UnderwritingUnderwritingLoan ProductsLoan Products

Subsidy FinancingSubsidy Financing

U.S. Bank Home MortgageU.S. Bank Home Mortgage

MRBP DivisionMRBP Division

Master Master ServicerServicer

Revised 01/05/06Revised 01/05/06

• FHA – 203b• VA • Fannie Mae?MyCommunityMortgage Suite of Products(97/100/Community Solutions/HomeChoice)

?Fannie Mae Community Homebuyers? Fannie 97? Fannie 3/2

Fannie Mae References– Fannie Mae Selling Guide, Part X, section 304 –

Community Lending– Fannie Mae Guide to Desktop Underwriting– Fannie Mae website www.efanniemae.com

FHA References– Guide – 4155.1 rev 5– FHA website www.hud.gov

Other References– VA www.homeloans.va.gov

?Credit Underwriting is the responsibility of the originating lender.

U.S. Bank Home Mortgage (Master Servicer) does not re-underwrite your loans.

?All loans are subject to internal and agency audits.

?Underwriters should make sound credit decisions, assure data integrity, and include all necessary documents in support of the underwriting decision.

?All loans should be underwritten in compliance with the most current underwriting guidelines for FHA, VA, and Fannie Mae.

?The loan file must comply with the Bond program guidelines for income limits, sales price limits, property types, locations and program parameters.

?The following automated systems are approved for use with conventional loans in the bond programs-Fannie Mae loans (DU)-FHA & VA loans (DU or LP)

? If manual underwriting is necessary, full documentation is required

?Other lender customized automated underwriting systems are not acceptable for loan approval

APPRAISALS?Full appraisal reports are preferred. (make sure the

appraiser use the most current version and the appropriate forms for property types)

?Correspondent Lenders, sponsored by the Master Servicer, are required to submit full appraisals.

?Form 2055 with a DU recommendation

Section 8Prior to Closing a Section 8 loan?Lenders should treat the monthly subsidy as income in

determining the homebuyer’s qualifying ratios and program income

* Please refer FHA and Fannie Mae guidelines for any updates

The Lender must show the Section 8 Voucher Assistance Program on the 1008.

For information on US Bank Home Mortgage set-up requirements please:Contact: Sheryl Krocek – Production Coordinator

(216) 475-7719Sheryl.Krocek@usbank.com

Section 8Recent FHA guidelines updateMortgage lenders may now treat the monthly homeownership assistancepayment as an “offset” to the monthly mortgage payment, i.e., reduce thepayment by the amount of the homeownership assistance payment before dividing by the monthly income to determine the payment-to-income and debt-to-income ratios. However, in order to use this procedure for qualifying the borrower, the homeownership assistance payment funds must not pass through the hands of thehomebuyer, i.e., the homeownership assistance payment must either be paid directly to the servicing lender or placed into an account that only the servicinglender may access. If the homeownership assistance payment is made directly to the homeowner, that amount may only be considered as income in qualifying theborrower, in accordance with the instructions in ML 2001-20 which remain intact for qualifying borrowers whose homeownership assistance payment is not paid tothe servicing lender.

HomeBuyer Education if Required By Product Type? Make sure the Homebuyer Counseling Certificate is included in the file

(Note: Everyone who has an ownership interest in the property is required to attend counseling.)

? Training must take place in the following forums:-- Face-to-face home-buyer education-- Classroom or workshop sessions-- Telephone education/counseling program by an approved mortgage insurer

sponsored by the lender(Pre-purchase education can be waived if the borrower has owned a home in the past three

years, documentation should be in the file and noted on 1008)

*Early Delinquency Counseling is provided by U S Bank Home Mortgage & agreed to by buyer in Authorization for Counseling form.

?Make Sure Borrowers Sign and include in the Mortgage File the

“Fannie Mae’s Borrower’s Authorization for Counseling” form located in the Fannie Selling Guide or efanniemae.com

Manufactured Housing?Manufactured Homes(MH) are permitted in the program

the loan must follow FHA, VA, and Program Guidelines.

?Manufactured homes must meet specific size and structural requirements, remain permanently affixed to a foundation, and be taxed as real estate.

Manufactured homes are not currently eligible forFannie Mae financing with the program.

CASH BACKGenerally Cash Back is not allowed but may be granted

with the following exceptions:Borrowers may received cash back for up-front fees, i.e.

earnest money deposits, appraisal and or credit report fees.

? Lenders need to verify that the fees were in fact paid by the borrower with the borrowers own funds.

? Documentation should include copies of cancelled checks or copies of check and bank statements to support that the funds cleared the borrowers account.

Condo RequirementsFollow Fannie Mae and FHA Condo Underwriting Guidelines? All Fannie Mae loans must follow the Condominium Project

Acceptance guideline as outlined in the Fannie Mae Announcement 05-03

? Underwriters must indicate on the 1008 the Project Acceptance Review Type Codes

FHA – approved U

Fannie Mae ReviewT

Expedited Review-Established or Two Unit to Four Unit Project

S

Expedited Review- New ProjectR

Limited Review-Established or Two Unit to Four Unit Project

Q

Limited Review – New ProjectP

Project Acceptance Review TypeProject Type Codes

Down Payment Assistance Programs (DPA)?Make sure the funding source for the DPA program is

stated in the source of funds section of the 1003(application) and the HUD-1.

Make sure the DPA program meets FHA and Fannie Mae requirements and is approved by the Master Servicer

?Write the loan product, down payment source, and amount on the 1008 (loan transmittal), or mortgage credit analysis worksheet (MCAW)

? DU recommendations must be documented in the loan file

? Remember to follow the Bond Program guidelines

? Fannie Mae DU loans are evaluated through the Community Lending Modular (free submission)

? Always enter the appropriate Special Feature Code for Fannie Mae loans codes should be entered on the Fannie Mae 1008(processing/underwriting and on the USBHM Loan Submission Checklist(closing/shipping)

118088

•Community Second Mortgages•Bond Loans

445 Section 8

074•Fannie 3/2

121•Fannie 97

061•Fannie Mae Community Homebuyers 95%

* Special Feature Codes must be listed on the 1008 and the Mortgage Submission Checklist

SPECIAL FEATURE CODESProduct and Product Option Codes Associated with Fannie Mae Loan Products

222•MCM Community HomeChoiceOption(ManualUnderwrite)

325•MCM Community HomeChoice Option ( DU Approval) Borrower with a disability or a family member with a disability

481•MCM Community Solutions (Manual Underwrite) Teachers,Firefighters, Policemen and HealthCare workers

480•MCM100 – Loan with LTVs above 97%, up to 100%

460•MCM 97 – Loans with LTVs of 97% and below

* Special Feature Codes must be listed on the 1008 and the Mortgage Submission Checklist

SPECIAL FEATURE CODESProduct and Product Option Codes Associated with Fannie Mae Loan Products

?Minimum Contribution $500 from the borrower’s own funds? Quicker Approval? Waiver of Reps and Warrants? Reduced documentation? Possible higher ratio? Possible lower credit scores? EA I & EA II approve/eligible? Nontraditional credit, require only three lines of

nontraditional credit? 30% qualifying income from occupying co-borrower with no

credit history? Boarder income permitted per Fannie Mae’s

guidelines

The following enhancements are applicable for the Bond Program. These enhancements are effective in conjunction with DU Release 5.5. Most the enhancements are available with manual underwriting.

? LOWER MORTGAGE INSURANCE COVERAGE

6%25%80.01%-85%

12%30%85.01%-90%

16%35%90.01%-95%

18%35%95.01%-97%

20%35%97.01%-100%

New Minimum Coverage

Previous Minimum CoverageLTV

? Cash on-handCash on hand may be used for down payment and closing costs, subject to specific

criteria– Limited to one-unit, principal residences– Community Renovation loans are ineligible

? Funds will not be used to calculate reserves? DU will use the Cash on-hand amount to calculate the available funds to close.? Lender must verify & document the following:

– Cash customarily used to expenses – consistent with previous payment practices

– Credit report indicates limited (or no) credit use / depository relationship– Borrowers must provide a signed statement which discloses the source of

funds (proof that they were not borrowed).• Borrower MUST deposit funds sufficient for the downpayment and closing costs

with a financial institution (at time of application, or no less than 30 days prior to closing)

?COLLECTION POLICYNew Fannie Mae collections policy in DU 5.5 will

apply to MCM loans underwritten through DU?Requires payoff only if collection exceeds $5,000

?No payoff for collections of $250 or less

(Must be submitted through DU – Manually underwritten loans are not eligible)

? Amortized? Silent? Soft?Deed Restrictions?Deferred

DefinitionDefinition??Any financing that creates a lien against Any financing that creates a lien against

the property is considered secondary the property is considered secondary financing and financing and not a giftnot a gift, even if it is a , even if it is a "soft" or "silent" second (i.e., has no "soft" or "silent" second (i.e., has no monthly repayment provisions), or has monthly repayment provisions), or has other features forgiving the debt.other features forgiving the debt.

FHA Guidelines

The sum of all liens cannot exceed 100% of the cost to acquire the property.

Total Acquisition Costs

Sales Price plus allowable borrower paid closing costs, discount points, prepaid expenses, and allowable and applicable repair and rehabilitation expenses.

Documents Required for ApprovalDocuments Required for Approval??Copy of the second mortgage (DPA) program Copy of the second mortgage (DPA) program

descriptiondescription??Copy of any applicable promissory notes, deeds, riders Copy of any applicable promissory notes, deeds, riders

and other legal documentationand other legal documentation??Complete the Fannie Mae second mortgage loan Complete the Fannie Mae second mortgage loan

checklistchecklist

Note:Note:Catastrophic Language is not a requirement with Community Catastrophic Language is not a requirement with Community Second used with the IDA of PhoenixSecond used with the IDA of Phoenix--Maricopa Bond LoansMaricopa Bond Loans. Check . Check the approval list on the website if a program is not listed sendthe approval list on the website if a program is not listed sendapproval documents to US Bank Home Mortgage, MRBP Division, approval documents to US Bank Home Mortgage, MRBP Division, Product Development Manager.Product Development Manager.

Always use the Special Feature Code: 118Always use the Special Feature Code: 118

? If non-profit, provide copy of the letter of designation from IRS and the federal tax I.D. number.

? Must have a document that discloses the loan amount, and describes the terms of repayment. This document must be given to the borrower and a signed copy included in the loan file.

? Originating Lenders are responsible for the review per agency guidelines prior to closing.

Submit the information to: Shermaine Weathersby

Product Development ManagerUS Bank Home Mortgage, MRBP Division

17500 Rockside RoadBedford Ohio 44146

shermaine.weathersby@usbank.com

QQ --Can we use the down payment assistance for the entire Can we use the down payment assistance for the entire amount of the borrower’s down payment?amount of the borrower’s down payment?

A A -- Fannie MaeFannie Mae will allow the entire down payment to come will allow the entire down payment to come from an approved down payment source as long as the borrower from an approved down payment source as long as the borrower makes their minimum contribution. makes their minimum contribution. FHA FHA will only allow the funding to cover all of the down payment will only allow the funding to cover all of the down payment when the funds come from a Federal, State and local agencies when the funds come from a Federal, State and local agencies or nonor non--profits considered instrumentalities of the government profits considered instrumentalities of the government and the lien must be in the name of the governmental entityand the lien must be in the name of the governmental entity. .

**Approved nonApproved non--profits must be listed on HUD’s approval list profits must be listed on HUD’s approval list –– check regional check regional HUD Homeownership Center (HOC) orHUD Homeownership Center (HOC) orhttp://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfmhttp://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm

QQ -- If the second is provided by a If the second is provided by a nonnon--profitprofit that is that is not a governmental entitynot a governmental entity and the borrower is and the borrower is getting getting an FHA loanan FHA loan is the borrower is the borrower required to required to make a cash investment from their own fundsmake a cash investment from their own funds??

AA -- Yes, FHA requires the borrower to make a cash Yes, FHA requires the borrower to make a cash investment of at investment of at least 3 %least 3 % of the acquisition cost. Also, of the acquisition cost. Also, lender must refer to the HUD HOC website listing for all lender must refer to the HUD HOC website listing for all approved nonapproved non--profits eligible to provide secondary profits eligible to provide secondary financing with an FHA loan.financing with an FHA loan.(see mortgagee letter 98(see mortgagee letter 98--29)29)

QQ -- May we use more than one source of assistance May we use more than one source of assistance financing?financing?

AA –– Yes, Multiple lien positions are approved with the Bond Yes, Multiple lien positions are approved with the Bond Program . Lenders must make sure that the all subordinate Program . Lenders must make sure that the all subordinate lien positions are approved by the funding entities, i.e.( 2lien positions are approved by the funding entities, i.e.( 2ndnd

or 3or 3rdrd positions)positions)

(All program documentation must be submitted to the Master (All program documentation must be submitted to the Master Servicer)Servicer)

Q -Is a gift letter required if the funds have been gifted by a non profit or instrumentality of government ?

A - Yes, When gifts are provided by a nonprofit or municipality through a down payment assistance program (DAP), the same basic rules regarding documentation of gifts apply. The lender must obtain evidence from the donor (agency) of the amount of funds being provided, as well as evidence that no repayment by the borrower is required. Evidence of the actual transfer of funds can be shown as a transaction on the HUD-1.(For IDA Phoenix/Maricopa loans use the DPA disclosures posted on

the website)(see mortgagee letter 00-28)

Any questions related to Underwriting please contact: USBHM-MRBP Underwriting Division

Lynda Davis, Underwriter 216-475-8244Lynda.davis@usbank.com

Barbara Givens, Underwriter 216-475-8317Barbara.givens@usbank.com

Rita M. Connelly, Underwriting Manager 216-475-8251Rita.connelly@usbank.com

Questions!!!!! ASK …

Presenter: Shermaine WeathersbyProduct Development ManagerU S Bank Home Mortgage

MRBP Division216-475-8237

shermaine.weathersby@usbank.com