Chaz Ramirez's Blog

Blue Ink vs Red Tape a.k.a. FHA vs Subprime

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Sat, 29 Mar 2008 11:29:29 -0700

I've seen so many mixed opinions over the recurring strength that FHA Lending Programs are having and gaining in the current market and oddly to me as a veteran of HUD's programs the majority of those opinions are negative!

It has always been my experience in the business that mortgage professionals are intimidated and annoyed by government lending programs and practices. With easy money lying around in the sub-prime market why would they have extra disclosures signed and deal with specific appraisals and appraisers when they could just take the file elsewhere? Well the idea that they could have made more money should have popped into their head first! While remaining at a competitive market rate the average yield on an FHA loan is far higher than you could ever earn on a sub-prime loan. (Check your rate sheets)

The chart below is statistical data as found in the Mortgage Bankers Association's Press Release dated March 6, 2008 from the National Delinquency Survey (NDS) titled "Delinquencies and Foreclosures in latest MBA National Delinquency Survey". ¹

These statistics reflect information for the last quarter 2007.

	Percent of Loans	Percent of Foreclosures Started
Prime Fixed	65%	18%
Prime ARM	15%	20%
Sub-prime Fixed	6%	12.0%
Sub-prime ARM	7%	42%
FHA & VA	7%	8%

^•1^{This information is used with express permission from Mortgage Bankers Association. To read the complete press release click here. To learn more about MBA and their services please visit them on the web at http://www.mbaa.org/}

Compare the percent of Outstanding Loans percentage for each category to the percent of Foreclosures Started for that category. As we can clearly see the Sub-prime ARM has the highest percentage for foreclosures started and the second lowest percentage of outstandings. It also shows that foreclosed government loans play only a small role in current national foreclosure levels.

Here's why:

1. FHA and VA Loans are full doc loans. No Stated Programs for first-time qualifiers. (*FHA Streamline Refinances allow for streamline documentation for existing FHA Mortgagors with acceptable payment history.)

2. There are no Pre-Payment Penalties for FHA and VA loans. This allows for conversions (refinances) to better terms should they exist without penalty to the borrower. (**Access to conversion without penalty facilitates more active borrowers which translate to more potential business. This is good for you!)

3. Rate resets for FHA and VA loans are lower than competing products. FHA raised caps from 1/5 (1 percent per year with a max increase of 5) to 2/6 when HUD Insurance Programs opened the door to more ARM products. (***Are higher CAPS actually good for the consumer with an FHA Product and does this type of change serve HUD's Housing ideology and mission? What's your opinion?)

FHA and HUD's Homeownership Ideology

I have seen posts and read blogs that admonish FHA as the "New Sub-prime" and believe that as an industry if we take advantage of FHA that we'll just be right back where we are in a few years and ultimately make things worse for ourselves in the long run. "FHA the New Sub-prime Toilet", "Throwing Gasoline on the Fire: Is There An Even Worse Subprime Disaster Around the Corner?"

Well here's the skinny. FHA was Never expected to have a low delinquency or foreclosure rate because it's designed to offer reasonable access to all borrowers, including those who might not qualify for other programs. Its purpose and design is to stimulate Homeownership and as we all should know Homeownership and all those industries involved in creating and servicing Homeownership are economic indicators.

In recent testimony FHA Commissioner Brian Montgomery stated:

"In Fiscal Year 2007," says Montgomery, "FHA provided loss mitigation support to 91,000 borrowers, 86,500 of whom then cured their defaults and stayed in their homes.

"While not every one of these borrowers will be successful in the long term, historically 89% of all borrowers who benefit from loss mitigation still have active loans two years after the assistance.

"This success is responsible in part for a reduction in both the number and percentage of FHA foreclosures, with the foreclosure rate dropping from a high of 1.74% of insured loans in FY 2004 to 1.45% in FY 2007."

So with the idea that FHA should not have low expectation in delinquency and foreclosure...Government Loans Lead the Way in Loss Mitigation and certainly have the lowest percentage of default. Something must be working right!!

Ladies and Gentleman, in the current market and in future markets (as we can historically see) your attitude toward Government Loans has to change! Educating yourself on FHA and VA programs will lead to nothing but more funded loans in your pipeline. No they aren't the easiest, but were any programs easy when you first started them, and in the current state of the economy you just shouldn't expect an easy paycheck!

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

Conforming Credit Score Adjustments (LLPAs) Killing your Bottom Line???

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Fri, 28 Mar 2008 14:23:47 -0700

Conforming Credit Score Adjustments (LLPAs) killing your bottom line??

Can FHA work for your Conforming Customers? With new conforming Loan Level Price Adjustments (LLPAs) which are determined based on representative credit scores it certainly can...and it could be a better choice! Let's take a look.

The chart below is Fannie Mae's LLPA Matrix (Updated March 14, 2008) Click Here for web version.

Loan-Level Price Adjustments - All Eligible Mortgages
Product Description	LLPAs by LTV Range
< 60.00%	60.01 - 70.00%	70.01 - 75.00%	75.01 - 80.00%	80.01 - 85.00%	85.01 - 90.00%	90.01 - 95.00%	95.01 - 97.00% (1)	97.01 - 100% (1)	SFC
LLPA requirement based on Representative Credit Score(2)	Applicable for all mortgages with greater than 15 year terms For whole loans purchased on or after June 1, 2008, or loans delivered into MBS with issues dates on or after June 1, 2008
Credit Score > 740	-0.250%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	N/A
Credit Score 720-739	-0.250%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	N/A
Credit Score 700-719	-0.250%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	N/A
Credit Score 680-699	0.000%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	N/A
Credit Score 660-679	0.000%	0.500%	1.250%	1.250%	1.250%	1.250%	1.250%	1.250%	1.250%	N/A
Credit Score 640-659	0.000%	0.500%	1.750%	1.750%	1.750%	1.750%	1.750%	1.750%	1.750%	N/A
Credit Score 620-639	0.000%	0.750%	2.500%	2.500%	2.500%	2.500%	2.500%	2.500%	2.500%	N/A
Credit Score < 620	0.000%	0.750%	2.750%	2.750%	2.750%	2.750%	2.750%	2.750%	2.750%	N/A

Let's start a scenario for demonstration purposes (Grab your rate sheets)

Applicant has a 675 middle score. Is purchasing a $265,000.00 home in Georgia with a 5% down payment, has 2 months reserves, and ratios of 33/45 at the Loan Amount of $251,750.00

The customer receives an Approve/Eligible AUS response. The 95% LTV requires PMI coverage of 30%. The MI rate for this scenario (click herefor MGIC's Rate Finder) is 0.00780 for the first 10 years with constant renewals.

Here's your Conforming Pricing: Demonstration only (use your rate sheets for real pricing)

5.625% - 0.250% 5.750% - 0.500% 5.875% - 0.625%

6.000% - 1.000% 6.125% - 1.250% 6.250% - 1.500%

This customer will have a 1.250% LLPA. So at a rate of 6.250% you will yield 0.250% and of course charge an origination fee of at least a point. (We hope).

Now here's the payment for the conforming deal:

PI - $1550.07

Mortgage Insurance - $163.63

PIMI - $1713.70

Now here's the FHAPricing: Demonstration only (use your rate sheets for real pricing)

5.625% - (0.250%) 5.750% - 0.000% 5.875% - 0.250%

6.000% - 0.500% 6.125% - 0.625% 6.250% - 0.750%

Now you see that you can earn 0.75% in yield for the exact same rate!

Here's what the customer will get:

The customer put 5% down for a base loan amount of $251,750.00 then finance the Up-front MIP of 1.5% make the total loan amount $255,526.00. MMI (Mutual Mortgage Insurance aka renewal/monthly MMI) is calculated by multiplying the base loan amount by the renewal factor. In this case $251,750 x 0.5%

PI - $1573.32

MIP - $104.89

Total PIMI - $1678.21

Side by side...we just saved this customer $35.49 per month and furthermore...We just got paid 0.75% of $255,560 or $1916.70 versus 0.25% of $251,750 or $629.37 on the same rate!!! Plus don't forget that point on the front...I'd say everyone wins!

Of course it all depends on pricing and rate of MI but it's worth looking into!

Good luck and Happy Hunting!

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

Conforming Credit Score Adjustments (LLPAs) Killing your Bottom Line???

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Fri, 28 Mar 2008 14:22:20 -0700

Conforming Credit Score Adjustments (LLPAs) killing your bottom line??

The chart below is Fannie Mae's LLPA Matrix (Updated March 14, 2008) Click Here for web version.

Loan-Level Price Adjustments - All Eligible Mortgages
Product Description	LLPAs by LTV Range
< 60.00%	60.01 - 70.00%	70.01 - 75.00%	75.01 - 80.00%	80.01 - 85.00%	85.01 - 90.00%	90.01 - 95.00%	95.01 - 97.00% (1)	97.01 - 100% (1)	SFC
LLPA requirement based on Representative Credit Score(2)	Applicable for all mortgages with greater than 15 year terms For whole loans purchased on or after June 1, 2008, or loans delivered into MBS with issues dates on or after June 1, 2008
Credit Score > 740	-0.250%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	N/A
Credit Score 720-739	-0.250%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	0.000%	N/A
Credit Score 700-719	-0.250%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	N/A
Credit Score 680-699	0.000%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	0.500%	N/A
Credit Score 660-679	0.000%	0.500%	1.250%	1.250%	1.250%	1.250%	1.250%	1.250%	1.250%	N/A
Credit Score 640-659	0.000%	0.500%	1.750%	1.750%	1.750%	1.750%	1.750%	1.750%	1.750%	N/A
Credit Score 620-639	0.000%	0.750%	2.500%	2.500%	2.500%	2.500%	2.500%	2.500%	2.500%	N/A
Credit Score < 620	0.000%	0.750%	2.750%	2.750%	2.750%	2.750%	2.750%	2.750%	2.750%	N/A

Let's start a scenario for demonstration purposes (Grab your rate sheets)

Applicant has a 675 middle score. Is purchasing a $265,000.00 home in Georgia with a 5% down payment, has 2 months reserves, and ratios of 33/45 at the Loan Amount of $251,750.00

Here's your Conforming Pricing: Demonstration only (use your rate sheets for real pricing)

5.625% - 0.250% 5.750% - 0.500% 5.875% - 0.625%

6.000% - 1.000% 6.125% - 1.250% 6.250% - 1.500%

This customer will have a 1.250% LLPA. So at a rate of 6.250% you will yield 0.250% and of course charge an origination fee of at least a point. (We hope).

Now here's the payment for the conforming deal:

PI - $1550.07

Mortgage Insurance - $163.63

PIMI - $1713.70

Now here's the FHAPricing: Demonstration only (use your rate sheets for real pricing)

5.625% - (0.250%) 5.750% - 0.000% 5.875% - 0.250%

6.000% - 0.500% 6.125% - 0.625% 6.250% - 0.750%

Now you see that you can earn 0.75% in yield for the exact same rate!

Here's what the customer will get:

PI - $1573.32

MIP - $104.89

Total PIMI - $1678.21

Of course it all depends on pricing and rate of MI but it's worth looking into!

Good luck and Happy Hunting!

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

Blue Ink vs Red Tape a.k.a. FHA vs Subprime

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Fri, 28 Mar 2008 11:07:06 -0700

These statistics reflect information for the last quarter 2007.

	Percent of Loans	Percent of Foreclosures Started
Prime Fixed	65%	18%
Prime ARM	15%	20%
Sub-prime Fixed	6%	12.0%
Sub-prime ARM	7%	42%
FHA & VA	7%	8%

Here's why:

FHA and HUD's Homeownership Ideology

In recent testimony FHA Commissioner Brian Montgomery stated:

"In Fiscal Year 2007," says Montgomery, "FHA provided loss mitigation support to 91,000 borrowers, 86,500 of whom then cured their defaults and stayed in their homes.

"While not every one of these borrowers will be successful in the long term, historically 89% of all borrowers who benefit from loss mitigation still have active loans two years after the assistance.

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

Consumer Question About FHA Minimum Credit Score Requirements

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Wed, 26 Mar 2008 10:09:46 -0700

Question from Consumer:

"I am looking for some outside advice that will help me prepare and make suggestions to insure that my FHA mortgage gets approved at closing. I just went under contract and I am set to close on 4/25. I was given a good faith estimate and a pre-qualification, my middle score was 620. On Sat. I checked my scores and they all dropped 50 points or so, now 569 middle. I have no new credit, my debt ratio has shrunk; the only thing was 5 inquires the last 3 weeks for mortgages. (two should not be on, can get them removed). Now I am scared I will not close. Is there anything I can do to help my cause with the underwriter? Any thing I can suggest to my broker? I live in PA, going FHA, sellers assist and downpayment program. Does credit score matter for FHA? Can I offer a letter stating ,past credit mistakes (no major credit issues just short credit history). Any help would be great."

Response:

First as a consumer (mortgage credit applicant) you should be aware that the information contained in a RMCR (Residential Mortgage Credit Report) the type of credit report used by more than 95% of the industry is different than any type of CCR (Consumer Credit Report) the version of your credit report you will see if you request your own copy. As such the changes you see in a CCR may not necessarily be reflected in an RMCR. Note the qualifier...'May Not'.

In a normal circumstance the inquiries made while you shop for credit will affect your score and not only will the qualifying broker pull a credit report but the lending/closing institution may also pull their own credit report for this transaction. Keep in mind both of these are RMCR's and they should reflect a similar score if all factors were the same at the time if inquiry. If you shopped for any type of credit besides mortgage credit during this period or you continued to shop for mortgage credit beyond any 30 day period (for example if you started shopping for credit on the 20th of the month and continued to shop past the 20th of the next month) this will not be true.

FHA/HUD does not nor have they ever imposed a minimum credit score requirement. Investing lending institutions however in the current market have begun to impose their own minimum credit score requirements for FHA loans. It is possible that your credit decision could be affected by this change.

Here's what you need to do:

Contact your mortgage broker and discuss the situation with them. Tell them when and from what source you received your credit report.
Ask them to inquire about the status of any minimum credit score requirements on FHA loans with their investing lender.
If minimum score requirements exist ask them what their strategy is in case the investing lender decides to pull a new credit report before closing and it reflects a score that is below the minimum.

Your broker will be able to provide you with all the insight as to the status of your file and inform you if this will truly turn into a problem. They should also be able to offer advice on what steps you may need to take to remedy the situation if it truly 'raises its head'.

Two things stand out to me in your inquiry:

You stated that the score is now 569. If this score happens to show up on an RMCR depending on the lender you may still be eligible for approval. The two most consistent minimum score requirements for those investing lenders requiring at this time are 560 and 570. So there's about a 50/50 chance with your case if the investing lender even has a minimum score requirement.
You stated that you have limited credit experience and since your application/pre-qualification that your debt ratio has shrunk. If this means that you have paid off or paid-down revolving credit since the application this is a material change to your credit history (especially if credit is limited) and can be the largest cause of your credit score declining.

Again the situation may never be revealed but your mortgage broker is the best source for direction in your case.

Best of luck to you and should you or your mortgage broker need any further assistance please feel free to contact us.

With regards,

Chaz Ramirez
DE Underwriter, Trainer, HUD Title II Application Consultant
http://activerain.com/chazramirez

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

Consumer Question About FHA Minimum Credit Score Requirements

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Wed, 26 Mar 2008 10:06:40 -0700

Question from Consumer:

Here's what you need to do:

Contact your mortgage broker and discuss the situation with them. Tell them when and from what source you received your credit report.
Ask them to inquire about the status of any minimum credit score requirements on FHA loans with their investing lender.
If minimum score requirements exist ask them what their strategy is in case the investing lender decides to pull a new credit report before closing and it reflects a score that is below the minimum.

Two things stand out to me in your inquiry:

You stated that the score is now 569. If this score happens to show up on an RMCR depending on the lender you may still be eligible for approval. The two most consistent minimum score requirements for those investing lenders requiring at this time are 560 and 570. So there's about a 50/50 chance with your case if the investing lender even has a minimum score requirement.
You stated that you have limited credit experience and since your application/pre-qualification that your debt ratio has shrunk. If this means that you have paid off or paid-down revolving credit since the application this is a material change to your credit history (especially if credit is limited) and can be the largest cause of your credit score declining.

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

Points and The Tax Effective Payment

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Tue, 25 Mar 2008 12:45:34 -0700

I know what you're thinking, "Chaz, what in the world is the Tax Effective Payment??? I've never heard of that before!"

Well, the Tax Effective Payment is a critical tool used in helping your borrowers determine how many points to pay, a decision which is just as critical to you and your customer. So how do you help the borrower determine how many points is appropriate for their situation. There is a system and it's something you may not know to help them determine the best course of action.

Here's a scenario:

Applicant applies and is approved for a conforming product. The days best published rate is 6.25% at par.

Purchase price: $250,000
Loan amount (95% LTV): $237,500.00
Term: 30 Year Fixed
P&I: $1,462
Interest: $1,237
Principal: $225

_{*Please note that cents have been excluded from all monetary examples for simplicity in demonstration.}

So what is the best course of action for the borrower? You the trusted mortgage professional can offer them guidance in their decision. Guidance that sets you apart from the competition...something no one else is telling them! Here's how!

The first thing to consider is what is the borrower's average tax liability? Want to find out? Go here: Tax Liability Calculator

Let's assume for this scenario that the borrower has the average tax liability of 25%.

Each year for the first 15 years in the example above (all factors for 30 year amortization considered and remain) the customer will pay $14,844 in interest at a 25% tax liability this will yield the borrower $3,711 a year in tax benefit from the interest paid. This translates to a tax benefit of $309 per month or a Tax Effective Mortgage Payment of $1153 per month at the end of a full tax year.

Let's say that the borrower is trying to decide between par and paying 1 point or even 2 points.

Let's show them the math:

Here are the buy-down options:

0.0 points - 6.250% 0.5 points - 6.000% 1.0 points - 5.750%

1.5 points - 5.625% 2.0 points - 5.500%

Now here's the math:

Compute the monthly payment and interest only payment.
Interest * 12 months = Annual Tax Deductible Interest
Annual Tax Deductible Interest * Tax Liability = Annual Tax Benefit Savings
Annual Tax Benefit Savings / 12 months = Monthly Tax Benefit Savings
Monthly P&I - Monthly Tax Benefit Savings = Annualized Tax Effective Payment per month
Finally compute the difference in the Tax Effective payment per month and the cost of the points (just like you've probably done with the difference in the payments on buy-down versus par but this demonstrates the full effect).

Payment at 1 point or 5.750% = $1386 with interest of $1138

$1138 * 12 = $13656 - Annual Tax Deductible Interest

$13656 * 25% = $3414 - Annual Tax Benefit Savings

$3414 / 12 = $284 - Monthly Tax Benefit Savings

$1386 - $284 = $1102 = Annualized Tax Effective Payment per month

Payment @ par is $1462 minus payment at 1 discount point $1386 a savings of $76 per month.

Monthly Tax Benefits Savings of $309 @ par minus Monthly Tax Benefits Savings of $284 @ 1 point equals a loss of $25 dollars per month.

Actual savings per month for this scenario = $51

1 points or $2,375 in immediate closing costs saves $51 per month and will take 46 months to recover.

Now that we know how long it will take to actually recover the costs here are the things we should consider and ask the borrower:

Who is paying for the buy-down? The borrower or the seller?
How long does the borrower truly intend to stay in the home?

The answers to these questions will help you determine how to advise your customers on what is the best course of action.

Ready to try it? Computing the benefit/cost of spending 2 points and see what you determine and you can comment on what advise you would offer clients!

I hope you find this tool as useful and exciting as I have. Remember it's not what we do that sets us apart from the competition...it's How we do it!

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

FHA's Mortgage Credit Analysis and what it means to You!

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Mon, 24 Mar 2008 11:46:38 -0700

In the current market with FHA taking a new well deserved stronghold in the number of 1^st mortgage applications it's important for those of us both novice and experienced to reflect on how to properly submit a "file" to a DE Underwriter for review and approval.

Here's our scenario:

You've completed your 1003 and pulled a credit report for your applicants. Upon review of the credit you notice the following:

Scores: 551, 560, 563
Inquiries: 2 Inquires in the last 12 months. 1 Auto, 1 credit card - both now reporting as active accounts
Trade-lines: 4 accounts: 1 Open Auto Loan for $12,000 with a balance of $11,600 8 months good payment history, 1 open credit card with a $4,000 limit with a $600.00 balance open for 12 months with good payment history; 1 closed credit card with a $500 limit no balance and good payment history; 1 closed installment student loan with 24 months of recent good payment history no balance.
Public Records: 1 Chapter 7 BK discharged 25 months prior to the date of application.
Previous Mortgage History: 1 mortgage with an open date to close date of 8 years. Original balance of $245,000.00; 24 month good payment history. No lates.
Previous Installment credit history: Auto loan with open date to close date of 8 years with 2x30. Discharged in Chapter 7 BK
Previous Revolving credit history: 8 credit cards with combined limits of $25,000.00 with numerous 30 day lates per account and 1x 60 on one account. All Discharged in Chapter 7 BK
Major Medical Collections: Totaling $115,000.00 All Discharged in Chapter 7 BK

You feel that this loan is perfect for FHA. Let's send it to the underwriter!!! But are you ready yet?

FHA's Mortgage Credit Analysis is based in common-sense underwriting. As we know FHA does not impose a minimum credit score requirement (though some Lenders may - Watch for my blog on prudent underwriting) and due to such the Mortgage Credit Analysis allows an enormous "Grey Area" for credit analysis and interpretation BUT the "Grey" stops there. FHA's Mortgage Credit Analysis requires "Black & White" documentation in each and every case, in other words one freedom in exchange for a restriction. If you've ever felt that the underwriter couldn't ask for anything else on an FHA loan except a vile of blood and the first born son...ask yourself if you would loan these applicants your own personal money in their situation? And if so wouldn't you want all the documentation to support your decision you could get?

So what documentation should accompany this submission for a DE Underwriter's review? Well, frankly put...All of it!

As DE Underwriters we must consider the Entire Picture to make a decision even with an Approve-Eligible/Accept AUS response. FHA's Mortgage Credit Analysis requires us to evaluate all parts in the decision process without prejudice to any part; thus, we cannot make a decision on credit without income, income without assets, assets without purchase price, purchase price without LTV, etc, etc. It's impossible. Here's where you come in. When you feel that you are going to send a file FHA's way collect everything. It's far better for you to collect up-front than to ask later (I speak as an experienced originator with average months in the $3mill range). Make a check-list of all the things you might possibly need for an FHA file. Ask your processor or better your underwriter or closing compliance auditor for help with this list. Use this checklist every time.

Here's what I would require on the above file before decisioning the file with a Conditional Approval:

Complete 1003, including DOB, Job Title and Type of Industry, Government Monitoring info, as well as, everything else. Don't be skimpy on the application. (See my next blog - "In a Perfect World")
Complete MCAW with 92900A (URLA Addendum) signed on pages 1, 2, and 4 (you may as well be missing page 3 of the 1003 if you're missing the 92900A)
All applicable disclosures. Standard and FHA. All signed and dated appropriately. (Don't make your underwriter condition for disclosures...it makes us angry)
Credit report
Letter of Explanation for Credit (review our scenario and find the need for the LOX)
Income docs - Must have at least 2 Most recent paystubs covering 30 days (if the applicant is paid weekly we'll need at least 4 checks to cover 30 days), 2 Most Recent Years W2's from all employers (Any deviance from a W2 will call for Complete Tax Returns with all schedules).
LOX for Income - Any job gaps, any promotions, any over-time. Tell me, tell me!
Assets - Must have 2 most recent statements or 1 quarterly statement if received as quarterly statements! No NSA's!!! (Please remember that only liquid assets are underwritable and all other assets should be excluded from the application. I know there's a space for jewelry and cars and wine collections but I can't use them for liquidation or damages if the borrower defaults don't spend your valuable time interviewing about it).
LOX for Assets - Got a settlement check, Uncle Buck left you some coinage, Holiday Bonus, the applicants sold a kidney on the black market...well maybe not that one.
Purchase Contract - Complete with all pages and all signatures. Hold the agents accountable! It's important. I've had dozens of files conditionally approved only to fall into the rejected bin because the contracts were faulty and changed and the file couldn't recover.

Anything less than the above items means I can't make a real decision on this file. I can guess but you don't want to guess about your commission check next week do you? Guessing isn't good for us.

Of course appraisal and title and any supplements will be automatically included in the conditional approval process. If you are a seasoned originator and recognize an approvable file then you should be ordering the appraisal and title at the interview stage and send it with your file!

Most importantly...don't stip ship. We hate it. At a minimum DE underwriters are required to make 6 new underwrites per day averaging 45 minutes per file. That doesn't include condition review, final sign-offs, answering the phone, and returning e-mails, much less going to the restroom or eating lunch. The less time we spend on your files the better and trust me we remember who the good guys are. I've pulled file 18 from a stack of 22 as a favor to my good people before. Because I knew that I had 5 new underwrites that day and it was 4:30pm. I trusted that that file would help me meet my quota because of their good history. It helped us both get through another grueling day.

So in review let's remember that in order to receive a valid decision from your DE Underwriter on a file the credit report alone is never ever enough. Without the above 10 items we are fumbling the ball at the 5 yard line with 3 seconds left in the game! You don't have to send a complete file as much as we prefer you do but send us enough to give you a real conditional approval!

And lastly write your own explanative of the file. We read them. Let me know what's included, what's missing, what you are waiting for and any explanation that will help me see the picture. Put it right behind the submission sheet and write in big bold at the top, "For Underwriter, Letter of Explanation" (do this so that a file set-up clerk doesn't trash your letter before turning it in to underwriting).

These are good times for business with FHA. Originating mortgages is tough enough already, getting the government involved can make it even tougher but with some good advice, a little patience, and a little practice you'll be ready to tackle the task and pretty soon you'll be sending me those conditions before I even ask for them!

If you have a subject of interest or questions about FHA or VA Loans please email me and I will try to include those questions and responses in future blogs.

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.

FHA's Mortgage Credit Analysis and what it means to You!

Chaz Ramirez (DE Underwriter, Trainer, HUD Title II Approval Consultant ) — Mon, 24 Mar 2008 11:43:48 -0700

Here's our scenario:

You've completed your 1003 and pulled a credit report for your applicants. Upon review of the credit you notice the following:

Scores: 551, 560, 563
Inquiries: 2 Inquires in the last 12 months. 1 Auto, 1 credit card - both now reporting as active accounts
Trade-lines: 4 accounts: 1 Open Auto Loan for $12,000 with a balance of $11,600 8 months good payment history, 1 open credit card with a $4,000 limit with a $600.00 balance open for 12 months with good payment history; 1 closed credit card with a $500 limit no balance and good payment history; 1 closed installment student loan with 24 months of recent good payment history no balance.
Public Records: 1 Chapter 7 BK discharged 25 months prior to the date of application.
Previous Mortgage History: 1 mortgage with an open date to close date of 8 years. Original balance of $245,000.00; 24 month good payment history. No lates.
Previous Installment credit history: Auto loan with open date to close date of 8 years with 2x30. Discharged in Chapter 7 BK
Previous Revolving credit history: 8 credit cards with combined limits of $25,000.00 with numerous 30 day lates per account and 1x 60 on one account. All Discharged in Chapter 7 BK
Major Medical Collections: Totaling $115,000.00 All Discharged in Chapter 7 BK

You feel that this loan is perfect for FHA. Let's send it to the underwriter!!! But are you ready yet?

So what documentation should accompany this submission for a DE Underwriter's review? Well, frankly put...All of it!

Here's what I would require on the above file before decisioning the file with a Conditional Approval:

Complete 1003, including DOB, Job Title and Type of Industry, Government Monitoring info, as well as, everything else. Don't be skimpy on the application. (See my next blog - "In a Perfect World")
Complete MCAW with 92900A (URLA Addendum) signed on pages 1, 2, and 4 (you may as well be missing page 3 of the 1003 if you're missing the 92900A)
All applicable disclosures. Standard and FHA. All signed and dated appropriately. (Don't make your underwriter condition for disclosures...it makes us angry)
Credit report
Letter of Explanation for Credit (review our scenario and find the need for the LOX)
Income docs - Must have at least 2 Most recent paystubs covering 30 days (if the applicant is paid weekly we'll need at least 4 checks to cover 30 days), 2 Most Recent Years W2's from all employers (Any deviance from a W2 will call for Complete Tax Returns with all schedules).
LOX for Income - Any job gaps, any promotions, any over-time. Tell me, tell me!
Assets - Must have 2 most recent statements or 1 quarterly statement if received as quarterly statements! No NSA's!!! (Please remember that only liquid assets are underwritable and all other assets should be excluded from the application. I know there's a space for jewelry and cars and wine collections but I can't use them for liquidation or damages if the borrower defaults don't spend your valuable time interviewing about it).
LOX for Assets - Got a settlement check, Uncle Buck left you some coinage, Holiday Bonus, the applicants sold a kidney on the black market...well maybe not that one.
Purchase Contract - Complete with all pages and all signatures. Hold the agents accountable! It's important. I've had dozens of files conditionally approved only to fall into the rejected bin because the contracts were faulty and changed and the file couldn't recover.

Anything less than the above items means I can't make a real decision on this file. I can guess but you don't want to guess about your commission check next week do you? Guessing isn't good for us.

If you have a subject of interest or questions about FHA or VA Loans please email me and I will try to include those questions and responses in future blogs.

Chaz Ramirez is a DE Underwriter, HUD Title II Mortgage Application Consultant, and a Trainer. For more information about me and my services please visit my ActiveRain profile.