IMPORTANT – Upcoming FHA MIP and Underwriting Changes

MIP Changes

In order to continue stabilizing the mutual mortgage insurance fund, and due to requirements in the payroll tax extension bill passed at the end of 2011, HUD has announced the following MIP increases for forward mortgages:

Effective with case numbers assigned on or after APRIL 1, 2012:

1)      The up-front mortgage insurance premium will increase from 1.00% to 1.75%, regardless of loan term

2)      The annual premium will increase by 0.10% for all loans.  A summary of the new premiums is below:

Loan terms greater than 15 years Loan terms of 15 years or less
LTV > 95%:    currently 1.15%   NEW: 1.25% LTV > 90%:     currently 0.50%  NEW: 0.60%
LTV </= 95%: currently 1.10%  NEW: 1.20% LTV </= 90%: currently 0.25%  NEW: 0.35%

3)      Additionally, the annual MIP will increase by an additional 0.25% for loans over $625,500 effective with case numbers assigned on or after JUNE 1, 2012.

Underwriting Changes

On March 1, 2012, HUD published mortgagee letter 2012-3 (dated February 28th), containing some significant underwriting changes regarding self-employed borrowers, disputed credit accounts and identity-of-interest (non-arms length) transactions.  A copy of the mortgagee letter can be found here.  The underwriting changes detailed in this letter are effective with case numbers assigned on or after APRIL 1, 2012, so plan accordingly.  As usual, these updates do not apply to non-credit qualifying streamline refinances or HECM (reverse) mortgages. 

Friendly reminder: FHA requires mortgagees to have an active loan application for both the borrower and property before requesting a case number (see Mortgagee Letter 2011-10).

SELF EMPLOYED BORROWERS

1)      Self-employed borrowers MUST show a year-to-date P&L (Profit-and-Loss) and Balance Sheet if more than one calendar quarter has elapsed since the filing of the most recent tax return (annual or fiscal-year).  This requirement applies regardless if the loan is AUS-approved or not.

2)      If the income used to qualify the borrower exceeds the average of the previous two years’ tax returns, an audited P&L or a signed quarterly tax return obtained from the IRS must also be provided.  Again, this applies regardless of AUS decision.

HANDLING OF DISPUTED CREDIT ACCOUNTS, COLLECTIONS AND PUBLIC RECORDS

1)      Disputed accounts will no longer trigger an automatic review by an underwriter if BOTH of the following requirements are satisfied:

     a.   The outstanding balance of all disputed accounts is less than $1,000
     b.   Two years have elapsed since the date of last activity listed on the credit report for all disputed accounts

2)      If the aggregate dollar amount of disputed accounts exceeds $1,000, all of the disputed accounts must be resolved.  In other words, the accounts must be paid in full at or before closing or a payment agreement must be in effect on the account(s) and the borrower must show that three months of payments on the payment agreement(s) has been made in a timely manner.

3)      Disputed accounts resulting from identity theft or fraudulent or unauthorized use of credit cards can be excluded from the $1,000 limit if the borrower provides documentation of the circumstances (a police report, for example). The lender must also include documentation that the account(s) in question are verified as not the borrower’s debt in the final case file.

4)      If the aggregate total of collection accounts exceeds $1,000, ALL collection accounts must be resolved (paid in full or a payment agreement established with a minimum of three months of timely payments).  If the total of collection accounts is less than $1,000, they are not required to be resolved/paid.

5)      FHA continues to require all judgments to be satisfied or an acceptable payment agreement established (with 3 months of on-time payments) before a loan can be insured.

IDENTITY-OF-INTEREST TRANSACTIONS

The  definition of “family member” has been expanded to include brothers, sisters, step-brothers, step-sisters, uncles and aunts.

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