Announcement 19-0075: Reminder - FHA Underwriting Guideline Updates

Overview

As a reminder, certain FHA guideline updates are effective for cases assigned Monday, September 9, 2019 and later.

The Carrington Mortgage Services, LLC (CMS) FHA Underwriting Guidelines have been updated as outlined below:

Net Tangible Benefit requirements for Streamline Refinances utilizing a Term Reduction are updated as follows:

·      Currently, Fixed rate-to-Fixed rate streamline refinances require the new interest rate to not exceed the current interest rate.

Effective for cases assigned 9/9/2019 and later, the new combined rate must be less than the current combined rate, where the combined rate is the interest rate + annual MIP rate.

·      For ARM-to-Fixed rate streamline refinances where the new term is less than the current remaining term, the combined PI+MI payment of the new mortgage must not exceed the combined PI+MI payment of the old mortgage by more than $50. ARM-to-Fixed rate streamline refinances without a term reduction are unchanged and do not have a limit on the increase in PI+MI payment, provided the interest rate does not increase by more than 2 percentage points.

Encompass will be updated to accommodate the revised NTB requirements. Until the Encompass update is released, underwriters must manually apply the new NTB requirements for cases assigned 9/9/2019 and later with a term reduction.

CURRENT REQUIREMENT

Effective for Cases assigned 9/8/2019 and earlier:

NEW REQUIREMENT

Effective for Cases assigned 9/9/2019 and later:

For a Reduction in Term the Net Tangible Benefit is met if all of the following apply:

·      the remaining amortization period of the existing Mortgage is reduced; and

·      the new interest rate does not exceed the current interest rate; and

·      the combined principal, interest and MIP payment of the new Mortgage does not exceed the combined principal, interest and MIP of the refinanced Mortgage by more than $50.

CMS must determine that there is a net tangible benefit to the Borrower…for all Streamline Refinance transactions with a reduction in term.

·      The remaining amortization period of the existing Mortgage must be reduced by at least 6 months; and The combined principal, interest, and MIP payment of the new Mortgage must not exceed the combined principal, interest, and MIP payment of the refinanced Mortgage by more than $50; and

·      The combined interest rate must:

o   Decrease when refinancing from a fixed rate Mortgage to a new fixed rate mortgage, or

o   Not increase by more than 2 percentage points when refinancing from an ARM to a new fixed rate mortgage

Interested Parties refer to sellers, real estate agents, builders, developers, Mortgagees, Third Party Originators (TPO), or other parties with an interest in the transaction.

Interested Party Contribution refers to a payment by an Interested Party, or combination of parties, toward the Borrower’s origination fees, other closing costs and discount points.

When performing an appraisal for a sales transaction or on New Construction, the Appraiser must also review and analyze the following:

·      the complete copy of the executed sales contract for the subject; and

·      documents related to New Construction, including plans, specifications, and any exhibits provided that will assist the Appraiser in determining what is to be built, or, if now Under Construction, what will be built when finished;

·      and report the results of that analysis in the appraisal report.

If the seller is not the owner of record, the Appraiser must include an explanation in the appraisal report.

Photograph Exhibit

Minimum Photograph Requirement

View

Photographs of any negative or positive view influences that substantially affect value or marketability

CMS must obtain the final Closing Disclosure or similar legal document from the settlement agent. If the seller’s Closing Disclosure or similar legal document is provided separately, CMS must obtain from the Closing Agent a copy of the final disclosure provided to the seller to keep in the case binder.