# Presentation: 204089

##  FHASecure 

**Presented by:**
**US Department of Housing and Urban Development (HUD)**

- Last Revision: 10/1/07

**Notes:**
An extension of the current FHA refinance loan program, announced in Mortgagee Letter 2007-11.  This program is targeted to homeowners who are currently in a conventional (sub-prime) ARM loan, and are currently in default as a RESULT of the interest rate reset.

## General

- Assist borrowers currently in a conventional ARM loan
- Delinquent
- Result of the ARM reset
- Must meet all eligibility criteria for FHASecure
- Combined loans may exceed CLTV and maximum mortgage limits
- Not Delinquent
- Combined loans may exceed CLTV and maximum mortgage limits
- Must meet regular No-Cash-Out (NCO) refinance criteria

**Notes:**
ML 07-11 addresses only the Delinquent loans, but the non-delinquent loans were included in the Waiver of the requirement that Combined loans cannot exceed the LTV and/or the maximum mortgage limit for the area.

## General (cont’d)

- Program available until December 31, 2008  (Mortgagee Letter 2007-11)
- Any FHA lender can originate
- Fixed rate loans are NOT eligible.  This includes Interest-only, as well as mortgages with buydown features incorporated into the interest rate or payment options.
- May be refinanced to an ARM loan (one-year or hybrid)
- A second mortgage may be taken at the time of closing for the amount not eligible for inclusion in the FHA insured first mortgage.
- FAQs can be accessed at www.fha.gov

**Notes:**
This is a temporary program.  Applications must be signed between September 5, 2007 and December 31, 2008.   (ML 07-11 was issued September 5, 2007, and the program was effective that date.)
The program is open to all FHA approved lenders.
This program is restricted to Conventional ARM loans only.  If the Interest-Only loan is an ARM, then it is eligible.  Buydown options and payment options are usually elements of a fixed rate loan.
The 2nd mortgage is only to pay off the amounts of liens and financing costs that cannot be covered by the first FHA mortgage.  It cannot be used to pay debts, etc.

## BENEFITS

- Helps borrowers stay in their homes and preserves communities
- Could assist nearly 80,000 additional borrowers
- Permits an opportunity for borrowers to refinance into a prime-rate FHA insured mortgage
- Help lenders avoid foreclosure expenses
- No CLTV limit or seasoning requirement for purchase money seconds

**Notes:**
This program provides an opportunity for borrowers to obtain more stable mortgage financing, using a conforming product.  It also encourages lenders to be flexible and work with borrowers to prevent foreclosure.  Contrary to comments, this is not a “bail-out” of lenders; rather it is to assist homeowners who may be facing foreclosure.

## Eligibility

- Single-Family (1-4 units)
- Owner-occupied, principal residence
- Must meet FHA underwriting criteria for new loan
- Current FHA geographical maximum mortgage limits apply (for FHA-insured first mortgage)
- Current FHA maximum loan-to-value limits apply
- May cover existing first lien, purchase money second, closing costs, prepaid expenses, discount points, late charges, arrearages, foreclosure expenses, and other costs

## Eligibility - Delinquent

- Non FHA-ARM that has reset
- Must be currently delinquent
- Delinquency resulted _*from*_ reset
- The previous consecutive 6 months of payments, prior to the reset, was made within the month due
- Must have sufficient equity in home
- 				OR
- Lender can take a 2nd mortgage for amount not included in FHA-insured first mortgage
- 				OR
- Current lender agrees to write off the amount not eligible for inclusion in FHA-insured mortgage.

**Notes:**
All eligibility criteria must be met.  
Borrower must have made the consecutive 6 months of mortgage payments on the FIRST MORTGAGE.
No limit on missed mortgage payments as long as the borrower has sufficient equity and does not exceed the maximum FHA LTV ratios and loan limits in the area
If the property value is not sufficient for the first FHA-insured mortgage to pay off all liens and financing costs, then one of the other options must be used.
The holder of the currently 2nd mortgage may choose to subordinate to the refinanced loan.

## Eligibility – Not Delinquent

- Can assist borrowers who are current on their mortgage, but are either facing an ARM reset or have already had an ARM reset
- Underwritten the same as a regular No-Cash-Out (NCO) refinance, with the following considerations
- Combined loans may exceed the CLTV and maximum mortgage limits
- 2nd liens do not have to be seasoned for one year, and additional mortgage calculation is not required
- 2nd liens may be subordinated without consideration of CLTV
- Delinquent/derogatory debts resulting from the borrower choosing to pay the mortgage instead of other obligations

**Notes:**
Borrowers with a conventional ARM, and are current on their mortgage (either before or after Reset) are not eligible for the FHASecure.  However, these borrowers have several concessions granted in the waiver for FHASecure (see the sub-points on the slide).  While these are not specified in ML 07-11, the FAQs provide clarification.

## Underwriting

*FHASecure *does NOT modify or waive FHA underwriting guidelines and requirements
- Basic eligibility (owner-occupancy, SSN, CAIVRS, LDP, GSA, etc.)
- Willingness:  Credit history analysis, including explanations and/or documentation
- EXAMPLE:  A borrower has insufficient income to pay the increased mortgage amount after the reset, along with other debts.  They chose to pay the mortgage, resulting in other debts becoming delinquent.  If the derogatory items can be documented as resulting from the reset, that should not inhibit an approval of a regular NCO refinance.

**Notes:**
Both FHASecure and the No-Cash-Out refinances must comply with standard FHA approval and documentation criteria.
Additional documentation is required to establish the borrower’s eligibility for the FHASecure loan (non-FHA ARM, the reset, and previous 6 months payments prior to the reset was made within the month due).
The reset is only documented for Not Delinquent loans if it is needed to support the underwriting decision (i.e, other debts became delinquent as a result of the rest, but the mortgage payment was kept current).
The underwriter must specify in the Remarks section of the MCAW that this is an FHASecure loan.

## Underwriting (cont’d)

- Income/Employment
- Ability – best indicated by ratios (if exceeded, may use valid and sufficient compensating factors)
- Stability – two years employment history and expectation income level will continue for first 3 years of the loan
- Note:  If 2nd mortgage payments are required within first 36 months, must include in ratios.
- Assets (if required for closing)
- The lender must specify in the Remarks section of the HUD-92900-WS how they determined that the reset resulted in the delinquency

## Underwriting (Cont.d)

- Lenders may use TOTAL Scorecard, but are reminded that manual underwriting is required if a “Refer” result is received
- Documentation
- Standard FHA refinance loan documentation
- Evidence of the ARM reset (Delinquent and, as applicable, Not Delinquent loans)
- Payment history showing that, prior to reset, the borrower made the previous 6 months of mortgage payments within the month due (Delinquent loans only)

**Notes:**
The eligibility and underwriting documentation must be included in the FHA case binder.
Standard documentation requirements include:  Payoff Statement, ownership/title of property, property valuation, basic eligibility (SSN, work status, credit history analysis – including explanations/documents, income/employment verification, asset verification if needed – includes 2nd mortgages, gifts, etc.)

## Lender Responsibilities 

- Encourage borrowers to seek advice on tax consequences of debt write-off
- Ensure accurate property valuations in declining markets
- Refrain from soliciting homeowners to cease making mortgage payments in order to qualify for  *FHASecure*

## Contact Information

- FHA Resource Center
***1-800-CALL FHA (800-225-5342)              ***hud@custhelp.com
- HUD-Approved Housing Counseling Agencies
***1-800-569-4287***
- HUD’s Loss Mitigation Center
***1-888-297-8685***
- Lender Approval and Recertification Division
***E-Mail:  FHALender@hud.gov***
***Voice Mail:  202-708-3976***
- HUD Web Site
***www.fha.gov***

## Thank You!

**Notes:**
Your participation and attention is greatly appreciated.