1. Welcome to our FHA OPEN HOUSE! WWW.THINKFHA.NET

2. Why learn FHA? ► Reason # 1: Close more loans. Many borrowers who no longer qualify for prime, sub-prime or Alt-A products can be approved and closed. RHF’s manual underwriting uses common sense to make a decision, not a matrix. RHF’s manual underwriting uses common sense to make a decision, not a matrix.

3. Why Learn FHA? ► Reason # 2: Make more money. Many borrowers who close in a subprime product could have closed as an FHA loan with a lower interest rate and a higher YSP (we usually offer between three and four points YSP, depending on market conditions).

4. Why Learn FHA? ► Reason # 3: Survive Market Changes. As sub-prime and Alt-A LTVs drop and minimum credit score requirements increase, FHA has re-emerged as the loan of choice for the “non-creampuff” borrower. Whenever an environment changes radically, failure to adapt results in a failure to survive.

5. Credit Analysis ► Common Sense Unlike sub-prime and Alt-A, there is no matrix, no max mortgage lates, no maximum dollar amount of collections, no “box” to fit into. FHA handles every borrower with damaged credit differently, depending on the circumstances surrounding the credit history. Common sense prevails.

6. An FHA Loan Defined What is an FHA Loan? ► A mortgage loan funded by a lending institution and insured by HUD

7. Loan Limits “High cost” area.: (Make sure you check your county limits!) ► ► One-Unit $729,750 ► ► Two-Unit $934,200 ► ► Three-Unit $1,129,250 ► ► Four-Unit $1,403,400 ► ► https://entp.hud.gov/idapp/html/hicostlook.cfm https://entp.hud.gov/idapp/html/hicostlook.cfm

8. What do we offer a borrower under the FHA umbrella? ► Fixed Rate Loans ► Adjustable Rate Loans ► 2-1 Buydowns ► Streamline Refinances ► 95% Cash out refinances ► Condominiums ► Manufactured Housing ► FHA Secure (Temporarily suspended.) ► 203(k) Rehab loans ► Good Neighbor Next Door program

9. How FHA Compares to other Financing Options ► Up to 97.75% financing ► Borrower can finance Upfront Mortgage Insurance Premium (UFMIP) into mortgage ► Eligible properties are 1-4 unit dwellings. condominiums, PUD, Manufactured housing

10. Seller Contributions Maximum Seller Contribution 6% All LTVs, 1-4 Units

11. Minimum Investment Minimum Investment Requirement 3% All LTVs, 1-4 Units

12. Minimum Investment ► The borrower must contribute at least 3% of their own funds. The borrower’s own funds are defined as either savings, gift or grant. There is no requirement for any borrower savings; the entire 3% requirement can be a gift or grant.

13. Features of FHA Loans ► The ease of AUS possibly resulting in reduced documentation ► AUS approval is not a requirement ► No minimum credit score with AUS approval. ► Non-traditional credit is acceptable ► Non-Occupant co-borrowers are permitted ► Lower monthly MI premiums (.50%)

14. How the Scorecard Works The TOTAL Scorecard is internet based and provides a real time response AUS (LP or DU)TOTAL evaluates the “calls” FHA’s TOTALdata, makes a Scorecardrecommendation to the AUS.

15. What is FHA TOTAL Scorecard? ► The FHA TOTAL Scorecard evaluates the credit risk of FHA loans that are submitted to an automated underwriting system There are two risk classifications: Accept/Approve or Refer ► An Accept/Approve indicates that FHA will insure the borrower’s loan with reduced documentation ► A Refer classification indicates that the lender will be required to manually underwrite the loan

16. Manual Underwriting Files may be manually underwritten when there is an AUS refer or when lack of credit makes a loan AUS ineligible ► 580 Minimum Credit Score ► Ratio Requirements = 31% & 43% (Guideline-Can be exceeded with compensating factors)

17. Ratios ► Compensating Factors Some examples of compensating factors are: - 3 months PITI reserves - 10% down payment - housing payment increasing by less than 10% Once again, if the loan makes sense, the loan can be approved.

18. “Non-Traditional Credit” Borrowers with a limited or undeveloped credit profile and/or no credit score are eligible for FHA financing with “non- traditional” credit references. ► Third party verifications ► Minimum three references with 12 month acceptable history ► Rent checks or Management VOR ► Utilities (Electric, gas, oil, phone, cable, etc.) ► Car insurance ► Cell phone ► House accounts (drug stores, clothing boutiques, etc) ► An ALTERNATIVE RMCR SHOULD BE OBTAINED

19. Credit History Chapter 7 Bankruptcy: Two (2) years since date of discharge; Acceptable re- established credit; Evidence of acceptable financial management since bankruptcy. We do not like to see lates on any accounts after a BK, however case by case exceptions may be made. Chapter 13 Bankruptcy: One (1) year Acceptable payout since bankruptcy filing; Permission from court to enter transaction. Mortgage Foreclosure: Three (3) years since date of foreclosure COMPLETION; Acceptable re-established credit; Evidence of acceptable financial management since foreclosure.

20. Other Credit History Factors Consumer Credit Counseling: One (1) year acceptable payment history; Written permission from the agency to enter into the transaction. Underwriting focuses on overall credit history-participation alone is not a negative factor. Collections & Judgments: Judgments must be paid in full. A judgment with a payment plan already in place, in writing, with 12 months payments on time MAY be able to be left open (U/W discretion); FHA doesn’t require collection accounts to be paid in full, however, the U/W may require payment in full based on the borrower’s overall creditworthiness and layers of risk.

21. Debts & Obligations Debts-Less Than 10 Months: May be discounted from total debt if payment amount will not affect borrower’s ability to make the mortgage payment Deferred Loans: Debt payments deferred at least 12 months from the date of closing may be discounted from total debt. Contingent Liability on Mortgage Debt: Mortgage liability that has been transferred due to divorce, may be discounted from qualifying ratios IF the mortgage has been current during the previous 12 months* AND we obtain a copy of the divorce decree ordering the other party to make payments. * There is no 12-month payment history requirement with AUS approval

22. Income & Asset Processing ► Income calculations and guidelines mirror conventional rules ► Asset documentation also mirrors conventional rules ► Retirement accounts are considered based on 60% of the vested balance ► Gift funds may account for the entire 3% cash investment ► Income and Asset documents may only be faxed from the direct source(employer, bank, etc.) and we must be able to identify the sender by the fax banner at the top and/or bottom of the page.

23. Gifts ► Gift Documentation The simplest gift to document is a gift directly into the settlement agent’s escrow account. If done this way, and if the gift is large enough, no bank statements are required from the borrower: (1) FHA Gift Letter (available on our website) (2) Copy of bank check payable to escrow account (3) Evidence bank check was drawn on donor’s account (withdrawal slip, interim printout, letter, etc.) (4) Escrow Letter from settlement agent confirming receipt of the gift check into escrow account

24. Non-Occupying Co-borrowers Two or more borrowers, or co-borrowers, can finance a house under the FHA program at the maximum allowable LTV limits. These co- borrowers need not be related, but they must have a family type relationship if one of these co-borrowers does not occupy the house. In this case the co-borrower is defined as a non-owner occupant coborrower. The maximum LTV is 75% if the non-occupant coborrowers are unrelated as indicated above.

25. Non-occupying co-borrowers are limited to only 1-unit properties if the LTV exceeds 75%! Lenders will review non-occupant co- borrowers very carefully to insure that the Borrowers is not acting as a “straw-buyer”

26. The Appraisal Process ► Appraiser must me an FHA Approved appraiser ► Appraisal is reported on the same forms as FNMA ► Repairs will only be required for items that affect health, safety or structural integrity (203k possible) ► Well, Septic, Termite inspections required if visible evidence of a problem or if required by the state or local authority. Well and Septic distance certifications are always necessary.

27. Property Flipping Rules FHA has specific property flipping guidelines. The seller must always be the owner of record. the following timeframe guidelines apply: ► Ineligible if resale is 90 or fewer days from last sale ► If resale is between 91 & 180 days and the sales price is 100% or more over the last sale price, a second appraisal is required. Resale dates are based on the date of settlement on the seller’s purchase of the property and the date of execution of the sales contract by the buyer.

28. Manufactured Housing What is a manufactured home? ► A structure that is factory built and transportable in one or more sections. Each section displays a certification label on the exterior of the unit. This label is REQUIRED. ► Manufactured Homes were previously referred to as mobile homes. ► Often, manufactured homes and modular homes are confused. While modular homes are also factory built, for lending purposes they are treated the same as stick-built housing.

29. Manufactured Home Requirements for FHA Financing ► Must be built after June 15, 1976, and bear an affixed certification label on each section. Label numbers can be found on a data plate in one of three locations: on or near the main electrical panel, in a kitchen cabinet, in a bedroom closet; ► Was designed to be used as a dwelling on a permanent foundation. The towing hitch and running gear must be removed; ► Must have a floor area of no less than 400 square feet; ► Must be classified and taxed as real estate; ► May not be located within a Flood Hazard Area (new and existing homes) ► All foundation systems must meet HUD guidelines (new and existing homes). Certification from licensed professional engineer is required. Exception: Does not apply for FHA to FHA refinances.

30. Condominium Review Requirements ► Condominium projects must be approved by FHA ► For unapproved projects a “spot” condo review process may be completed. (Spot approval form may be found on our website.) ► Link for FHA Approved: https://entp.hud.gov/idapp/html/condlook.cfm For more detailed information you can visit FHA’s condo Q&A page at: http://www.hud.gov/offices/hsg/sfh/faqs/atl1val.cfm

31. 203(k) Rehab loans ► Traditional 203(k) loan HUD inspector does a cost write up to determine construction costs. All rehab monies held in escrow account and drawn down with “work in place”. No maximum rehab cost, must stay within loan limits however. ► Streamline 203(k) loan Maximum of $35,000 in repairs, nothing structural. No Hud inspector is needed. Half rehab monies paid at closing and balance upon receipts of completion No self help allowed. Need licensed contractor.

32. ► Maximum loan limits apply ► Property can be in disrepair ► Maximum financing allowed (up to 97.75% LTV) ► Can borrow funds to purchase home and all rehab costs ► Repairs must be made within 6 months ► Regular credit qualifying applies ► Mixed use properties may be eligible ► Can roll up to 6 months mortgage payments into loan ► Minimum of $5000 worth of repairs needed

33. FHA Streamline Refinance A streamline refinance is an FHA refinance loan that is used to payoff an existing FHA lien AND which results in lowering the borrower’s monthly principal and interest payment. There is no employment, income, credit* or asset processing. *Mortgage rating is required.

34. Features of a Streamline Refinance ► The mortgage being refinanced must be current for the month due and must have zero late payments during the last 12 months. On a case by case basis, late payments in the last 12 months may be considered. ► No cash out is allowed ($500 cushion for error) ► May “roll-in” closing costs and prepaid items if equity is sufficient. You can go back up to the original mortgage amount initially financed. ► May refinance to a shorter term, provided that the monthly P&I increases by no more than 20%. ► ARM may be streamline refinanced to a fixed rate mortgage provided that the monthly P&I increases by no more than 20% ► Lender can pay closing costs from earned premium in rate. ► UFMIP will be netted out from original mortgage ► We need original note to show case # and deed is needed to show ownership

35. Streamline Checklist Items Needed at time of submission: ► 1003 completed in full ► All disclosures including all FHA disclosures ► Copy of Note with previous case number ► Copy of deed ► Copy of current loan statement or coupon ► Credit report with mortgage only rating OR canceled checks for the lesser of 12 months or inception ► Copy of Hazard insurance declaration page ► If removing person from loan, twelve months checks evidencing our borrower pays

36. FHA Product Details ARMS 1/1, 3/1 available Qualifying: ► 1/1 ARM at initial rate + 1% if the LTV is =/> 95% ► 3/1 ARM at Start Rate 2-1 Buy-downs ► Eligible for purchase transactions only with a fixed rate product ► May be funded by the borrower, seller, lender, or ANY interested party ► Must qualify at the full note rate for all loans

37. Good Neighbor Next Door Program ► Objective: The revitalization of cities ► Who: Eligible law enforcement officers, teachers, firefighters, and EMT’s ► Goal: To live in the low and moderate income neighborhoods where they work ► Benefit: Eligible individuals may purchase HUD acquired homes located in designated areas at a 50% discount from list prices

38. Understanding MIP ► Borrower’s are charged a one time, up-front premium (UFMIP) AND a monthly premium in most cases ► Applicable for all property types and programs ► Monthly premiums will be paid for the greater of five years* or until the amortized LTV reaches 78%. Cancellation is automatic once this criteria is met ► Upon refinance (FHA to FHA only) a borrower will be eligible for a refund of the UFMIP if the refinance is within 3 years of the original loan *The 5 yr rule doesn’t apply to mortgages with terms of 15 years or less. Cancellation will occur based solely on LTV

39. The MIP Factors

40. Cash Out Refinances ► Standard: ► Maximum LTV/CLTV is 85% of appraised value and closing costs ► If owned less than 1 year, maximum loan is based on the lesser of value + closing costs or original sales price ► Standard underwriting criteria applies ► Expanded: ► Maximum LTV is 95% of the appraised value 1-2 unit dwellings only ► Maximum loan amount amount of $417,000.00 ► Property has been owned as a primary residence for at least 12 months preceding the date of the application ► Satisfactory mortgage payment history for the prior 12 months (0x30)-NO EXCEPTIONS ► Non-occupant co-borrowers not permitted (> 85% on 1-unit; > 75% on multi)

41. Closing Costs ► As of January 2006, FHA regulations on fees were revised to cancel most restrictions. FHA’s new guideline states: “fees should be reasonable & customary”, with few specific requirements: ► Must be in compliance with federal & State laws ► May only charge actual costs for third party fees ► Tax service fee may not be charged ► Origination fee may not exceed 1%

42. ► ► Multi-Family Properties Three and Four unit properties are subject to additional requirements: 1. Property MUST be self-sufficient (i.e., the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100 percent). 2. The monthly payment is the principal, interest, taxes, and insurance (PITI), including mortgage insurance, plus any homeowners' association dues, computed at the note rate (no consideration for buydowns may be given). 3. Net rental income is the appraiser’s estimate of fair market rent from all units, including the unit chosen by the borrower for occupancy, less the appraiser’s estimate for vacancies or the vacancy factor used by the jurisdictional HOC, whichever is greater. 4. Borrowers must still qualify for the mortgage based on income, credit, cash to close, and the projected rents received from the remaining units. 5. The projected rent may only be considered as gross income for qualifying purposes; it may not be used to offset the monthly mortgage payment. 6. The borrower must have reserves equivalent to three months' PITI after closing on purchase transactions. Reserves cannot be derived from a gift.

43. Resources www.fha.gov http://www.fha.gov/sf/lenders/index.cfmhttp://www.fha.gov/sf/lenders/index.cfm (FHA for Lenders Q&A Page) http://www.fha.gov/sf/lenders/index.cfm http://www.hud.gov/offices/hsg/sfh/hsgsingle.cfmhttp://www.hud.gov/offices/hsg/sfh/hsgsingle.cfm (FHA Single Family Housing Page) http://www.hud.gov/offices/hsg/sfh/hsgsingle.cfm http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-09.cfm http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-09.cfm (Manufactured Housing Webpage) http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-09.cfm https://entp.hud.gov/idapp/html/hicostlook.cfmhttps://entp.hud.gov/idapp/html/hicostlook.cfm (County Loan Limits for all States) https://entp.hud.gov/idapp/html/hicostlook.cfm

44. Recap: Why FHA? Close more loans.

45. Recap: Why FHA? Make more money.

46. Recap: Why FHA? Survive market changes.

47. Pre Quals/Pre Flights ► Need complete 1003 ► Credit report ► Credit explanations/story ► Strengths of file Email your Account Executive! ► We will do our best to get back to you within 24 hours ► Not a guaranteed approval

48. Questions?