Origination, Underwriting, Consumer Protection, and Systems

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Origination, Underwriting, Consumer Protection,
and Systems
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H4H Topics

• Comparison of FHA Refinance Options
• Origination
• Underwriting
• Appraisal Issues
• Declining Markets
• Consumer Protections
• Determining and Documenting Shared Equity and
  Appreciation
• Data Requirements
• Integrated Tools

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H4H vs. FHA Secure
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H4H vs. FHA Secure
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H4H Origination

• Determining Borrower Eligibility
• Did not intentionally default
• Did not lie to obtain existing mortgage
• Has not been convicted of fraud
• Made a minimum of 6 full payments during the life
  of the existing mortgage
• Occupies subject property and does not own other
  residential real estate
• Bankruptcy does not preclude participation
• 31 mortgage payment DTI as of March 1, 2008

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H4H Origination

• Determining Prior Mortgage Payment
• Aggregate total monthly mortgage payment DTI is
  the fully indexed, fully amortized PITI payment
• May also include HOA fees, ground rent, special
  assessments and all subordinate lien payments
• Income pay stubs for March 2008, W-2s, or tax
  returns for 2007 or 2008, VOE
• Quarterly tax returns, PL Statement for
  self-employed
• Payment obtain from servicer, estimate taxes and
  insurance when necessary

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H4H Origination

• Determining Mortgage Eligibility
• Originated on or before January 1, 2008
• Any type mortgage is eligible
• Each lien holder must agree to waive prepayment
  penalties and default fees, and release his/her
  outstanding mortgage liens
• Determining Property Eligibility
• Primary and only residence
• Nonoccupant borrowers must quit claim interest
• 1-unit properties

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H4H Origination

• Calculating the Mortgage Amount
• Nationwide Limit of 550,440
• 90 LTV, including 3 UFMIP
• New H4H mortgage extinguishes all
  mortgage-related debt including
• Advances for taxes and insurance
• Out-of-pocket legal expenses

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H4H Origination

• Closing Costs and Prepaid Items
• Standard FHA Policy, including 1 percent cap on
  origination fee (ML 2006-4)
• Origination fee cannot be supplemented by
  application or processing fees or broker fees
• Closing costs and prepaids can be paid by
• Borrower
• Financing into the mortgage
• Existing/new lender and/or third party
• Premium pricing

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H4H Underwriting

• Must be scored through TOTAL
• Regardless of the risk classification, the
  underwriter must
• Determine the new H4H monthly mortgage payment is
  less than borrowers previous payment
• Document and verify income (standard FHA policy)
• Review income as reported in previous 2 years tax
  returns
• Determine DTI ratios are at or below 31/43
• DTI ratios may be exceeded up to 38/50 with a
  trial modification

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H4H Underwriting

• Trial Modification
• Borrower demonstrates ability to handle DTI
  ratios in excess of 31/43 but cannot exceed 38/50
• Trial modification period will probably occur
  prior to loan application
• Review trial modification documentation to
  ensure
• Borrower made payments using existing gross
  monthly income
• Made full and timely payments for 3 consecutive
  months
• Payments were at least 90 percent of estimated
  payment on new H4H loan

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H4H Underwriting

• Additional Documentation Requirements
• Prior Mortgage Origination Date
• Payment History
• Prior Total Mortgage Payment
• Primary Residence
• H4H Consumer Disclosure and Certifications
• Verification of Lack of Conviction of Fraud
• Previous 2 Years Tax Returns
• Trial Modification
• First Payment Made
• Lender Certifications

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H4H Underwriting

• New subordinate financing prohibited for first 5
  years of the loan
• Except to pay for maintenance of property
  standards
• Conditions for allowing such liens will be
  discussed in detail during presentation on
  servicing issues

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H4H Appraisal Issues

• Appraisal must be
• Specifically ordered for H4H
• No more than 3 months old at closing
• Appraiser must be
• On FHA roster
• Certified (licensed acceptable under limited
  circumstances)
• Appraisal ordered by new lender prevails.

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H4H Declining Markets

• No standard definition exists
• Determined by the appraiser on a case-by-case
  basis
• Determined by the lender based on data services
  or feedback from LP or DU

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H4H Declining Markets

• Appraiser Responsibilities
• Determine if property is in declining market
• Supply vs. demand, days on market listings,
  listings to sales ratios, financing availability
• Indicate in One-unit Housing Trends portion of
  Neighborhood section of appraisal
• Where Declining box for property values is
  checked provide explanation in Market Conditions
  section
• Support assertion of declining home values

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H4H Declining Markets

• Appraiser Responsibilities
• Describe impact of sales concessions and
  downpayment assistance for comparables
• Comps should be no more than 6 months old unless
  clear justification is provided
• Make appropriate adjustments to value when
  differences exist among subject and comparables
• Avoid conflicts of interest
• Report instances of undue pressure

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H4H Declining Markets

• Lender Responsibilities
• Review appraisal to determine whether accurate
  and adequately supported
• May use SP/Case-Schiller Index, OFHEO House
  Price Index (or successors index), NAR
  statistics
• http//www2.standardandpoors.com/portal/site/sp/en
  /us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,
  1,0,0,0,0,0.html
• http//www.ofheo.gov/hpi.aspx
• Is equally responsible for integrity, accuracy,
  and thoroughness of the appraisal
• Avoid conflicts of interest and be intolerant of
  undue pressure on appraisers
• Inform appraisers the appraisal will be shared

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H4H Consumer Protection

• Counseling not required, but strongly encouraged
• Pre- and post-H4H
• Benefits of H4H
• Reduced principal
• Affordable payments
• Newly created equity
• FHA loss mitigation
• Costs of H4H
• Higher premiums/interest rates
• Shared equity with FHA
• Shared appreciation with FHA

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H4H Consumer Protections

• H4H Consumer Disclosure and Certifications
• Counselors are encouraged to explain and discuss
  disclosure and certifications with borrowers
  (emphasize benefits vs. costs)
• Originating lender is responsible for reviewing
  disclosure and certifications with borrower
• Must be signed and dated by borrower at least 1
  day prior to initial loan application
• Must be signed and dated again by the borrower at
  closing

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H4H Equity and Appreciation Sharing

• Shared Equity Note and Mortgage (SEM)
• Equity value at origination less H4H loan
  amount
• Sliding scale with 100 going to FHA in 1st year
  and a 50/50 split after 5 years
• Originating lender prepares SEM
• SEM executed by borrower
• Recorded in second lien position
• Borrower can extinguish through refinance

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H4H Equity and Appreciation Sharing

• Shared Appreciation Note and Mortgage (SAM)
• Appreciation net proceeds from sale less
  appraised value at origination
• May subtract allowable capital improvements
• FHA can share its future appreciation entitlement
  with subordinate lien holders
• Originating lender prepares SAM
• SAM executed by borrower
• Recorded in third lien position
• Borrower can extinguish through sale only

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H4H Equity and Appreciation Sharing

• Originating SEMs and SAMs
• Identify existing lien holders
• Request pay-off statements
• Provide copies of pay-off statements to borrowers
  for review, giving them within 5 days of receipt
  to notify the lender of discrepancies
• Refer borrowers to equity/appreciation sharing
  notes in the Consumer Disclosure
• Resolve discrepancies identified by borrowers

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H4H Equity and Appreciation Sharing

• Originating SEMs and SAMs
• Calculate dollar amount of initial equity
• Use Appreciation Worksheet (Exhibit F in ML
  2008-29) to calculate maximum appreciation share
  for subordinate lien holders
• Lenders writing off less than 2,500 cannot share
  in future appreciation
• Send Appreciation Worksheet to subordinate lien
  holders and obtain signatures
• Prepare SEM/SAM documents for execution at
  closing
• Send copy of Appreciation Worksheet to HUD 10
  days prior to closing
• Receive Appreciation Share Certificate from HUD
  and deliver to closing agent with other loan
  documents

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H4H Equity and Appreciation Sharing

• Document Delivery
• Within 15 days of endorsement send
• Original recorded SEM/SAM documents
• Copy of HUD-1 Settlement Statement
• Copy of H4H Appraisal to
• c/o CL Service Corporation/Morris-Griffin
  Corporation
• 2488 East 81st Street, Suite 70
• Tulsa OK 74137

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H4H Upfront Appreciation Option

• Emergency Economic Stabilization Act of 2008
  authorized payment of upfront appreciation shares
• Oversight Board is considering this option
• Subordinate lien holders could choose upfront or
  future appreciation share

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Appreciation Share Calculation
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Appreciation Share Percentages
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H4H Systems

• Demonstration of H4H Data Requirements in FHA
  Connection
• Discussion of integrated tools