Loan Processor Blog

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

FHA offers a number of resources that I utilize on a regular basis to help find answers to questions that often come up on FHA lending. Most often I refer to FAQ sites because in the past, I haven’t been a big fan of calling 1-800-CALLFHA and sitting on hold forever with the depressing background music only to propose my question to a body who could only answer based on searching for something I’d already searched for. But I must admit, it sure seems like FHA has stepped up their customer service capacity and training because the last two times I’ve called I didn’t have to hold at all and the person at the end of the line was actually quite knowledgeable and able to really help with my question. How refreshing! I no longer hesitate to call with questions when needed.

Here is something I just learned about calls to FHA that I think you’ll find helpful: Each time you call 1-800-CALLFHA with a question, you are asked for your name, company and phone number. Behind the scenes, that information is used to develop tracking and a tracking number. The call center does not provide that tracking number as a normal course of business but you can ask for it. It’s in your best interest to always get the tracking number so that if you have to call again with additional questions on the same topic, you can provide the reference number to the call center associate who can then simply pull up the record(s) of your previous call(s) on said topic. This can save you time from having to re-explain the question or situation all over again. How handy is that?!

The FAQ sites that I refer to regularly are listed at HUD’s Frequently Asked Questions website at http://www.hud.gov/offices/hsg/sfh/faqs/faqsmenu.cfm. There you’ll find FAQ lists broken down in categories.

I also like to go directly to the FHA Resource Center FAQs at http://www.fhaoutreach.gov/FHAFAQ/ to search by topic because I know that questions that come through 1-800-CALLFHA are all eventually listed there. It’s pretty likely that someone else may have already asked the same question I have. Just choose the “Solutions” tab and click to “Search By Keyword.” Then simply enter the key word and scroll through the questions listed to see if you can find the answer you’re looking for.

You can also choose the tab “Contact FHA” which provides data fields for you to complete so you can send off your question directly to the FHA Resource Center. If you prefer, you can even email the Resource Center directly with your question by sending it to info@fhaoutreach.com.

FHA Resource Center Contact Information:

Website: http://www.fhaoutreach.gov/FHAFAQ/
Email: info@fhaoutreach.com
Ph: 800-CALL FHA (800-225-5342)

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

It’s been a BIG news week for FHA and is about to get even bigger with the anticipation of a number of Mortgagee Letters to be issued January 21st which will communicate further significant tightening of FHA qualifying calculations and guideline requirements.

Temporary Flipping Waiver

On Friday, January 15th, HUD released their most recent Waiver of Requirements of 24 CFR 203.37a(b)2. The waiver, which is in regards to time restrictions for property sales, applies only to FHA forward mortgages, not HECMs, and is effective 02/01/2010-02/01/2011.

As copied from the Code of Federal Regulations, here is that exact portion of the Code that is being waived:

a(b) Time restrictions on re-sales—(1) General. The eligibility of a property for a mortgage insured by FHA is dependent on the time that has elapsed between the date the seller acquired the property (based upon the date of settlement) and the date of execution of the sales contract that will result in the FHA mortgage insurance (the re-sale date). The mortgagee shall obtain documentation verifying compliance with the time restrictions described in this paragraph and must submit this documentation to HUD as part of the application for mortgage insurance, in accordance with §203.255(b).

(2) Re-sales occurring 90 days or less following acquisition. If the re-sale date is 90 days or less following the date of acquisition by the seller, the property is not eligible for a mortgage to be insured by FHA.

However, to summarize, the HUD announcement goes on to state the following conditions for the 90 day time-restraint waiver to be effective on a specific transaction:

- The transaction must be at arms length; meaning there cannot be any identity of interest between any of the interested parties to the transaction. This means that the lender must perform due-diligence to determine there are no undisclosed relations of interest which should include the following:

- LLCs, partnerships, corporations, etc. must be fully investigated to determine exactly who holds interest in the business. No party with interest in the business should be related to any other party participating in the transaction.

- 12-24 month minimum chain of title from the title company should be reviewed carefully to establish that there are no patterns of flipping between interested parties, that the owner of record listed in title is the same seller represented as the seller on the sales contract and is also the same owner of record listed in any public property tax record. You should never rely on the transfer records based on the prior 36 month history listed in the appraisal alone but should rather obtain the chain of title directly from the title company.

- Marketing history in regards to the sale of the property should be carefully reviewed to determine that it was marketed for sale openly via MLS, Sheriff Sale, Auction, FSBO, etc. If the marketing of the property cannot be determined through public means, be cautious!

- Sales prices for recent transfers of the subject property must be verified and if the proposed transaction contains a sales price that represents a 20% or greater increase from the prior sale price of the property, the lender must justify the increase in price/value using any of the following methods:

- Obtain specific documentation from the seller for improvements made to the property between the seller’s acquisition date and proposed sale of the property. This would include copies of paid invoices or receipts from contractors, builders, suppliers etc. with a complete list of the upgrades, repairs and/or improvements made

- Obtain a 2nd appraisal to justify the property sale price/value and recent improvements/repairs/upgrades made to the property

- Obtain a property inspection report from a state-licensed/certified inspector that is to be given to the buyer prior to closing and which must include:

- Inspection of the foundation, floor, ceiling, walls and roof;
- Inspection of the exterior siding, doors, windows, balconies, decks, walkways, driveway
- Inspection of the roofing, plumbing, electric, heating and air systems;
- Inspection of the interior of the property including insulation and ventilation systems, fireplaces, fuel-burning appliances

The waiver ONLY waives the 90 day timing restraint requirement IF the conditions listed above are met. Don’t forget that all other requirements set forth in Mortgagee Letter 2006-14 apply for all other properties acquired for up to one year from the seller’s acquisition date. In those situations, when the sales price increases 100% or greater, 2nd appraisal and other potential documentation requirements must be applied.

I will pass on more information next week in regards to the upcoming MIP rate hikes, minimum fico score requirements, minimum downpayment requirements and reduction to maximum allowed seller concessions. Those changes will have major affects on FHA qualifying in the near future!

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

As a person in the Mortgage Industry who works in a position that involves business and credit analysis and writing credit policies to protect the interests of the company, one particular article got my attention this week when it crossed my desk. It was an article released in Market Watch, part of the Wall Street Journal digital network. The article stated that HUD issued subpoenas to 15 mortgage companies on Tuesday in regards to higher-than-average default rates on FHA loans and an overabundance of mortgage insurance claims.

When I took a looked through the list I immediately recognized a number of pretty big players; mortgage brokers we have all likely dealt with at some point in our mortgage careers for one reason or another. But I can’t say I’m surprised to see a couple of them. I clearly recall that they were accepting what I considered “bottom of the barrel” FHA borrowers back in 2006 and 2007 before the market started its downward spiral due to foreclosures and market declines. In fact, I see two of them that I know flat out drug their feet implementing minimum credit score requirements in order to corner the market while other FHA lenders starting cracking down on their own qualifying requirements in anticipation of what was to come.

What always bothers me most when I see these things is the lack or moral judgment and integrity that was used by all of those involved. The unfortunate result of so many bad decisions made by bad companies is that the good companies are now subject to the consequences of the bad. One of our originators made a statement this week I found humorous though very valid. He said “I feel like things have gotten so out of control we can’t even get loans done anymore. I mean, what more documentation can I request from my borrowers short of them providing a sample of their DNA?” It’s unfortunate that so many of us have begun to feel this way.

I am still outraged that those responsible for the sub-prime market crisis aren’t rotting in prison somewhere. It still blows my mind to think that anyone in their right mind could sleep at night knowing they’d just agreed to grant a $200000 mortgage to borrowers with credit scores in the 400s, unstable employment and no verified history of housing expense. And it’s not just the lending part that concerns me but more importantly, the burden of knowing you’d put such borrowers in that position having to realize full well that they were headed toward disaster. They were guaranteed to fail but somebody lent them the money anyway. It doesn’t get more wrong than that.

So, what kinds of things can we all do to make sure our companies don’t end up being investigated for higher-than-average default rates? It’s really as simple as diverting back to the days of full loan documentation requirements in partnership with utilization of modern tools and technologies.

Even if your lenders aren’t requiring tax transcripts for underwriting, most companies are pulling them pre-purchase or post purchase so you may as well simply obtain them for all of your loan files and make sure qualifying income is tight and right from the beginning. Transcripts can be used as a great resource for more than just income verification. They can also be used to validate identity, occupancy and marital status. Transcripts validate most importantly that the person listed on your loan application filed taxes under the social security number and residence address listed on the loan application.

They also verify whether or not the returns were filed on time. Transcripts also confirm whether each borrower filed individually or jointly and will confirm the number of dependents so you can compare with loan application data. In addition, transcripts may verify undisclosed businesses potentially uncovering business losses that can negatively affect future financial stability and the borrower’s ability to make timely mortgage payments. In my opinion, any company that hasn’t incorporated transcript requirements into originating and underwriting procedures is a “sitting duck” for potential fraud and early defaults.

Transcripts have become much less expensive in recent months also. A year ago we may have been paying $20 and more for two years but with the IRS lowering their processing fee by $4 effective October 1, 2009, many companies became more cost-friendly. Now obtaining two years transcripts can cost as little as $15 and even lower for those companies that have the luxury of offering volume discount rates.

Other tools to be taken advantage of in today’s market are the fraud detection tools and services offered by credit bureaus and third party vendors like First American CoreLogic and Interthinx. Most credit vendors now have the ability to offer a full suite of fraud detection and risk analysis options that are available right as you pull your standard credit reports. These services have the ability to analyze a minimum data set in order to render risk scoring based on data combinations and public record searches. Vendors like CoreLogic and Interthinx take risk analysis even further by evaluation all of the loan parties as well as the property in order to render a full report that analyzes the overall loan risk by category to give red flags of potential loan fraud. Tools like this are invaluable in today’s world.

When researching vendor options for things like transcripts and fraud detection services, be sure to ask questions about volume discounts, support resources, systems integration and training abilities.

The sooner you implement tools and resources like those I’ve mentioned above, the less likely your company will be to end up subpoenaed by HUD for excessive defaults and claims like these lenders did:

- First Tennessee Bank N.A., Memphis, Tenn.
- Alethes LLC, Lakeway, Texas
- Security Atlantic Mortgage Co., Edison, N.J.
- Pine State Mortgage Corporation, Atlanta.
- Birmingham Bancorp Mortgage Corporation, West Bloomfield, Mich.
- Alacrity Financial Services, LLC, Southlake, Texas
- Assurity Financial Services, LLC, Englewood, Colo.
- D and R Mortgage Corporation, Farmington, Mich.
- Webster Bank, Cheshire, Conn.
- Mac-Clair Mortgage Corporation, Flint, Mich.
- Americare Investment Group, Inc., Arlington, Texas
- 1st Advantage Mortgage, Lombard, Ill.
- American Sterling Bank, Independence, Mo.
- Sterling National Mortgage Company Inc., Great Neck, N.Y.
- Dell Franklin Financial LLC, Columbia, Md.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.