Danny Salas

Archive for September 26th, 2009

Fannie Mae and FHA Announce New Automated Underwriting Criteria

Expect All Changes To Be In Effect Jan. 2010

Hey Realtor…What This Means To You!

Any change in underwriting criteria is a change to where, when, and how your escrow will close.  Probably the biggest change…FHA is moving to a conventional-type style of appraisal ordering…HVCC type requirements. 

Also, when a property is located in a declining area, the appraisal report must be accompanied by a form addressing this concern.  This, from Fannie Mae’s website concerning FHA:

“The Uniform Residential Appraisal Report (URAR) and the form HUD-92800.5B, Conditional Commitment/DE Statement of Appraised Value are required. Also, a Market Conditions Addendum is required (Fannie Mae Form 1004MC/ Freddie Mac Form 71).”

DO/DU/TOTAL Mortgage Scorecard…Uh…What’s That?

You really want to know?  DO is an abbreviation for Desktop Originator.  DU is an abbreviation for Delegated Underwriting.  Both are internet-based automated underwriting engines for Fannie Mae.   FHA TOTAL Mortgage Scorecard is FHA’s Interent-Based Automated Underwriting Engine.  Here’s how it works:

First, an application is taken.  Second, a credit report is ordered.  A credit report is assigned a re-issue number.  Third, you combine the application and the credit report.  Fourth, you import your application into Fannie Mae’s Website, insert your re-issue number for your credit report (this enables you to use the same report, avoiding another inquiry on a client’s credit report), and submit to the website’s automated engine (DO or DU) to ask for an approval.  The website breaks down the information on the credit report and application and determines if the client is eligible for financing.  When running government loans like FHA or VA, an additional layer of underwriting criteria is applied (FHA TOTAL Mortgage Scorecard), to determine eligibility. 

Gift Funds

The source of the down payment will effect the type of approval that you receive from FHA TOTAL Mortgage Scorecard.  In the past, the website’s automated engine couldn’t determine the difference between a non-profit organiztion, a family member, an employer, or Government Assistance Program;  like a city’s Down Payment Assistance Program (DAP).  Now, FHA Total Mortgage Scorecard is able to determine these differences and apply them to the decision.

Less Than 10 Months On Installment Loans

In the past, whenever someone had less than ten payments left, on any installment debt, FHA would NOT calculate that payment against a borrower qualifying ratios (percentages of income going toward a borrower’s monthly obligations).  So, if someone owed $4,280 on a car loan, and their monthly payment was $430, the $430 would NOT hit their qualification requirements.  Now, since the payment is greater than $100 per month, the less than ten month rule would NOT apply.  This is a major change. 

Condo Conversions

FHA is removing the requirement that an apartment building, that has been converted to a condo project, be existing as a condo project for one year before an FHA application is taken to finance one of the condo units.  Nice…a good change!

Related Must Reads

FHA Update
Why You Can’t Close A Loan In Six Days Anymore

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