HUD 4155.1, Mortgage Credit Analysis For Mortgage

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HUD 4155.1Table of ContentsHUD 4155.1, Mortgage Credit Analysis for MortgageInsuranceChapter 1. Underwriting OverviewSection A. General Information on the Underwriting ProcessOverview .1. General Information on Underwriting and Credit Policy .2. Maximum Loan Limits, Mortgage Amounts and Mortgage Terms .3. Policies on Interest Rates and Related Fees .4. General Information on Mortgage Credit Analysis .5. Borrower Approval or Rejection .1-A-11-A-21-A-31-A-91-A-111-A-13Section B. Documentation RequirementsOverview .1. General Documentation Standards .2. Required Documents for Mortgage Credit Analysis .3. Mortgage Loan Application Document Processing .1-B-11-B-21-B-91-B-20Section C. Credit Reporting RequirementsOverview .1. Confidential Nature of Credit Information .2. General Information on Traditional and Non-Traditional Credit Reports .3. Three Repository Merged Credit Report (TRMCR) .4. Residential Mortgage Credit Report (RMCR) .5. Non-Traditional Credit Report (NTMCR) Requirements .1-C-11-C-21-C-31-C-61-C-81-C-9Chapter 2. Maximum Mortgage Amounts/Cash Investment Requirements on PurchaseTransactionsSection A. Calculating Maximum Mortgage Amounts on Purchase TransactionsOverview .1. Maximum Mortgage Amounts on Purchases .2. Calculating Maximum Mortgage Amounts on Purchases .3. Interested Third Party Contributions .4. Inducements to Purchase.5. Additions to the Mortgage Amount for Repair and Improvement .2-A-12-A-22-A-42-A-62-A-82-A-11Continued on Next Pagei

Table of ContentsHUD 4155.1HUD 4155.1, Mortgage Credit Analysis for MortgageInsurance, ContinuedSection B. Transactions Affecting Maximum Mortgage CalculationsOverview .1. General Information on Transactions Affecting Maximum MortgageCalculations.2. Identity of Interest Transactions .3. Non-Occupying Borrowers .4. Transactions Involving Three and Four Unit Properties.5. Loan Transactions for Building on Own Land .6. Loan Transactions for Paying Off Land Contracts .7. Transactions Involving Properties For Proposed Construction, Under Constructionor Existing Construction Less Than One Year Old .8. Manufactured Home Construction-Permanent Loans Chapter 3. Maximum Mortgage Amounts on Refinance TransactionsSection A. Refinance Transaction OverviewOverview .1. General Information on Refinance Transactions .3-A-13-A-2Section B. Maximum Mortgage Amounts on No Cash Out/Cash Out RefinanceTransactionsOverview .1. No Cash Out Refinance Transactions With an Appraisal .2. Cash Out Refinance Transactions .3-B-13-B-23-B-8Section C. Maximum Mortgage Amounts on Streamline RefinancesOverview .1. General Information on Streamline Refinances .2. Streamline Refinances Without an Appraisal .3. Streamline Refinances With an Appraisal (No Credit Qualifying) .3-C-13-C-23-C-33-C-7Chapter 4. Borrower Eligibility and Credit AnalysisSection A. Borrower Eligibility RequirementsOverview .1. Borrower, Coborrower, and Cosigner Eligibility Requirements .2. Eligibility for FHA-Insured Financing .3. Citizenship and Immigration Status .4. Living Trusts .5. Non-Purchasing Spouses .4-A-14-A-24-A-64-A-134-A-154-A-16Continued on Next Pageii

HUD 4155.1Table of ContentsHUD 4155.1, Mortgage Credit Analysis for MortgageInsurance, Continued6. Eligibility Requirements for Nonprofit Organizations and State andLocal Government Agencies.7. Using CAIVRS to Determine Eligibility for FHA Insured Mortgage Transactions4-A-184-A-21Section B. Property Ownership Requirements and RestrictionsOverview .1. General Information on Property Requirements and Restrictions .2. Eligibility Requirements for Principal Residences .3. Eligibility Requirements for Secondary Residences.4. Investment Property Eligibility and Underwriting Requirements .4-B-14-B-24-B-54-B-94-B-11Section C. Borrower Credit AnalysisOverview .1. General Guidelines for Analyzing Borrower Credit .2. Guidelines for Credit Report Review .3. Evaluating Non-Traditional Credit and Insufficient Credit .4. Borrower Liabilities: Recurring Obligations .5. Borrower Liabilities: Contingent Liability .6. Borrower Liabilities: Projected Obligations and Obligations Not ConsideredDebt .4-C-14-C-24-C-74-C-164-C-184-C-214-C-23Section D. Borrower Employment and Employment-Related IncomeOverview .1. Stability of Income .2. Salary, Wage and Other Employment Related Income .3. Borrowers Employed by a Family Owned Business .4. General Information on Self-Employed Borrowers and Income Analysis .5. Income Analysis: Individual Tax Returns (IRS Form 1040) .6. Income Analysis: Corporate Tax Returns (IRS Form 1120) .7. Income Analysis: “S” Corporation Tax Returns (IRS Form 1120S) .8. Income Analysis: Partnership Tax Returns (IRS Form 1065) 23Section E. Non-Employment Related Borrower IncomeOverview .1. Alimony, Child Support and Maintenance Income .2. Investment and Trust Income.3. Military, Government Agency, and Assistance Program Income .4. Rental Income .5. Non Taxable and Projected Income .4-E-14-E-24-E-44-E-74-E-104-E-15iii

Table of ContentsHUD 4155.1HUD 4155.1, Mortgage Credit Analysis for MortgageInsurance, ContinuedSection F. Borrower Qualifying RatiosOverview .1. General Information on Borrower Qualifying .2. Qualifying Ratios .3. Compensating Factors .4-F-14-F-24-F-34-F-6Chapter 5. Borrower Funds to CloseSection A. Settlement RequirementsOverview .1. General Information on Settlement Requirements .2. Settlement Requirements Needed to Close .5-A-15-A-25-A-3Section B. Acceptable Sources of Borrower FundsOverview .1. General Information on Acceptable Sources of Borrower Funds .2. Cash and Savings/Checking Accounts as Acceptable Sources of Funds .3. Investments as an Acceptable Source of Funds .4. Gifts as an Acceptable Source of Funds .5. Gift Fund Required Documentation.6. Property-Related Acceptable Sources of Funds .7. Loans and Grants as Acceptable Sources of Funds .8. Employer Programs as Acceptable Sources of Funds 6Section C. Borrower Secondary FinancingOverview .1. General Information on Secondary Financing .2. Government Agency Secondary Financing .3. Nonprofit Agency Secondary Financing .4. Organizations and Private Individuals Providing Secondary Financing .5. Family Member Secondary Financing .6. Secondary Financing for Borrowers 60 Years of Age or Older .5-C-15-C-25-C-45-C-75-C-105-C-125-C-16Continued on next pageiv

HUD 4155.1Table of ContentsHUD 4155.1, Mortgage Credit Analysis for MortgageInsurance, ContinuedChapter 6. Special UnderwritingSection A. Special Underwriting InstructionsOverview .1. FHA’s TOTAL Mortgage Scorecard .2. Temporary Interest Rate Buydowns .3. Construction Permanent Mortgage Program Eligibility Criteria .4. Construction Permanent Mortgage Program Requirements .5. Construction Permanent Mortgage Documentation Requirements forClosing and Endorsement .6. Mortgage Insurance for Disaster Victims .7. Energy Efficient Homes .8. Restriction on Advanced Mortgage Payments .9. Condominium Units Utility Expenses.10. HUD Real Estate Owned (REO) Acquisitions 286-A-296-A-30Section B. ARMsOverview .1. Terms and Definitions .2. General Information on ARMs .3. ARM Underwriting Requirements .4. Interest Rate Index .5. Calculating Interest Rate Adjustments .6. Computing Monthly Installment Payments .7. Annual Adjustment Notice Requirement .8. Failure to Provide a Timely/Accurate Annual Adjustment Notice .9. ARM Assumptions and Transfers of Servicing .10. Tracking ARMs 6-B-256-B-27Section C. Streamline RefinancesOverview .1. General Information on Streamline Refinances .2. Credit Qualifying Streamline Refinances .3. Streamline Refinance Borrower and Property Related Requirements .4. Types of Permissible Streamline Refinances .5. Establishing Net Tangible Benefit of Streamline Refinance .6-C-16-C-26-C-66-C-86-C-116-C-16Continued on next pagev

Table of ContentsHUD 4155.1HUD 4155.1, Mortgage Credit Analysis for MortgageInsurance, ContinuedSection D. Energy Efficient Mortgage ProgramOverview .1. General Information on the EEM Program .2. Basic EEM Program Requirements and Criteria .3. Home Energy Rating System (HERS) Report Requirements .4. Processing and Underwriting Requirements .6-D-16-D-26-D-66-D-126-D-15Section E. HOPE for Homeowners (H4H) ProgramOverview .1. General Information on the HOPE for Homeowners (H4H) Program .6-E-16-E-2Section F. Refinance of Borrowers in Negative Equity Positions ProgramOverview .1. General Information on the Refinance of Borrowers in Negative EquityPositions Program .6-F-2Chapter 7. Assumptions1. General Information on Assumptions .2. Creditworthiness Review for Assumptions .3. LTV Reduction Requirements for Assumptions .7-17-57-86-F-1Chapter 8. [TBD]Chapter 9. Glossary1. Glossary of Handbook Terms. 9-12. Acronyms . 9-10vi

HUD 4155.1Chapter 1, Section ASection A. General Information on the Underwriting ProcessOverviewContentsThis section contains the topics listed in the table below.Topic12345Topic NameGeneral Information on Underwriting andCredit PolicyMaximum Loan Limits, Mortgage Amountsand Mortgage TermsPolicies on Interest Rates and Related FeesGeneral Information on Mortgage CreditAnalysisBorrower Approval or RejectionSee Page1-A-21-A-41-4-91-4-111-A-131-A-1

Chapter 1, Section AHUD 4155.11. General Information on Underwriting and Credit PolicyIntroductionThis topic contains general information on underwriting and credit policy,including purpose of underwriting four C’s of credit, and the general credit policy.Change DateOctober 18, 20104155.1 1.A.1.aPurpose ofUnderwritingThe purpose of underwriting is to4155.1 1.A.1.bFour C’s ofCreditThe underwriter evaluates the four C’s of credit to determine a borrower’screditworthiness. determine a borrower’s ability and willingness to repay a mortgage debt tolimit the probability of default and collection actions, and examine the property offered as security to determine if it is sufficientcollateral.The four C’s of credit consist of a borrower’s credit history capacity to repay cash assets available to close the mortgage, and collateral.Continued on next page1-A-2

HUD 4155.1Chapter 1, Section A1. General Information on Underwriting and Credit Policy,Continued4155.1 1.A.1.cGeneral CreditPolicyFHA’s general credit policy requirements for underwriting a mortgagei

HUD 4155.1 Table of Contents i HUD 4155.1, Mortgage Credit Analysis for Mortgage Insurance Chapter 1. Underwriting Overview S