained from FHA Connection (if credit scores are available, they must be entered in FHA Connection) Verify that the loan is current at time of closing Obtain a 12 month mortgage payment history Mortgages < 12 month history: The borrower must have made all the mortgage payments within the month due; the credit report must reflect 0x30 for all payments Mortgages 12 month history or greater: The borrower must have no more than 1x30x12 and made all mortgage payments within the month due for the 3 months prior to the date of application The URLA and HUD addendum to the URLA should be signed by the borrower as part of the application. Understanding FHA Streamlines – How we do it… Additional Information We require that the current month’s payment be made prior to funding, and not brought to escrow Any large deposits on Bank Statements/VODs have to be sourced Borrowers with pension/retirement income must provide award letter We will not give the borrower any impound credit shown on the demand as credit towards pay off. If the demand shows an impound credit, we will require a revised demand without the impound credit. Any credit from the borrower’s existing impound account must be refunded to the borrower via check by the existing lien holder in the form of a check; a credit to the loan amount will not be allowed at closing Exception allowed for FMC serviced loans NOO Streamline Refinance Transactions for outside payoff’s will require 2 utility bills plus a drive-by inspection – see previous slide FMC has amended the Insurance Policy Requirements on refinance transactions to allow for a letter from the current insurance carrier in the event that the coverage is sufficient for our transaction Understanding FHA Streamlines – How we do it… Additional Information Input the subject property in the REO screen of FirstBase. Input the lien holder and then complete the OTMIP Refund Screen including old and new case numbers. This screen affects the Insuring Department and MIP remittance Department. If there is HOA and additional liens on subject property, indicate that in the “existing” payment on the 1003 page 2, as well as the “proposed”. Regardless, these additional costs to live there are not included in the qualifying. Use the property taxes on the prelim as they are the actual taxes. No need to calculate 1.25% or 2% for new construction. Review the credit supplement and demand to be sure the next payment due date match Get a VOD instead of bank statements if they require funds to close Include an estimated HUD with the submission package; it’s hard to calculate funds to close without it in the file Confirm the original endorsement date on the refi authorization to be sure you’re using the correct factors Understanding FHA Streamlines – How we do it… HOT Buttons New demand requires return to UW. FHA frowns upon principal reductions. We cannot resolve a loan amount error with a principle reduction. Fund your Streamlines early in the month before the borrowers payment is processed. Trying to fund at month end on Streamlines is not working well. It is bottlenecking at funding and causing delays in both underwriting and funding at month end. The borrower will be refunded any over-payment after pay off by the lender. Understanding FHA Streamlines – How we do it… Origination Process – Branch Level Origination Process - DCM FHA STREAMLINE REFINANCE Understanding FHA Streamline – How we do it… Origination Process There are two (2) Options available to originating FHA Streamline Loans at First Mortgage: Option 1: Branch Level (Regular FHA Streamline Refinance) Option 2: Direct Consumer Marketing (DCM) (No Cost Streamline Refinance) Understanding FHA Streamlines – How we do it… ORIGINATION: Option 1 Option 1: Regular FHA Streamline Refinances Handled at the Branch Level – origination, locking, communication Rates as published on the FMC rate sheet Sufficient income must be generated in order to cover all third-party costs/expenses and branch fees and yield at least one percent (1.0%) of income. Conditions and other processing requisites of FMC and HUD will be the responsibility of the originator, processor and branch. Commissions to the originator for these loans will be calculated and paid pursuant to the Employment Agreements and Compensation Addendums (as with all other in-house loans and products) Understanding FHA Streamlines – How we do it… ORIGINATION: Option 2 Option 2: Referral to Direct Consumer Marketing In the event an originator determines that a prospective FHA Streamline applicant requires an interest rate lower than that available on FMC’s retail rate sheet in order to yield a premium to cover third-party costs/expenses, branch fees and at least one percent (1.0%), the following information and supporting documentation is to be referred to FMC’s Direct Consumer Marketing (DCM) department: Contact the DCM department for submission procedures for FHA Streamline NO-COST Understanding FHA Streamlines – How we do it… Pricing an FHA Streamline Important Cut-off Dates Sample Forms Streamline Resources PRICING Understanding FHA Streamline – How we do it… PRICING an FHA Streamline Interest Rates for the FHA Streamline programs are available on Page 1 of the FMC rate sheet. Available Programs are: 1. 2. Program ….07 Program ….FG For Retail: Go to the FMC website or contact Secondary Marketing For Wholesale: Contact your FMC Account Executive or go to your AE’s website for rates Understanding FHA Streamlines – How we do it… RESOURCES Mortgagee Letters: ML 2011-11 for upcoming changes effective April 14, 2011 Other Mortgagee letters, go to the HUD website Handbooks, go to the HUD website For information on U.S. Department of Housing and Urban Development, visit: https://www.hud.gov/https://www.hud.gov/ - For area median home prices: https://entp.hud.gov/idapp/html/hicostlook.cfm Forms: 92900-ws Mortgage Credit Analysis Worksheet FHA Stacking Order FHA Streamline No Cost Form FHA Streamline Employment and Income Certification Understanding FHA Streamlines – How we do it… FMC SUPPORT WEB SITE SUPPORT TRAININGS Go to FMC websites for: First Mortgage offers FREE Weekly ONLINE Trainings 1. RATE SHEET See October Training schedule for upcoming trainings 2. TRAINING MATERIALS Trainings for September, 2014: 3. GUIDELINES • 9/4 – FMC Product Overview 4. FORMS • 5. CALCULATORS 9/9 – Access/FirstDOWN Program 6. TOOLS • 9/11 – FHA Streamline Training 7. MARKETING FMC Orientation Trainings: 9/18 – Part 1: Getting Started 9/19 – Part 2: What you need to know 9/23 – Part 3: The 3 C’s Retail: Contact Loan Help Wholesale/Correspondent: Contact your FMC A/E For help with your: • Scenarios • Pricing / Fees • Guidelines • Loan Submissions • Trainings Understanding FHA Streamlines – How we do it… THANK YOU FOR YOUR BUSINESS… On behalf of First Mortgage, thank you for joining today’s training and we hope the information provided will help you build your business! The main purpose of First Mortgage Corporation’s (FMC) training documents is to assist real estate and mortgage professionals in developing entry-level competence with loan programs. While FMC staff, employees, contractors and contributors take care to ensure the accuracy of the content of training documents, FMC makes no warranties as to the accuracy of the information contained within these materials. Furthermore, every user of this material uses it understanding that he or she must still conduct his or her own original legal research, analysis and drafting. In addition, every user must refer to the relevant legislation, case law, administrative guidelines, rules and other primary sources. FMC specifically disclaims any liability for any loss or damage any user may suffer as a result of information contained within this training material. While the information contained in FMC’s training material addresses guidelines and issues surrounding mortgage programs, these materials do not constitute legal advice.All non-legal professionals are urged to seek legal advice from a lawyer. Understanding FHA Streamlines – How we do it…
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