Non-conventional Mortgages

• Insured or guaranteed by govt agencies

  • Federal housing administrations (FHA)

  • Department of veterans affairs (VA)

  • Rural housing service (RHS)

  • United states department of agriculture (USDA)

FHA

• The FHA is regulated and overseen by HUD

• insures loans for the full volume

• allows for lower down payment and credit score requirements

• Fee limits in closing costs

  • Max 1% processing fee in addition to other fees

• Lenders must be approved to write FHA loans

• Case numbers are assigned with complete applications

FHA; Maximum loan amounts

• 115% of the Area median home price

  • [area median home price] x 1.15 = Max purchase price

• 150% of the conforming loan limit in high cost areas

• 65% of conforming loan limit in standard areas

  • $806,500 × 6.5 = $524,225

Mortgage insurance

• Up-front mortgage insurance premium (UFMIP)

  • 1.75% of the base loan amount

  • paid at closing or may be financed in the loan

• Annual mortgage insurance premium

  • Paid monthly and included in escrow

  • Based on LTV, based loan amount, and length of term

    • 15 years or less or greater than 15 years

  • paid for 11 years or the life of the loan

    • 10% or more down payment, MIP will continue for 11 years

• Both UFMIP and MIP are required on all FHA loans

  • HPA does not apply to FHA

  • additional money down cannot avoid UFMP or MIP

Down payment

• minimum amount determined by credit score

  • 3.5% 580+ Fico

  • 10% 500-579 fico

Sellers concessions:

• 6% of sales price

  • regardless of down payment percentage

  • can only go towards closing costs and prepaids, not down payments

FHA program options

• Purchase:

  • fixed or adjustable

  • 3.5% minimum down, unless FICO is above 580

• Cash out Refi

  • Must maintain 20% equity position with cash out

  • title must be seasoned for 12 months prior to cash out

    • anyone taking cash out must be on title for 12 months

  • minimum 12 timely mortgage payments

• Rate/term Refi

  • Possible after 210 days and 6 timely payments

  • 97.75% maximum LTV

• Streamline refinance = FHA to FHA

  • May not require appraisal or income verification

  • 12 month payment history and loan in good standing

  • cannot roll in costs, but may receive a partial prorated UFMIP credit from the previous loan if less than 36 months old

  • Must reduce the rate by .5% or more if fixed to fixed transaction

  • cannot increase term by more than remaining term + 10 years, not to exceed 30

• Home equity conversion mortgage (HECM)

  • FHA reverse mortgage

  • only available for elderly borrowers

  • must be secured by a principle dwelling

  • must keep home insured and in good condition

  • taxes must be paid

  • may be paid in lump-sum, monthly, as a HELOC, or a combination

  • Does not require payment as long as the borrower resides in the home

VA Loans:

• the VA does not make loans directly

  • establish requirements and guarantee loans

  • government will repay a portion of the loan if the veteran defaults

VA Features:

• 100% Financing

• No prepayment penalties

• lenient underwriting requirements

• limits on closing costs

• assistance programs to prevent default

• max 4% seller concessions

• no minimum credit score

• Entitlement

  • Basic entitlement is $36,000

  • bonus entitlement is $68,250

    • may not be considered for homes in high-cost areas

  • Lenders will typically loan 4 times the veterans available entitlement

  • guaranteed amounts are based on entitlement and loan size

    • max guarantee for veterans with full entitlement and loan amounts greater than $144,000 is 25%, regardless of the conforming loan limit

Available fees

• Up to 1% origination ( LO+processing+underwriting)

• up to 2 bona fide discount points

• Reasonable and customary fees including:

  • Appraisals

  • taxes and recording fees

  • credit reports

  • taxes and assesments

  • hazard insurance

  • title examination and insurance

  • flood zone determination

  • funding fees

• Required on all VA loans unless the veteran is exempt

  • cannot b e waived

• percentage varies based on use and LTV

Percentage; Use; LTV Down Payment

• 2.15% first greater than 95% 4.99% or less

• 3.3% subsequent greater than 95% 4.99% or less

• 1.5% First and subsequent 90.01-95% 5% to 9.99%

• 1.25% First and subsequent 90% or less 10% or more

• 0.5%. IRRRL Any N/A

Funding fee examples:

• Veterans who are disabled from service-connected causes

• spouses of disabled vets, if the vet cannot consent to a contract

• unmarried surviving-spouses who receive dependency indemnity compensation (DIC) benefits

• Active duty purple heart recipients

• the funding fee is non-refundable, unless the veteran is overcharged

Qualifying factors:

• Front-end and back-end debt to income (DTI) may not exceed 41%

• Must also meet residual income analysis

  • Dollar amount

  • based on family size and zip code

  • includes estimated utilities, child and/or eldercare expenses, and federal, state, and local taxes

  • income of non-borrowing household members may be allowed to offset residual income but not for DTI purposes

Programs:

• purchase

  • traditional

  • installment land sales contract

• Construction refi

• assumptions

• refinances

  • traditional cash-out

  • interest rate reduction refinance loans (IRRRLs)

USDA loans:

• rural development housing and commodity facilities program

  • department within the U.S department of agriculture

  • makes and guarantees loans

  • section 502 of the housing act of 1949

  • intended for modest dwelling and borrowers with limited access to credit

RHS direct loans:

• Funded by the US govt

• available in 33 or 38 year terms

RHS guaranteed loans

• funded by private lenders, but guaranteed by the govt. if borrower defaults

• requires Up-front and annual guarantee fee

Features:

• income limits

  • borrowers cannot earn more than 115% of the area median income

• Term lengths

  • Direct loans = 33 years

  • guaranteed: term cannot exceed 30 years

• Guarantee fees

  • Direct=NA

  • Guaranteed 1% up front, .035% annually

• Loan to value

  • 100% max loan to value

Transaction types

• purchase loans

• Refinance:

  • property must be eligible for USDA loans

  • Must still meet income requirements

  • borrower must be in danger of losing their property due to circumstances beyond their control

• USDA loans must meet ATR and have fixed interest rates

The secondary market:

• the primary mortgage market is where customers apply for mortgages

• MLOs/Lenders negotiate and/or offer terms of residential loans

• The secondary market is where investing and/or servicing rights are sold

  • The process is called securitization

  • securitization and creating mortgage-based securities (MBS) creates liquidity in the market ( Frees up cash flow so lenders can make more loans)

  • Investors can be govt sponsored, govt owned, or private-label investors

Investors:

• Government sponsored enterprises are privately held but publicaly charted and directly supervised/sponsored by the FHFA

  • Federal national mortgage association (FNMA) Fannie Mack

  • federal home loan mortgage corporation (FHLMC) Freddie mack

• governemnt owned investors buy investing rights to government loans

  • government national mortgage association (GNMA) or ginnie mae

  • ginnie mae is the only investor that is owned entirely by the government

• Private label investors buy property loans based on standards they arrange with the funding lender

  • Many non-qm loan types are proprietary