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O n Behalf of HUD & FHA Welcome to our session on the Fundamentals of DE Credit Review and TOTAL Scorecard.

O n Behalf of HUD & FHA Welcome to our session on the Fundamentals of DE Credit Review and TOTAL Scorecard. 1. Housekeeping Phone lines ~ Q&A ~ Polling Activities. Phone lines – muted Questions – chat panel Interactivity – voting tools and polling questions. 2.

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O n Behalf of HUD & FHA Welcome to our session on the Fundamentals of DE Credit Review and TOTAL Scorecard.

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  1. On Behalf of HUD & FHA Welcome to our session on the Fundamentals of DE Credit Review and TOTAL Scorecard. 1

  2. Housekeeping Phone lines ~ Q&A ~ Polling Activities • Phone lines – muted • Questions – chat panel • Interactivity – voting tools and polling questions 2

  3. About Your Instructor Pava J Leyrer CMC, CRMS, CMP 3

  4. FHA Subject Matter Experts Welcome to our guests from the FHA – Lisa Ellis and Brenda Boldridge- who will be responding to participant questions and offering additional guidance during today’s webinar. 4

  5. Fundamentals of DE Credit Reviewand TOTAL Scorecard 5

  6. Understanding the Direct Endorsement (DE) Program. • DE Credit review standards. • What is FHA TOTAL Scorecard? • Why was the FHA TOTAL Scorecard developed? • Understand how and when to use TOTAL Scorecard. • Integration of Automated Underwriting Systems (AUS) with FHA's TOTAL Scorecard? • Understand the responses from TOTAL Scorecard. Course Objectives 6

  7. Direct Endorsement Program Advantages. • Fundamental elements of DE Credit Review. • How Mortgage Scorecard was developed by HUD. • Why TOTAL Mortgage Scorecard was developed. • State what TOTAL Scorecard is. • A step-by-step of the TOTAL Scorecard process. • Loan submission and results in Total Scorecard. • Downgrades and system overrides. • What TOTAL Scorecard does not do. Course Overview 7

  8. Polling Questions How long have you been in the mortgage industry? How long have you been working with FHA mortgage loans? 8

  9. Direct Endorsement (DE) Program 9

  10. Simplify the FHA loan process • Mortgagee underwrites the loan • Mortgagee closes the loan • Expedite mortgage insurance endorsements from HUD • Post Endorsement Technical Review (PETR). DE Program Advantages References: http://portal.hud.gov/hudportal/documents/huddoc?id=4155-2_9_secC.pdf PETR Guide HB 4155.2 & 4155.2 1.A.1.e 10

  11. DE Underwriting ResponsibilitiesEligibility • CAIVRS, LDP, SAM • Credit Alert Verification Reporting System - CAIVRS • Limited Denial of Participation – LDP • System for Award Management - SAM http://portal.hud.gov/hudportal/documents/huddoc?id=40004c03.pdf 11

  12. Neighborhood Watch and the Mortgagee • Company/Entity Name • Compare Ratios • Early Warning Signs https://entp.hud.gov/sfnw/public/help-lend-def.cfm 12

  13. DE Underwriting Responsibilities Property Types • Single family dwellings of 1-4 living units • Manufactured homes • Units in Low and High Rise Condominium Projects http://portal.hud.gov/hudportal/documents/huddoc?id=40004c03.pdf 13

  14. DE Underwriting Responsibilities Program Eligibility • Purchase Money Mortgages • Construction-to-Permanent Mortgages • Regular Refinances with Credit Qualifying • Cash-Out Refinances • Credit Qualifying Assumptions Note: Streamline Refinances are not required to be scored through TOTAL SCORECARD http://portal.hud.gov/hudportal/documents/huddoc?id=40004c03.pdf 14

  15. DE Underwriting Responsibilities • Plan Types • Fixed Rate Mortgages • Interest Rate Buydowns • Adjustable Rate Mortgages http://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf 15

  16. FHA Insurance Products (Sample) 203(b) – Standard FHA Product for Detached & Attached dwellings 203(h) – Mortgages for Disaster Victims 234(c) – Unit Mortgages in Condominium Projects 203(k) – Rehabilitation Mortgage Insurance 251(k) – Adjustable Rate Mortgages (ARM) EEM – Energy Efficient Mortgages 247(k) – Hawaiian Home Land Mortgages DE Underwriting ResponsibilitiesFHA Insurance Products http://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf 16

  17. ARM Types • FHA 1-Year ARM • FHA’s 3,5,7, and 10-year ARMs • How to Qualify a Borrower Adjustable Rate Mortgage (ARM) TOTAL Scorecard User’s Guide Pages 8; ML 05-14; 07-13 17

  18. Calculations associated with the energy efficient improvements • Acceptability of the improvements • Transaction meets the program requirements Energy Efficient Mortgage (EEM) TOTAL User’s Guide Pages 8-9 http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/eem/energy-r 18

  19. ADP Codes for DE Underwriters This is a sample of the codes, the complete list can be found at http://www.hud.gov/offices/hsg/sfh/f17c/f17adpcurrent_xmlhlp.cfm 19

  20. What are DELRAP and HRAP? • Direct Endorsement Lender Review and Approval Process • DELRAP • HUD Review Approval Process • HRAP ML 11-22; 12-18 20

  21. Questions 21

  22. DE Credit Review 22

  23. Credit Report • Credit History • Non-Traditional Credit • NTMCR DE Credit Review HUD 4155.1 4.C.1-2; 4.C.1.d-f 23

  24. Derogatory Ratings • Consumer Credit Counseling • Bankruptcy, Repossession • Foreclosure, Short Sale DE Credit Review HUD 4155.1 4.C.1-2 24

  25. Property value and compliance. • No longer requires repair of minor cosmetic deficiencies. • Allows for “AS-IS” appraisal for an existing property. • Health and safety items are always required to be repaired. DE Appraisal Review Note: The DE Underwriter can request additional items even if not called for by the appraiser. 4155.2 Chapter 4 25

  26. DE Compliance Review • Compliance • Quality Control http://portal.hud.gov/hudportal/documents/huddoc?id=11-02ml.pdf 26

  27. Type of construction • Request for case numbers &appraisers • Sending appraisal packages and receiving appraisal packages back • Submission to HUD • Reviews by HUD • Re-considerations by HUD • Ratings • DE post-endorsement determinations HUD’s Processing Procedures for DE Submissions http://fhadirect.hud.gov/offices/adm/hudclips/handbooks/hsgh/4000.4/40004c04.pdf 27

  28. FHA TOTAL ScorecardAn Overview 28

  29. The acronym “TOTAL” stands for: Technology Open To Approved Lenders FHA TOTAL Scorecard TOTAL Scorecard Developer’s Guide provides information to establish an interface between the FHA’s TOTAL Scorecard and an Automated Underwriting System (AUS). 29

  30. Is Proprietary to HUD • FHA TOTAL requires additional data elements, and merged credit data obtained through Automated Underwriting Systems (AUS) • Assists Lenders with managing and expediting the process for mortgage loans TOTAL Scorecard - Developed by HUD www.hud.gov/pub/chums/aus-developers-guide.pdf 30

  31. Why TOTAL Scorecard Was Developed • Risk management • Analyze trends • Increase FHA activity • Consistent credit evaluation http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/total/total_scorecard 31

  32. Integration of TOTAL Scorecard & AUS • Approved lender or vendor AUS system integrates with TOTAL • Credit Reporting Agency integration with TOTAL • NOTE: Must have HUD/FHA Approval and possess: • Developer’s Guide • FAQs • User Guide http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/total/total_scorecard 32

  33. Loan information is entered into the lender’s AUS. • Decision requested through the AUS. • Borrower’s credit is integrated and AUS applies eligibility rules. Overview of TOTAL Scorecard www.hud.gov/pub/chums/aus-developers-guide.pdf 33

  34. Overview of TOTAL Scorecard • AUS connects to the TOTAL Scorecard. • AUS examines the TOTAL Scorecard results along with other criteria to provide an Accept or Refer credit decision. www.hud.gov/pub/chums/aus-developers-guide.pdf 34

  35. Polling Question Does a lender enter information directly to FHA/HUD for TOTAL Scorecard? 35

  36. Questions 36

  37. Using FHA TOTAL ScorecardWhat do underwriters look for? 37

  38. The TOTAL Scorecard Process • Loan Submission Requirements • Determine Property Eligibility • Determine Program Eligibility • Complete 1003-Application • Credit Report Integration http://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf 38

  39. Underwriting Requirements • Risk • Credit and Capacity • Supporting Documentation The TOTAL Scorecard Process http://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf 39

  40. The TOTAL ScorecardProcess • Endorsement Procedures • Watch Scorecard versions • Underwriter’s responsibility for Accept http://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf 40

  41. Lender-AUS-Response http://www.hud.gov/pub/chums/aus-developers-guide.pdf 41

  42. Accurate Data starts with the 1003: • 1003-Application-URLA • Complete – no blanks or misleading information • Accurate – Reasonable and precise • Verifiable – Can the information be documented from third party sources? Loan Submission http://portal.hud.gov/hudportal/documents/huddoc?id=total_userguide.pdf 42

  43. Lender is Responsible for Accurate Data Integrity! Third-Party Originators/Sponsored Origination: Loan Data Submission • Lenders are responsible for TPO information and verification. • Sponsored EIN numbers now required. • Lenders must verify FHA products and programs are supported in the User Guide. • Proprietary information also gives data input requirements. https://entp.hud.gov/sfnw/public Main page 43

  44. Estimate (PITI) Information: • Principal and Interest • Real Estate Taxes • Hazard Insurance Premiums, • Monthly FHA Mortgage Insurance Premiums Principal, Interest, Taxes and Insurances TOTAL Scorecard User’s Guide Page 8 44

  45. Estimate (PITI) Information additional items: • Flood Insurance and/or Ground Rent • Homeowner’s Association Dues/Condo Fees • Property-related special assessments • Subordinate Financing payments Principal, Interest, Taxes and Insurances TOTAL Scorecard User’s Guide Page 8 45

  46. Income • Monthly housing expense • Credit score (FICO score) • Credit history • Loan-to-value ratio (LTV) • Loan term • Funds to close • Cash reserves Credit & Capacity to Repay Evaluation TOTAL Scorecard User’s Guide pg. 11 46

  47. Credit Score (FICO score) • Credit History: • Length of payments • On time or late • Number and type of accounts • Derogatory ratings • Collections • Public records Credit & Capacity to Repay Note: See slides on Manual Downgrades Total Scorecard User’s Guide Pages 22-24 47

  48. Risk Classification & Related Responsibilities • “Accept” • “Accept/Ineligible” • “Refer” Note: Overrides and Manual Downgrades are discussed later. Total Scorecard User’s Guide Pages 11-12 48

  49. AUS TOTAL Scorecard Results “Accept” Total Scorecard User’s Guide Pages 11-12 49

  50. Loan amount exceeds the FHA Statutory loan limits. • Property type submitted does not correspond to the Section of the Act selected in the AUS. • Insufficient reserves on a 3 or 4 unit property. • Insufficient funds for closing. • Typical reasons for an “accept/ineligible” recommendation may include but are not limited to above items. Accept/Ineligible Recommendations Total Scorecard User’s Guide Page 12 50

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