# Presentation: 292793

## Origination, Underwriting, Consumer Protection, and Systems

**Origination, Underwriting, Consumer Protection, and Systems**

## Comparison of FHA Refinance Options
Origination
Underwriting 
Appraisal Issues
Declining Markets
Consumer Protections
Determining and Documenting Shared Equity and Appreciation 
Data Requirements
Integrated Tools

- Origination
- Underwriting
- Appraisal Issues
- Declining Markets
- Consumer Protections
- Determining and Documenting Shared Equity and Appreciation
- Data Requirements
- Integrated Tools

**H4H – Topics**

## H4H vs. FHA Secure

| Criteria | HOPE for Homeowners | FHA Secure |
| --- | --- | --- |
| Eligible Loan Types for Refi of 
Delinquent | Fixed-rate or ARM
Conventional or gov’t 
Loans originated on or before Jan. 1, 2008
6 months payments on loan ever, over life of loan | ARM
Conventional loans 
No limit on months of   delinquency at time of refinance
Prior to episode of delinquency, only two 30-day lates (3X30, 90 LTV) |
| Availability | 10/01/2008 – 12/31/2011 | Ends 12/31/2008 |
| Loan to Value | Maximum 90% 
Cannot include prepay penalties or late fees | 97.0% (Standard FHA LTV)
May include prepay penalties and late fees |
| Property Type | 1 unit properties only | 1-4 family properties |

## H4H vs. FHA Secure

| Criteria | HOPE for Homeowners | FHA Secure |  |
| --- | --- | --- | --- |
| Combined
Loan to value | 90%
No subordinate financing allowed | Unlimited CLTV for new subordinate financing
Unlimited CLTV for re-subordination or modification of existing subordinate financing |  |
| New Mortgage | 30-year fixed-rate | 15- or 30-year fixed-rate, 1-year ARM, or hybrid ARM |  |
| Upfront Mortgage Insurance | 3.0% (included in 90% max LTV) | Delinquent:
3% UFMIP | Current:
1.75% UFMIP |
| Annual Premium | 1.5% | >95% LTV is .55%
<95% LTV is .50% |  |
| Sharing | Equity and Appreciation | None |  |

## Determining Borrower Eligibility
Did not intentionally default
Did not lie to obtain existing mortgage
Has not been convicted of fraud
Made a minimum of 6 full payments during the life of the existing mortgage
Occupies subject property and does not own other residential real estate
Bankruptcy does not preclude participation
>31% mortgage payment DTI as of March 1, 2008

- Did not intentionally default
- Did not lie to obtain existing mortgage
- Has not been convicted of fraud
- Made a minimum of 6 full payments during the life of the existing mortgage
- Occupies subject property and does not own other residential real estate
- Bankruptcy does not preclude participation
- >31% mortgage payment DTI as of March 1, 2008

**H4H – Origination**

## Determining Prior Mortgage Payment
Aggregate total monthly mortgage payment DTI is the fully indexed, fully amortized PITI payment
May also include HOA fees, ground rent, special assessments and all subordinate lien payments
Income: pay stubs for March 2008, W-2s, or tax returns for 2007 or 2008, VOE
Quarterly tax returns, PL Statement for self-employed
Payment: obtain from servicer, estimate taxes and insurance when necessary

- Aggregate total monthly mortgage payment DTI is the fully indexed, fully amortized PITI payment
- May also include HOA fees, ground rent, special assessments and all subordinate lien payments
- Income: pay stubs for March 2008, W-2s, or tax returns for 2007 or 2008, VOE
- Quarterly tax returns, PL Statement for self-employed
- Payment: obtain from servicer, estimate taxes and insurance when necessary

**H4H – Origination**

## Determining Mortgage Eligibility
Originated on or before January 1, 2008
Any type mortgage is eligible
Each lien holder must agree to waive prepayment penalties and default fees, and release his/her outstanding mortgage liens
Determining Property Eligibility
Primary and only residence
Nonoccupant borrowers must quit claim interest
1-unit properties

- Originated on or before January 1, 2008
- Any type mortgage is eligible
- Each lien holder must agree to waive prepayment penalties and default fees, and release his/her outstanding mortgage liens
_**Determining Property Eligibility**_
- Primary and only residence
- Nonoccupant borrowers must quit claim interest
- 1-unit properties

**H4H – Origination**

## Calculating the Mortgage Amount
Nationwide Limit of $550,440
90 LTV, including 3% UFMIP
New H4H mortgage extinguishes all mortgage-related debt including
Advances for taxes and insurance
Out-of-pocket legal expenses

- Nationwide Limit of $550,440
- 90 LTV, including 3% UFMIP
- New H4H mortgage extinguishes all *mortgage-related* debt including
- Advances for taxes and insurance
- Out-of-pocket legal expenses

**H4H – Origination**

## Closing Costs and Prepaid Items
Standard FHA Policy, including 1 percent cap on origination fee (ML 2006-4)
Origination fee cannot be supplemented by application or processing fees or broker fees
Closing costs and prepaids can be paid by
Borrower
Financing into the mortgage
Existing/new lender and/or third party
Premium pricing

- Standard FHA Policy, including 1 percent cap on origination fee (ML 2006-4)
- Origination fee cannot be supplemented by application or processing fees or broker fees
- Closing costs and prepaids can be paid by
- Borrower
- Financing into the mortgage
- Existing/new lender and/or third party
- Premium pricing

**H4H – Origination**

## Must be scored through TOTAL 
Regardless of the risk classification, the underwriter must
Determine the new H4H monthly mortgage payment is less than borrower’s previous payment
Document and verify income (standard FHA policy)
Review income as reported in previous 2 years tax returns
Determine DTI ratios are at or below 31/43
DTI ratios may be exceeded up to 38/50 with a trial modification

- Regardless of the risk classification, the underwriter must
- Determine the new H4H monthly mortgage payment is less than borrower’s previous payment
- Document and verify income (standard FHA policy)
- Review income as reported in previous 2 years tax returns
- Determine DTI ratios are at or below 31/43
- DTI ratios may be exceeded up to 38/50 with a trial modification

**H4H – Underwriting**

## Trial Modification
Borrower demonstrates ability to handle DTI ratios in excess of 31/43 but cannot exceed 38/50
Trial modification period will probably occur prior to loan application
Review trial modification documentation to ensure:
Borrower made payments using existing gross monthly income
Made full and timely payments for 3 consecutive months
Payments were at least 90 percent of estimated payment on new H4H loan

- Borrower demonstrates ability to handle DTI ratios in excess of 31/43 but cannot exceed 38/50
- Trial modification period will probably occur prior to loan application
- Review trial modification documentation to ensure:
- Borrower made payments using existing gross monthly income
- Made full and timely payments for 3 consecutive months
- Payments were at least 90 percent of estimated payment on new H4H loan

**H4H – Underwriting**

## Additional Documentation Requirements
Prior Mortgage Origination Date
Payment History
Prior Total Mortgage Payment
Primary Residence
H4H Consumer Disclosure and Certifications
Verification of Lack of Conviction of Fraud
Previous 2 Years Tax Returns
Trial Modification
First Payment Made
Lender Certifications

- Prior Mortgage Origination Date
- Payment History
- Prior Total Mortgage Payment
- Primary Residence
- H4H Consumer Disclosure and Certifications
- Verification of Lack of Conviction of Fraud
- Previous 2 Years Tax Returns
- Trial Modification
- First Payment Made
- Lender Certifications

**H4H – Underwriting**** **

## 
New subordinate financing prohibited for first 5 years of the loan
Except to pay for maintenance of property standards
Conditions for allowing such liens will be discussed in detail during presentation on servicing issues

- New subordinate financing prohibited for first 5 years of the loan
- Except to pay for maintenance of property standards
- Conditions for allowing such liens will be discussed in detail during presentation on servicing issues

**H4H – Underwriting**

## Appraisal must be
Specifically ordered for H4H
No more than 3 months old at closing
Appraiser must be
On FHA roster
Certified (licensed acceptable under limited circumstances)
Appraisal ordered by new lender prevails.

- Specifically ordered for H4H
- No more than 3 months old at closing
**Appraiser must be**
- On FHA roster
- Certified (licensed acceptable under limited circumstances)
***Appraisal ordered by new lender prevails.***

**H4H – Appraisal Issues**

## 
No standard definition exists
Determined by the appraiser on a case-by-case basis
Determined by the lender based on data services or feedback from LP or DU

- No standard definition exists
- Determined by the appraiser on a case-by-case basis
- Determined by the lender based on data services or feedback from LP or DU

**H4H – Declining Markets**

## Appraiser Responsibilities
Determine if property is in declining market
Supply vs. demand, days on market listings, listings to sales ratios, financing availability
Indicate in One-unit Housing Trends portion of Neighborhood section of appraisal
Where Declining box for property values is checked provide explanation in Market Conditions section
Support assertion of declining home values

- Determine if property is in declining market
- Supply vs. demand, days on market listings, listings to sales ratios, financing availability
- Indicate in *One-unit Housing Trends* portion of *Neighborhood* section of appraisal
- Where *Declining* box for property values is checked provide explanation in *Market Conditions* section
- Support assertion of declining home values

**H4H – Declining Markets**

## Appraiser Responsibilities
Describe impact of sales concessions and downpayment assistance for comparables
Comps should be no more than 6 months old unless clear justification is provided
Make appropriate adjustments to value when differences exist among subject and comparables
Avoid conflicts of interest
Report instances of undue pressure

- Describe impact of sales concessions and downpayment assistance for comparables
- Comps should be no more than 6 months old unless clear justification is provided
- Make appropriate adjustments to value when differences exist among subject and comparables
- Avoid conflicts of interest
- Report instances of undue pressure

**H4H – Declining Markets**

## Lender Responsibilities
Review appraisal to determine whether accurate and adequately supported
May use S&P/Case-Schiller Index, OFHEO House Price Index (or successor’s index), NAR statistics
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html  
http://www.ofheo.gov/hpi.aspx
Is equally responsible for integrity, accuracy, and thoroughness of the appraisal
Avoid conflicts of interest and be intolerant of undue pressure on appraisers
Inform appraisers the appraisal will be shared

- Review appraisal to determine whether accurate and adequately supported
- May use S&P/Case-Schiller Index, OFHEO House Price Index (or successor’s index), NAR statistics
_**http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html**_**  **
_**http://www.ofheo.gov/hpi.aspx**_
- Is equally responsible for integrity, accuracy, and thoroughness of the appraisal
- Avoid conflicts of interest and be intolerant of undue pressure on appraisers
- Inform appraisers the appraisal will be shared

**H4H – Declining Markets**

## Counseling not required, but strongly encouraged
Pre- and post-H4H
Benefits of H4H
Reduced principal
Affordable payments
Newly created equity
FHA loss mitigation
Costs of H4H
Higher premiums/interest rates
Shared equity with FHA
Shared appreciation with FHA

- Pre- and post-H4H
- Benefits of H4H
- Reduced principal
- Affordable payments
- Newly created equity
- FHA loss mitigation
- Costs of H4H
- Higher premiums/interest rates
- Shared equity with FHA
- Shared appreciation with FHA

**H4H – Consumer Protection**

## H4H Consumer Disclosure and Certifications
Counselors are encouraged to explain and discuss disclosure and certifications with borrowers (emphasize benefits vs. costs)
Originating lender is responsible for reviewing disclosure and certifications with borrower 
Must be signed and dated by borrower at least 1 day prior to initial loan application
Must be signed and dated again by the borrower at closing

- Counselors are encouraged to explain and discuss disclosure and certifications with borrowers (emphasize benefits vs. costs)
- Originating lender is responsible for reviewing disclosure and certifications with borrower
- Must be signed and dated by borrower at least 1 day prior to initial loan application
- Must be signed and dated again by the borrower at closing

**H4H – Consumer Protections**

## Shared Equity Note and Mortgage (SEM)
Equity = value at origination less H4H loan amount 
Sliding scale with 100% going to FHA in 1st year and a 50/50% split after 5 years
Originating lender prepares SEM
SEM executed by borrower
Recorded in second lien position
Borrower can extinguish through refinance

- Equity = value at origination less H4H loan amount
- Sliding scale with 100% going to FHA in 1st year and a 50/50% split after 5 years
- Originating lender prepares SEM
- SEM executed by borrower
- Recorded in second lien position
- Borrower can extinguish through refinance

**H4H – Equity and Appreciation Sharing**

## Shared Appreciation Note and Mortgage (SAM)
Appreciation = net proceeds from sale less appraised value at origination
May subtract allowable capital improvements
FHA can share its future appreciation entitlement with subordinate lien holders
Originating lender prepares SAM
SAM executed by borrower
Recorded in third lien position
Borrower can extinguish through sale only

- Appreciation = net proceeds from sale less appraised value at origination
- May subtract allowable capital improvements
- FHA can share its future appreciation entitlement with subordinate lien holders
- Originating lender prepares SAM
- SAM executed by borrower
- Recorded in third lien position
- Borrower can extinguish through sale only

**H4H – Equity and Appreciation Sharing**

## Originating SEMs and SAMs
Identify existing lien holders
Request pay-off statements 
Provide copies of pay-off statements to borrowers for review, giving them within 5 days of receipt to notify the lender of discrepancies 
Refer borrowers to equity/appreciation sharing notes in the Consumer Disclosure 
Resolve discrepancies identified by borrowers

- Identify existing lien holders
- Request pay-off statements
- Provide copies of pay-off statements to borrowers for review, giving them within 5 days of receipt to notify the lender of discrepancies
- Refer borrowers to equity/appreciation sharing notes in the Consumer Disclosure
- Resolve discrepancies identified by borrowers

**H4H – Equity and Appreciation Sharing**

## Originating SEMs and SAMs
Calculate dollar amount of initial equity
Use Appreciation Worksheet (Exhibit F in ML 2008-29) to calculate maximum appreciation share for subordinate lien holders
Lenders writing off less than $2,500 cannot share in future appreciation
Send Appreciation Worksheet to subordinate lien holders and obtain signatures
Prepare SEM/SAM documents for execution at closing
Send copy of Appreciation Worksheet to HUD 10 days prior to closing
Receive Appreciation Share Certificate from HUD and deliver to closing agent with other loan documents

- Calculate dollar amount of initial equity
- Use Appreciation Worksheet (Exhibit F in ML 2008-29) to calculate maximum appreciation share for subordinate lien holders
- Lenders writing off less than $2,500 cannot share in future appreciation
- Send Appreciation Worksheet to subordinate lien holders and obtain signatures
- Prepare SEM/SAM documents for execution at closing
- Send copy of Appreciation Worksheet to HUD 10 days prior to closing
- Receive Appreciation Share Certificate from HUD and deliver to closing agent with other loan documents

**H4H – Equity and Appreciation Sharing**

## Document Delivery 
   Within 15 days of endorsement send 
 Original recorded SEM/SAM documents
 Copy of HUD-1 Settlement Statement
 Copy of H4H Appraisal to

c/o C&L Service Corporation/Morris-Griffin Corporation
2488 East 81st Street, Suite 70
Tulsa OK 74137

-    Within 15 days of endorsement send
-  Original recorded SEM/SAM documents
-  Copy of HUD-1 Settlement Statement
-  Copy of H4H Appraisal to
- c/o C&L Service Corporation/Morris-Griffin Corporation
- 2488 East 81st Street, Suite 70
- Tulsa OK 74137

**H4H – Equity and Appreciation Sharing**

## 
Emergency Economic Stabilization Act of 2008 authorized payment of upfront appreciation shares

Oversight Board is considering this option

Subordinate lien holders could choose upfront or future appreciation share

- Emergency Economic Stabilization Act of 2008 authorized payment of upfront appreciation shares
- Oversight Board is considering this option
- Subordinate lien holders could choose upfront or future appreciation share

**H4H – Upfront Appreciation Option**

## Appreciation Share Calculation

| Amount Owed | 1st Lien P&I | 2nd Lien P&I | 3rd Lien P&I | Total P&I |
| --- | --- | --- | --- | --- |
| Principal (P) | 158,500 | 20,000 | 40,000 | 218,500 |
| Accrued Interest (I) | 10,900 | 2,200 | 4,400 | 17,500 |
| Total P&I | 169,400 | 22,200 | 44,400 | 236,000 |
| Cumulative P&I as % of current appraised value of %150,000 | 112.9% | 127.8% | 157.3% |  |

## Appreciation Share Percentages

| Subordinate Lien Holder | % of unpaid P&I lien holder is entitled to receive from future appreciation if any | % of unpaid P&I lien holder is entitled to receive upfront appreciation* |
| --- | --- | --- |
| Cumulative LTV
> 135% | 9% | 3% |
| Cumulative LTV
< 135%
 | 12% | 4% |
| * If authorized |  |  |

## 
Demonstration of H4H Data Requirements in FHA Connection

Discussion of integrated tools

- Demonstration of H4H Data Requirements in FHA Connection
- Discussion of integrated tools

**H4H – Systems**