Announcement 2021- XXX - Conforming and Government Overlay Revisions, Removals, and Underwriting Updates

FHA Transactions Overlay Removals and Guideline Updates

Topic

Current Guideline

New Guideline

Purchase, Rate & Term Refi
Credit Score and DTI

(excluding manufactured homes)

·    Purchase, Rate & Term Refi

o  620 per AUS

o  600 to 50% DTI

o  580 to 43% DTI

·    Purchase, Rate & Term Refi

o  580 to 50% DTI

Eliminating 580 to 43%

Purchase CLTV

(excluding manufactured homes)

100% CLTV

105% CLTV

Streamline Refi LTV/CLTV

Max LTV/CLTV is per FHA

Max LTV/CLTV is 105/125

Streamline Refi Non-Credit Qualify
Credit Scores

Non-Portfolio

·    580 credit score

Non-Portfolio

·    600 credit score

Manual Underwrite

Not permitted

Permitted; in accordance with FHA manual underwrite guidelines.

If DTI is greater than 45%, gift funds are not permitted

Refer and Manual Underwrite
Credit score, DTI

Not permitted

·    Purchase, Rate & Term Refi

o  600 to 50% DTI

·    Cash-out Refi

o   600 to 50% DTI

Bankruptcy Chapter 13

Chapter 13 bankruptcy is not permitted until the bankruptcy has been discharged

·    Chapter 13 bankruptcy  eligible with evidence of 12 months payout per agency FHA guidelines

Bankruptcy Chapter 7

Chapter 7 bankruptcy is not permitted until the bankruptcy has been discharged 24 months

·    Chapter 7 bankruptcy eligible when bankruptcy has been discharged 24 months or

·    Not less than 12 months if borrower

o  Can show that BK was caused by extenuating circumstances beyond borrower’s control; and

o  Has since exhibited a documented ability to manage financial affairs in a responsible manner

Conforming Overlay Removal

Co-op Eligibility
Primary Residence

Fixed Rate

·    Cash-out Refi: 640

·    ARM Primary Residence

o  Purchase: 620 to 90% LTV

o  Cash-out Refi:  640 to 75% LTV

·    Fixed Rate

o  Cash-out Refi: 620

·    ARMs permitted within agency LTV/CLTVs

Co-op Eligibility
Second Homes

ARM Second Homes

·    Purchase, Rate & Term Refi

o  620 to 80% LTV

·    Cash-out Refi: not permitted

ARM Second Homes

·    ARMs permitted within agency LTV/CLTVs

·    Cash-out eligible (Freddie Mac only)

Conforming, FHA, VA, and USDA Overlay Removals and Guideline Updates

Subordinate Financing

Not permitted

·    Purchase: New subordinated financing permitted

·    Refinance: Subordination of existing subordinate financing permitted

IRS Form 4506-C and Tax Transcripts

Signed 4506-C and tax transcripts are required for each borrower whose income is documented with:

·    handwritten paystubs;

·    non-arm’s length transactions or at the underwriter’s discretion; or

·    tax returns are used to document income

Obtaining tax transcripts is suspended until further notice.

Signed 4506-C and tax transcripts are required for each borrower whose income is documented with:

·    handwritten paystubs; and

·    non-arm’s length transactions or at the underwriter’s discretion.

Tax transcripts must be obtained for the above two reasons or at underwriter discretion.

Mortgage/Employer Differential

Not permitted

·        Permitted per agency requirements with the following exception:

o   Mortgage differential payments are only allowed if the employer sends the funds to the borrower.

o   The employer may not pay the mortgage lender directly

Housing Choice Voucher Homeownership Program (Section 8)

Not permitted

Permitted per agency requirements

Renegotiated Sales Contract

Generally, renegotiated sales contracts are not allowed, however, minor adjustments due to condition or other relevant factors are permitted. Increasing of sales price after the appraisal is completed to provide seller credit is not permitted

Permitted

FHA, VA, and USDA Streamline Refinance Guideline Updates

Mortgage Forbearance
(Non-credit Qualify)

Non-credit qualifying streamline requires that three (3) months must have passed since the borrower exited forbearance.

Non-credit qualifying streamline requires that six (6) months must have passed since the borrower exited forbearance.

VA Updates

Lava Flood Hazard Zones

Silent

·    Lava Flow Hazard Zones are designated by the US Geological Survey.

·    Properties located in Lava Zones 1 and 2 are not permitted with following exception:

o  In Hawaii, Lava Zones are acceptable.

o  A Lava Insurance Policy, with coverage for at least the amount of the loan, is required for all properties located within Lava Zone 1 and Lava Zone 2.