# Presentation: 816943

## THE GUARANTEED RURAL HOUSING PROGRAM A NATIONAL LENDER’S PERSPECTIVE

- Chase Manhattan Mortgage Corporation
- RHS Annual SFH Training Meeting
- Phoenix, AZ
- Jack W. Jones
- September 2001

## Demand for the GRH Program

- 39,403

- 39,752

- 29,117

- 28,883

- OBLIGATIONS

## Single Family Housing Loan Production at the Federal Level

- Number of Offices Nationwide:
- 	FHA	-          4         Home Ownership Centers
- 	VA	-        12         Regional Offices
- 	RHS	-     750(e)     State and County Offices

## Program Utilization

- 	So, why are we losing ground when we have the home court advantage?

## Private Mortgage Insurance

- 1,473,344

- 1,455,403

- 1,236,214

- 1,618,298 (e)

- Mortgages Closed with Private Mortgage Insurance

## Program Utilization

- Let’s Get Back to the Basics...
- 1980.301 (b)

## THERE ARE OTHER PRODUCTS OUT THERE... 

- RHS/GRH - “_ONE OUT OF HUNDREDS_”
- Hundreds of products available for Lenders (Chase has more than 180 products)
- MAKE THE GRH PRODUCT KNOWN TO YOUR CUSTOMERS

## THERE ARE OTHER PRODUCTS OUT THERE...

- GRH COMPETITION
- Conventional Portfolio - Typically offers a 100% financing product
- FHA 30-year fixed
- FHA 1-year Adjustable Rate Mortgage
- FNMA/FHLMC “synthetic 100’s”

## FHA

- High LTV
- MIP -  Reduced to 1.5% - “Financeable” w/o appraised value to support
- Automated responses
- Originator has answer in minutes
- Credit strength = Ratio latitude
- No income limits
- No eligible areas
- Wider range of property types

## CONVENTIONAL “100%” PRODUCTS

- APPLICANT MUST HAVE:
- Great credit - mandatory
- 680/700/720 credit score minimums are typical
- Tremendous ratio latitude:
- Little weight to PITI
- Total debt 45%, 50%, 55%, etc.

## CONVENTIONAL “100%” PRODUCTS

- UNDERWRITING PROCESS
- Fast/”painless”
- Often automated
- INSPECTIONS - _None to Minimal_
- Roof
- Termite

## CONVENTIONAL “100%” PRODUCTS

- IMPACT TO THE LENDER
- Low servicing values = Less income to the originator
- GRH HAS THE BEST SELLING POINTS...
- High servicing values = More income to the originator
- No monthly mortgage insurance for borrowers

## GRH #1 --- THE BEST PRODUCT

- LENDER BENEFITS
- 30-year fixed
- High servicing value
- BORROWER BENEFITS
- No MIP
- One-time guarantee fee
- Lower monthly payment

## Guaranteed to Pay Less! 

- The Choice

**    ****Is Yours!**

**Representative 10-year cost to insure a $100,000 purchase and 7.5% note rate.**

## Focus Your Partners In Origination

- Is the property in a GRH eligible area?
- Is it single family housing with no income-producing land?
- Are your applicants able to meet the GRH income limits?
- Then start with Guaranteed Rural Housing!

## LENDER ISSUES WITH GRH (TURN OFFS)

- ISSUE #1  -  RATIO INFLEXIBILITY
- Suggestion:  Consideration of ratio waiver for...
- Strong applicant profiles
- High credit scores/great credit histories (660 or above)
- Employment stability
- Favorable housing payment change
- Savings/401K
- (SEE AN-3582)

- Solved

## LENDER ISSUES... (TURN OFFS)

- ISSUE #2 - UNDERWRITING/APPROVAL
- 		  	    PROCESS
- No automation
- Slow
- Inconsistency when dealing with different offices/states
- Paper intensive
- No give/take... RHS will not “bend”
- RHS file review... compared to an IRS audit

## LENDER ISSUES... (TURN OFFS)

- ISSUE #3 - SERVICE ISSUES
- Create a partnership with your Lenders
- Partners need each other
- Partners work hard for each other
- “Credit-only/Pre-qualification” approvals
- Wisconsin
- California
- Timely responses - 1980-18’s
- Timely responses - 1980-17’s

## LENDER ISSUES... (TURN OFFS)

- ISSUE #3 - SERVICE ISSUES
- With respect to our Final Loan Note Guarantees, please stop asking for:
- Copies of recorded First Mortgages
- “Notarized” or “true-certified” copies of the Note
- Final Title Insurance Policy
- Homeowner’s Insurance Policy

## LENDER ISSUES... (TURN OFFS)

- ISSUE #3 - SERVICE ISSUES
- Refer to §1980-361 (a) _Issuance of loan note guarantee_
- 	+  Lender Certification
- 	+  Copy of Note
- 	+  1980-19
- 	+  Check for Guarantee Fee
- 	=  1980-17 to the Lender

## LENDER ISSUES... (TURN OFFS)

- ISSUE #3 - SERVICE ISSUES
- Stress open dialogue
- Phone:  	_GREAT_!
- Letters:  	_BAD_!
- Sending files back:  _THE WORST CHOICE_!
- Originators want to know their business is being valued, not just tolerated!

## This makes me feel like my business is valued!

## Well done!

## LENDER ISSUES... (TURN OFFS)

- ISSUE #3 - SERVICE ISSUES
- Keep your Lenders informed:
- Training
- Newsletters
- Updates
- _Speed/ease of understanding_ - Prompt response/good communication
- _Implement “sunset policy”_ - All calls returned before the end of the day

## LENDER ISSUES... (TURN OFFS)

- ISSUE #3 - SERVICE ISSUES
- Create out-of-office back-ups/alternatives
- Person with whom the Lender can speak
- Person empowered to issue an approval
- PLEASE DON’T TRAIN, MEET, OR CLOSE OFFICES AT MONTH-END

## LENDER ISSUES... (TURN OFFS)

- ISSUE #4 - INSPECTION/PROPERTY ISSUES
- Excessive/asking for more...
- #1 issue... code confirmation (outside HUD Handbook requirements)
- In fact, according to HUD:  “Local municipalities design local housing code standards; therefore, enforcement of such housing standards rests with local authority.”  So in other words, this issue goes beyond HUD/RHS  parameters as defined in §1980.341(b)(i) _Inspections_.

## LENDER ISSUES... (TURN OFFS)

- ISSUE #4 - INSPECTION/PROPERTY ISSUES
- Why are we asking for:
- GFI’s as part of the electrical system?
- Gutters and downspouts?
- 100 amp service (HUD’s minimum is 60 amp)?
- Why are we asking for roof life longer than the two-year HUD minimum?

## LENDER ISSUES... (TURN OFFS)

- ISSUE #4 - INSPECTION/PROPERTY ISSUES
- 	Offer to assist Lenders on inspection/property issues.  We, as Lenders, need to understand RHS’s perspective on atypical issues before the loan closes to ensure a final Loan Note Guarantee will be issued.
-      We do not want to have your final answer after the loan closes along with the Agency’s Appeal Rights...

## Great Lender support to approve items before closing. 

- Great Lender support to approve items _before_ closing.

- 

## LENDER ISSUES... (TURN OFFS)

- ISSUE #4 - INSPECTION/PROPERTY ISSUES
- Borrower – first consideration in the loan
- Property – second
- Stress “rehab” benefits of a GRH loan
- Loan can be made to do repairs...if appraisal will support
- Lender must wait for the completion of repairs (unless weather-related) before requesting final Loan Note Guarantee.  The choice is the Lender’s, not the Agency’s.

## LENDER ISSUES... (TURN OFFS)

- ISSUE #4 - Inspection/Property Issues
- 			       Maximum
-                        Acreage
- [See §1980.313 (e)]

- NOT

## LENDER ISSUES... (TURN OFFS)

- ISSUE #4 - INSPECTION/PROPERTY ISSUES
- 	Acreage - See §1980.313 (e) _Modest house_
- 	Generally, the value of the site must not exceed 30 percent of the total value of the property.  When the value of the site is typical for the area, as evidenced by the appraisal, and the site cannot be subdivided into two or more sites, the 30 percent limitation may be exceeded.

## LENDER ISSUES... (TURN OFFS)

- ISSUE #4 - INSPECTION/PROPERTY ISSUES
- ACREAGE
- 	Therefore, the issue of subdivision is only at question when evaluating properties with site value greater than 30%.

## ISSUE #4 - INSPECTION/PROPERTY ISSUES
Existing Home Thermal Standards
Viewed as excessive
Not required FHA/VA
Foreign to the Conventional mindset
Drives business to competing products

- Existing Home Thermal Standards
- Viewed as excessive
- Not required FHA/VA
- Foreign to the Conventional mindset
- Drives business to competing products

- LENDER ISSUES... (TURN OFFS)

## ISSUE #4 - INSPECTION/PROPERTY ISSUES
What can be done?
Establish a correlation between your state specific construction codes and your thermal requirements
California 	1984
Florida 	1980
Evaluate the energy efficiency benefits
Oregon
Louisiana
Hawaii - Mahalo

- What can be done?
- Establish a correlation between your state specific construction codes and your thermal requirements
- California 	1984
- Florida 	1980
- Evaluate the energy efficiency benefits
- Oregon
- Louisiana
- Hawaii - Mahalo

- LENDER ISSUES... (TURN OFFS)

## LENDER ISSUES... (TURN OFFS)

- ISSUE #5 - Guarantee Fee
- 				2%

## LENDER ISSUES... (TURN OFFS)

- ISSUE #5 - Guarantee Fee
- 				2%

- NOT

## LENDER ISSUES... (TURN OFFS)

- ISSUE #5 - Guarantee Fee
- Lenders who state they will not originate GRH loans because of the 2% Guarantee Fee:
- Have other more serious issues and are just being polite
- or
- Have other more serious issues and fear retribution
- or
- Are poorly informed (Remember–Guaranteed to Pay Less!)

## Guaranteed to Pay Less! 

- The Choice

**    ****Is Yours!**

**Representative 10-year cost to insure a $100,000 purchase and 7.5% note rate.**

## Ask for the Best Business...

- 	For the GRH Program,
- RHS is not the
- “Lender of Last Resort”!

## Ask for the Best Business...

- Tell your customers (originators):
- 	“We’ve done the rest–
- Now give us your best!”

## Ask for the Best Business...

- Be a magnet to attract strong credit profiles
- Use AN-3582 - Debt Ratio Waivers
- This is direct counter by RHS to the perceived “inflexibility” of the GRH Program that Lenders have with products that can be  through DU/LP (automated underwriting).
- In return, the Agency attracts a strong file with compensating factors like 660+ credit scores, savings, reserves, etc.

## Ask for the Best Business...

- Use AN-3654 - Utilizing Credit Scores for Underwriting Single Family Housing Guaranteed Loans
- Credit histories can now be “pre-approved” as with DU/LP for 660+ scores (mimics automated underwriting in this area)
- No explanation letters needed
- No payoff of collections required

## Ask for the Best Business...

- Bankruptcies less than three years - OK
- Great for Chapter 13’s
- Reinforces Lender’s perception of RHS flexibility
- Agency attracts a stronger credit profile  Lower default risk  Higher probability of long-term successful home ownership (§1980.301(b)]

## Ask for the Best Business...

- WORK WITH APPLICANTS WITH LIQUID ASSETS
- Borrowers can be considered for a GRH loan, provided they have insufficient assets for a conventional (uninsured or unguaranteed) loan.
- That gives borrowers a choice of GRH, FHA or a PMI insured loan.
- Remember the financial benefits that come with GRH financing

## Guaranteed to Pay Less! 

- The Choice

**    ****Is Yours!**

**Representative 10-year cost to insure a $100,000 purchase and 7.5% note rate.**

## Ask for the Best Business

- Accumulated assets [savings) are a strong indication of credit strength
- which means...
- Lower default risks
- and...
- Higher probability of long-term successful home ownership [§1980.301(b)]

## Ask for the Best Business

- 	Utilize ratio waivers (AN-3582)
- 	Utilize credit scores for underwriting decisions (AN-3654)
- 	Work with GRH applicants with liquid assets
- 	Better GRH portfolio performance (fewer loss claims)
- and
- 	Long-term successful home ownership with significant financial savings over other mortgage products.

- +

- +

- +

**=**

**=**

## Ask for the Best Business

- Move from the “Lender of last choice” to the “Lender of first choice”
- Stop “adverse selection”
- Build a strong GRH portfolio
- Facilitate financial savings to the GRH applicant
- Meet the Agency’s own objectives

## CHASE CONTACT

- JACK JONES
- TELEPHONE - (954) 698-1123
- or
- E-MAIL - JACK.JONES@CHASE.COM