FHA

For use during Section 2 of the SAFE 20 Hr Pre-licensing and Exam Prep Course

HUD v. FHA (page 9 in the course packet) U.S. Department of Housing and Urban

Development was created through the US Housing Act of 1937

FHA provides mortgage insurance on loans made by FHA-approved lenders

What does HUD do?

Provides opportunities for homeownership

Provides housing assistance for low income persons

Helps to rehabilitate and maintain affordable housing

Enforces Fair Housing laws Helps the homeless Spurs economic growth in distressed

neighborhoods

Insuring and Endorsement

When an FHA loan closes, the lender collects and remits an up front MIP directly to HUD via wire transfer.

Then the lender sends the original loan file (aka case binder) to the FHA HOC for review.

If the paperwork is in order, HUD transmits an electronic MIC (mortgage insurance certificate.)

GNMA

Government National Mortgage Association

Ginnie Mae is not a lender nor does it buy or sell mortgages. GNMA guarantees Residential Mortgage Backed Securities that are backed by pools of FHA and VA loans

GNMAs are backed by the federal government

Advantages of FHA Financing Only an FHA-approved lender can

originate FHA loans

Property Types: 1 to 4 unit properties Purchases up to 96.5% LTV

Borrower Contributions 3.5% cash investment

100% gift acceptable

Advantages of FHA Financing Reserves are not required on 1 & 2 unit

properties FHA loans are fully assumable No income limitations

FHA Loans are only to owner occupied borrowers

Exceptions: HUD owned property

Non-owner occupied purchase at 85% LTV

FHA Home Mortgage Insurance Programs

203b Single Family 234c Condo 203h Disaster Victims 255 HECM 203k Rehab EEM Energy Efficient Mortgage

Single Family 203b

Single Family Owner occupied 1 to 4 units PUDs (Planned Unit Developments) Manufactured Homes

The FHA Mortgage Insurance Fund is running out of money….

$3.5 billion left after transferring $9.8 billion to cover possible losses on its loan portfolio.

This means higher mortgage insurance premiums

FHA LOAN PROCESSING

Roles

Loan originator satisfies the processor Processor satisfies the underwriter Underwriter satisfies management Management satisfies FHA Role of the underwriter is to build a

defensible position FHA satisfies minimum risk for FHA Lenders set minimum risk for themselves FHA might say yes but your lender might

say no.

Social Security Number SSN

Handbook 4155.1 paragraph 3-1C

HUD/FHA require all lenders to ensure that each FHA borrower has their own valid Social Security Number as issued by the Social Security Administration

Verification also through FHA Connection

U.S. Citizenship Not Required FHA will insure mortgages made to lawful

permanent and non-permanent resident aliens

Permanent resident alien: Must have evidence of permanent resident status Have a valid social security number

Non-permanent resident alien Property must be their principal residence Must be eligible to work in the U.S. Have a valid social security number Have likelihood of continued lawful status

Social Security Number Verif Acceptable verification includes:

Paystub Valid tax return Copy of SSN card Driver’s license Medical information Service provider with access to SSA

INTRO TO FHA UNDERWRITING

Total Scorecard Factors

Credit FICO score Monthly housing expense ratio Number of monthly payments in reserve Loan to value ratio Loan term

These are the five biggest risk factors and the only things TOTAL looks at.

Accept or Refer

Intro to Manual Underwriting What must an FHA borrower possess? Decent and reasonable credit history

Perfect credit is not a requirement. Stable, reliable, and sufficient income Verified funds to close Sufficient security for the loan

THE FOUR CS OF UNDERWRITING

Any guesses as to what they are?

The Four Cs of Underwriting

Character Credit

Capacity Income

Collateral Value

Capital Liquid assets

• Does the borrower have the ability and willingness to repay the loan?