FotoFlexer_PhotoThe following additional FHA overlays are being added and will be effective for all FHA loans received starting October 1, 2009.

The program guides will be updated with these changes shortly:

1. Ratios on loans with an AU approval may not exceed 41.99/51.99;

2. Loans with non-occupant co-borrowers (unless a “true kiddie condo scenario”): a. The occupying borrower’s housing ratio cannot exceed 51.99% b. If the occupying borrower’s net income is insufficient to make the house payment plus their additional monthly obligations, the non-occupant co-borrower(s) must provide a signed statement that they are aware that they will need to assist monthly in helping them to make their housing and/or additional obligation payments.

3. Non-occupant co-borrowers for 2 – 4 unit properties, not accepted.

4. Loans that receive a “Refer” that warrant a manual underwrite (i.e., prior BK’s) the maximum housing and DTI ratios are 39.99/45.99 and must have a minimum of three “strong” compensating factors (see some examples below).

5. When there’s a non-purchasing spouse on a property located in a community property state we will require that those spouses outstanding judgments, delinquencies or collections be paid or brought current.

6. Streamline Refinances – HUD has issued a bulletin requiring changes to this program effective in November. We are requiring compliance with the following now: a. Borrower(s) must have made at least six payments on the mortgage being refinanced by application date; b. There must be a net tangible benefit as a result of the streamline refi. The total mortgage payment must be reduced by 5% on a Fixed to Fixed Rate loan; ARM to ARM loan; or a 203k to a 203b loan; c. Transactions that are reducing the mortgage term must be underwritten and closed as a rate and term refinance (credit qualifying); d. Validation that the borrower is employed and has income at the time of loan closing; e. If assets are needed to close, of any amount, it must be documented and verified; f. If subordinate financing is to remain in place the maximum CLTV is 125%.

The following are examples (but not conclusive) of compensating factors:

A. Established history for the past 12 – 24 months of housing expense greater than or equal to the proposed housing payment;

B. Significant cash down payment (10% or more) on purchase of the property;

C. Demonstrated ability to accumulate savings and a conservative attitude toward the use of credit;

D. Previous credit history showing that the ability to devote a greater portion of income to housing expenses;

E. The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage;

F. Minimal increase in housing expense;

G. Substantial documented cash reserves (at least 3 months) after closing;

H. Substantial non-taxable income (if no adjustment was made previously in the ratio computations);

I. Potential for increased earnings, as indicated by job training or education in the borrower’s profession;

J. Purchase transaction as a result of relocation of the primary wage-earner, and the secondary wage-earner has an established history of employment, is expected to return to work, and employment opportunities in a similar occupation are available in the new area . (Documentation the availability of possible employment.)

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