FHA CLARIFIES SEVERAL CREDIT, AUS, INCOME & PROPERTY POLICIES
THE POLICIES DETAILED HERE ARE EFFECTIVE IMMEDIATELY
Effective immediately, Essex Mortgage is implementing the following requirements on FHA loans. Any loans in process (not yet underwritten) will need to comply in order to issue approval. Any loans that have already been approved will be honored as initially conditioned & approved until the loan approval expires.
- FHA Streamline Refinances: No loan is to be submitted to underwriting without a fully completed 1003 and pages 1 & 2 of the 92900a. Employment and income for all borrowers must be disclosed on the application and any/all mortgages against the property. (Other debts need not be disclosed). A current paystub no more than 60 days old at the time of underwriting must also be provided. Essex will not approve streamline refinances where the PITI is more than 50% of the borrower’s verified income from the paystub. FHA streamlines will also now require a “mini” quality control where income & employment are verified. Please note that more than 50% of Early Payment Defaults have been streamline refinances, and they normally default in the first 3 months.
- Any debt wherein our borrower is jointly obligated (does not have to be a “co-signer” or 2nd on the note) can be offset by 12 months cancelled checks showing the other obligor makes the payments. If our borrower is the only person obligated on the loan, we must hold the payment in ratio’s. As this pertains to a borrowers business making payments, the business would have to be a co-obligor on the note in order to offset the payments with cancelled checks. Cancelled checks alone will not be accepted for self employed borrowers.
- As previously communicated, if a non-purchasing spouse has a foreclosure or a short sale, but our borrower was never on title and not obligated on the loan, we do not hold this against our borrower in credit qualifying. The borrower’s credit is not negatively affected by the spouse’s credit, only by the spouse’s debts.
- Contrary to what we have previously been advised, when AUS/FHA total scorecard is used to
Underwrite a file; you must meet the AUS conditions EXACTLY. If the borrower does not have a
Complete 2 year EMPLOYMENT history, you may not use his/her income to qualify using the
AUS or ANY of the documentation waivers in the AUS. Previous college or trade school is not
considered to be previous employment by FHA. The case would have to be manually
underwritten to the 4155.1 underwriting guidelines and all applicable conditions obtained.
- If a borrower has handwritten paystubs, the file MUST be manually underwritten. The condition for a paystub showing 30 days of YTD income could not be met, therefore, the loan is ineligible for AUS/Scorecard processing and would have to meet all of the requirements of the 4155.1.
- FHA has confirmed that they consider it fraud if a borrower has written off mortgage interest and/or real estate taxes on a property that they are not obligated on or do not own. Therefore, we will not close any loans where this has occurred, under any circumstances. The borrowers would have to file amended returns for the years in question and fully pay all additional taxes due. Letters of explanation and complete documentation to prove the borrower has no ownership will also be required.
- If a non-purchasing spouse does not have a social security number or TIN number, a credit report must be pulled using the spouse’s full name, DOB and most recent 2 years addresses. It cannot be run using 999-99-9999 or 000-00-0000 or any “ created” number. If your credit company states they are unable to run a merged report with only this information, an RMCR can be ordered in this fashion to meet the requirements.
- HUD does not allow an appraiser to assign a “ZERO” value just to avoid addressing FHA requirements. “ZERO” value is often placed on accessory structures that were added or converted without permits or have costly defects and are potentially not built to city/county code. The appraiser should verify that the non-permitted or converted structure is built in a workmanlike manner and comps should be provided that are similar. If the conversions or non-permitted areas are ILLEGAL, they must be removed. If the addition or structure is ILLEGAL, it must be removed or the property rejected. ANY illegal accessory dwelling unit (separate unit) with amenities for sleeping, eating, cooking or sanitation are unacceptable. They must be either legal or legal non-conforming for the zoning.