INTRODUCTION

This User Guide is designed to assist lenders using the Federal Housing
Administration's (FHA) *Technology Open To Approved Lenders* (TOTAL)
Mortgage Scorecard deployed in conjunction with various automated
underwriting systems (AUS). FHA's TOTAL Mortgage Scorecard evaluates the
overall creditworthiness of the applicants based on a number of credit
variables and, when combined with the functionalities of the AUS,
indicates a recommended level of underwriting and documentation to
determine a loan's eligibility for insurance by FHA. Taken together,
TOTAL and the AUS either conclude that the borrowers' credit and
capacity for repayment of the mortgage are acceptable or will refer the
loan application to a Direct Endorsement (DE) underwriter for further
consideration and review.

The mortgage credit portion of loan applications that receive an accept
or approve recommendation (competing AUSs may use either term) need not
be reviewed by a DE underwriter, and neither the mortgage credit
analysis worksheet nor the DE Approval (HUD-92900-A, page 3) need
indicate the individual underwriter's Computerized Homes Underwriting
Management System (CHUMS) identification number. Instead, these
documents will show the identification number assigned by FHA for its
TOTAL Mortgage Scorecard and provide feedback to the lender. A DE
underwriter must underwrite the appraisal according to standard FHA
requirements regardless of the mortgage credit risk score determined by
the scorecard.

Each AUS using FHA's Mortgage Scorecard produces a document that
provides feedback to the lender. The feedback document must be included
in the binder submitted to FHA for insurance purposes even if the loan
application is referred to a DE underwriter for manual underwriting. It
is to be placed on the right-hand side of the endorsement binder, top
sheets.

Regardless of the risk assessment provided, the lender remains
accountable for compliance with FHA eligibility requirements, as well as
for any credit, capacity, and documentation requirements not covered in
this user guide. A registered DE underwriter must fully underwrite those
applications where the AUS refers the loan application to an underwriter
for review and comply with the underwriting requirements described in
Handbook HUD 4155.1 REV-5, Mortgage Credit Analysis, and applicable
mortgagee letters and other policy directives.

Chapter 1 of this user guide describes the process for submitting loans,
the programs and property types eligible for risk assessment by FHA's
Mortgage Scorecard, and data integrity issues. Chapter 2 describes
underwriting issues and contrasts the documentation requirements between
loans rated as accept/approve and those rated as refer, and details
system overrides and manual downgrades. Chapter 3 briefly describes
mortgage endorsement procedures.

**Summary of Credit Policy Revisions and Documentation Reductions**

As described in greater detail in Chapter 2 in this guide, borrowers
*may* be eligible for some or all of the reduced documentation and
credit policy revisions in the following categories, depending on the
risk class of the mortgage. Most of the credit policy revisions to the
underwriting requirements of the mortgage credit analysis handbook and
documentation reductions are available only on loans scored as accept or
approve.

For ease of reading, we have chosen to use "lender" in lieu of
"mortgagee" throughout this user guide. However, lender is to be
interpreted as a FHA-approved mortgagee as described in 24 CFR § 202.10.

**CHAPTER 1**

**[LOAN SUBMISSION REQUIREMENTS]{.underline}**

The Loan Origination System (LOS) being used, as well as the AUS vendor
or platform, will determine the manner in which data are entered into
the AUS, including the field names, which may vary across systems. The
instructions below are designed to provide lenders with basic
information on FHA standards and definitions.

Please note that although all of the following products and programs are
eligible for risk assessment using FHA's Mortgage Scorecard, it is
possible that not all are supported by the AUS. Mortgage lenders will
need to check the AUS vendor's user guide for details. The AUS's
proprietary user guide will provide the requirements for data input
specific to that AUS.

**Property and Program Eligibility**

To obtain a credit risk assessment from FHA's Mortgage Scorecard, the
loan must meet the following FHA eligibility criteria:

-   **Loan Purpose**

-   Purchase Money Mortgage

-   Construction-to-Permanent Mortgages

-   Regular Refinance with Credit Qualifying

-   Cash-Out Refinances up to 85 percent of the appraised value

-   Streamline Refinance (both credit qualifying and non-credit
    qualifying, provided sufficient data is entered to obtain a risk
    analysis)

-   Credit Qualifying Assumptions

-   **FHA Insurance Product**

-   203(b)\-\--Standard FHA product for detached dwellings

-   203(h)\-\--Mortgages for Disaster Victims

-   234(c)\-\--Unit Mortgages in Condominium Projects

-   203(k)\-\--Rehabilitation Mortgage Insurance

-   251\-\--Adjustable Rate Mortgages (ARMs) on single family Detached
    and Condominium Units

-   Energy Efficient Mortgages (EEMs) (See instructions under "Income
    and PITI Information," below)

-   Section 247\-\--Hawaiian Home Land mortgages

-   **Property Types**

-   Single family dwellings of 1- to 4-living units \[Note: 3- and
    4-unit properties have additional underwriting requirements as
    described in Handbook HUD 4155.1 REV-5 which may or may not be
    supported by the AUS\]

-   Manufactured homes meeting FHA's property requirements for Title II
    mortgage insurance

-   Units in Low- and High-Rise Condominium Projects (Project must be
    FHA approved or individual unit must be eligible using "spot condo"
    processing)

-   **Plan Type**

-   Fixed Rate Mortgages

-   Adjustable Rate Mortgages

-   Fixed Rate Mortgages with acceptable temporary buydowns

**Loan Application Information and Definitions**

The Uniform Residential Loan Application (URLA) captures most of the
information needed to obtain a risk assessment from an AUS, and a
completed URLA is required for all FHA insured mortgages. The following
guidance is to ensure that information entered into the LOS/AUS meets
FHA eligibility criteria. Income, assets, debts, and other credit
variables entered into the AUS to obtain a risk assessment evaluation
using FHA's TOTAL Mortgage Scorecard must meet FHA's *eligibility* for
that loan application element.

*Type of Mortgage and Terms of Loan*

Section I of the URLA captures data on the Type of Mortgage and Terms of
the Loan, including interest rate, etc. The interest rate at which the
loan will close is to be entered in the AUS for qualifying purposes; any
increase requires a resubmission. Lenders may use the entry rate for
acceptable interest rate buydowns on fixed-rate mortgages. Borrowers
using ARMs are to be qualified at an interest rate one percentage point
above the initial rate if the loan-to-value equals or exceeds 95
percent.

*Property Information/Section II*

This captures information on the property and purpose of the loan.
Because the maximum insured mortgage is a function of location and the
number of units, accurately enter the property county and property state
as listed in the AUS vendor's Maximum Mortgage Limit Table (if provided
by the AUS vendor).

*Borrower Information/Section III*

Must include a two-year residency history for each borrower (except for
streamline refinances of FHA-insured mortgages).

*Employment Information/Section IV*

Must include a two-year employment history for each borrower (except for
streamline refinances of FHA-insured mortgages).

*Income and Principal, Interest, Taxes and Insurance (PITI)
Information/Section V*

All income entered into the AUS for risk assessment purposes must meet
FHA's requirements for qualifying income (as explained in Handbook
HUD4155.1 REV-5 and applicable mortgagee letters). The lender is
responsible for ascertaining that the income used in qualifying the
applicant meets FHA's criteria for inclusion in the qualifying ratios.

PITI (Principal, Interest, Taxes, and Insurance) consist of the
following on the subject property (as well as any other real estate
owned):

-   Principal and Interest

-   Real Estate Taxes (if proposed construction, base estimate on
    completed property)

-   Hazard Insurance Premiums

-   Monthly FHA Mortgage Insurance Premiums

-   Flood Insurance

-   Ground Rent

-   Homeowner's Association Dues/Condominium Fees

-   Other property related special assessments

-   Subordinate Financing payments scheduled to begin within three years
    of loan closing

> If the mortgage being underwritten is a one-year *[ARM]{.underline}*
> with a loan-to-value (LTV) ratio equal to or greater than 95 percent,
> calculate the Principal and Interest using a rate one percentage point
> above the loan's initial interest rate.
>
> If the mortgage being underwritten is an *[Energy Efficient
> Mortgage]{.underline}* (EEM), and the AUS does not separately
> accommodate such mortgages, use the following instructions for
> underwriting these loans: If the lender obtains an "accept" or
> "approve" on a mortgage loan application prior to adding the energy
> efficient improvements, FHA will recognize the risk rating from the
> AUS and permit the increased mortgage payments without re-underwriting
> or re-scoring *provided* that the lender's DE underwriter certifies
> that he or she has reviewed the calculations associated with the
> energy efficient improvements, and found the mortgage and the property
> to be in compliance with FHA's underwriting instructions. This
> language must appear either in the remarks section of the mortgage
> credit analysis worksheet or on a separate document in the case
> binder.

*Assets/Section VI*

Asset documentation must comply with FHA's requirements. All asset
information entered into the AUS must be verifiable and meet FHA's
requirements for eligibility.

> Verified Reserves After Closing are not a requirement for FHA
> underwriting (except on 3- and 4-unit properties), but are
> nevertheless considered in the mortgage evaluation. If not already
> calculated by the LOS, this information should be entered in the
> appropriate field for the automated underwriting database. See Chapter
> 2 of this User Guide for information on what assets may be considered
> as Reserves for qualifying purposes.

*Liabilities Section VI*

Include the following amounts, if applicable, in Total Debt:

All debts listed on credit report that are not excludable under the
conditions described below:

-   Alimony, child support, separate maintenance agreements. (Note:
    Because of the tax treatment of alimony, the lender may reduce the
    borrower's monthly gross income by the amount of the alimony
    payments rather than include it as a debt obligation under Total
    Debt. If this option is chosen, do not also include the alimony
    payment in the data field that calculates Total Debt.)

-   Negative Rent on other real estate owned

-   Mortgage Debt (PITI) on other real estate owned

-   Installment debt. (Note: Installment debts with fewer than ten
    payments remaining may be excluded from the ratio calculations.
    However, if the AUS indicates that manual underwriting is required,
    then the DE underwriter must determine that short-term debt will not
    negatively affect the borrower's ability to make mortgage payments
    during the early months following loan settlement. See Handbook HUD
    4155.1 REV-5 for additional information.)

-   Significant (greater than \$100 per month) debt payment not shown on
    the credit report and all debts disclosed by the borrower.

-   Payment from new debt resulting from material inquiries on credit
    report within 90 days of application. *Material inquiries* result in
    obligations incurred by the mortgage borrowers and may include other
    mortgages, auto loans and leases, or other installment loans and
    must be considered in the underwriting analysis. Inquiries from
    department stores, credit bureaus and insurance companies are not
    considered as "material."

-   Those debts that must be considered in the qualifying ratios if the
    borrower resides in or the property is located in a community
    property state, per Handbook HUD 4155.1 REV-5.

######### Loan Resubmission Requirements

The lender is responsible for the integrity of the data used to obtain
the risk assessment, and for resubmitting the loan when material changes
are discovered or otherwise occur during loan processing. The lender is
required to resubmit the loan through the automated underwriting system
for an updated evaluation under any of the following conditions:

-   Borrowers were either added to or deleted from the loan application.
    Those borrowers shown on the most recent submission into the AUS
    must be the same borrowers who sign the mortgage note/deed of trust.

-   Borrower's income and/or cash assets/reserves decrease.

-   There were changes to the sales price or terms and conditions of the
    mortgage.

-   Any changes are discovered that would negatively affect the
    borrowers' ability to repay the mortgage.

-   Information about the property valuation changes, e.g., the
    appraised value is determined to be less than the sales price.

**CHAPTER 2**

**[UNDERWRITING REQUIREMENTS]{.underline}**

The underwriting and documentation instructions contained throughout
this chapter are designed only for lenders using FHA's mortgage
scorecard in conjunction with an AUS. For mortgage loans scored as
"accept" or "approve," FHA has granted a number of credit policy
revisions and documentation relief from the instructions in Handbook HUD
4155.1 REV-5 as described below. Lenders must still comply with
outstanding eligibility requirements and ensure the integrity and
accuracy of the data used to render a decision. Loan applications
receiving a "refer" risk classification are remanded to a DE underwriter
and FHA's credit policies as described in HUD Handbook 4155.1 REV-5
apply, subject to certain specific modifications as detailed below.

**Credit and Capacity to Repay Evaluation**

FHA's Mortgage Scorecard evaluates the borrower's credit history,
income, cash reserves and other components of creditworthiness and
either determines that the borrower is acceptable as a mortgage credit
risk and may be processed with reduced documentation, or refers the loan
application to a DE underwriter for his or her personal review and
evaluation. This chapter describes how lenders may use FHA's Mortgage
Scorecard deployed through an approved AUS in evaluating the borrower's
credit and capacity to repay the mortgage including:

-   Adequacy of Income

-   Funds to Close and Cash Reserves

-   Credit History

**Risk Classification and Related Responsibilities**

Lenders should also refer to the user guides developed by the AUS
vendor. However, feedback messages provided by the AUS vendor do not
supersede the written guidelines issued by FHA in this user guide.

**"Accept/Approve"**

If the AUS using the TOTAL Mortgage Scorecard rates the mortgage loan
application as an accept or approve, based on the analysis of the credit
and capacity to repay and certain other loan characteristics, the loan
is eligible for FHA's insurance endorsement provided:

-   The data entered into the AUS are true, complete, properly
    documented, and accurate; and

-   The entire loan package meets all other FHA requirements (except for
    those specifically not required because the loan was evaluated by an
    AUS). FHA requires adherence to all eligibility rules and the
    documentation requirements described elsewhere in this User Guide
    and Handbook HUD 4155.1 REV-5. The DE underwriter need not use his
    or her personal CHUMS identification number on forms HUD-92900-WS,
    92900-PUR, or 92900-A and must substitute the CHUMS identifier
    provided as feedback by TOTAL.

######### "Approve/Ineligible" Recommendations

The AUS vendor may also provide "approve/ineligible" recommendations.
Loans receiving this recommendation have been determined to have met
FHA's Mortgage Scorecard threshold but do not meet certain FHA
eligibility requirements. The vendor will provide detailed information
advising why the loan did not meet FHA's eligibility requirements.
Typical reasons for an Approve/Ineligible recommendation include:

-   Recent late mortgage payments, bankruptcies or foreclosures (if not
    previously downgraded to a "refer" by TOTAL)

-   Loan amount exceeds the FHA maximum

-   Property type submitted does not correspond to the Section of the
    Act selected in the AUS

-   Non-owner occupied cash-out refinance transactions

-   Insufficient reserves on a 3- or 4-unit property

-   Insufficient funds for closing

Loans that receive a recommendation of Approve/Ineligible may still be
eligible for FHA insurance. To achieve eligibility status, the DE
underwriter must analyze the findings report and determine that the
reason for the ineligibility is one that can be resolved in a manner
complying with FHA underwriting requirements. The DE underwriter must
document the extenuating circumstances or other reasons that were
evaluated in making the decision to approve the loan in the remarks
section of the mortgage credit analysis worksheet (MCAW) using his/her
CHUMS identification number. The DE underwriter is not required to
re-underwrite the entire loan, but must address each reason the loan
received an ineligible recommendation and document and explain why it is
now eligible for FHA insurance. Loans that receive a recommendation of
Approve/Ineligible will receive the benefit of all other accept or
approve documentation and credit policy revisions.

The lender may also need to correct the issue(s) that caused the loan to
be ineligible and resubmit the loan to attempt to obtain an
accept/approve recommendation such as when a mortgage amount exceeds
statutory limits.

**"Refer"**

The lender using the TOTAL Mortgage Scorecard must conduct a manual
underwriting review according to FHA's requirements for all loan
applications that generate a "refer" rating. The DE underwriter must
determine if the borrower is creditworthy in accordance with FHA
standard credit policies and requirements. It is FHA's policy that no
borrower will be denied a FHA insured mortgage loan solely on the basis
of a risk assessment generated by the TOTAL Mortgage Scorecard.

######### 

######### System Overrides and Manual Downgrades

A system override and/or manual downgrade of an "accept/approve" to a
"refer" classification may be required if a particular loan application
variable is revealed during loan processing. Loan processors and
underwriters must be aware of the variables detailed later in this User
Guide that otherwise require an accept/approve mortgage loan application
to be remanded to an underwriter for his or her personal review and
decision.

**Documentation Requirements**

All standard FHA documentation requirements must be met, with the
exception of those described below which may allow for reduced
documentation sets based upon the risk classification of the loan. The
lender must also document any situation not addressed in this User Guide
in accordance with the applicable HUD Handbook or Mortgagee Letter.

["Faxed" Documents]{.underline}---If income/employment, asset, or other
documents are "faxed" to the lender, the documents must clearly identify
the employer, depository/investment firm's name and source of
information. The lender is accountable for ascertaining the authenticity
of the document by examining, among other things, the information
included at the top or banner portion of the fax received by the lender.
The document itself must also include a name and telephone number of the
individual with the employer or financial institution that can verify
the accuracy of the data.

[Internet Downloads]{.underline}---Income/employment or asset documents
downloaded from an Internet website must be placed in the case binder in
paper form. The documents must clearly identify the employer or
depository/investment firm's name and source of information. The lender
is accountable for ascertaining the authenticity of the document by
examining the information included on any headers, footers, and the
banner portion of the printouts of the downloaded web page(s). The
printed web page(s) must also show its Uniform Resource Locator (URL)
address and the date and time printed.

**[Employment /Income]{.underline}**

Specific underwriting requirements for what constitutes acceptable types
and sources of income, as well as stability of income requirements are
described in Chapter 2 of Handbook HUD 4155.1 REV-5. The lender is
responsible for documenting and verifying the accuracy of the amount of
income being reported, and for determining if it can be considered as
effective income in determining the payment-to-income and debt-to-income
ratios. If any information regarding a borrower's income or employment
changes during loan processing, the lender must resubmit current,
corrected information through the AUS to determine if the risk
classification changes. Additional documentation may be required for
borrowers who work for family-owned businesses, as per the mortgage
credit handbook.

+-----------------------------------+-----------------------------------+
| **For loan applications rated as  | **For loan applications rated as  |
| "*Accept/Approve"*, use the       | "*Refer"*, use the following to   |
| following to verify employment    | verify employment for employed    |
| for employed borrowers:**         | borrowers:**                      |
+-----------------------------------+-----------------------------------+
| -   **Current                     | -   **Current                     |
|     Employment**\-\--The lender   |     Employment**\-\--The lender   |
|     must obtain the single most   |     must obtain the single most   |
|     recent pay stub (showing      |     recent pay stub (showing      |
|     year-to-date earnings of at   |     year-to-date earnings of at   |
|     least one month) **and** any  |     least one month) **and** any  |
|     one of the following to       |     one of the following to       |
|     verify current employment:    |     verify current employment:    |
|                                   |                                   |
| -   Written Verification of       | -   Written Verification of       |
|     Employment (VOE)              |     Employment (VOE)              |
|                                   |                                   |
| -   Verbal verification of        | -   Verbal verification of        |
|     employment (Lender or service |     employment (Lender or service |
|     provider must document        |     provider must document        |
|     individual verifying the      |     individual verifying the      |
|     employment.)                  |     employment.)                  |
|                                   |                                   |
| -   Electronic verification       | -   Electronic verification       |
|     acceptable to FHA             |     acceptable to FHA             |
|                                   |                                   |
| -   **Employment                  | > **Employment History**\-\--The  |
|     History**\-\--The lender is   | > lender is required to verify    |
|     required to verify the        | > the applicant's employment      |
|     applicant's employment        | > history for the previous two    |
|     history for the previous two  | > years. Obtain one of the        |
|     years. However, direct        | > following for the most recent   |
|     verification is *not*         | > two years to verify the         |
|     required if *all* of the      | > applicant's employment history: |
|     following conditions are met: |                                   |
|                                   | -   W-2(s)                        |
| -   The current employer confirms |                                   |
|     a two-year employment history | -   VOE(s)                        |
|     (this may include a paystub   |                                   |
|     indicating a hiring date)     | -   Electronic verification       |
|                                   |     acceptable to FHA             |
| -   Only base pay is used to      |                                   |
|     qualify (no overtime or       |                                   |
|     bonuses)                      |                                   |
|                                   |                                   |
| -   The borrower signs form IRS   |                                   |
|     4506 or 8821 for the previous |                                   |
|     two tax years.                |                                   |
|                                   |                                   |
| > If the applicant has not been   |                                   |
| > employed with the same employer |                                   |
| > for the previous two years      |                                   |
| > and/or all conditions           |                                   |
| > immediately above cannot be     |                                   |
| > met, then the lender must       |                                   |
| > obtain one of the following for |                                   |
| > the most recent two years to    |                                   |
| > verify the applicant's          |                                   |
| > employment history:             |                                   |
|                                   |                                   |
| -   W-2(s)                        |                                   |
|                                   |                                   |
| -   VOE(s)                        |                                   |
|                                   |                                   |
| -   Electronic verification       |                                   |
|     acceptable to FHA             |                                   |
+-----------------------------------+-----------------------------------+

**[Commissioned Individuals]{.underline}**

A commissioned applicant is defined as one who receives more than 25
percent of his or her annual income from commissions. For these
individuals, obtain and analyze signed federal income tax returns,
including all schedules, for the most recent two years and subtract
unreimbursed business expenses in underwriting.

**[Self-Employed Borrowers]{.underline}**

FHA considers a borrower owning 25 percent or more of a business as
being self-employed. The minimum length of self-employment that a
borrower must exhibit to have that income considered stable and
effective for qualifying is discussed in Handbook HUD 4155.1 REV-5.
Unless the self-employed borrower's income information is obtained
directly from the Internal Revenue Service (IRS), as a quality control
measure, all other self-employed borrowers must sign form IRS 4506 or
8821 and lenders must routinely verify through IRS the income being
reported for the mortgage application.

+-----------------------------------+-----------------------------------+
| **Use the following to verify the | **Use the following to verify the |
| income for self-employed          | income for self-employed          |
| borrowers rated as                | borrowers rated as "*Refer"* by   |
| "*Accept/Approve"* by TOTAL:**    | TOTAL:**                          |
+-----------------------------------+-----------------------------------+
| -   **Individual Tax              | -   **Individual Tax              |
|     Returns**\-\--The lender must |     Returns**\-\--The lender must |
|     obtain signed individual      |     obtain signed individual      |
|     federal tax returns,          |     federal tax returns,          |
|     including all schedules, or   |     including all schedules, or   |
|     income information directly   |     income information directly   |
|     from the IRS for the most     |     from the IRS for the most     |
|     recent two years and subtract |     recent two years and subtract |
|     unreimbursed business         |     unreimbursed business         |
|     expenses in underwriting.     |     expenses in underwriting.     |
|                                   |                                   |
| -   **Business Tax                | -   **Business Tax                |
|     Returns**\-\--The lender must |     Returns**\-\--The lender must |
|     obtain signed federal         |     obtain signed federal         |
|     business tax returns, with    |     business tax returns, with    |
|     all applicable schedules, if  |     all applicable schedules, if  |
|     the business is a             |     the business is a             |
|     corporation, an "S"           |     corporation, an "S"           |
|     corporation, or a             |     corporation, or a             |
|     partnership. Also obtain      |     partnership. Also obtain      |
|     business income information   |     business income information   |
|     directly from the IRS for the |     directly from the IRS for the |
|     most recent two years for     |     most recent two years for     |
|     each business. However, for   |     each business.                |
|     accepts/approves, no business |                                   |
|     tax returns are required if   | -   **Profit and Loss (P&L)       |
|     *all* of the following are    |     Statements and Balance        |
|     met:                          |     Sheets**\-\--Obtain profit    |
|                                   |     and loss and balance sheet or |
| -   Individual federal income tax |     income information directly   |
|     returns show increasing       |     from the IRS if all of the    |
|     self-employed income over the |     following occur:              |
|     past two years.               |                                   |
|                                   | -   More than seven (7) months    |
| -   Funds to close are not coming |     have elapsed since the        |
|     from business accounts        |     business tax year's ending    |
|                                   |     date.                         |
| -   The FHA insured mortgage is   |                                   |
|     not a cash-out refinance      | -   Income to the self-employed   |
|                                   |     borrower from each individual |
| -   **Profit and Loss (P&L)       |     business is greater than      |
|     Statements and Balance        |     five (5) percent of his or    |
|     Sheets**\-\--These documents  |     her stable monthly income.    |
|     are not required on mortgages |                                   |
|     rated "accept/approve" by     | ```{=html}                        |
|     FHA's Mortgage Scorecard      | <!-- -->                          |
|     *provided* that the income    | ```                               |
|     used in qualifying was based  | -   **Business Credit             |
|     on the previous two years'    |     Reports**\-\--Obtain a        |
|     tax returns. However, if      |     business credit report on     |
|     income used to qualify the    |     corporations and "S"          |
|     borrower exceeds that of the  |     corporations.                 |
|     two-year average based on tax |                                   |
|     returns, then either an       |                                   |
|     audited P&L statement or      |                                   |
|     signed quarterly tax returns  |                                   |
|     are to be used to support the |                                   |
|     greater income stream.        |                                   |
+-----------------------------------+-----------------------------------+

**["Deminimus" Self-employed]{.underline}**

  ----------------------------------- -----------------------------------
  If a borrower receives less than    If a borrower receives less than
  five percent of his or her stable   five percent of his or her stable
  monthly income as a result of being monthly income as a result of being
  self-employed, and the loan         self-employed, and the loan
  application receives an             application receives a *Refer*,
  *Accept/Approve*, there is no need  there is no need to obtain
  to obtain individual or business    individual or business tax returns,
  tax returns, nor is it necessary to nor is it necessary to obtain
  obtain balance sheets or P&L        balance sheets or P&L statements.
  statements. Verify the existence of Verify the existence of the
  the business through telephone      business through telephone
  listings, business cards, etc.      listings, business cards, etc.

  ----------------------------------- -----------------------------------

**[Other Income Information]{.underline}**

+-----------------------------------+-----------------------------------+
| **If the loan application is      | **If the loan application is      |
| rated as "*Accept/Approve"*, the  | rated as "*Refer"*, the lender    |
| lender must abide by the          | must abide by the following if    |
| following if there are employment | there are employment gaps or if   |
| gaps or if alimony or child       | alimony or child support are      |
| support are being used in         | being used in qualifying**:       |
| qualifying:**                     |                                   |
+-----------------------------------+-----------------------------------+
| -   **Employment                  | -   **Employment                  |
|     Gaps**\-\--Obtain an          |     Gaps**\-\--Obtain an          |
|     explanation for employment    |     explanation for employment    |
|     gaps of greater than **60**   |     gaps of greater than **30**   |
|     days if it occurred within    |     days in duration if it        |
|     the last two years.           |     occurred within the last two  |
|                                   |     years.                        |
| -   **Alimony and/or Child        |                                   |
|     Support**\-\--Obtain evidence | -   **Alimony and/or Child        |
|     of receipt using deposits on  |     Support**\-\--Obtain evidence |
|     bank statements or canceled   |     of receipt using deposits on  |
|     checks for the most recent    |     bank statements or canceled   |
|     three (3) months that support |     checks for the most recent    |
|     the amount used in            |     three (3) months that support |
|     qualifying*.* Provide         |     the amount used in            |
|     evidence that the claimed     |     qualifying*.* Provide         |
|     income will continue for at   |     evidence that the claimed     |
|     least three years. Use the    |     income will continue for at   |
|     front and pertinent pages of  |     least three years. Use the    |
|     the divorce decree/settlement |     front and pertinent pages of  |
|     agreement showing financial   |     the divorce decree/settlement |
|     details.                      |     agreement showing financial   |
|                                   |     details.                      |
+-----------------------------------+-----------------------------------+

**[Asset Information]{.underline}**

+-----------------------------------+-----------------------------------+
| **If the loan application is      | **If the loan application is      |
| rated as an *"Accept/Approve"*,   | rated as a *"Refer"*, document    |
| document the borrower's assets to | the borrower's assets to close    |
| close and cash reserves, if any,  | and cash reserves, if any, using  |
| using the following:**            | the following:**                  |
+-----------------------------------+-----------------------------------+
| -   **Depository                  | -   **Depository                  |
|     Accounts**\-\--If a           |     Accounts**\-\--If a           |
|     Verification of Deposit (VOD) |     Verification of Deposit (VOD) |
|     is not obtained, then provide |     is not obtained, then provide |
|     a statement showing the       |     a statement showing the       |
|     previous month's ending       |     previous month's ending       |
|     balance for the most recent   |     balance for the most recent   |
|     month. If the previous        |     two months. If the previous   |
|     month's balance is not shown, |     month's balance is not shown, |
|     then obtain statement(s) for  |     then obtain statement(s) for  |
|     the most recent **two**       |     the most recent **three**     |
|     months to verify sufficient   |     months to verify sufficient   |
|     funds to close.               |     funds to close.               |
|                                   |                                   |
| -   **Cash Reserves**\-\--Verify  | -   **Cash Reserves**\-\--Verify  |
|     all cash reserves available   |     all cash reserves available   |
|     after closing that are        |     after closing that are        |
|     submitted to the AUS. Note    |     submitted to the AUS. Note    |
|     that cash reserves after      |     that cash reserves after      |
|     closing are not required on   |     closing are not required on   |
|     FHA mortgages (except when    |     FHA mortgages (except when    |
|     purchasing 3- or 4-unit       |     purchasing 3- or 4-unit       |
|     properties) but are evaluated |     properties) but are evaluated |
|     in determining the risk       |     in determining the risk       |
|     classification of the loan.   |     classification of the loan.   |
|     Cash reserves are *not* to    |     Cash reserves are *not* to    |
|     include funds received as a   |     include funds received as a   |
|     gift regardless of source.    |     gift regardless of source.    |
|                                   |                                   |
| -   **Gift Funds**\-\--The        | -   **Gift Funds**\-\--The        |
|     borrower must list the name,  |     borrower must list the name,  |
|     address, telephone number,    |     address, telephone number,    |
|     relationship to the           |     relationship to the           |
|     homebuyer, and the dollar     |     homebuyer, and the dollar     |
|     amount of the gift on the     |     amount of the gift on the     |
|     loan application or in a gift |     loan application or in a gift |
|     letter for each cash gift     |     letter for each cash gift     |
|     received. If sufficient funds |     received. If sufficient funds |
|     required for closing are not  |     required for closing are not  |
|     already verified in the       |     already verified in the       |
|     borrower's accounts, document |     borrower's accounts, document |
|     the transfer of the gift      |     the transfer of the gift      |
|     funds to the homebuyer in     |     funds to the homebuyer in     |
|     accordance with instructions  |     accordance with instructions  |
|     described in Handbook HUD     |     described in Handbook HUD     |
|     4155.1 REV-5. \[Note: No form |     4155.1 REV-5. \[Note: No form |
|     of secondary financing, with  |     of secondary financing, with  |
|     or without required payments, |     or without required payments, |
|     is to be shown as "gifts" in  |     is to be shown as "gifts" in  |
|     any AUS.\]                    |     any AUS.\]                    |
|                                   |                                   |
| -   **Stock and/or Bond           | -   **Stock and/or Bond           |
|     Accounts---**Obtain brokerage |     Accounts---**Obtain brokerage |
|     statement(s) for each account |     statement(s) for each account |
|     for the most recent two       |     for the most recent three     |
|     months. Evidence of           |     months. Evidence of           |
|     liquidation is *not*          |     liquidation is required if    |
|     required.                     |     used for cash to close.       |
|                                   |                                   |
| -   **Retirement                  | -   **Retirement                  |
|     Accounts**\-\--Obtain the     |     Accounts**\-\--Obtain the     |
|     most recent statements for    |     most recent statements for    |
|     each account to verify        |     each account to verify        |
|     sufficient funds to close.    |     sufficient funds to close.    |
|     Document the terms and        |     Document the terms and        |
|     conditions for withdrawal     |     conditions for withdrawal     |
|     and/or borrowing and that the |     and/or borrowing and that the |
|     borrower is eligible for      |     borrower is eligible for      |
|     these withdrawals. Use only   |     these withdrawals. Use only   |
|     60 percent of the amount in   |     60 percent of the amount in   |
|     the account unless the        |     the account unless the        |
|     borrower presents             |     borrower presents             |
|     documentation supporting a    |     documentation supporting a    |
|     greater amount after          |     greater amount after          |
|     subtracting any taxes or      |     subtracting any taxes or      |
|     penalties for early           |     penalties for early           |
|     withdrawal. Evidence of       |     withdrawal. Evidence of       |
|     liquidation is *not*          |     liquidation is *not*          |
|     required.                     |     required.                     |
|                                   |                                   |
| -   **Sale of Home**\-\--Obtain a | -   **Sale of Home**\-\--Obtain a |
|     HUD-1 or equivalent closing   |     HUD-1 or equivalent closing   |
|     statement. If the borrower is |     statement. If the borrower is |
|     being transferred by his or   |     being transferred by his or   |
|     her company under a           |     her company under a           |
|     guaranteed sales plan, obtain |     guaranteed sales plan, obtain |
|     an executed buyout agreement  |     an executed buyout agreement  |
|     and accompanying settlement   |     and accompanying settlement   |
|     statement indicating that the |     statement indicating that the |
|     employer or relocation        |     employer or relocation        |
|     service takes responsibility  |     service takes responsibility  |
|     for the outstanding mortgage  |     for the outstanding mortgage  |
|     debt.                         |     debt.                         |
|                                   |                                   |
| -   **Sale of Assets**\-\--If an  | -   **Sale of Assets**\-\--If an  |
|     asset other than real estate  |     asset other than real estate  |
|     or exchange-traded securities |     or exchange-traded securities |
|     is sold to accumulate funds   |     is sold to accumulate funds   |
|     to close the mortgage, obtain |     to close the mortgage, obtain |
|     a bill of sale and evidence   |     a bill of sale and evidence   |
|     of proceeds, or document the  |     of liquidation.               |
|     existence, value, and buyer's |                                   |
|     intention to purchase.        | -   **Earnest Money and Other     |
|     Evidence of liquidation is    |     Large Deposits**\-\--Obtain   |
|     *not* required.               |     an explanation and            |
|                                   |     documentation for recent      |
| -   **Earnest Money and Other     |     large deposits in excess of 2 |
|     Large Deposits**\-\--Obtain   |     percent of the property's     |
|     an explanation and            |     sales price, including the    |
|     documentation for recent      |     earnest money deposit. Also   |
|     large deposits in excess of 2 |     verify that any recent debts  |
|     percent of the property's     |     were not incurred to obtain   |
|     sales price, including the    |     part or all of the required   |
|     earnest money deposit. Also   |     cash investment on the        |
|     verify that any recent debts  |     property being purchased.     |
|     were not incurred to obtain   |                                   |
|     part or all of the required   |                                   |
|     cash investment on the        |                                   |
|     property being purchased.     |                                   |
+-----------------------------------+-----------------------------------+

**[Credit Report Processing and Reconciliation
Information]{.underline}**

The lender is responsible for reviewing all credit reports for all
borrowers. Lenders may choose to document each borrower's credit history
by obtaining credit reports through the AUS vendor, or separately
through an independent source, depending on the chosen AUS. The vendor
will determine the options available to the lender, including use of
in-file credit reports, merged credit reports, and Residential Mortgage
Credit Reports (RMCRs).

In the event that derogatory or delinquent credit items are revealed
during processing that are not reflected on the credit report and, thus,
were ***not*** considered by the scorecard, downgrade to a *Refer* and
manually underwrite the loan. Derogatory credit items that could
conceivably not appear on the credit report and must result in a
downgrade include but are not limited to:

-   Bankruptcy, foreclosure, collection account, charge-off, tax lien,
    or judgment

-   Any mortgage trade line including mortgage line-of-credit payments,
    during the most recent 12 months, consisting of:

3 or more late payments of greater than 30 days, or

1 or more late payments of 60 days plus 1 or more 30-day late payments,
or

1 payment greater than 90 days late.

+-----------------------------------+-----------------------------------+
| **Use the following to document   | **Use the following to document   |
| the borrower's credit history for | the borrower's credit history for |
| loans receiving an                | loans receiving a *"Refer"*:**    |
| *"Accept/Approve"*:**             |                                   |
+-----------------------------------+-----------------------------------+
| -   **Significant                 | -   **Significant                 |
|     Inaccuracy/Undisclosed        |     Inaccuracy/Undisclosed        |
|     Debt**---When a debt or       |     Debt**---When a debt or       |
|     obligation (other than a      |     obligation (other than a      |
|     mortgage) is revealed during  |     mortgage) is revealed during  |
|     the application process that  |     the application process that  |
|     was not listed on the loan    |     was not listed on the loan    |
|     application and/or credit     |     application and/or credit     |
|     report and was *not*          |     report and was *not*          |
|     considered by the AUS, the    |     considered by the AUS, the    |
|     lender must:                  |     lender must:                  |
|                                   |                                   |
| -   Verify the actual monthly     | -   Verify the actual monthly     |
|     payment amount, and           |     payment amount, and           |
|                                   |                                   |
| -   Include the monthly payment   | -   Include the monthly payment   |
|     amount and re-submit the loan |     amount and manually           |
|     if the liability is greater   |     underwrite the mortgage using |
|     than \$100 per month. Direct  |     standard qualifying criteria. |
|     verification of the debt is   |     Direct verification of the    |
|     not required.                 |     debt is not required.         |
|                                   |                                   |
| -   Determine that any funds      | -   Determine that any funds      |
|     borrowed were not/will not be |     borrowed were not/will not be |
|     used for the homebuyer's cash |     used for the homebuyer's cash |
|     investment into the           |     investment into the           |
|     transaction.                  |     transaction.                  |
|                                   |                                   |
| -   **Contingent Liability on     | -   **Contingent Liability on     |
|     Mortgage Debt**\--If the      |     Mortgage Debt**\--If the      |
|     credit report indicates a     |     credit report indicates a     |
|     mortgage debt that has been   |     mortgage debt that has been   |
|     assumed by an unrelated       |     assumed by an unrelated       |
|     party, with or without a      |     party, with or without a      |
|     release of liability, or the  |     release of liability, or the  |
|     title has been transferred    |     title has been transferred    |
|     because of divorce, lenders   |     because of divorce, lenders   |
|     need not include the debt in  |     need not include the debt in  |
|     the qualifying ratios. Obtain |     the qualifying ratios         |
|     a copy of the divorce decree  |     *provided* that evidence is   |
|     ordering the other spouse to  |     obtained that the mortgage    |
|     make payments or the          |     has been current during the   |
|     assumption agreement and the  |     previous 12 months or that    |
|     deed showing transfer of      |     the loan-to-value ratio is at |
|     title out of the borrower's   |     or below 75%. Also obtain a   |
|     name. There is no 12-month    |     copy of the divorce decree    |
|     payment history requirement.  |     ordering the former/separated |
|                                   |     spouse to make payments or    |
| -   **Mortgage Reference**\-\--   |     the assumption agreement and  |
|     If a mortgage debt does not   |     the deed showing transfer of  |
|     appear on the credit report,  |     title out of the borrower's   |
|     the credit report does not    |     name. Further instructions    |
|     have a 12-month history, or   |     are in Handbook HUD 4155.1    |
|     if no rating is available,    |     REV-5.                        |
|     obtain the most recent 12     |                                   |
|     month history and include the | -   **Mortgage Reference**\-\--If |
|     payment in the qualifying     |     a mortgage debt does not      |
|     ratios.                       |     appear on the credit report,  |
|                                   |     the credit report does not    |
| -   **Rental Reference**\-\--A    |     have a 12-month history, or   |
|     separate rental reference is  |     if no rating is available,    |
|     not required.                 |     obtain the most recent 12     |
|                                   |     month history and include the |
| -   **Credit Report               |     payment in the qualifying     |
|     Inquiries**\-\--Include new   |     ratios.                       |
|     debt payment resulting from   |                                   |
|     material inquiries listed on  | -   **Rental Reference**\-\--If a |
|     the credit report in the debt |     rental reference does not     |
|     ratios. Also determine that   |     appear on the credit report,  |
|     any recent debts were not     |     obtain the most recent        |
|     incurred to obtain any part   |     12-month history.             |
|     of the required cash          |                                   |
|     investment on the property    | -   **Credit Report               |
|     being purchased.              |     Inquiries**\-\--Include new   |
|                                   |     debt payment resulting from   |
| -   **Derogatory Credit           |     material inquiries listed on  |
|     Information and               |     the credit report in the debt |
|     Judgments**\-\--Obtain        |     ratios. Also determine that   |
|     evidence of payoff for any    |     any recent debts were not     |
|     outstanding judgments shown   |     incurred to obtain any part   |
|     on the credit report. No      |     of the required cash          |
|     other explanation is required |     investment on the property    |
|     for adverse credit or other   |     being purchased.              |
|     derogatory information.       |                                   |
|                                   | -   **Derogatory Credit           |
|                                   |     Information and               |
|                                   |     Judgments**\-\--Obtain        |
|                                   |     evidence of payoff for any    |
|                                   |     outstanding judgments shown   |
|                                   |     on the credit report. Obtain  |
|                                   |     an explanation for major      |
|                                   |     indications of derogatory     |
|                                   |     credit, such as judgments and |
|                                   |     collections, as well as any   |
|                                   |     minor indications within the  |
|                                   |     past two years.               |
+-----------------------------------+-----------------------------------+

**[SYSTEM OVERRIDES AND MANUAL DOWNGRADES]{.underline}**

A system override occurs when a loan application variable triggers a
requirement (a "review rule") that an underwriter review the loan file.
A manual downgrade becomes necessary if additional information, not
considered in the AUS decision, affects the overall insurability or
eligibility of a mortgage otherwise rated as an accept or approve. Both
system overrides and manual downgrades may be triggered by inaccuracies
in credit reporting, by eligibility issues, and for other reasons
including the unlikely failure of the TOTAL Mortgage Scorecard or AUS to
recognize a derogatory credit variable. Unless specifically permitted to
continue to use the *Accept/Approve* documentation class, such as
following a favorable resolution of a credit issue due to an error in
reporting, the lender must document as a *"refer"* risk class and is
accountable for the credit and ratio warranties on these loans. If the
AUS the lender is using does not provide for a system override for any
of the conditions shown below, then the lender is required to manually
downgrade the loan to a "refer" under any of the following conditions:

**FEDERAL ELIGIBILITY**

Certain individuals may not be eligible for federal benefits due to
delinquent federally-related obligations or actions taken by a federal
government agency. If a borrower is discovered to be ineligible due to
any of the conditions described below, the lender must downgrade the
loan to a Refer status (if the AUS does not do so) and determine what
actions---if any---may be taken to allow the borrower to qualify for the
mortgage. If it is determined that the information originally relied on
to determine a borrower to be ineligible was erroneous, the lender may
document the file accordingly and if the loan application is rated as an
"accept/approve", use the credit waivers and reduced documentation
accordingly.

***Delinquent Federal Debt***

If the borrower, as revealed by public records, credit information, or
HUD's Credit Alert Interactive Voice Response System (CAIVRS), is
presently delinquent on any federal debt, the borrower is not eligible
for a mortgage insured by FHA. See Chapter 2 of Handbook HUD 4155.1
REV-5 for details.

######### *CAIVRS*

If CAIVRS indicates a Federal delinquency, default, claim payment, or
lien, the borrower is not eligible for additional federally related
credit. Exceptions and error resolution are discussed in Chapter 2 of
Handbook HUD 4155.1 REV-5. A check of CAIVRS is not required for
streamline refinances.

We do not require a \"clear\" CAIVRS access number as a condition for
mortgage endorsement, but the lender must document and justify its
approval based on the exceptions described in the handbook or otherwise
provide documentation proving erroneous or outdated information residing
in CAIVRS.

***Suspended and Debarred Individuals***

A borrower suspended, debarred, or otherwise excluded from participation
in the Department\'s programs is not eligible for a FHA insured
mortgage. Both the General Services Administration (GSA) "List of
Parties Excluded from Federal Procurement and Non-Procurement Programs"
and HUD's Limited Denial of Participation (LDP) list are available
through the FHA Connection.

**CREDIT ISSUES**

***Previous mortgage foreclosure***

A borrower whose previous residence or other real property was
foreclosed on or has given a deed-in-lieu of foreclosure within the
previous three years is generally not eligible for an insured mortgage.
If the lender chooses to continue processing and manually underwrite the
loan application, it must refer to Handbook HUD 4155.1 REV-5 for
exceptions and additional underwriting requirements.

Provided that the foreclosure was completed at least three years
previously *and* the risk-classification from TOTAL is an
"accept/approve", no further documentation regarding the foreclosure is
required.

***Bankruptcy***

Both Chapter 7 liquidations and Chapter 13 bankruptcies discharged
within two years of loan application require a referral to an
underwriter and compliance with the instructions regarding bankruptcies
described in Handbook HUD 4155.1 REV-5. A borrower whose bankruptcy has
been discharged less than one year is not eligible for FHA mortgage
insurance (except on non-credit qualifying streamline refinances).

Provided that the bankruptcy was discharged at least two years
previously *and* the risk-classification from TOTAL is an
"accept/approve", no further documentation regarding the bankruptcy is
required.

***Late Mortgage Payments***

If any mortgage trade line including mortgage line-of-credit payments,
during the most recent 12 months, shows:

3 or more late payments of greater than 30 days, or

1 or more late payments of 60 days plus one or more 30-day late
payments, or

1 payment greater than 90 days late,

the loan application must be referred to a DE underwriter for review.

***Disputed Accounts***

If the credit report reveals that the borrower is disputing any credit
accounts or public records, the mortgage application must be referred to
a DE underwriter for review.

**CHAPTER 3**

**[ENDORSEMENT PROCEDURES]{.underline}**

The loan is eligible for FHA's insurance endorsement if

-   The TOTAL Mortgage Scorecard rated the mortgage loan application as
    an "accept" or "approve", or if a "refer", the DE Underwriter
    manually underwrote and approved the mortgage application; and

-   The data entered into the AUS are true, complete, and accurate; and

-   The entire loan package meets all other FHA requirements (except for
    those specifically not required because the loan was evaluated by
    TOTAL).

Loan-level data in the AUS used to render a risk assessment must match
that data also entered into CHUMS (if the lender has manually updated
any of the fields used by TOTAL for scoring the mortgage). If data
entered by the lender into CHUMS indicate a degradation of loan quality
when compared with the AUS data used to obtain the risk assessment, FHA
reserves the right to return the case binder to the lender unendorsed
until such time as the lender corrects its data. FHA may also score the
mortgage using FHA's Mortgage Scorecard emulator. If the results of this
re-scoring indicate that an "accept/approve" has been downgraded to a
"refer" risk classification, the case binder may be returned for
traditional manual underwriting.

It is imperative that lenders make certain that they enter the FHA case
number into their LOS or AUS as soon as it is known. This will ensure a
more efficient endorsement process. Mortgage loans that FHA's system of
records cannot identify as having been risk-assessed by FHA's TOTAL
Mortgage Scorecard will not receive the benefits of documentation
reduction and credit policy revisions and may be returned to the lender
for manual underwriting.

######### Scorecard Version Issues

From time to time, FHA will revise the TOTAL Mortgage Scorecard. FHA
will announce the date that the new version of the scorecard will be
available and from that date forward all new, first-time risk
assessments will be based on the new scorecard. Loan applications that
were scored under the previous version of the scorecard will be
"grandfathered" and eligible for re-scoring under the earlier version
for 90 days. Once that period has lapsed, all re-scores will be subject
to the new version of the TOTAL Mortgage Scorecard. Lenders and vendors
are also advised that the version number must be passed back to the
TOTAL Mortgage Scorecard to allow for this grandfathering feature to
operate.

**Underwriter Responsibilities**

+-----------------------------------+-----------------------------------+
| **For mortgages receiving an      | **For mortgages receiving a       |
| *"Accept/Approve":***             | *"Refer"***                       |
|                                   |                                   |
| -   The DE underwriter is *not*   | -   The DE underwriter is         |
|     required to personally review |     required to underwrite both   |
|     the credit and/or qualifying  |     credit and capacity according |
|     ratios                        |     to standard FHA guidelines    |
|                                   |                                   |
| -   The DE underwriter is *n*o*t* | -   The DE underwriter is         |
|     required to certify that the  |     required to certify that the  |
|     borrower's credit and         |     borrower's credit and         |
|     capacity meets FHA's standard |     capacity meet standard FHA    |
|     requirements                  |     requirements                  |
|                                   |                                   |
| -   The TOTAL Mortgage Scorecard  | -   The CHUMS number of the DE    |
|     CHUMS number is to be         |     underwriter is to be recorded |
|     recorded on forms HUD-92900-A |     on forms HUD-92900-A and the  |
|     and the mortgage credit       |     mortgage credit analysis      |
|     analysis worksheet            |     worksheet                     |
|                                   |                                   |
| -   The DE underwriter must       | -   The DE underwriter must       |
|     underwrite the appraisal      |     underwrite the appraisal      |
|     according to standard FHA     |     according to standard FHA     |
|     requirements                  |     requirements                  |
+-----------------------------------+-----------------------------------+