Email from Sue Botelho, Senior Mortgage Advisor Waterstone Mortgage Corp
Over the past 4-6 weeks, all we have been focusing on is TRID, TRID and more TRID.
From NAR: In November 2013, the Consumer Financial Protection Bureau (CFPB) integrated the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations. Any transaction involving a mortgage will use new CFPB disclosure forms. The new TRID forms were to be implemented on August 1, 2015. However, on July 21, 2015, after calls from NAR and other industry groups, CFPB officially announced that the effective date of the implementation of the rule was delayed until October 3, 2015.
This TRID is very important and needs our focus. HOWEVER…
While we were throwing our full attention into TRID and focusing on closing our transactions, FHA completely re-wrote their handbook (aka Guideline Book). They even re-named it! Unfortunately, most of the changes are not positive. I am going to list for you the most important changes you need to be aware of, and spare you the details by providing a Cliff’s Notes version.
You need to be aware of these FHA changes because there will be many Loan Originators across the industry who will fail to fully understand the details and will make mistakes. These mistakes could very well cause transactions to fall through; this is every reason why your clients need to work with lenders you know, like and trust. And before you ask, no, the answer is not to stop doing FHA mortgages. FHA mortgages are needed. They serve those with average credit (not bad credit, average to good credit), those with high debt to income ratios, those with minimum down payments and those with recent adverse credit (short-sale, foreclosure or bankruptcy) among other things. Here is a list of some of the most glaring changes that went into effect Monday, the 14th of September:
STUDENT LOANS: Even if the student loan is deferred, we must use a payment against the buyer for qualification purposes.
- Conventional has already gone to this; however, not counting deferred student loan debt used to be a benefit of going FHA
LARGE DEPOSITS: More scrutiny is going to be put on large deposits into a buyer’s bank account.
GIFT FUNDS: When the buyer is receiving a gift for down payment, the person gifting the money will have to provide a copy of their bank statement and any large deposits in the donor’s account could require sourcing / documenting.
GIFT FUNDS: When gift funds are being used, the relationship between the person gifting the money and the buyer will need to be verified family (no cousins allowed).
NON-TAXABLE INCOME: When working with a buyer with non-taxable income (i.e. Social Security Income, Child Support) the income may now be grossed up by 15% (previously 25%).
SELF EMPLOYED INCOME: If the self-employed income drops by 20% from prior year to most recent year, the loan will be underwritten using stricter guidelines.
FREQUENT JOB CHANGES: Changing jobs 3 or more times in a year will place more scrutiny on the buyer’s ability to obtain FHA financing. Also, the same applies to career changes (one industry to another). Buyers should expect more documentation requested.
- If appliances are being conveyed (left from seller to buyer), the appraiser must operate all appliances and observe their performance.
- If a swimming pool is being used to obtain full home value, the pool must be fully operational.
The most important take away from today’s message is that FHA has made major changes to how they underwrite and make credit decisions. Some of these changes bring them in line with conventional financing, which is typically deemed the most conservative with underwriting and credit decisions. All in all, be sure your buyer’s are working with a lender you trust to be on the ball with all program changes, not just FHA.
As always, my team and I are available to help you, those you know and your clients.
Thanks Sue for giving this information to us and allowing me to publish it to on our web page for all to read.