Mortgage Credit Update

Information by State  Print version

· Refinances
· 203(h)
· Properties under one year old that are limited to 90% financing
· Other loans that are limited to 75% or 85%

· Repairs, when ordered by the appraiser and the contract specifies that they are to be
paid by the borrower, should be shown on line 10-a and on 11-b on the
HUD-92900-PUR. Be sure and review HUD Handbook 4155.1, 1-6-C to assure that
only the allowable amounts are entered.

NON PURCHASING SPOUSE DEBTS -The debts of the non-purchasing spouse must be considered in the qualifying ratios if the borrower resides in a community property state or if the property to be insured is located in a community property state. (HUD Handbook 4155.1, paragraph 2-2-D)
· Credit reports will need to be obtained for the non purchasing spouse to determine any joint or individual obligations.
· If the non purchasing spouse does not have a Social Security Number, a credit report is still required.
· For debts and liabilities of the non-purchasing spouse in a community property state, the monthly payment amount or five percent of the outstanding balance (whichever is the greater) must be counted as a monthly obligation.

· Obligations specifically excluded by state law need not be counted. There should be documentation in the file to support that specific debts are exempted.
· When debts of the non purchasing spouse are in dispute, they need not be counted if there is evidence in the file to support that they are in dispute.

NON-TAXABLE INCOME - If a particular source of regular income is not subject to federal taxes (e.g., certain types of disability and public assistance payments, military allowances, etc.), the amount of continuing tax savings attributable to the non-taxable income source may be added to the borrower's gross income. (This practice is commonly referred to as "grossing up" income). The percentage of income that may added may not exceed the appropriate tax rate for that income amount and no additional allowances for dependents are acceptable. The lender must document and support the adjustments (the amount the income is "grossed up") made for any non-taxable income source. The lender has the option of using either the published IRS tax tables or the tax rate used to calculate last year's income tax for the borrower. If the borrower is not required to file a federal income tax return, the minimum tax rate to use is 15%. For example, if a borrower is in the 0% tax bracket, only 15% may be used to "gross up" the borrower's qualifying income. ( HUD Handbook 4155.1, paragraph 2-7- P or Mortgagee Letter 97-26).

REFERENCES - Listed below are some of the handbooks most frequently referenced by lenders in the processing of Single Family loans:

4000.2 --- Mortgagees Handbook - Application Through Insurance - Single Family
4000.4 --- Single Family Direct Endorsement Program
4145.1 --- Architectural Processing and Inspections
4150.1 --- Valuation Analysis
4155.1 --- Mortgage Credit Analysis - 1-4 Family Properties
4165.1 --- Endorsement for Insurance - Single Family
4235.1 --- HECM Mortgages
4240.4 --- 203K
4905.1 --- Minimum Property Standards - Existing Housing, 1-4 Units

The above listed references can be obtained from the following sources:
· Call 1-800-767-7468 or
· Fax 1-202-708-2313 or
· Internet

REJECTED LOANS
· If a DE mortgagee rejects a loan for credit issues, they must send a copy of the Mortgage Credit Analysis Worksheet (MCAW), HUD-92900-PUR or HUD-92900-WS, and supporting documents to the HOC.
· If a DE mortgagee rejects a loan which is subsequently transferred to another lender, the original mortgagee must provide a copy of the underwriter's worksheet reflecting the analysis and reason for rejecting the borrower or property. If the receiving mortgagee approves the application and submits the case for endorsement, the case file must include a copy of the original mortgagee's worksheet with explanatory comments from the receiving (approving) mortgagee's underwriter. (HUD Handbook 4000.2, paragraph 4-8)

SECONDARY FINANCING
· Secondary financing is permissible only when it meets the requirements in HUD Handbook 4155.1, paragraph 1-13. This also applies to refinances.
· On a streamline refinance, subordinate financing may remain in place without regard to the total indebtedness as long as it will clearly remain subordinated. (HUD Handbook 4155.1, paragraph 1-12-D-8)
· Documentation of secondary financing (copies of the lien or note) must be in the file at the time of endorsement.

SOCIAL SECURITY NUMBERS
· Evidence of a Social Security Number must be in the file for each borrower. This also applies to co-borrowing spouses when they are on the note. (4155.1, paragraph 3-2-C)
· Streamline refinances also require third party evidence of Social Security Numbers for each borrower.
· Taxpayer Identification Numbers (TIN's) are only acceptable for non-profits.


UNDERWRITING QUESTIONS - If you have questions for our underwriting staff, it is now possible to ask your questions "on-line". Click on underwriting question to send us a question.

VACANCY FACTORS - Gross rental income should be reduced for vacancies and maintenance by 25 percent or the percentage developed by the HOC having jurisdiction where the property is located. (4155.1, 2-7-M) The Denver HOC has developed the following vacancy factors:
· 10% for Colorado, Iowa, Minnesota, Montana and Wisconsin
· 15% for Kansas, Louisiana, Missouri, Nebraska, New Mexico, North Dakota, South Dakota, Texas and Wyoming
· 20% for Arkansas, Oklahoma and Utah

WAIVING OF REPAIR REQUIREMENTS - When the underwriter decides that it is appropriate to waive repair requirements required by the appraiser on a refinance of an FHA loan to an FHA loan (no cash back):
· The underwriter must document in the file that they have determined that the items being waived have no impact on the final value determination -or-
· If value is impacted, the underwriter must reduce the value accordingly and document how they arrived at the new value. (If the underwriter changes the value, the reasons for this change must be documented on the Form HUD-54111 per Mortgagee Letter 91-43.)
· Requirements for lead based paint abatement cannot be waived.