Written By: Glenn Michaels, Op-Ed Writer
The Federal Register dated December 11, 2013 contained proposed changes to underwriting. The changes really clarify how everyone is to approach FHA loans that mare manually underwritten. The FHA now has seven scenarios where the mortgage loan must be manually underwritten. In the near future a Mortgagee Letter will be written to further clarify this.
Credit Score of 500 – 579 or a borrower with non-traditional /insufficient credit.
The Housing to Income (HTI) and Debt to Income (DTI is limited to 31/43. These borrowers are not allowed to exceed 31/43 with or without compensating factors. No Exceptions!
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Borrowers with a credit score of 580 and above with 31/43 qualifying ratios.
No compensating factors required.
Borrowers with a credit score of 580 and above where the HTI is 37 and DTI is 47.
The file must demonstrate that there is at least one of the following compensating factors in order to approve the loan.
• Verified and documented liquid cash reserves equal to at least three total monthly mortgage payments (1 – 2 units) or six total mortgage payments (3 – 4 units),
• New total mortgage payment is not more than $100.00 or 5% higher than previous total monthly housing payment, whichever is less; and verified and documented twelve month housing payment history showing no more than 1 x 30 days lateness.
• Sufficient Residual Income as calculated per VA requirements.
Borrowers with a credit score of 580 and above with ratios of 40/40.
Borrower with established credit and open credit lines carries no discretionary debt. Monthly housing payment is only open installment account and revolving credit is paid off monthly.
Borrowers with a credit score of 580 and above with ratios of 40/50.
The file must demonstrate that there is at least two of the following compensating factors in order to approve the loan:
• Verified and documented liquid cash reserves equal to at least three total monthly mortgage payments (1 – 2 units) or six total mortgage payments (3 – 4 units).
• New total monthly mortgage payment is not more than $100.00 or 5% higher than previous total monthly housing payment history with no more than 1 x 30 lateness.
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• Sufficient Residual Income as calculated per VA requirements.
• Verified and documented additional income that is not considered effective income. Overtime and bonus income can be cited as a compensating factor if the mortgagee verifies and documents that the borrower has received this income for at least one year but less than two years, and it will likely continue. Part – time and seasonal income can be cited as a compensating factor if the mortgagee verifies and documents that the borrower has worked the part – time or seasonal job uninterrupted for at least one year but less than two years and plans to continue.
Apparently the Qualifying Mortgage (QM rules are coming to FHA and it will be more difficult to approve borrowers who have ratios in excess of 31/43 going forward. The best part is that all mortgagees and underwriters will know going in to the loan what is expected to approve a borrower who has ratios above 31/43.
About The Author
Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
