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




Phone lines ~ Q&A ~ Polling Activities

  • Phone lines – muted
  • Questions – chat panel
  • Interactivity – voting tools and polling questions


about your instructor
About Your Instructor

Pava J Leyrer



fha subject matter experts
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.


course objectives

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


course overview

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



Polling Questions

How long have you been in the mortgage industry?

How long have you been working with FHA mortgage loans?


de program advantages

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


PETR Guide HB 4155.2 & 4155.2 1.A.1.e


de underwriting responsibilities eligibility
DE Underwriting ResponsibilitiesEligibility
  • Credit Alert Verification Reporting System - CAIVRS
  • Limited Denial of Participation – LDP
  • System for Award Management - SAM


neighborhood watch and the mortgagee
Neighborhood Watch and the Mortgagee
  • Company/Entity Name
  • Compare Ratios
  • Early Warning Signs


de underwriting responsibilities property types
DE Underwriting Responsibilities Property Types
  • Single family dwellings of 1-4 living units
  • Manufactured homes
  • Units in Low and High Rise Condominium Projects


de underwriting responsibilities program eligibility
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



de underwriting responsibilities
DE Underwriting Responsibilities
  • Plan Types
  • Fixed Rate Mortgages
    • Interest Rate Buydowns
  • Adjustable Rate Mortgages


de underwriting responsibilities fha insurance products

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


adjustable rate mortgage arm

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


energy efficient mortgage eem

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


adp codes for de underwriters
ADP Codes for DE Underwriters

This is a sample of the codes, the complete list can be found at


what are delrap and hrap
What are DELRAP and HRAP?
  • Direct Endorsement Lender Review and Approval Process
    • DELRAP
  • HUD Review Approval Process
    • HRAP

ML 11-22; 12-18


de credit review1

Credit Report

  • Credit History
  • Non-Traditional Credit
    • NTMCR
DE Credit Review

HUD 4155.1 4.C.1-2; 4.C.1.d-f


de credit review2

Derogatory Ratings

  • Consumer Credit Counseling
  • Bankruptcy, Repossession
  • Foreclosure, Short Sale
DE Credit Review

HUD 4155.1 4.C.1-2


de appraisal review

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


de compliance review
DE Compliance Review
  • Compliance
  • Quality Control


hud s processing procedures for de submissions

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


fha total scorecard

The acronym

“TOTAL” stands for:






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).


total scorecard developed by hud

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


why total scorecard was developed
Why TOTAL Scorecard Was Developed
  • Risk management
  • Analyze trends
  • Increase FHA activity
  • Consistent credit evaluation


integration of total scorecard aus
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


overview of total scorecard

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


overview of total scorecard1
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.



Polling Question

Does a lender enter information directly to FHA/HUD for TOTAL Scorecard?


the total scorecard process
The TOTAL Scorecard Process
  • Loan Submission Requirements
    • Determine Property Eligibility
    • Determine Program Eligibility
    • Complete 1003-Application
    • Credit Report Integration


the total scorecard process1

Underwriting Requirements

    • Risk
    • Credit and Capacity
    • Supporting Documentation
The TOTAL Scorecard Process


the total scorecard process2
The TOTAL ScorecardProcess
  • Endorsement Procedures
    • Watch Scorecard versions
    • Underwriter’s responsibility for Accept


lender aus response


loan submission

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


loan data submission

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. Main page


principal interest taxes and insurances

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


principal interest taxes and insurances1

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


credit capacity to repay evaluation


  • 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


credit capacity to repay

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


risk classification related responsibilities
Risk Classification & Related Responsibilities
  • “Accept”
  • “Accept/Ineligible”
  • “Refer”

Note: Overrides and Manual Downgrades are discussed later.

Total Scorecard User’s Guide Pages 11-12


aus total scorecard results
AUS TOTAL Scorecard Results


Total Scorecard User’s Guide Pages 11-12


accept ineligible recommendations

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



Reasons may include:

    • Credit and credit history
    • Program type
    • Employment
    • Assets
  • It is FHA policy that no borrower be denied an FHA insured mortgage loan solely based on a risk assessment generated by TOTAL.

Total Scorecard User Guide Page 12



Polling Question

How many classifications does TOTAL Scorecard give?


liabilities in total scorecard

Debts from borrower’s credit report:

  • Revolving and installment.
  • Debts on 1003 applications:
  • Even if not shown on credit report (over $100).
  • Any material new debt inquiries (last 90 days).
  • Alimony, child support, and separate maintenance agreements.
  • Non-purchasing spouse debts must be included (in community property states).
Liabilities in TOTAL Scorecard

TOTAL Scorecard User’s Guide Pages 9-10


employment income

Current Employment

The lender must obtain the single, most recent pay stub showing year-to-date earnings of at least one month and any one of the following:

  • Written Verification of Employment (VOE)
  • Verbal Verification of Employment
  • Electronic verification acceptable to FHA

TOTAL Scorecard User’s Guide Page 17


employment income history

Employment History:

  • Applicant’s employment history for the previous two years.
  • However, direct verification is not required if all of the following conditions are met:
    • Current employer confirms a two-year history or a paystub reflects a hiring date.
    • Only base pay is used to qualify (no overtime/bonuses).
    • Borrower executes IRS 4506T or 8821 for two years.
Employment/Income History

TOTAL Scorecard User’s Guide Page 17


employment income history1
Employment/Income History

Employment Gaps:

  • Obtain an explanation for employment gaps within the last two years if the gap was greater than six months.

TOTAL Scorecard User’s Guide Page 17


income from other sources


  • Child Support
  • Social Security
Income from Other Sources

TOTAL Scorecard User’s Guide Page 19


income from other sources1


  • Disability
  • Rents
Income from Other Sources

TOTAL Scorecard User’s Guide Page 19



Commissioned Individuals

  • More than 25% of annual income is from commissions
  • Needs to have two years IRS Form 1040 – all pages
  • All AUS findings
  • VOE documentation

TOTAL Scorecard User’s Guide Page 18


self employed borrowers

No Business tax return – IFan Accept AND…

  • Individual federal income tax returns show increasing income the past two years.
  • Funds to close are not coming from business accounts.
  • FHA-insured mortgage is not a cash-out refinance.
Self-Employed Borrowers

TOTAL Scorecard User’s Guide Pages 18-19; ML 12-03


self employed borrowers1


  • Profit/Loss Statements
  • Balance Sheets
  • “De minimus” Self-employed
  • Family-owned Business
Self-Employed Borrowers

TOTAL Scorecard User’s Guide Pages 18-19; ML 12-03



Employed by Family Members

  • Letter from company CPA regarding % of ownership, (if any)
  • All AUS findings for VOE documentation

TOTAL Scorecard User’s Guide Page 18


assets with total scorecard

Verification of deposit is not required

One asset statement can be used

Large deposit explanation

Access letter if not a sole account

Assets with TOTAL Scorecard

TOTAL Scorecard User’s Guide Pages 20-22


assets with total scorecard1

Stock or Bond Accounts

Employer Assistance

Grants from Government or non-profit

Earnest Money Deposit

Retirement Accounts

Assets with TOTAL Scorecard

TOTAL Scorecard User’s Guide Pages 20-22


sale of assets
Sale of Assets

Sale of Home/Real Estate

Sale of Assets - “Chattel”

Total Scorecard User’s Guide Page 21



Gift Funds

  • Document the gift
  • Surplus gift funds may be used for reserves on 1-2 unit properties
  • No secondary financing can be allowed as gifts for AUS

Total Scorecard User’s Guide Pages 20 and 22


cash reserves with total scorecard

1 or 2 Unit Properties - all amounts submitted to AUS are considered.

3 or 4 Unit Properties, require three months’ reserves in liquid funds after closing.

Certain Retirement Accounts

Cash Reserves with TOTAL Scorecard

TOTAL Scorecard User’s Guide Pages 21-22


system overrides

Review Rule triggers for TOTAL include:

    • Excessive qualifying ratios or late mortgage payments
    • Previous mortgage foreclosure within three years
    • Bankruptcy discharged within two years
    • Excessive seller concession or incorrect values entered
System Overrides

TOTAL Scorecard User’s Guide Pages 12-13

TOTAL Scorecard Developers Guide Page C-2


system overrides1

System override will trigger a requirement for DE review if any mortgage trade line in the most recent 12 months reflects:

    • Three or more late payments more than 30 days.
    • One or more late payments 60 days plus one or more 30-day late payments.
    • One payment greater than 90 days late.
System Overrides

TOTAL Scorecard User’s Guide Page 12


triggering manual downgrades

Credit report

  • Credit derogatory information
  • Inaccuracies, discrepancies, derogatory information
  • Overdrafts/NSFs from asset statements
Triggering Manual Downgrades

TOTAL Scorecard User’s Guide Pages 22-24


manual downgrades federal
Manual Downgrades – Federal
  • Federal Eligibility
  • Delinquent Federal Debt
  • Suspended and Debarred Individuals

TOTAL Scorecard User’s Guide Pages 13-14; 4155.1 2


loan resubmission requirements

Borrowers were either added to or deleted from the loan application.

  • Changes to the sales price.
  • Changes to the terms.
  • Information about the property valuation changes.
  • Borrowers must match who signs mortgage note/deed of trust
Loan Resubmission Requirements

TOTAL Scorecard User’s Guide Page 10


loan resubmission requirements1

Borrower’s income decreased.

  • Borrower’s cash reserves decreased.
  • Any changes that are discovered that would negatively affect the borrower’s ability to repay the mortgage
Loan Resubmission Requirements

TOTAL Scorecard User’s Guide Page 10


tolerance levels for resubmission requirements
Tolerance Levels for Resubmission Requirements

Income verified not more than 5% less.

Cash Reserves within 10% or less.

Tax & Insurance Escrow estimates used at scoring are not more than a 2% increase in PITI and DTI ratios at closing.

TOTAL Scorecard User’s Guide Page 10


what it does not do

TOTAL Scorecard

Reject applications.

Review the loan for compliance.

Review maximum mortgage amounts.

Compute debt-to-income ratios.

Review property or program


Determine LTV.

Complete additional functions typically performed by an AUS.

What it does NOT do:

TOTAL Scorecard User’s Guide Page 4; FAQ 7/2012


let s review
Let’s Review
  • FHA Total Scorecard
    • Developed by HUD
    • Assists Lenders
    • Integration with AUS
        • Tool to Expedite Loans
        • Assess Risk Easier
  • Total Scorecard Submissions
    • Determine Eligibility
    • Underwriting Standards
    • Credit, Asset, Liabilities
    • Determinations but will Never Deny a borrower
    • Tolerances
    • Endorsement Procedures
  • DE Program
    • Simplify the Process
    • Expedite the Process
    • Underwrite & Close loans
    • Participation
  • DE Underwriting
    • Determine Eligibility
    • Credit & Appraisal Review
    • Compliance & Risk Review
  • DE Submissions to HUD
    • Case # & Appraiser
    • Loan Reviewed by HUD
    • Ratings
    • Determinations


completing the course objective summary

What did we cover?

Identify Direct Endorsement objectives and credit standards.

Understand the role DE underwriters play in the process of mortgage review and approval.

Introduction to FHA TOTAL Scorecard.

Examine the requirements for TOTAL Scorecard:

Why it was developed by HUD.

How it was developed.

Who can use TOTAL Scorecard.

Why to use TOTAL Scorecard.

When to Use TOTAL Scorecard.

Completing the CourseObjective Summary


next steps resources


  • Course Evaluation.
  • Recorded version of webinar will be available on the HUD website.
  • Webinar FAQs will be available on HUD website.
  • FHA Knowledge Database:
  • Call FHA at (800) CALL FHA or email us at
Next Steps & Resources


thanks for attending this course

We look forward to your participation in other training events.

Thanks for attending this course!
  • Overview of HUD/FHA Programs
  • Home Mortgage Insurance for Disaster Victims 203(h)
  • FHA 203(k) Rehabilitation Mortgage Insurance Program
  • FHA Energy Efficient Mortgage (EEM)
  • FHA Home Equity Conversion Mortgage (HECM)
  • How to Manually Underwrite an FHA Mortgage
  • Credit Underwriting - Borrower Analysis
  • Credit Underwriting - Loan Calculations
  • FHA Condominium Approval Process
  • Fundamentals of Insurance Endorsement
  • FHA Appraisal Requirements - Property Types
  • How to Review an FHA Appraisal