Guaranteed Residential Housing Single Family

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DRAFT
Guaranteed Residential Housing - Single Family -
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Program Objectives

• To assist low to moderate income households in
  obtaining a decent, safe, and sanitary dwelling
  as a primary residence in an eligible area.

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AGENDA

• OVERVIEW
• PROPERTY ELIGIBILITY
• INCOME with exercise
• CREDIT
• REPAYMENT ABILITY
• SUBMISSION PROCESS
• MISCELLANEOUS
• RESOURCES AND FORMS

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Whats with the name?

• Rural Development is a description.
• Business loans
• Community Facilities (fire stations, community
  centers, schools, hospitals)
• Water Waste (infrastructure, equipment)
• Multi-family
• Subsidized DIRECT lending for low/very low income
• Guaranteed Residential Lending

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Home Buyer Benefits

• 102 LTV
• No Mortgage Insurance
• 30 Year Fixed Best Rate
• No down payment
• No Loan Limit
• FICO 620 streamlined processing
• Unrestricted Gifts
• No Reserves Required

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Theres more!

• Sellers Contributions to closing costs not
  capped BUT are limited to customary costs
• NO declining market adjustment
• Retain cash reserves
• Families can move in with NO out of pocket
  investment.
• Must be owner occupied.

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We try to make it work!
LENDER'S UNDERWRITE
CREDIT
FLEXIBILITY IN RATIOS WITH GOOD DOCUMENTED
COMPENSATING FACTORS
39/48?
29/41
31/43
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NO PMI LOAN 5 down 8,750 9 Rate NO MI

1338
FLEX 97 3 down 5250 680-699 FICO 35 MI

1259
FLEX 97 3 down 5250 700 FICO 18 MI

1245
FHA 3 down 5250 850-680 FICO 1.25 UFMIP
55 bp MI
1222
95 LTV CONVENTIONAL 5 down 8750 30
MI 1214
Welcome to Reality!
MCM/HOME POSSIBLE 3 down 5250 680 699 FICO
18 MI 1213
80/20 80 1st 7 30 YR TERM 20 2nd 8.5
30 YR TERM 1201
MCM/HP 3 down 5250 700 FICO 18 MI
1196
175,000 Loan 7 rate No r.e. taxes insurance
included
VA 2.15 GUARANTY FEE NO MI
1189
102 LTV RURAL DEVELOPMENT NO MI
1188 100 LTV RURAL DEVELOPMENT NO MI
1164
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CLTV not limited by RD!

• 1st mortgage is guaranteed by RD and cannot
  exceed 100 LTV RD fee
• No restriction on source or amount of subordinate
  financing except
• Loan payment, if any, must be included in the
  ratio
• Careful Your lender may have restrictions

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WHAT IS LTV IN 100 LTV?

• L T V
• V for value, not C for Contract amount
• Not limited to lesser of contract or value.
• Closing costs and repairs may be financed into
  the purchase loan when value is more than
  contract.

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Is this a first-time homebuyer program?

• No, but most of them are.
• It is an owner-occupant program
• RD is experiencing a record volume

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Can domestic partners apply?

• YES
• Borrower. Collectively, all parties who applied
  for and received a specific guaranteed loan from
  an eligible Lender.
• The adults in the household can apply singularly
  or as co-applicants without limit to the number
  of them.

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Home Owner Ed

• Encouraged but not required
• Some lenders may require it.

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Lender fees Keep them reasonable and comparable
to the total charged on FHA or VA loans
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Try Rural Development FIRST

• Test every customer for RD eligibility FIRST
• Is the property in an eligible area?
  http//eligibility.sc.egov.usda.gov
• Is the household income within limits?
• http//eligibility.sc.egov.usda.gov
• Is their credit history reasonable?
• Lenders underwriter makes the decision.
• Is their repayment ability reasonable?

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Site Eligibility

• Must be in Eligible Area
• Includes urban fringes of cities
• No major adjustments in many years
• http//eligibility.sc.egov.usda.gov/
• Access from a Street, Road or Driveway
• Residential, non-farm, non-commercial
• CAN be zoned agriculture. Check with county
  regarding whether home construction is allowed.
• Site Value typically must be 30 of total value
• Cannot be subdivided into additional buildable
  lots

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http//eligibility.sc.egov.usda.gov/
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Loan Purposes

• Purchase new and existing homes as a
• primary residence
• Includes all pre-pays closing expenses
• Appraisal, application fee, CR fee, deposit on
  contract, survey, architectural fees, etc.
• Discount points for
• Cost to establish escrow accounts
• Tax monitoring service
• (real estate taxes and insurance)

low-income only
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Loan Purposes

• Repairs or Improvements to Dwelling
• Purchase and installation of necessary
  appliances, energy saving measures and storm
  cellars.
• Necessary facilities such as garage, storage
  shed, driveways, and water/sewage.
• Special design features or equipment for disabled

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Loan Purposes

• Take Out loan
• Construction of a new home, or
• Purchase and improvement of existing home
• Construction must be arranged in connection with
  loan package

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Loan Purposes

• Construction-perm
• Obtain commitment prior to construction
• RD guarantees after completion
• A couple of extra forms
• Lender must have strict control of funds
• Detailed plans and specifications
• Contract not reliant on builders allowances
• Contract has deadline/penalty
• New appraisal at 6 months

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New Construction

• Stick Modular
• New is 12 months or less, not previously
  occupied. Includes already constructed,
  partially constructed or planned construction.
• All types typical for the area

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Existing Home

• Can lack some amenities as long as it meets
  minimum HUD Handbooks 4150.2 4905.1
• Are floor covering required? NO Are appliances
  required? NO
• Must be safe, decent, structurally sound
• Take out loan Property purchased and renovated
  for re-sale.
• No restriction on time deed must be held by
  previous owner

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Existing Homes Is it allowed?

• Conditions that would warrant additional repairs
  include those that pose a threat to the safety of
  the occupants, jeopardize the soundness and
  structural integrity of the property or
  adversely affect the likelihood of a low- to
  moderate income borrower from becoming a
  successful homeowner MUST be corrected!

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Existing Property Inspections

• HUD Handbook 4150.2 4905.1
• Appraiser certifies in comments section or used
  the RD optional certification (or similar)
• Recommend using FHA appraiser
• State certified and whole house inspection
• Appraiser checks all components or else separate
  inspections must be ordered
• Test well water. Must meet county requirement.

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What if

• If the property is currently occupied, perhaps by
  the customer, is the water test still required?
• Yes. That is no assurance the water is safe.
• If the property is occupied, is a septic
  inspection required?
• Only if the FHA appraiser calls for it
• Water is high in iron?
• Comply with local code.
• Abatement (filter) can be financed

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Is a whole-house inspection required? (existing
home)

• Only if
• The appraiser is not a currently active FHA
  appraiser.
• The lender would have the responsibility for
  determining whether the property met the
  requirements of HUD Handbooks 4150.2 and 4905.1
• RD does not dictate what will or will not be
  repaired.
• Reduce the cost and time get the FHA appraisal
• Not required to log in the appraisal with FHA

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Appraisal

• The Form 1004MC is required
• Appraisals can be ordered locally

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What about pest inspection?

• Only if required by the lender, appraiser,
  inspector, or State law
• Recommended if wood is touching the ground

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What about known hazards, such as sinkhole or
chemical contaminants?

• Known hazards must be disclosed to the applicant,
  lender, appraiser, and to RD
• Order additional water test on wells for the
  known chemical hazard
• RD must do an environmental review on each loan.
• Hazards affecting the health or safety of the
  family will disqualify the property.

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Homes with in-ground pool

• Loan is limited to value without the pool.
• Example contract price 100,000
• as is value 110,000
• Value as if it had no pool 105,000
• Maximum base loan 105,000
• LOAN IN UP TO 5,000 CLOSING COSTS!
• PLUS finance in the GRH fee

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POOL - APPRAISAL

• Appraiser determines two values
• AS IS with the pool (basic appraising)
• Pretend value as if there is no pool
• Find 2-3 comps without pools
• Skip the pool adjustment
• Determine no pool value from the adjusted sales
  price of comparables
• Think of it as an appraisal within the appraisal,
  adding one page of additional no pool but
  otherwise comparable properties

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Additional pool comments

• Do not advise the appraiser to give the pool a
  zero value.
• There is NO pre-approval waiver by RD
• Youve heard that in-ground pools are not
  permitted under the recently passed ARRA
• True, but RD is not using ARRA funds. The are
  funded from the regular allocation
• ARRA funds are used for all other projects so
  that the regular allocation is reserved for the
  pool loans and construction-perm loans.

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CONDO
Lender certification Reviewed condo
documentation That condo is in compliance with
HUD, VA, FNMA, or FHLMC guidelines Option
certification form is available from RD Dont
forget the appraisal attachment
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Properties in PUD (other than condominium)

• FHA no longer requires approval of a PUD as a
  precondition for placing FHA mortgagee insurance
  on a dwelling located in the development.
• Therefore, lenders may rely on FHAs general
  acceptance of PUDs for compliance with the
  requirement of RD
• No requirement of units sold

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New manufactured home

• Must be purchased from Agency approved dealer
• Must meet specific RD set-up and landscaping
  requirements
• List is posted on FL website www.rurdev.usda.gov/
  fl/guarrhs.htm Click on link Lender
  Information
• Set-up/landscaping/driveway requirements are
  posted at the same web site.

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Prohibited Purposes

• Existing Manufactured Home
• No refinancing EXCEPT
• Current RD loan (Direct or Guaranteed)
• Balance owed on purchase of lot for construction
  loans is OK
• Income producing property
• Must be residential use only
• No cash back except for pre-paids included into
  the loan amount

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No weird homes

• Projects that are not eligible
• Non-typical homes for the area
• Appraiser must use like kind comps.
• Example No log home, A-frame, stilt home unless
  they can find those types of homes for
  comparables. No log homes sold in the area?
  Then the subject log home will not be considered.
  
• Condominium hotels
• Timeshares
• Houseboat projects
• Multi-dwelling units where the owner is permitted
  to hold title to more than dwelling by a single
  deed

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RETAIN PRESENT HOME AS A RENTAL?
Can they afford to be a landlord?

• Rental income of less than 2-yrs will not count
  for repayment (inadequate history).
• Present mortgage payment must be counted in back
  ratio.
• Present taxes and insurance will go up,
  non-occupant.
• Exception Documented job transfer (new to
  area). Or present home is not safe, decent,
  sanitary or functionally inadequate.
• Allow net rental income with signed 1-yr lease,
  proof of deposit and first month rent paid.
• CANNOT OWN MORE THAN ONE OTHER HOME. CANNOT
  ASSIST RE INVESTORS

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But....what about outbuildings?

• Outbuildings typically associated with
  residential living are permitted.
• Vehicle storage
• Yard/garden storage
• Boat storage
• RV storage
• Shelter for pets including those normally
  considered as farm animals
• Not considered as associated with an income
  producing enterprise.
• Must be insured if given value by the appraiser

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Flood Zones

• Loans may be guaranteed if
• Flood insurance must be obtained for any home
  located in the 100-year flood plain
• New construction Not in Zone A without FEMA
  letter of map revision. The first floor
  elevation must be above the 100-year flood zone
  elevation.
• Con consider on in-fill lots having city
  water/sewer
• Existing home can be financed in FL/VI
  regardless of flood zone if federal flood
  insurance is available and obtained.
• Well head and septic drain-field must be above
  the 100 yr BFE
• FEMA Form 81-93

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Maximum household income

• SEPARATE calculation from that for repayment
  income
• Result may be different than repayment income
• NO change is how repayment income is verified or
  calculated.
• Verify income of all adults who will occupy the
  dwelling
• Minimum documentation for non-applicants

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THESE ARE NOT GROSS INCOME LIMITS!
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Income cap vs. Repayment income

• Repayment income under this product is calculated
  the same as other products, based on the income
  of the persons signing the promissory note. It
  can be projected income but lenders may object.
• Income cap Total adult household income is
  verified and compared to the max income chart for
  the county. Certain deductions are allowed if
  gross income is over the limit.

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VERIFYING INCOME OF NON-APPLICANT ADULTS
Obtain latest pay stub with YTD Last award letter
for disability or social security
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Adjusted PROJECTED Annual Income

• NO adjustments when gross household income is
  less than limits
• Adjustments
• 480/annual per minor or full-time student
• Verified child care expenses
• 400/annual where borrower or co-borrower is
  elderly or disabled

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Effect of adjustments

• Example 4-person household, 2 adults, 2
  children ages 10 and 15, child care expenses
  150/week for the 10 yr old 7,800.
• 4-person AGI limit
• Child care (50 wk)
• 2 X 480
• Gross income limit

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CONFUSING? COMPLICATED?
USE THE EASY METHOD! OUR WEB BASED CALCULATOR
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• Use the eligibility web site
• http//eligibility.sc.egov.usda.gov
• Click on single family under Income
  Eligibility
• Fill in a few blanks for an eligibility answer
  in a matter of seconds.
• NO need to remember or look up adjustments or
  limits.

EASY FAST FUN
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Determination made in under 2 minutes!
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Translate this into affordability

• 85,980 X .31 26,653.00/yr
• 26,653/12 2,221.00 monthly PITI
• Interest rate is very competitive prime rate even
  though some loan features resemble sub-prime
  qualification.

MARKET TO HIGHER INCOME Easier qualifications Larg
er loans More income for you!
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Another calculator

• Lenders must provide a DETAILED calculation of
  PROJECTED adjusted gross annual income
• Suggest using the RD calculator found at
  http//incomecalc.sc.egov.usda.gov
• Or use any other worksheet. Example
• 40/hr/wk X 25/hr X 52 wk 52,000
• Overtime 5/hr/wk X 37.5/hr X 50 wk9,375
• Total 61,375 paid 2 wk vacation, no OT
• For irregular hours or unusual situations, use
  your best logic and DOCUMENT, DOCUMENT, DOCUMENT

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verifying child care

• Obtain written statement from child care provider
• Child must be 12 yr or younger
• Paid to enable wage earner to work
• Provider cannot live in the household but can be
  a close relative

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Are medical expenses deductable?

• (d) A deduction of the amount by which the
  aggregate of the following expenses of the
  household exceeds 3 percent of gross annual
  income
• (1) Medical expenses for any elderly family (see
  definition). This includes medical expenses for
  any household member the applicant/borrower
  anticipates incurring over the ensuing 12 months
  and which are not covered by insurance (e.g.,
  dental expenses, prescription medicines, medical
  insurance premiums, eyeglasses, hearing aids and
  batteries, home nursing care, monthly payments on
  accumulated major medical bills, and full-time
  nursing or institutional care which cannot be
  provided in the home for a member of the
  household) and
• (2) Reasonable attendant care and auxiliary
  apparatus expenses for each disabled member of
  any household to the extent necessary to enable
  any member of such household (including such
  disabled member) to be employed.

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OK, but what is elderly

• Elderly family. An elderly family consists of
  one of the following
• (1) A person who is the head, spouse, or sole
  member of a household and who is 62 years of age
  or older or who is disabled and is the
  applicant/borrower or the coapplicant/coborrower
  or
• (2) Two or more unrelated elderly (age 62 or
  older), disabled persons who are living together,
  at least one of whom is the applicant/borrower or
  coapplicant/coborrower

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One more time gross household income?

• Verify income of all adults on an annualized
  basis, projected for 12 mo
• If that income is LESS than the RD cap for the
  number of total persons (counting minors too),
  they meet the threshold to get in.
• If that income is GREATER, then use the
  calculator to determine the adjustments. If the
  ADJUSTED gross income is at/less than the income
  cap, they are in!
• Calculate repayment ability based only on the
  income of the persons signing the note.

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Failed to verify income of all adults?

• Failure to verify income of all adults is a
  serious violation. It could jeopardize the RD
  Guarantee.
• Purposely excluding income would constitute
  fraud
• Verify the income of all adults
  who will occupy the property
• Consider developing a worksheet or special
  certification

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Where to find detailed information?

• RD Instruction 1980-D
• Google RD Instruction 1980-D to find it in PDF.
• Is posted along with updates (Administrative
  Notices) at www.rurdev.usda.gov/regs Click on
  Instructions, click on Part 1980-D
• Go to paragraph 1980.347 Annual income for a
  complete description of what counts, what
  doesnt, what doesnt count for annual but CAN
  count for repayment
• Go to 1980.345 Applicant eligibility
  requirements for a guaranteed loan for
  information on repayment income
• Administrative Notices are directives containing
  the latest policy and clarifications. They
  override the 1980-D.
• Same web site click on Administrative
  Notices. A list is posted by date order. Look
  for those with (1980-D in title and then scan
  down the list for the topics dealing with loan
  production.
• Keep in mind that they are written as internal
  directives but are released to lenders.

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TAKE THE EASY PATH!
shortcut with FICO 620

• Streamlined documentation
• No documentation for glitches on CR
• UNLESS
• FC within 3 yr
• Chap 7 within 3 yr
• Chap 13 plan within 12 mo
• Late mortgage payment within 12 mo
• FICO of 620 is not automatic credit approval

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Too low credit score high risk
FICO under 619 is 17 of portfolio but 39 of
Agency losses No FICO is 6 of portfolio and 16
of losses 23 causing 55 of losses
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Chapter 7 within past 3 yr Chap 13 plan within
12 mo late mortgage payment within 12 mo FC
within 3 yr SHOULDNT BE SUDDEN DEATH OF THE
LOAN Underwriters should consider Temporary?
AND beyond control of A? And removed and
reoccurrence unlikely? DOCUMENT, DOCUMENT,
DOCUMENT on the 1008 and/or attachment
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FICO 619-581

• LENDER MAKES THE DECISION!
• Lenders may have internal criteria that are more
  restrictive than RD
• Higher risk category
• Lender provide comp factors on 1008 and must
  retain documentation and provide copy to RD that
• Circumstances were temporary in nature, and were
  beyond the applicants control, and have been
  removed so their reoccurrence is unlikely.
• Do not ask RD to intercede.

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FICO 580 or less is VERY tough
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Nontraditional credit
3 credit references minimum Non relative No
other risk layers Rent is best but have 12 mo
cancelled checks or money orders or written
verification from 3rd party Verified savings
deposits is an option Only one 30-day late is
allowed
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Repayment Income

• Repayment income
• May be different from adjusted annual income
• May use current income projected.
• Should typically be anticipated for 24 months in
  duration (example child support ending within 24
  months should not be counted).
• Must be dependable and based on historical data
• Nontaxable income (Grossed up by 25)

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Repayment Income

• Section 8 Homeownership Vouchers
• Are not counted against annual income
• Can be added to monthly repayment income
• Can be grossed-up by 25
• If paid directly to lender may be used to offset
  monthly PITI

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Repayment Ability

• Total Debt should include
• PITI
• Installment debts with over (6) months remaining.
• Alimony
• Child support
• Deferred Student loans
• Shorter term debts considered significant

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Deferred Student Loans

• Use actual anticipated figure if known.
• Loans without a monthly scheduled payment must
  utilize estimated payments of 1 of the loan
  balance
• Example 12,000 outstanding loan balance
• 1 should be 120 per month

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Repayment Ability

• Other Factors to Consider with TD
• Cosigned notes - will be considered unless
  evidence is provided that the applicant has not
  been required to make a payment in the previous
  12 months. Lender File must contain
  documentation of payment

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Repayment Ability

• Other Factors to consider with TD
• A liability on a previous mortgage must be
  considered unless
• Applicant can provide a release from liability OR
• 12 month successful payment history on new owners

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Repayment Ability

• PITI - house payment, taxes, insurance to gross
  repayment income. (29)
• 31 for home built Jan 2001 or later in FL/VI
  (energy efficiency allowance)
• TD - PITI other long term obligations over 6
  months to gross repayment income. (41)
• 43 for home built Jan 2001 or later in FL/VI
  (energy efficiency allowance)
• Very flexible ratios based on solid comp factors
• No stated limited. Must make sense for the
  family. Consider the residual income

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Repayment Ability

• An applicant may have any another adult member of
  the household join in on the loan as a
  co-applicant for Repayment ability.
• RD Instruction does not allow co-signors from
  outside the household

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relationships

• Can a married individual qualify without the
  spouse?
• Yes, same as conventional
• BUT consider Spouse will not be eligible for
  servicing rights since they are not a borrower

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SELF EMPLOYED
Net profit Depletion Depreciation Repayment
Income
2 year IRS record AND Year-to-date profit and
loss and balance statement
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Debt Ratio Waivers

• Compensating Factors
• 660 FICO
• Savings
• Similar rent payment low to no payment shock
• Cash reserves after closing
• 24 months continuous employment history
• Increased earnings
• Trailing spouse income
• Retirement account (similar to FHA, 60 of vested
  amount)
• Ratio waiver request must be in writing to RD,
  and all lender files must have a copy RDs
  approval.
• NO SPECIAL RD FORM

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Watch out
FOR PAYMENT SHOCK!
Document it on the 1008
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Debt Ratio Waivers

• Ratio waivers will not be approved when
  accompanied with a Funded Buydown (2/1).
• You CAN use a permanent rate buydown

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Retirement Assets

• Retirement assets may be considered as a
  compensating factor
• Utilize 60 of amount vested
• Assets restricted to employment separation,
  retirement or death should NOT be counted
• File must contain documentation (depository or
  brokerage account statement)

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The Process
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The Process
Rural Development reviews and issues Conditional
Commitment w/conditions back to underwriter
Lender closes loan.
Lender submits post closing package to Rural
Development.
Rural Development issues Loan Note Guarantee to
Lender.
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Submission Checklist

• 1980-21, Request For SFH Loan Guarantee
• Lenders Loan Underwriting Analysis
• Uniform Residential Loan Application
• Income Verification (only that pertinent to the
  calculations) Provide calculation details web.
• Credit Verification
• Purchase Agreement
• Appraisal
• FEMA 81-93, Standard Flood Hazard Determination

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Successful file submissions

• Check docs for consistency
• Loan amount same on 1003, 1008, RD-Form 1980-21,
  GUS?
• CAIVRS checked, number documented.
• Customer signed certification on 1980-21.
• Remind lender to provide a return envelope along
  with a contact sheet with address, contact for
  receipt of Commitment and the underwriter name,
  phone, email

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broker/lender approval

• No broker approval process with RD
• Underwriting lender must be RD approved
• The underwriting lender must be RD approved.
• Only one RD form Form RD 1980-21
• Lender completes the form EXCEPT broker should
  obtain the customers signature on a certification
• Download from www.rurdev.usda.gov/regs/forms
• Allow extra time for the RD file review

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The fee
Loan guarantee fee 2 of FINAL LOAN AMOUNT on
purchase loans. 0.5 on refinancing of
previously guaranteed or Agency Direct
(subsidized) loans. Example for financing entire
fee appraisal 150,000 Loan BEFORE FEE
150,000 Total loan w/fee 150,000/.98
153,061.22 Fee 3,061.22 (153,061.22 less
150,000 or 2 of 153,061.22) Total LTV 102.04
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Miscellaneous

• No minimum loan amount
• Interest rate is set by the lender
• Escrow of taxes, insurance is mandatory
• CAIVRS is required
• Applicant must personally occupy the home on a
  permanent basis.
• Except for military personnel, must be available
  to occupy the home upon loan closing
• Full-time students must have a reasonable
  prospect of obtaining employment after graduation

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Aliens!

• Must be a Lawful Permanent Resident /
• Employment Authorized

• CIS Form I-551Alien Registration Receipt Card
• CIS Form 1-688BEmployment Authorization Card
  annotated Provision of Law and followed by the
  provision.
• CIS Form I-766, annotated as A3, or A5, or A10
• CIS Form I-571
• CIS Form 1-94
• see RD Administrative Notice for specific guidance

If in doubt, ask RD to check status with their
link to CIS
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Military Families

• An immediate family member must occupy
• Service Members Civil Relief Act Occupancy
  requirement lifted for military participating in
  an Act of War

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Dont believe rumors

• Out of funds.
• RD does not fund the guaranteed loans
• Very ample allocations (Recovery Act regular)
• If your lender stops funding if/when the RD
  allocation may be depleted, find another lender!
• The funding for the DIRECT loan product is very
  limited, is allocated quarterly, and depletes
  before years end.
• Do NOT confuse DIRECT with the GUARANTEED Loan
  that has a separate allocation.
• Customer cannot qualify for the 8,000 tax credit
• FALSE
• Cannot have in-ground swimming pool
• FALSE Again, amount is limited to value of the
  property without the pool
• Married couples must both qualify and be party to
  the promissory note.
• FALSE

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www.rurdev.usda.gov/fl/guarrhs.htm
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Resource Websites

• FL/VI RD www.rurdev.usda.gov/fl/guarrhs.htm
• Eligibility Website http//eligibility.sc.egov.us
  da.gov/
• FL/VI directory
• www.rurdev.usda.gov/fl
• National Web Site www.rurdev.usda.gov/rhs click
  on Guaranteed Home Loan Opportunities

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the end Thank you!