FHA Relic of the Past

FHAFHA

Relic of the PastRelic of the Pastoror

Tool of the Future?Tool of the Future?

Why learn FHA?Why learn FHA?

• Reason # 1: Close more loans.Reason # 1: Close more loans.Many borrowers who don’t qualify for Many borrowers who don’t qualify for any subprime or Alt-A product can be any subprime or Alt-A product can be approved and closed, instead of being approved and closed, instead of being a crumpled up credit report at the a crumpled up credit report at the bottom of a garbage can. Security bottom of a garbage can. Security Atlantic’s manual underwriting uses Atlantic’s manual underwriting uses common sense to make a decision, not common sense to make a decision, not a matrix.a matrix.

Why Learn FHA?Why Learn FHA?

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

Why Learn FHA?Why Learn FHA?

• Reason # 3: Survive Market Reason # 3: Survive Market Changes.Changes.As subprime and Alt-A LTVs drop and As subprime and Alt-A LTVs drop and minimum credit score requirements minimum credit score requirements increase, FHA will re-emerge as the increase, FHA will re-emerge as the loan of choice for the “non-creampuff” loan of choice for the “non-creampuff” borrower. Whenever an environment borrower. Whenever an environment changes radically, failure to adapt changes radically, failure to adapt results in a failure to survive.results in a failure to survive.

FHA BasicsFHA Basics

• Owner Occupied OnlyOwner Occupied OnlySecond homes and investment properties Second homes and investment properties are not permitted under any are not permitted under any circumstances.circumstances.Owner-Occupied transactions have Owner-Occupied transactions have typically accounted for over 80% of all typically accounted for over 80% of all originations. As the allowable LTVs for originations. As the allowable LTVs for NOO properties return to normal, NOO properties return to normal, mortgages on primary residences will mortgages on primary residences will again dominate pipelines.again dominate pipelines.


• Full Doc OnlyFull Doc OnlyIncome documentation: VOE + YTD Income documentation: VOE + YTD paystub.paystub.Self-employed borrowers: 2 years tax Self-employed borrowers: 2 years tax returns and YTD P&L (bank statements returns and YTD P&L (bank statements cannot be used to verify income)cannot be used to verify income)Asset documentation: VOD + one month Asset documentation: VOD + one month statement, or two months statements (no statement, or two months statements (no VOD only option available)VOD only option available)


• Full Doc OnlyFull Doc OnlyFHA isn’t in high demand when 100% FHA isn’t in high demand when 100% SISA financing is available for borrowers SISA financing is available for borrowers with little or no credit. However, now that with little or no credit. However, now that the industry is beginning to return to the industry is beginning to return to normal, stated documentation is beginning normal, stated documentation is beginning to require higher scores, more tradelines, to require higher scores, more tradelines, and larger downpayments. When stated and larger downpayments. When stated documentation is no longer an option, documentation is no longer an option, FHA is often the best alternative. FHA is often the best alternative.

Maximum LTVsMaximum LTVs

• For those of you who are used to For those of you who are used to using a program matrix, we have using a program matrix, we have prepared a simple grid detailing the prepared a simple grid detailing the maximum LTVs available, grouped maximum LTVs available, grouped by credit score and property type:by credit score and property type:

Max LTV MatrixMax LTV Matrix

Purchases and Rate/Term RefinancesPurchases and Rate/Term Refinances

ScoreScore 1 unit1 unit 2 unit2 unit 3 unit3 unit 4 unit4 unit

400-500400-500 9797 9797 9797 9797501-600501-600 9797 9797 9797 9797601-700601-700 9797 9797 9797 9797701-800701-800 9797 9797 9797 9797

FHA Max LTVsFHA Max LTVs

If you don’t prefer a matrix, here is If you don’t prefer a matrix, here is the max LTV for purchases and the max LTV for purchases and rate/term refinances:rate/term refinances:

1-4 Units, all scores:1-4 Units, all scores:

97%97%

FHA Max LTVsFHA Max LTVs

Max LTVs for FHA cash-out refinances:Max LTVs for FHA cash-out refinances:

1-2 Units1-2 Units

95%*95%**must own property for at least one year with no lates, or limited to *must own property for at least one year with no lates, or limited to

85%85%

3-4 Units3-4 Units

85%85%

Minimum Credit ScoresMinimum Credit Scores

• No Minimum Credit ScoreNo Minimum Credit ScoreOur credit decision is based on an Our credit decision is based on an actual analysis of the borrower’s actual analysis of the borrower’s credit. Many borrowers with scores credit. Many borrowers with scores in the 400s have been approved, and in the 400s have been approved, and many with scores in the 600s have many with scores in the 600s have been denied.been denied.

Minimum TradelinesMinimum Tradelines

• No Credit OK, No Credit No Credit OK, No Credit Score OK.Score OK.No credit is better than bad credit. No credit is better than bad credit. Use of alt-trades is permitted. If Use of alt-trades is permitted. If there are no alt-trades available, the there are no alt-trades available, the loan can still be approved in most loan can still be approved in most circumstances.circumstances.

Credit AnalysisCredit Analysis

• Common SenseCommon SenseUnlike subprime and Alt-A, there is no Unlike subprime and Alt-A, there is no matrix, no max mortgage lates, no matrix, no max mortgage lates, no maximum dollar amount of maximum dollar amount of collections, collections, no “box” to fit intono “box” to fit into. FHA . FHA handles every borrower with damaged handles every borrower with damaged credit differently, depending on the credit differently, depending on the circumstances surrounding the credit circumstances surrounding the credit history. Common sense prevails.history. Common sense prevails.

Bankruptcy GuidelinesBankruptcy Guidelines

• Chapter 7 BankruptcyChapter 7 BankruptcyMust be discharged two years. Must be discharged two years. Exceptions for periods between 12 Exceptions for periods between 12 and 24 months are available, but and 24 months are available, but only if the BK was “out of the only if the BK was “out of the control” of the borrower (a difficult control” of the borrower (a difficult exception to qualify for).exception to qualify for).

Bankruptcy GuidelinesBankruptcy Guidelines

• Chapter 13 BankruptcyChapter 13 BankruptcyA borrower can currently be in a Chapter A borrower can currently be in a Chapter 13 repayment plan and still be approved for 13 repayment plan and still be approved for an FHA loan. The repayment plan must be an FHA loan. The repayment plan must be at least 12 months old, and all credit at least 12 months old, and all credit (especially the mortgage) must have been (especially the mortgage) must have been paid with no lates since the inception of the paid with no lates since the inception of the plan. Additionally, there must be no lates plan. Additionally, there must be no lates on the plan itself, and the trustee must give on the plan itself, and the trustee must give written permission for the transaction and a written permission for the transaction and a payoff.payoff.

Seller ContributionsSeller Contributions

Maximum Seller ContributionMaximum Seller Contribution

6%6%All LTVs, 1-4 UnitsAll LTVs, 1-4 Units

Minimum InvestmentMinimum Investment

Minimum Investment Minimum Investment RequirementRequirement

3%3%All LTVs, 1-4 UnitsAll LTVs, 1-4 Units

Minimum InvestmentMinimum Investment

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

GiftsGifts

• No Donor’s AbilityNo Donor’s AbilityUnlike conventional loans, there is Unlike conventional loans, there is no requirement to evidence the no requirement to evidence the “donor’s ability” to give the gift. The “donor’s ability” to give the gift. The donor does not need to provide a donor does not need to provide a bank statement showing adequate bank statement showing adequate funds for the gift, only proof that the funds for the gift, only proof that the gift check was drawn on their gift check was drawn on their account.account.

GiftsGifts

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

RatiosRatios

Standard Income RatiosStandard Income Ratios

31/43*31/43**These ratios can be exceeded with a*These ratios can be exceeded with a

compensating factor.compensating factor.In some cases, In some cases, muchmuch higher. higher.

RatiosRatios

• Compensating FactorsCompensating FactorsSome examples of compensating factors Some examples of compensating factors are:are:

- 3 months PITI reserves- 3 months PITI reserves- 10% down payment- 10% down payment- housing payment increasing by less than - housing payment increasing by less than 10%10%

Once again, if the loan makes sense, the Once again, if the loan makes sense, the loan can be approved.loan can be approved.

FHA AppraisalsFHA Appraisals

• Appraiser must be on the FHA Approved Appraiser must be on the FHA Approved List.List.

• Repair requirements are the same as a Repair requirements are the same as a conventional appraisal.conventional appraisal.

• No appraisal reviews, drive-bys, AVMs, No appraisal reviews, drive-bys, AVMs, BPOs, or any other additional appraisal BPOs, or any other additional appraisal items.*items.*

*unless property has transferred in the last six months with a large increase in *unless property has transferred in the last six months with a large increase in sales price.sales price.

Streamline RefinancesStreamline Refinances

• Once a borrower has an FHA loan, they Once a borrower has an FHA loan, they can be refinanced into another lower-rate can be refinanced into another lower-rate FHA with very little documentation:FHA with very little documentation:

- no employment, income or asset - no employment, income or asset documentationdocumentation- no credit report, just a mortgage history- no credit report, just a mortgage history- no appraisal option- no appraisal option

Mortgage LimitsMortgage Limits

• FHA mortgage limits vary by county. FHA mortgage limits vary by county. Most of NJ’s limits are listed below. All Most of NJ’s limits are listed below. All other county limits can be found on our other county limits can be found on our website (website (www.fhaok.comwww.fhaok.com). ).

COUNTIECOUNTIESS

NUMBER OF UNITSNUMBER OF UNITS

11 22 33 44

Bergen, Hudson, Bergen, Hudson, Essex, Union, Essex, Union, Passaic, Morris, Passaic, Morris, Somerset, Hunterdon, Somerset, Hunterdon, Monmouth, Ocean, Monmouth, Ocean,

Middlesex, Sussex, Middlesex, Sussex, Cape MayCape May

362,7362,79090

464,4464,44949

561,4561,41111

697,6697,69696

Recap: Why FHA?Recap: Why FHA?

Close moreClose moreloans.loans.


Make more Make more money.money.


Survive Survive market market

changes.changes.

Documents

FHA Relic of the Past