Single Family Housing Policy Handbook 4000.1 - Title II Insured Housing Program Forward Mortgages Origination through Post-Closing/Endorsement Module 4: Manual Underwriting of the Borrower As of June 30, 2016 Presented by: Eric McDowel, Senior Underwriter John Phillips, Branch Chief Philadelphia Homeownership Center The information in this document is current as of the Last Update date noted above. This document does not establish or modify the policy contained in FHA’s Handbooks and Mortgagee Letters in any way. FHA’s Office of Single Family Housing Training Module 2 FHA’s Office of Single Family Housing Training Module Introduction The Manual Underwriting of the Borrower section of the Handbook provides Mortgagees FHA’s policy requirements to determine a borrower’s ability to obtain FHA insured single- family financing considering: – Creditworthiness; – Effective income; and Income – Assets. Credit Assets Manual Underwriting Borrower 3 FHA’s Office of Single Family Housing Training Module Manual Underwriting of the Borrower 4 FHA’s Office of Single Family Housing Training Module Manual Underwriting Requirements The Mortgagee must manually underwrite those applications where: • TOTAL issues a Refer; • The application was downgraded to a manual underwrite; or • FHA programs requires manual underwriting for the application. 5 FHA’s Office of Single Family Housing Training Module Accept Risk Classifications Requiring a Downgrade to Manual Underwriting A mortgage that received an Accept recommendation must be downgraded if: • The mortgage file contains information or documentation that cannot be entered into, or evaluated by TOTAL Mortgage Scorecard; • Additional information, not considered in the AUS recommendation, affects the overall insurability of the Mortgage; 6 FHA’s Office of Single Family Housing Training Module Accept Risk Classifications Requiring a Downgrade to Manual Underwriting (cont.) • The Borrower has $1,000 or more collectively in Disputed Derogatory Credit Accounts; • The case number assignment date is within three years of any of the following events: – The date of the transfer of title through a Pre-Foreclosure Sale (Short Sale); – The date of the transfer of title through a foreclosure sale; – The date of the transfer of title through a Deed-in-Lieu (DIL) of foreclosure; 7 FHA’s Office of Single Family Housing Training Module Accept Risk Classifications Requiring a Downgrade to Manual Underwriting (cont.) • The date of the Borrower’s bankruptcy discharge as reflected on bankruptcy documents is within two years from the date of case number assignment; • The Mortgage Payment history requires a downgrade as defined in Housing Obligations/Mortgage Payment History; • The Borrower has undisclosed mortgage debt; or • Business income shows a greater than 20 percent decline over the analysis period. 8 FHA’s Office of Single Family Housing Training Module General Credit Requirements 9 FHA’s Office of Single Family Housing Training Module General Credit Requirements • Mortgagees must analyze the following to determine the Borrower’s creditworthiness: – Credit history; – Liabilities; and – Debts. 10 FHA’s Office of Single Family Housing Training Module General Credit Requirements (cont.) • For each Borrower who will be obligated on the mortgage Note, the Mortgagee must either obtain a: – Tri-Merged Credit Report (TRMCR); or – Residential Mortgage Credit Report (RMCR) from an independent consumer reporting agency. • The Mortgagee may obtain a joint report for individuals with joint accounts. 11 FHA’s Office of Single Family Housing Training Module Non-Borrowing Spouse Community Property State: Consent and Authorization The Mortgagee must obtain a non-borrowing spouse’s consent and authorization where necessary to: • Verify specific information required to process the mortgage application, including the consent to verify their SSN with the Social Security Administration (SSA). 12 FHA’s Office of Single Family Housing Training Module Credit Report: Non-borrowing Spouse • The Mortgagee must obtain a credit report for a non- borrowing spouse who resides in a community property state, or if the subject property is located in a community property state. • The credit report must indicate the non-borrowing spouse’s SSN was matched with the SSA, or the Mortgagee must provide separate documentation indicating that the SSN was matched with the SSA. 13 FHA’s Office of Single Family Housing Training Module Credit Report: Non-borrowing Spouse (cont.) • Where a SSN does not exist for a non-borrowing spouse, the credit report must contain, at a minimum, the non-borrowing spouse’s full name, date of birth, and previous addresses for the last two years. • As a reminder, the Mortgagee does not submit the non- borrowing spouse credit report as part of the TOTAL Scorecard risk evaluation. 14 FHA’s Office of Single Family Housing Training Module Credit Requirements: Types of Credit History 15 FHA’s Office of Single Family Housing Training Module Types of Credit History Traditional Credit History Non-Traditional and Insufficient Credit • Tri Merge Credit Report (TRMCR ) or • Used for borrowers without a credit Residential Mortgage Credit Report score. (RMCR). • Mortgagees can obtain a non- • Includes all credit repository credit traditional credit report or data for an individual Borrower. independently build a credit history • A joint merged credit report will using credit references. include all credit data on two • Credit references may vary and there individual Borrowers. are preferred and alternative sources. • Reporting format may differ among • Verification types may also vary. credit repository agencies but they generally eliminate duplicate records when merging a joint credit report. 16 FHA’s Office of Single Family Housing Training Module Traditional Credit History: FHA’s Policy for Tri-Merged or Residential Credit Reports • If a traditional credit report is available, the Mortgagee must use a traditional credit report. • If the Borrower supports a credit score from either a Tri- Merged or a Residential Credit Report, the Borrower must be evaluated based on traditional credit policies. 17 FHA’s Office of Single Family Housing Training Module Traditional Credit History: FHA’s Policy for Tri-Merged or Residential Credit Reports • The Mortgagee must utilize, and include in the case binder, the same credit report and credit scores that were used for TOTAL Scorecard evaluation. • If a traditional credit report is not available, or the borrower has insufficient credit, the Mortgagee must develop the Borrower’s credit history using the requirements for Non- Traditional and Insufficient Credit. 18 FHA’s Office of Single Family Housing Training Module Non-Traditional and Insufficient Credit • Borrowers without a credit score, the Mortgagee must either obtain a: – Non-Traditional Mortgage Credit Report (NTMCR); or – Independently develop the Borrower’s credit history. 19 FHA’s Office of Single Family Housing Training Module Non-Traditional Mortgage Credit Report (NTMCR) An NTMCR is designed to access the credit history of a Borrower who does not have the types of trade references that appear on a traditional credit report and used either as: – A substitute for a TRMCR or an RMCR; or – A supplement to a traditional credit report that has an insufficient number of trade items reported to generate a credit score. 20 FHA’s Office of Single Family Housing Training Module NTMCR: Standard • Mortgagees may use a NTMCR developed by a credit reporting agency that verifies the following information for all non-traditional credit references: – The existence of the credit providers; – That the credit was actually extended to the Borrower; and – The creditor has a published address or telephone number. • The NTMCR must not include subjective statements such as “satisfactory” or “acceptable,” and must be formatted in a similar fashion to traditional references. 21 FHA’s Office of Single Family Housing Training Module Independent Verification of Non-Traditional Credit Providers • Mortgagees may independently verify the borrower’s non- traditional credit references. • To conduct this verification, Mortgagees must document: – The existence of the credit provider; and – That the provider actually extended the credit to the Borrower. 22 FHA’s Office of Single Family Housing Training Module Non-Traditional Credit Providers: Verifications Existence of Credit Credit Information Rental Payment Provider Review public records Published address or Obtain a rental reference from the state, county, or telephone number for the from the appropriate city or other documents credit provider (do not rely rental management providing a similar level solely on information company (not from a of objective information. provided by the applicant) Family Member), AND demonstrating the timing Most recent 12 months of of payment of the most cancelled checks, or recent 12 months in lieu equivalent proof of of 12 months of cancelled payment, demonstrating the checks or equivalent timing of payment to the proof of payment. credit provider. 23 FHA’s Office of Single Family Housing Training Module Sufficiency of Credit References • To be sufficient to establish the Borrower’s credit, the credit history must include three credit references, including at least one or more from the list below: – Rental housing payments; – Telephone service (cellphone is acceptable); and – Utilities (not included in rent): . Gas; . Electric; . Water; . Television service; and . Internet. 24 FHA’s Office