What’s Your Mortgage IQ? by Karen Deis of Mortgagecurrentcy

by 23 Sep 2011
    I know the rules can be boring—right?  But I’d like you to think about how you can consistently market the rules to your real estate agents.  In addition to the questions and answers, I have provided some marketing tips on what you can do to set yourself up as the expert in your corner of the lending world.    So, let’s start out with a compliance question that’s does not come up very often, but something to watch out for.    Compliance Person in Appraisal Photo:  One of the photos in an appraisal had a picture of a person in the photo.  The underwriter “suspended” the loan, saying it violated Fair Housing Act.  Can you provide me the specific guide on this?    The Fair Housing laws do not come out and say it is prohibited for the underwriter to view a photo of the customer.  What you are encountering is risk management policy designed to prevent the accusation that a loan action was taken on the basis of race, color, national origin, religion, sex, familial status, or disability.   The following actions are prohibited:  -- Refuse to make a loan  -- Refuse to provide information regarding loans  -- Impose different terms or conditions on a loan, such as different interest rates, points, or fees  -- Discriminate in appraising property  -- Refuse to purchase a loan
 -- Set different terms or conditions for purchasing a loan   Marketing Tip:  While this does not happen very often, here are a couple of things you can do…First, take time to look at the appraisal pictures.  Secondly, send an email to your appraisers, telling them this story above, and give them the heads up that this could be a potential Fair Housing issue. 
  Fannie Retirement Funds Assets:  My client is using a retirement account as cash reserves. The underwriter says that we need to show the terms of “withdrawal”, even if they don’t need the money to close.  Is that correct?  Fannie changed this guide line on May 24, 2011.  That used to be the requirement and it has been removed from the Selling Guide.    A new policy was added that disallows retirement accounts as an asset for reserve calculation purposes when withdrawals for any reason are prohibited by the employer.   
For borrowers that have already reached retirement age we have modified our policy to allow retirement funds as assets for reserve purposes—regardless if needed for cash reserves or not.  It’s effective immediately for manual and DU case files -- the message will be updated in a future release.  Underwriter reference -- SEL-2011-04.   Marketing Tip:  Review all of your files, especially the ones where the loan has been pre-approved but your clients are still looking for a home to buy.  If you are relying on using their IRA or retirement funds as cash reserve, the new rules apply   Use this Facebook post:  Fannie Cash Reserves:  Just wanted to give you a heads up that Fannie has changed their rules regarding using retirement accounts for cash reserves and/or down payment.  So if you are working with a client who has indicated that that they are using retirement funds, call me right away. 
  FHA Bankruptcy with Foreclosure Included: Are there two separate waiting periods if a foreclosure is included in a Chapter 7 Bankruptcy?   It is addressed by FHA as two separate events; the 2 year wait period after a Chapter 7 bankruptcy and the 3 year wait period after a foreclosure.  Because a foreclosure did happen on a property and the mortgage was included in the bankruptcy the position has been taken by all underwriters and any HUD personnel (I've talked to) that the foreclosure event isn't considered complete until the bankruptcy that includes the mortgage, has discharged. So if your borrower included a mortgage in a Chapter 7 bankruptcy and the foreclosure occurred in Jan 2011 but the Chapter 7 bankruptcy discharged in May 2011 you would consider the foreclosure event complete in May 2011 and start the 3 year clock from the discharge date.
There can be many confusing variations on these scenarios but bottom line is that a foreclosure has to be acknowledged when a mortgage is included in a Chapter 7 bankruptcy. Marketing Tip:  Even though a mortgage has been included in a bankruptcy, it does not necessarily mean that the foreclosure paperwork has been completed by the original lender.  We’ve seen instances where the borrower waited the appropriate amount of time, increased their credit score, only to find out that the foreclosure paperwork was not completed until a year or two after the bankruptcy.  Be sure to check your files and make sure you don’t run into this problem
USDA Counting Student Loans.  Can we exclude student loan payments if they are deferred for over 12 months like FHA?   RD handles student loans differently than FHA.  
RD States in A 4543: "Student loans represent a debt obligation. Loans in repayment and deferred student loans must be included in the debt ratio per section 1980.345(c)(1). If available, lenders will utilize the payment amount listed on the credit report. If the credit report does not indicate a monthly payment amount, lenders may use the monthly payment amount provided by the loan servicer or 1% of the loan balance reflected on the credit report." 
  VA Heating Requirement:   My client works for an HVAC company and intends to do the furnace repairs BUT not before closing. Is the heat source repair really a must for VA? Basically, VA wants the heating source adequate and working. From Chapter 12 of the VA manual:
Heating must be adequate for healthful and comfortable living conditions. If the property has an unvented space heater, see the requirements in Section 11.12.   Homes with a wood burning stove as a primary heating source must also have a permanently installed conventional heating system that maintains a temperature of at least 50 degrees Fahrenheit in areas with plumbing.    Solar systems for domestic water heating and/or space heating must:  
  • meet standards in HUD Handbook 4930.2, Solar Heating and Domestic Hot Water Heating Systems, and
  • be backed-up 100 percent with a conventional thermal energy subsystem or other backup system which will provide the same degree of reliability and performance as a conventional system.
  Note:  VA field stations may determine that climatic conditions are such that mechanical heating is not required.
  Marketing Tip:  This would make a great email update to your real estate agents.  Start your email by saying….”Somebody asked me this question the other day about VA and adequate heat and wanted to share the rules with you (then list them above).

Written and contributed by Karen Deis of Mortgagecurrentcy.com.  Provided monthly by interpreting the Rules and Regulation Changes for loan officers, processors, underwriters, and owners/managers. Mortgage Talking Points TM, charts and checklists included.