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JoAnne Kuzma, Director, Home Mortgage Insurance DivisionOffice of Single Family Program Development

Dan Gomez, Director, Processing and Underwriting DivisionDenver Homeownership Center

Gerry Glavey, Director, Processing and Underwriting DivisionPhiladelphia Homeownership Center

Origination, Underwriting, Consumer Protection, and Systems

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• Comparison of FHA Refinance Options• Origination• Underwriting • Appraisal Issues• Declining Markets• Consumer Protections• Determining and Documenting Shared Equity

and Appreciation • Data Requirements• Integrated Tools

H4H – Topics

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H4H vs. FHA Secure

Criteria HOPE for Homeowners FHA Secure

Eligible Loan Types for Refi of Delinquent

Fixed-rate or ARMConventional or gov’t Loans originated on or before Jan. 1, 20086 months payments on loan ever, over life of loan

ARMConventional loans No limit on months of delinquency at time of refinancePrior 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

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H4H vs. FHA Secure

Criteria HOPE for Homeowners FHA Secure

CombinedLoan to value

90%No subordinate financing allowed

Unlimited CLTV for new subordinate financingUnlimited 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

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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

H4H – Origination

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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

H4H – Origination

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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

H4H – Origination

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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

H4H – Origination

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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

H4H – Origination

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• 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

H4H – Underwriting

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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

H4H – Underwriting

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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

H4H – Underwriting

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• 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

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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.

H4H – Appraisal Issues

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• 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

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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

H4H – Declining Markets

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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

H4H – Declining Markets

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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 statisticshttp://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

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• 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

H4H – Consumer Protection

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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

H4H – Consumer Protections

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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

H4H – Equity and Appreciation Sharing

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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

H4H – Equity and Appreciation Sharing

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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

H4H – Equity and Appreciation Sharing

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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

H4H – Equity and Appreciation Sharing

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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

H4H – Equity and Appreciation Sharing

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• 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

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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%

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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%3% 9%

Cumulative LTV

< 135%4% 12%

* If authorized

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• Demonstration of H4H Data Requirements in FHA Connection

• Discussion of integrated tools

H4H – Systems