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Shane's Info Packed Mortgage Blog

Mortgage Information Out the Wazoo!

By Shane Milne | Mortgage Broker
or Lender in Laguna Niguel, CA
  • Foreclosure Laws: State by State, Recourse or Non-Recourse

    Posted Under: Financing in California, Foreclosure in California  |  January 27, 2014 12:52 PM  |  1,473 views  |  No comments
    I have been looking for a short, informative description of the foreclosure rights of a lender for each state, and while there has been what seems to be some pretty good descriptions across the internet, the validity of such information is tough to gauge as it usually does not cite it's sources.  I have come across specific information from the Federal Housing Finance Agency that I am copying & pasting into this blog.  Check that previous hyperlink for the original source, it's actually a report on theory & evidence on residential mortgage default & recourse options for lenders (pretty interesting read).

    Alabama: Lenders may foreclose through either a judicial or a non-judicial procedure. State law permits deficiency judgments without signiÂ…cant restrictions. We classify Alabama as a RECOURSE state. The borrower retains a right of redemption for one year after foreclosure. The relevant statutes are in section 35-10 of the Alabama Code.

    Alaska: Lenders may foreclose through either a judicial or a non-judicial procedure. The usual Â…nancing instrument is a deed of trust and non-judicial foreclosure is the usual foreclosure process. State law permits deficiency judgments only if the lender pursues judicial foreclosure under the promissory note, no separate "deficiency judgment" is entered. The property sold at a judicial sale is subject to a right of redemption, and the redemption period is 12 months. As judicial foreclosure is substantially more time consuming and cumbersome, we classify Alaska as a NON-RECOURSE state. The relevant statutes are in Title 34, Ch. 20, Section 100 of the Alaska Statutes.

    Arizona: Lenders may foreclose through either a judicial or a non-judicial procedure. The usual Â…nancing instrument is a deed of trust and non-judicial foreclosure is the usual foreclosure process. Deficiency judgments are not permitted if the property is residential and on 2.5 acres or less and its intended use was for a one-family dwelling or two-family dwelling. We classify Arizona as a NON-RECOURSE state. The relevant statute is Article 33 of the Arizona State Code.

    Arkansas: Lenders may foreclose through either a judicial or a non-judicial procedure. Lenders usually foreclose on a deed of trust through a non-judicial procedure. State law permits deficiency judgments with the restriction that borrowers must receive credit for the greater of the foreclosure sales price or the fair market value of the property. We classify Arkansas as a RECOURSE state. The relevant statutes are in sections 18-50-212 and 18-50- 216 of the Arkansas Code.

    California: Lenders may foreclose through either a judicial or a non-judicial procedure. Non-judicial foreclosure is the usual foreclosure process. The borrower has Â…five days to reinstate in a non-judicial foreclosure process. State law prohibits deficiency judgments on purchase mortgages. On other residential mortgages, state law permits deficiency judgments only if the lender pursues the more expensive and time-consuming judicial foreclosure process rather than the non-judicial foreclosure process. The lender may only fiÂ…le for a payment of the difference between the debt owed and the fair market value of the property. A deficiency suit also gives the borrower a right to redemption. We classify California as a NON-RECOURSE state. The relevant statutes are in sections 2920-2944.5 of the California Code.

    Colorado: Lenders may foreclose through either a judicial or a non-judicial procedure. Non-judicial foreclosure is the norm. State law permits deficiency judgments. However, judges require lenders to bid fair market value on the property in the event that total debt owed exceeds the property value less reasonable expenses; if the borrower can show that lenders bid less than fair market value, the borrower can avoid a deficiency judgment. After the sale there is a redemption period of 75 days. There are no unreasonably burdensome statutory limitations on either Â…filing or collecting on a deficiency or collection. We classify Colorado as a RECOURSE state. The relevant statutes are Title 38, Articles 37-39 of the Colorado Revised Statutes.

    Connecticut: Lenders may foreclose only through one of two judicial procedures. The two procedures are a strict foreclosure and a decree of sale foreclosure. State law permits deficiency judgments under both procedures; however, if the lender pursues decree of sale foreclosure the lender must …first credit the borrower with one-half the difference between the debt and the appraised value if the property is sold pursuant to a court-order and the property sells for less than the appraised value. In strict foreclosure, the judge determines the fair market value of the property for which the borrower receives credit; a motion for deficiency  judgment must be …led within 29 days of title vesting. There is no statutory deadline to fi…le the motion for de…ciency judgment after foreclosure-by-sale. We classify Connecticut as a RECOURSE state. The relevant statutes are sections 49-14 and 49-28 of the General Statutes of Connecticut.

    Delaware: Lenders may foreclose only through a judicial procedure. State law permits deficiency judgments without signiÂ…cant restrictions. We classify Delaware as a RECOURSE state. The relevant statute is Title 10, Ch. 49:XI of the Delaware Code.

    District of Columbia: Lenders may only foreclose through a non-judicial procedure. At any time within thirty days after the time limit for redemption has expired, any party to a mortgage foreclosure may fiÂ…le a motion seeking a deficiency judgment. We classify the District of Columbia as a RECOURSE district. The relevant statute is Title 42, Ch. 8 of the District of Columbia Code.

    Florida: Lenders may foreclose only through judicial foreclosure. State law permits deficiency  judgments subject to the borrower receiving credit for the greater of fair market value of the property or the foreclosure sale price. A deficiency judgment can be pursued against the original makers of a note even if they were not a party to the foreclosure action. However, Florida has an extremely generous homestead exemption such that if the property is an investment property, rather than a primary residence, the borrower can partially shield his or her assets from collection on the de…ciency. We classify Florida as a RECOURSE state. The relevant statutes are Title 40, Ch. 702 of the Florida Statutes.

    Georgia: Lenders may foreclose through either a judicial or a non-judicial procedure. Non-judicial foreclosure is the usual process. A prerequisite to a deficiency judgment is that the court has conÂ…rmed and approved the sale which in turn requires that the sale price was equal to at least the fair market value of the property. The lender must receive such confirmation and approval within 30 days of the foreclosure sale. There is no right of redemption. We classify Georgia as a RECOURSE state. The relevant statutes are in Title 44, Ch. 14 of the Official Code of Georgia.

    Hawaii: Lenders may foreclose through either a judicial or a non-judicial procedure. A judicial foreclosure takes 320 days; non-judicial takes 195 days if uncontested. State law permits deficiency judgments if the lender pursues judicial foreclosure. The deficiency judgment process, if not contested, is fairly inexpensive. We classify Hawaii as a RECOURSE state. The relevant statutes are Ch. 667-5 and Ch. 667-38 of the Hawaii Revised Statutes.

    Idaho: Lenders may foreclose through either a judicial or a non-judicial procedure although judicial foreclosure is exceptionally rare. State law permits a deficiency judgment provided one is Â…led within 90 days of the foreclosure sale. The deficiency is limited to the difference between the balance owed and the fair market value of the property. The deficiency judgment process is onerous in practice since the lender must prove fair market value and the borrower can contest the fair market value of the property. We classify Idaho as a RECOURSE state. The relevant statutes are in Idaho Statutes, Title 45, Ch. 15, section 45.12.

    Illinois: Lenders may foreclose only through judicial foreclosure. State law permits deficiency  judgments provided the borrower is personally served with the deficiency suit. Furthermore, a judge must con…rm the sale and, according to chapter 735, article XV, section 15-1508, the judge may opt to not con…firm the sale on the grounds that “justice was not otherwise done”. In practice, this means that is at the discretion of the judge whether to grant a deficiency judgment and judges rarely grant deficiency judgments on residential property. We decided to classify Illinois as a RECOURSE state as the possibility of personal recourse may be sufficient to deter some strategic defaulters even if deficiency judgments are rarely granted. The relevant statutes are in chapter 735, article XV of the Illinois Compiled Statutes.

    Indiana: Lenders may foreclose only through judicial foreclosure which optimally takes 266 days if uncontested. State law permits deficiency judgments on residential properties without signiÂ…cant restrictions. The borrower must be served in person which is not a signiÂ…cant restriction in practice. We classify Indiana as a RECOURSE state. The relevant statutes are in Article 29, chapter 7 of the Indiana State code.

    Iowa: Lenders may foreclose only through judicial foreclosure. State law permits deficiency  judgments on non-agricultural residential properties. However, seeking a deficiency judgment signi…cantly delays the foreclosure process. Furthermore, there is a two year statute of limitations on collecting on the deficiency judgment and generous limits on garnishment of wages. The law makes it much faster to foreclosure on property if the lender waives the right to a deficiency judgment. Because de…ciencies are hard to collect in Iowa, lenders may even compensate the borrower who agrees to vacate the property fast by paying the …first month of rent on new housing. We classify Iowa as a NON-RECOURSE state. The relevant statute is Ch. 654.6 of the Iowa code. There was a bill pending that may change the foreclosure laws signi…cantly as of March 2009.

    Kansas: Lenders may foreclose only through judicial foreclosure. Following a foreclosure sale, a deficiency judgment is automatically entered if the sale proceeds less expenses are not sufficient to cover the debt owed. The borrower may contest the deficiency if the foreclosure sales price was less than the fair market value of the property. Kansas is unusual as redemption rights can be sold to third parties such that if the lender bids substantially less for the property than its fair market value, the holder of the redemption rights may obtain the property at signiÂ…cantly below market value. Further, second lien holders lose the right to a deficiency if they do not ask for a foreclosure themselves. We classify Kansas as a RECOURSE state. The relevant statute is Ch. 60, 2417 of the Kansas Statutes.

    Kentucky: Lenders may foreclose only through judicial foreclosure. Following a foreclosure sale, a deficiency judgment is automatically entered if the sale proceeds less expenses are not sufficient to cover the debt owed. There are no signiÂ…cant restrictions. We classify Kentucky as a RECOURSE state. The relevant statutes are in Ch. 426 of the Kentucky Revised Statutes.

    Louisiana: Lenders may foreclose only through judicial foreclosure. State law permits deficiency judgments on residential properties without signiÂ…cant restrictions. We classify Louisiana as a RECOURSE state. The relevant statutes are in Title 10:9-629 of the Louisiana Code.

    Maine: Lenders may foreclose only through judicial foreclosure. State law permits deficiency  judgments on residential properties provided the lender credits the borrower’s account for fair market value of the property. We classify Maine as a RECOURSE state. The relevant statutes are in Title 14, part 4, Ch. 403 of the Revised Maine Statutes.

    Maryland: Lenders may foreclose through either a judicial or a non-judicial procedure. State law permits deficiency judgments on residential properties without signiÂ…cant restrictions. We classify Maryland as a RECOURSE state. The relevant statutes are in the Maryland Rules, Title 14, Ch. 200.

    Massachusetts: Lenders may foreclose through either a judicial or a non-judicial procedure. State law permits a deficiency judgment provided that the lender gives the borrower notice in writing prior to the foreclosure sale that he or she intends to pursue a deficiency. We classify Massachusetts as a RECOURSE state. The relevant statutes are in Ch. 244 of the General Laws of Massachusetts.

    Michigan: Lenders may foreclose through either a judicial or a non-judicial procedure. There is typically a six month redemption period after the completion of a non-judicial foreclosure. State law permits a deficiency judgment without signiÂ…cant restrictions in the case of judicial foreclosure; in the case of non-judicial foreclosure, the borrower can contest the deficiency if the property sold for substantially less than the fair market value of the property. We classify Michigan as a RECOURSE state. Michigan Compiled Laws, Ch. 451; EPIC Act 236, Sections 600 and 700.

    Minnesota: Lenders may foreclose through either a judicial or a non-judicial procedure although in the vast majority of cases lenders foreclose through a non-judicial process. There are substantial redemption rights in Minnesota. In particular, the mortgagor is entitled to a six- or twelve-month period after the foreclosure sale. The mortgagor is entitled to possession of the property and the lender has limited right to enter the property. The redemption period can be shortened to 6 months if certain conditions are met. A separate court procedure is required to shorten the redemption period to 5 weeks if the residential property is deemed “abandoned” and of less than 5 units and is on less than 10 acres. Thus, including the redemption period the optimum time-frame for non-judicial foreclosure is 270-280 days. In the event the lender forecloses by advertisement, state law prohibits deficiency judgments. In judicial foreclosure, the lender may obtain a deficiency judgment subject to the borrower receiving credit for the fair market value of the property. The fair market value of the property is determined by a jury. Because judicial foreclosure is substantially more onerous than the non-judicial procedure, lenders pursue non-judicial foreclosure in the vast majority of cases. We classify Minnesota as a NON-RECOURSE state. The relevant statutes are in 580 and 582 of the 2008 Minnesota Statutes and, particularly, 582.2, subdivision 2.

    Mississippi: Lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process. State law permits a deficiency judgment provided the lender Â…files for one within one year of the foreclosure sale date. If a mortgagee participates in foreclosure sale auction, his bid must pass a judicial standard of reasonableness. We classify Mississippi as a RECOURSE state. The relevant statutes are in section 89-1-305 of the Mississippi State Code.

    Missouri: Lenders may foreclose through either a judicial or a non-judicial procedure. The state has a statutory right of redemption, but a burden on the borrower is prohibitively heavy and this right can be rarely exercised. In the case of non-judicial foreclosure sale a separate court action must be Â…led to obtain a deficiency judgment but there are no other signiÂ…cant restrictions on obtaining a deficiency judgment. We classify Missouri as a RECOURSE state. The relevant statutes are in the Missouri Revised Statutes, Chapter 141 sections 400-590.

    Montana: Lenders may foreclose through either a judicial or a non-judicial procedure. DeÂ…ficiency judgments are prohibited on purchase mortgages by title 71, chapter 1-232 of the
    Montana Code Annotated. Deficiency judgments are permitted on other types of residential mortgages only if the lender pursues judicial foreclosure; however, judicial foreclosure is often impractical because the grantor is entitled to a one year right of redemption. The non-judicial foreclosure process is also substantially less complicated and costly. We classify Montana as a NON-RECOURSE state. The relevant statutes are in title 71, chapter 1 of the Montana Code Annotated.

    Nebraska: Lenders may foreclose through either a judicial or a non-judicial procedure. Lenders may obtain a deficiency judgment; however, the borrower must receive credit for the fair market value of the property and the deficiency must be fiÂ…led for within 90 days of the foreclosure sale by non-judicial foreclosure and within 5 years in case of judicial foreclosure. We classify Nebraska as a RECOURSE state. The relevant statutes are in the Nebraska Revised Statutes Chapter 76-1013.

    Nevada: Lenders may foreclose through either a judicial or a non-judicial procedure. Usually properties are foreclosed through a non-judicial procedure. A deficiency judgment can be obtained; however, the borrower must receive credit for the greater of the fair market value of the property, as determined through a hearing, or the foreclosure sale price. The lender must Â…file for a deficiency judgment with 90 days of the foreclosure sale. We classify Nevada as a RECOURSE state. The relevant statutes are in the Nevada Revised Statutes, chapters 40, 106, and 107.

    New Hampshire: Lenders may foreclose through either a judicial or a non-judicial procedure. Almost all properties are foreclosed non-judicially. There are no signiÂ…cant restrictions on deficiency judgments. We classify New Hampshire as a RECOURSE state. The relevant statutes are in Title 38, chapter 479 of the New Hampshire Revised Statutes.

    New Jersey: Lenders foreclose through a judicial process. State law permits deficiency  judgments but the borrower must be given credit for the fair market value of the property and must be brought within three months of the foreclosure sale. The pursuit of a deficiency  judgment extends the redemption period from 10 days to 6 months. We classify New Jersey as a RECOURSE state. The relevant statutes are in the New Jersey Permanent Statutes Title 2A, section 50.

    New Mexico: Lenders foreclose on residential properties through a judicial process. Deficiency judgments on mortgages and deeds of trust other than those used to Â…nance low-income housing can be obtained and there are no signiÂ…cant restrictions. We classify New Mexico as a RECOURSE state. The relevant statutes are in Ch. 48, Articles 48-7-1 to 48-7-24 and Articles 48-10-1 to 48-10-21 of the New Mexico Statutes Annotated.

    New York: Lenders may foreclose through either a judicial or a non-judicial procedure, although non-judicial foreclosure is exceptionally rare. State law permits a deficiency judgment provided that the lender submits a request for a deficiency judgment within 90 days of Â…filing the foreclosure suit. However, the borrower receives credit for the greater of the foreclosure sale price or the fair market value of the property. The judge usually sides with the borrower regarding the fair market value of the property. A typical deficiency judgment is relatively expensive. We classify New York as a RECOURSE state. The relevant statutes are in Article 13 of the New York State Consolidated Laws.

    North Carolina: Lenders may foreclose through either a judicial or a non-judicial process. Ch. 45, Article 2B, section 21.38 of the North Carolina General Statutes prohibits deficiency  judgments on purchase mortgages. We classify purchase mortgages in North Carolina as NON-RECOURSE. Deficiency judgments are permitted on other types of residential mortgages but the borrower has the right to contest the deficiency judgment such that he or she receives credit for the fair market value of the property. The deficiency judgment must be fi…led within 1 year. North Carolina law does not permit garnishment of wages to collect debt. We classify non-purchase mortgages in North Carolina as RECOURSE. The relevant statutes are sections 21.36 and 21.38 of Article 2B in Ch. 45 of the North Carolina General Statutes.

    North Dakota: Lenders foreclose through a judicial process. Chapter 32-19-01 of the North Dakota Century Code prohibits deficiency judgments on residential properties. There is a provision for so called deÂ…ciency mortgages but the value must be determined by a juror trial and is not pursued in practice. We classify North Dakota as a NON-RECOURSE state.

    Ohio: Lenders may foreclose only through judicial foreclosure. If the debt is greater than the foreclosure sales price plus reasonable expenses, a deficiency judgment is automatic. However, lenders have only two years to collect on the deficiency. We classify Ohio as a RECOURSE state. The relevant statutes are in the Ohio Revised Code, section 2329.08.

    Oklahoma: Lenders may foreclose through either judicial or non-judicial foreclosure. The optimum time-frame for non-judicial foreclosure is 201 days. Lenders may only receive a deficiency judgment if they pursue non-judicial foreclosure and the borrower must receive credit for the greater of the fair market value or the foreclosure sale price. The lender must fiÂ…le for a deficiency judgment within 90 days of the foreclosure sale. We classify Oklahoma as a RECOURSE state. The relevant statute is Title 12, Chapter 12, section 686 of the Oklahoma Statutes Citationized.

    Oregon: Lenders may foreclose through either a judicial or a non-judicial procedure. Lenders can generally not obtain a deficiency judgment on a residential property. We classify Oregon as a NON-RECOURSE state.

    Pennsylvania: Lenders foreclose through a judicial procedure. Pennsylvania Law permits the lender to Â…file for a deficiency judgment through a separate suit from the foreclosure but the borrower must receive credit for the fair market value of the property. The deficiency suit must be brought within six months of the foreclosure sale. We classify Pennsylvania as a RECOURSE state. The relevant statute is the Pennsylvania DeÂ…ciency Judgment Act, Chapter 81 Section 8103 of the Pennsylvania Consolidated Statutes.

    Rhode Island: Lenders may foreclose through either a judicial or a non-judicial procedure. DeÂ…ficiency judgments can be obtained and there are no signiÂ…cant restrictions. We classify Rhode Island as a RECOURSE state. The relevant statutes are in Ch. 34-27 of the Rhode Island General Laws.

    South Carolina: Lenders foreclose through a judicial procedure. State law permits deficiency judgments subject to the restriction that the borrower receive may present a motion to receive credit for the fair market value of the property. In such a circumstance, the borrower, judge, and lender all hire appraisers to determine the fair market value of the property. We classify South Carolina as a RECOURSE state. The relevant statutes are in Title 29, Ch. 3, Article 7 of the South Carolina Code of Laws.

    South Dakota: Lenders may foreclose through either a judicial or a non-judicial procedure. State law permits deficiency judgments provided the borrower is credited for the fair market value of the property. We classify South Dakota as a RECOURSE state. The relevant statutes are in ch. 21-47 of the South Dakota CodiÂ…ed Laws.

    Tennessee: Lenders may foreclose through either a judicial or a non-judicial procedure although lenders seldom use the judicial foreclosure process. State law permits deficiency judgments without signiÂ…cant restrictions. We classify Tennessee as a RECOURSE state. The relevant statutes for non-judicial foreclosure are Title 21, Ch. 1, Section 803 of the Tennessee Code.

    Texas: Lenders may foreclose through either a judicial or a non-judicial procedure. The lender must foreclose on a home equity loan through a judicial foreclosure process, however. State law permits deficiency judgments subject to the borrower receiving credit for the fair market value of the property. However, Texas has a nearly unlimited homestead exemption such that lenders have less recourse on mortgages backed by investment properties if the borrowerÂ’s primary residence is also in Texas. We classify Texas as a RECOURSE state. The relevant statutes are in Title 5, Section 51 of Texas Statutes.

    Utah: Lenders may foreclose through either a judicial or a non-judicial procedure. State law permits deficiency judgments without signiÂ…cant restrictions. We classify Utah as a RECOURSE state. The relevant statutes are in Title 38, Ch.1-16 and Title 57, Ch. 1 of the Utah Code.

    Vermont: Lenders may foreclose through either a judicial or, if the mortgage contains a power of sale clause, a non-judicial procedure. The norm, however, is judicial foreclosure. State law permits deficiency judgments with no signiÂ…cant restrictions. We classify Vermont as a RECOURSE state. The relevant Vermont Statutes are in Title 12, Chapter 163.

    Virginia: Lenders may foreclose through either a judicial or non-judicial process. State law permits deficiency judgments with no signiÂ…cant restrictions. We classify Virginia as a RECOURSE state. The relevant statutes are in Title 8.9A Part 6 and Title 55, Ch. 4 of the Code of Virginia.

    Washington: Lenders may foreclose through either a judicial or non-judicial process. If the lender wishes to pursue a deficiency judgment, however, it must pursue judicial foreclosure and pursuit of a deficiency judgment triggers a 12 month right of redemption. Furthermore, the judicial foreclosure process is substantially more time-consuming than the non-judicial process. Deficiency judgments can also not be obtained if the property has been abandoned for six months or more which we view as one way a strategic defaulter could evade a deficiency judgment relatively easily. We classify Washington as a NON-RECOURSE state. The relevant statutes are in Title 61, Ch. 61-12 of the Revised Code of Washington.

    West Virginia: Lenders may foreclose through either a judicial or non-judicial process. West Virginia permits deficiency judgments without signiÂ…cant restrictions. We classify West Virginia as a RECOURSE state. The relevant statutes are in Articles 1 and 16 of Ch. 38 of the West Virginia Code.

    Wisconsin: Lenders foreclose through a non-judicial process. A deficiency judgment must be fiÂ…led at the time the foreclosure action starts. A waiver of a deficiency judgment may reduce a redemption period of 12 months to 6 months, and a redemption period of 6 months to 3 months. The redemption period depends on a number of characteristics including parcel size. We classify Wisconsin as a NON-RECOURSE state. The relevant statutes can be found in Wisconsin Statutes and Annotations, Ch. 846.

    Wyoming: Lenders may foreclose through either a judicial or non-judicial process. The lender generally bids the lesser of the debt owed or the fair market value for the property at a foreclosure sale. State law permits deficiency judgments without signiÂ…cant restrictions. We classify Wyoming as a RECOURSE state. The relevant statutes are in Title 34, Ch. 4 of the Wyoming Statutes.

    Shane Milne | Loan Officer in Orange County, CA | NMLS #81195
    TheBestHomeLoans.com | About Shane & Client Testimonials
    Direct local #: 949-273-4161
  • FHA Revises Manual Underwriting Requirements

    Posted Under: Home Buying in California, Financing in California, Credit Score in California  |  January 27, 2014 12:15 PM  |  1,474 views  |  No comments

    One of the initial steps a loan officer takes when pre-approving someone for an FHA mortgage is to get an automated underwriting approval through the automated underwriting system (AUS).  The AUS is a analytical program that is accessed via the internet, it analyzes credit, income, down payment, and credit history/scores amongst other items.  It does this all in about 10-15 seconds after the loan officer hits the "submit" button.  Most of the time it comes back as an "Approve" or "Accept" (same thing) recommendation and it makes the approval process a lot easier, however there are some times when it comes back as a "Refer" recommendation, which means your loan can still get approved but it's more than likely going to require a human being underwriter to review it in order to make that decision (this is called "manual underwriting").  When your loan needs to be manually underwritten there are certain tighter qualification guidelines that are to be met, including but not limited to a lower debt ratio, cleaner credit history, and any other areas that an underwriter feels you need to be "strong" in.

    On January 21st, HUD came out with revised manual underwriting guidelines which they published in a 17-page mortgagee letter (which are official notifications regarding FHA loans) which can be viewed in full at http://portal.hud.gov/hudportal/documents/huddoc?id=14-02ml.pdf.


    The biggest changes from previous policy are:

    1.  Required amount of reserves
    2.  Maximum debt to income ratios

    Reserves

    For 1-2 unit properties, there must be at least 1 month of reserves (funds you still have after closing).  For 3-4 unit properties, there must be at least 3 months of reserves.  It is calculated on the total housing payment (principal, interest, taxes, insurances & HOA dues if applicable).  i.e. if P&I is $1,000, taxes are $200, insurance is $50, and HOA dues are $50 then that totals $1,300, so a 1 month reserve would equal $1,300.

    Debt to income ratio

    Maximum debt ratios are based on credit scores & compensating factors.

    • For scores of 580 & below (including no credit scores), the maximum housing debt ratio cannot exceed 31% and the total debt ratio cannot exceed 43% (for energy efficient mortgages (EEM) it's 33/45%).
    • For scores of 580 & above, with no compensating factors, the debt ratios also cannot exceed 31/43% (33/45% for EEM's).
    • For scores of 580 & above, with 1 compensating factor, the debt ratios cannot exceed 37/47%.
    • For scores of 580 & above, with 2 compensating factors, the debt ratios cannot exceed 40/50%.
    • For scores of 580 & above, who have at least 6 months of credit history & no discretionary debt (meaning no other debt, and all debt has been paid off within the month it's due for the past 6 months), the debt ratios cannot exceed 40/40% (since there is no other debt, the housing ratio will be the same as the total debt ratio).  No compensating factors are needed.

    Acceptable compensating factors are:

    1. Verified and documented cash reserves that equal or exceed three total monthly mortgage payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units);
    2. New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment (in cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous twelve months).
    3. Verified and documented significant additional income that is not considered effective income (such as income from a 2nd job that has only been held for a short period of time, bonus income that has not been received for at least 2 years, child support that does not have 3 years left, etc.); can only be used as a 2nd compensating factor, and
    4. Residial income (same guideline as VA mortgages have, the information is quite extensive and can be found within pages 14-16 in the mortgagee letter)

    Previously (and still currently as of this post), nearly all lenders restrict manually underwritten FHA loans to no more than a 31% housing ratio & 43% total debt ratio, but this new guidance will allow lenders to confidently approve debt ratios higher than those if it abides by the new guidelines.  Also, we do not see many lenders requiring reserves for manually underwritten FHA loans (except for 3-4 unit properties which have always required at least 3 months reserves), so that will be changing in a few months (4/21/14) as well.  How many lenders will start allowing higher debt ratios at that time?  I imagine at first just a small percentage, then as time goes by we'll see more and more lenders adapt to the new guidelines.  The reserve requirement on 1-2 units will be imposed immediately on new FHA case #'s assigned on or after 4/21/14 though, since that is more restrictive than what most lenders are currently going by.

    Overall I feel this will allow more people to qualify when it comes to needing to be manually underwritten for an FHA loan.

    Shane Milne | Loan Officer in Orange County, CA | NMLS #81195
    TheBestHomeLoans.com | About Shane & Client Testimonials
    Direct local #: 949-273-4161

  • Fannie Mae Guideline Changes (short sales, DU Refi+ Making Home Affordable, no more 3% down)

    Posted Under: Home Buying in California, Financing in California, Foreclosure in California  |  August 22, 2013 7:11 PM  |  3,116 views  |  8 comments
    Fannie Mae just announced some pretty big changes which will be effective on new loans run through their automated underwriting system starting on 11/16/13.

    https://www.fanniemae.com/content/release_notes/du-do-release-notes-11162013.pdf has the fine print, but the big changes are:

    1. No more 3% down purchases.
    2. Treatment of short sale & deed-in-lieu of foreclosure reporting by creditors has been clarified.
    3. Borrower's who are doing the DU Refi+ (Making Home Affordable) refinance program and have had a prior bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale will no longer have to abide by the standard waiting period requirements.

    Note, DU is short for DesktopUnderwriter which is the automated underwriting system that the majority of Fannie Mae loan programs need to be approved through.  Mortgage lenders use DesktopUnderwriter, whereas mortgage brokers normally use DesktopOriginator (DO).  These changes are for loans run through either DU or DO.

    No more 3% down purchases
    Currently with Fannie Mae loan programs you can put down just 3% on a 1-unit primary residence (PMI companies are requiring a 680 score for 3% down though), however come 11/16/13 Fannie Mae will be increasing the required down payment to 5%.  Majority of lenders just need a 620 score for a 5% down payment.

    Treatment of preforeclosure sale (PFS) (which is a fancy way of saying a short sale) & deed-in-lieu of foreclosure (DIL) reporting by creditors has been clarified
    Fannie Mae has been made aware that there are often inconsistencies in the credit data when DIL and PFS events occur, and in an effort to assist borrowers in obtaining a new loan in an appropriate timeframe, DU will be updated to disregard the foreclosure information on the credit report when instructed to do so by the lender on the online loan application.  What this means is that the underwriter (or loan officer) can manually edit the trade line data that is being read by Fannie Mae's DU and indicate that a mortgage that was incorrectly marked as a foreclosure will be correctly viewed as a short sale or deed-in-lieu.  This is huge because many lenders mark short sales or deed-in-lieu's as having been in foreclosure, either by adding a foreclosure remarks code or adding a MOP (Manner of Payment) of 8 or 9.  Now the borrower does not need to contact and argue with the prior lender that they are reporting the information incorrectly and getting them to change the remarks codes or MOP's... the underwriter or loan officer can just override the data and enter in that it was a short sale or deed-in-lieu instead.

    Borrower's who are doing the DU Refi+ (Making Home Affordable) refinance program and have had a prior bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale will no longer have to abide by the standard waiting period requirements
    Currently if you are trying to refinance under the Making Home Affordable Refinance Program (HARP) and your loan is owned by Fannie Mae, you have two options which are "DU Refi+" (sometimes referred to as DURP) or "Refi+".  Refi+ is really only done through the existing lender, and gives much more flexibility in terms of credit and will actually ignore if there has been a prior bankruptcy, foreclosure, deed-in-lieu or preforeclosure (AKA a short sale) because the loan is manually underwritten.  DU Refi+ is run through Fannie Mae's automated underwriting system (called DesktopUnderwriter, or DU for short) and is the option that a new lender almost always chooses (they also have the option to do Refi+ but since it's manually underwritten I haven't ever seen a new lender willing to do that).  However on 11/16/13 DU Refi+ will also ignore the standard waiting period and re-establishment of credit criteria following a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or preforeclosure sale.  What this means it that currently if someone had a foreclosure 3 years ago, and they wanted to refinance with the HARP program and their loan is owned by Fannie Mae, they would have to use their existing lender since the foreclosure isn't at least 7 years old... however with the new change they would be able to utilize any new lender who is offering the HARP program.  You can use the website https://knowyouroptions.com/loanlookup to see if Fannie Mae currently owns your mortgage.

    To recap ... a minimum 5% down payment will be needed, it'll be easier for people who have had a prior short sale or deed-in-lieu of foreclosure to qualify to buy a new home with Fannie Mae loan programs, and people whose current mortgages are owned by Fannie Mae and need to utilize the HARP program will have an easier time if they've had a prior foreclosure, bankruptcy, short sale or deed-in-lieu of foreclosure.

    Shane Milne | Loan Officer in Orange County, CA | NMLS #81195
    TheBestHomeLoans.com | About Shane & Client Testimonials
    Direct local #'s: 949-273-4161 or 646-257-4842

  • FHA changing collection account, judgments & disputed account guidelines

    Posted Under: Home Buying in California, Financing in California, Credit Score in California  |  August 16, 2013 12:27 PM  |  2,329 views  |  No comments

    A new FHA mortgagee letter came out yesterday that sets new guidelines for dealing with collection accounts, judgments & disputed trade lines on credit.

    The full mortgagee letter can be found at http://portal.hud.gov/huddoc/13-24ml.pdf with http://portal.hud.gov/huddoc/13-25ml.pdf as a follow up (pretty much just says the same thing as the first one).

    The effective date of these changes are for new FHA case #'s pulled on or after 10/15/13.  You cannot have an FHA case # pulled unless you have a property idenitified (on a refinance that is easy since you already own the property, but on a purchase you need to have an accepted offer on property) and FHA case #'s do not transfer from property to property, they stick with the same property.


    The changes are:

    If the loan is being manually underwritten (does not apply to loans that receive an Approve/Accept), then an explanation for all owing collections & judgments is needed. Currently nearly all underwriters are requiring an explanation anyway, however this clarifies that an explanation is mandatory and is no longer up to underwriter's discretion.  The letter will be used to determine if the collections or judgments were from the borrower’s disregard for financial obligations, the borrower’s inability to manage debt or extenuating circumstances.  If the loan receives an Approve/Accept response from the automated underwriting system (for FHA loans the automated underwriting system is called FHA TOTAL) then this policy does not apply, but even in the situation of an Approve/Accept most underwriter's still require letters of explanation for derogatory credit (that is still being left to underwriter's discretion though).


    Regardless if the loan is being manually underwritten or has an Approve/Accept response, owing collections will have a greater impact on someone's ability to qualify - FHA is now requiring a "capacity analysis" of collection accounts with an aggregate balance equal to or greater than $2,000 (this includes non-borrowing spouse's in community property states).  The following guidelines do not apply if the outstanding balance on all collection accounts is less than $2,000 (again, this includes non-borrowing spouse's in community property states).  Also keep in mind that all medical collections and charge off accounts are excluded from this guidance.

    "Capacity analysis" includes any of the following actions:
    - At the time of or prior to closing, payment in full of the collection account (verification of acceptable source of funds required).
    - The borrower makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower’s debt-to-income ratio.
    - If evidence of a payment arrangement is not available, the lender must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower’s debt-to-income ratio.

    What that means is the owing collection accounts will either need to be paid in full, payment arrangements need to be made, or if a payment arrangement isn't made and the account is not paid in full, then 5% of the balance of the collection will be included as a payment when calculating the debt to income ratio.


    Judgments will now be required to be paid in full or be on a payment plan with at least 3 months of payments being made.  The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three months of scheduled payments have been made prior to underwriting approval.  Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three months of payments.  FHA also requires owing judgments from a non-purchasing spouse in a community property state to follow the same guideline.


    Disputed accounts are being handled differently than they have been in the past. 
    If the cumulative outstanding balance of disputed "derogatory credit accounts" of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a “Refer” and an underwriter is required to manually underwrite the loan.  If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required.  Certain accounts are excluded, such as disputed medical accounts & disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use (however in the latter a letter is needed from from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges).

    "Derogatory credit accounts" are defined as disputed charge-off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.  Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a “Refer”.  "Non-derogatory disputed accounts" are excluded from the $1,000 cumulative total.  "Non-derogatory disputed accounts" include disputed accounts with zero balance, disputed accounts with late payments aged 24 months or greater, and disputed accounts that are current and paid as agreed.

    Shane Milne | Loan Officer in Orange County, CA | NMLS #81195
    TheBestHomeLoans.com | About Shane & Client Testimonials
    Direct local #'s: 949-273-4161 or 646-257-4842

  • The Best Way to Remove Account In Dispute Comments

    Posted Under: Home Buying in California, Financing in California, Credit Score in California  |  April 4, 2013 11:34 PM  |  10,583 views  |  11 comments
    If you are applying for a mortgage and your credit report contains accounts that are being disputed, that can cause problems with your mortgage application.  The reason being is supposedly when an account is in dispute it no longer has an impact on your credit score, and since mortgage lenders want to have as accurate as possible credit profile for their applicants they don't want any disputed accounts skewing that credit score.

    If you are applying for a Fannie Mae loan program, your loan is run through an automated underwriting system (AUS) which is a computer program that analyzes the information from the loan application & your credit report.  Fannie Mae's calls their AUS Desktop Underwriter, or "DU" for short.  So when running your application & credit through DU, and an account is in dispute, within the DU report (called "findings") there will be a note that says:

    DU identified the following tradeline(s) as disputed by the borrower and did not include the tradeline (s) in the credit risk assessment. The lender must verify the accuracy of the tradeline(s) by determining if it belongs to the borrower and by confirming the accuracy of the payment history. If the tradeline does not belong to the borrower, or the reported payment history is inaccurate, no further action is necessary. If the tradeline does belong to the borrower and the reported payment history is accurate, it must be taken into consideration in the credit risk assessment. To ensure it is considered, the lender may obtain a new credit report with the tradeline no longer reported as disputed and resubmit the loan casefile to DU, or the lender may manually underwrite the loan.

    Very few lenders are willing to manually underwrite Fannie Mae loans, so if that note comes up on your DU findings, it'll then list the accounts which have been flagged as "in dispute", and you'll need to remove the dispute comments in order for the DU findings to be valid.

    If you are applying for a Freddie Mac loan program, a dispute comment will cause an error in their AUS system (called LoanProspector, or "LP" for short) and it won't be able to process your application.  There isn't any note in their findings, it'll just come back with an "Incomplete" status (with a code 21).

    If you are applying for an FHA mortgage, then only certain disputed accounts need to have the dispute comments removed (otherwise the loan must be manually underwritten, which a lot of lenders do, but you are then subjected to tigher qualifying guidelines).  FHA's AUS (called FHA TOTAL) won't have any special notes for disputed accounts, so the underwriter must manually apply FHA's guidelines regarding disputed accounts.  FHA states:

    If the cumulative outstanding balance of disputed "derogatory credit accounts" of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a “Refer” and an underwriter is required to manually underwrite the loan.  If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required.  Certain accounts are excluded, such as disputed medical accounts & disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use (however in the latter a letter is needed from from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges).

    "Derogatory credit accounts" are defined as disputed charge-off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.  Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a “Refer”.  "Non-derogatory disputed accounts" are excluded from the $1,000 cumulative total.  "Non-derogatory disputed accounts" include disputed accounts with zero balance, disputed accounts with late payments aged 24 months or greater, and disputed accounts that are current and paid as agreed.

    USDA financing's guidelines are:

    When an applicant’s credit report indicates a tradeline or public record is in dispute, a GUS underwriting recommendation of “Accept” may need to be downgraded by the lender to a “Refer.” A downgrade is not required if any of the following conditions are met in regards to the disputed item listed on the credit report::
    1. The disputed account has a zero balance
    2. The disputed account is marked as "paid in full", or "resolved"
    3. The disputed account is both
      1. less than $500, and
      2. more than 24 months old, based on the date of dispute
    It's pretty obvious if an account has a zero balance (#1) or is marked "paid in full" or "resolved" (#2), as all of that is listed on the credit report.  However what isn't so obvious is if the account is less than $500 and the dispute is more than 24 months old (#3), because credit reports rarely ever say when the dispute happened.  So a general rule of thumb is if it isn't a $0 balance or doesn't say "paid in full" or "resolved" then it's generally advisable to remove the dispute comments., however they take it one step further and require that any account in dispute have a evidence showing a justifiable reason for doing so - such as correspondence from you or your attorney to the creditor.

    VA financing doesn't have any guidelines regarding disputed accounts, however some lenders may add "overlay" guidelines regarding disputed accounts, to be sure to ask ahead of time.



    ...The Info You Clicked On This Blog Post For...

    I always have my clients deal directly with the credit bureaus when removing dispute remarks.  We've had a 100% success rate and is the quickest way to go about it.

    Experian
    475 Anton Blvd.
    Costa Mesa, CA 92626
    714-830-7000 is answered by a live human being, tell them you need the Executive Customer Service Team to end the dispute(s), hours are 8AM-5PM Pacific Time

    Equifax
    1550 Peachtree St, NW
    Atlanta, GA 30309
    404-885-8300 is answered by a live human being, tell them you need to speak with someone in the Executive Consumer Service department.

    TransUnion
    555 W Adams St
    Chicago, IL 60661
    312-985-2000 it has a machine greeting but just stay on the line and you are transferred to a live person, tell them you need to speak with someone in the Special Handling Department, you'll have to wait a little bit as they need to connect to customer service then get it elevated to the Special Handling Department (it is hit or miss, TransUnion often proves to be the most challenging)

    If you cannot get the Special Handling Department, then when contacting the normal customer service reps you should say:

    I need to dispute the compliance condition remarks code of "AID" (Account In Dispute) because I am no longer disputing the account.

    The customer service rep should be able to immediately end the dispute, as in during the phone call.

    There are some situations that disputes cannot be ended by the consumer, and must be ended by the creditor, such as if there are multiple disputes on the same trade line. Remember to always be patient with the customer service reps, as they are trying to help you but may have limited communication skills depending on where the customer service call center is based.  If there are confusing terms being used, don't be afraid to admit you do not understand what they are saying and ask for them to re-explain or to transfer you to someone in the U.S.

    Shane Milne | Loan Officer in Orange County, CA | NMLS #81195
    TheBestHomeLoans.com | About Shane & Client Testimonials
    Direct local #'s: 949-273-4161 or 646-257-4842
  • How to Choose a Mortgage Company or Loan Officer

    Posted Under: Home Buying, Financing  |  March 1, 2013 12:45 PM  |  2,717 views  |  No comments
    How do you find that loan officer?  finding a loan officer

    That is tough, as I've read here at Trulia and everywhere else, a lot of people have problems qualifying for the loan after they've been pre-approved, or just are generally confused about the process, even at the closing table (real estate agents & loan officers at fault). 

    I suggest explore at least 3 options, and preferably at least 1 mortgage broker, 1 mortgage loan officer who works for a bank, and also one that would work at a smaller direct mortgage lender (not a broker, and not a bank, just a mortgage lender who arranges loans and sells them afterwards - usually to the banks)... it wouldn't be a bad idea if you had the time to interview up to 6. That way you can get a feel for how each does business, because not every mortgage broker is the same as another mortgage broker, etc. 

    You'll want to ask what the pre-approval process entails and how long it takes. Will the underwriter who will be allowing your loan to close be the person reviewing your file as part of that process? Will it just be the loan officer reviewing your information? Will they even ask you for documentation? 

    You'll also want to ask what types of programs they offer, and once your documentation has been thoroughly examined you'd want to get what options would then apply to you, as well as ask what your loan officer thinks would be the best loan program for your situation. Ask about the other program that would be 2nd best (as if the first one didn't exist), so you can realize why the loan you are being suggested would be the best. 

    You'll want to ask what type of fees & costs you could expect to incur along the way (credit report, earnest money deposit, home inspection, appraisal fee, lender & 3rd party closing costs, etc.), how much those costs are estimated to be, and when they are expected to be paid (at the time the service is performed, at closing, etc). You'll want to ask how much of a down payment you'll need, and if you have to provide it or if a family member or relative can gift it to you. You'll want to know how much extra money you would need to have beyond those costs & down payment, which are called "reserves" (ie. 2 months of reserves = 2 times your proposed housing payment), some programs don't need them but a lot do. You should also consider yourself how much you want to have on hand after you close on the home, it will vary depending on your comfort level but personally I feel at least 6 times the proposed housing payment is a safe plan. 

    You'll also want to ask what type of loan terms can they offer you if you were to lock in your interest rate today (you should ask all lenders you are considering this question on the same day so you can have an exact comparison, as interest rates fluctuate day-to-date and even can be intraday). 

    You should also ask when & how they will be available - are you someone who likes to discuss things after the normal work hours on the phone? In person on a Saturday? Through email? Someone where or not where you live? 

    There are more variables to think of, some will have greater importance to you and others will not, however I truly believe that you will have a feeling of pure comfort inside of you when you have found the loan officer who will be the perfect fit. You will leave the conversation having a full understanding of the road ahead and what is expected of you, as well as you'll feel the loan officer has left no stone unturned when going over your situation, listening to and addressing your needs.

    Shane Milne | Loan Officer in Orange County, CA | NMLS #81195
    TheBestHomeLoans.com | About Shane & Client Testimonials
    Direct local #'s: 949-273-4161 or 646-257-4842
    Lending in all 50 states

  • Mortgage Acronyms & Abbreviations (what does PITI mean?)

    Posted Under: Home Buying in Orange County, Financing in Orange County, Credit Score in Orange County  |  October 31, 2011 7:01 PM  |  8,236 views  |  2 comments
    Even though it may not feel like it when you are applying for a loan, the mortgage industry likes to take a lot of short cuts, particularly when it comes to communicating (OK well maybe you can believe that) and so it's common to see abbreviations and acronyms when you are reading mortgage literature & speaking to someone about mortgages.

    "What is the PITI payment?"

    "The Fannie Mae loan program requires no more than 80% LTV."

    "The lender says I am buying a PUD, what is that?"

    Those are phrases you may hear along your mortgage & home buying journey.  Below is a list of commonly used acronyms & abbreviations when it comes to dealing with mortgages.  Feel free to add any that have been missed!

    BWR: Borrower is the primary applicant on a mortgage application.

    CBWR: Co-Borrower is the secondary applicant on a mortgage application.

    CRA: Credit Reporting Agency. Equifax, TransUnion & Experian are the 3 that most lenders use.

    EFX, TU, XPN: Commonly used acronyms for Equifax, TransUnion & Experian, in that order.

    Fannie Mae: Federal National Mortgage Association, one of two GSE’s (Government Sponsored Enterprises) created by congress to increase access to mortgages. Mortgages offered under Fannie Mae guidelines are called “conforming” mortgages since they conform to Fannie Mae guidelines.

    Freddie Mac: Federal Home Loan Mortgage Corporation, the second of two GSE’s created by congress to increase access to mortgages. Mortgages offered under Freddie Mac guidelines are also called “conforming” mortgages since they conform to Freddie Mac guidelines.

    FHA: Federal Housing Administration, the Federal Government Agency that oversees the US Housing market. FHA mortgages are guaranteed by the Federal Government and offered by banks/lenders.

    VA: Veterans Administration, like FHA, guarantees mortgages for the Federal Government. However, VA mortgages are only available to members of the military, certain unmarried widows of veterans, and veterans of military service.

    USDA RHS/RD: United States Department of Agriculture/Rural Housing Services/Rural Housing, like FHA these mortgages are guaranteed by the Federal Government but have income & geographic limitations.

    Ginnie Mae: Government National Mortgage Association is the actual guarantee agency for Federally Guaranteed mortgages by VA, FHA, RHS, and PIH. Ginnie Mae’s MBS’s are the only MBS’s that are actually guaranteed by the Federal Government.

    PIH: Public and Indian Housing is the Federal Agency that, like FHA, guarantees mortgages.

    MBS: Mortgage Backed Security. These are the investment instruments that are bundled by Fannie Mae, Freddie Mac, and Ginnie Mae for sale on Wall Street.

    DU: Desktop Underwriter is the automated underwriting engine developed by Fannie Mae for underwriting Fannie Mae eligible mortgages. Think of it as a computer program that analyzes risk on mortgage transactions - determining if there is too much risk or if there is an acceptable amount of risk.  DU is also used for underwriting FHA & VA mortgages.

    LP: Loan Prospector is the automated underwriting engine developed by Freddie Mac for underwriting Freddie Mac eligible mortgages.  It's the same computer program concept.  LP is also used for underwriting FHA & VA mortgages.

    HUD: Housing and Urban Development is the Cabinet Department of the Federal Government that oversees the US housing market. All laws that are passed by Congress are administered by HUD.

    LO: Loan Officer is the person that takes the actual application for a mortgage. An LO can be a licensed mortgage broker or they can work for a lender and not be required to be licensed - all LO's will be registered at http://nmlsconsumeraccess.org/

    LTV: Loan-to-Value is the percentage of the mortgage to either the lower of the appraised value or purchase price (when purchasing) or the appraised value (when refinancing an existing mortgage).

    CLTV: Combined-Loan-to-Value is the total percentage of all mortgages to the value of the property.

    TLTV: Total-Loan-to-Value is in the situation where a home equity line of credit (HELOC) is on the property, and the amount of the HELOC used is less than the limit of the HELOC.

    PMI (or just MI): Private Mortgage Insurance is charged on conforming mortgages that are over 80% LTV.

    MIP: Mortgage Insurance Premium is similar to PMI but is used for FHA mortgages. With FHA mortgages there is an upfront MIP payment as well as a monthly MI payment.

    LPMI: Lender Paid Mortgage Insurance is mortgage insurance paid by the lender instead of the borrower. This is accomplished by the lender increasing the mortgage interest rate.

    DTI: Debt to Income is the ratio of the borrower’s gross monthly income to their consumer and/or housing debt.

    RESPA: Real Estate Settlement Practices Act is the Federal Law that regulates what is allowable and not in the sale/purchase of residential real estate.

    HUD-1 (different than just HUD): HUD-1 is the settlement statement that you receive that details all the costs and expenses involved in the actual closing of a mortgage, calculating how much money you need to bring in or will be getting back at closing.

    GFE: Good Faith Estimate is one of the documents that an applicant(s), under RESPA guidelines, is required to to be sent within 3 business days of an application. The GFE is an estimate of what the closing costs are for the proposed mortgage.  Read Understanding the Good Faith Estimate for a detailed breakdown of the different sections of a GFE.

    POC: Paid outside of closing, this acronym will appear on fee estimates & the Final HUD-1 showing you what has already been paid (or will be paid) outside of closing.

    TIL: Truth in Lending is the other major document that is required to be sent within three business days of applying for a mortgage. The TIL shows the APR as well as the cost of the mortgage over the life of the loan.

    API: Annual Percentage Interest is the interest rate the borrower pays for the mortgage. This is the rate that the monthly payments are based on.

    APR: Annual Percentage Rate calculates the cost to the applicant for the mortgage by taking the total amount borrowed and subtracting certain fees from that amount and then figuring what the interest rate then calculates out to without changing the payment amount.

    ARM: Adjustable Rate Mortgage is a mortgage that will have a fixed rate for a set period of time and then the rate is adjusted. The fixed period can be as short as 1 month or as long as 10 years. The rate will normally be adjusted either once a year or twice a year. There is one type of mortgage where the adjustment period is monthly. All ARM’s are based on an index. The following are the common indexes:

    • 1 year Treasury Bill is the index used for all FHA ARM mortgages and many conforming ARMs
    • LIBOR: London Interbank Offered Rate is the other major index used on conforming mortgages. It is also the index that all subprime ARMs are based on. Subprime mortgages will use the 6 month LIBOR but conforming ARMs can use anything from the one month LIBOR up to a 1 year LIBOR though they will generally only use either the 6 month LIBOR or the 1 year LIBOR.
    • COSI: Cost of Savings Index is based on the 11th District Federal Home Loan Bank in San Francisco. COSI loans are always Option ARM mortgages.
    • CODI: Cost of Deposits Index is similar to COSI except it is only offered by World Savings to separate themselves from the other Option ARM lenders.
    • COFI: Cost of Funds Index is similar to COSI and CODI.
    • MTA: Monthly Treasury Average is another index that is used strictly by Option ARM lenders

    HELOC: Home Equity Line of Credit is a revolving line of credit based on the equity in a property. Generally HELOC's are based on Prime rate. If taken out at the time of purchase many HELOC's report as a mortgage. If the HELOC is taken out subsequent to the purchase they will generally report as a revolving line of credit and will report utilization the same way any other revolving credit line does.  A HELOC is used much like a credit card, where you can withdraw and pay back funds repeatedly.

    YSP: Yield Spread Premium is what a lender pays a broker for bringing the mortgage application to them. It will normally be shown as a percentage initially, and then as a dollar amount on the HUD1.

    SRP: Service Release Premium is similar to YSP except that SRP is usually not available to brokers but only to direct lenders. In addition, unlike YSP, SRP is not shown on the HUD1.

    IO: Interest Only is a payment type where none of the required payment goes towards principal. While the required payment will generally be lower than an amortizing payment since nothing is going towards principal the amount owed does not go down. Like a fully amortizing mortgage a borrower is allowed to pay extra towards principal.

    O/O: Owner Occupied is the mortgagor’s principal or primary residence.

    PR: Primary Residence

    NOO: Non Owner Occupied is a property where the mortgagor does not live in the property and has it as an investment.

    IP: Investment Property

    SFR: Single Family Residence (most people call this a house).

    PUD: Planned Unit Develoment, which can look like a townhome, a condo, or a single family residence.  You own the land your home is on, whereas a condominium you do not, and you typically have a smaller front and backyard compared to a SFR.

    VOR: Verification of Rent is a form that is sent to the landlord to verify the timely payment of rent.

    VOM: Verification of Mortgage is a form that is sent to a lender to verify the timely payment of the mortgage. This is normally used when a mortgage is not reporting up to date or when it is a private mortgage that doesn’t report at all.

    VOD: Verification of Deposit is a form sent to the bank/credit union/savings bank to verify the amount of funds in the account and to provide an average balance over a specified, usually 60 day, period.

    VOE: Verification of Employment is a form that is sent to the employer to verify employment. Many times a VOE will be done verbally by the lender just prior to closing.

    NEG AM: Negative Amortization occurs when the required mortgage payment is not sufficient to cover the interest owed on the payment. Option ARMs are considered to be neg am mortgages because the minimum required payment is less than IO. The unpaid interest is then added to the principal owed on the mortgage causing the mortgage to increase. This is the most dangerous of the “exotic” mortgages available.

    FTHB: First Time Home Buyer is a purchaser(s) that has not had an ownership interest in a residence within the previous three years.

    PITI: Principal-Interest-Taxes-Insurance is the total housing expense on a monthly basis.  Also includes homeowners association fees, and monthly mortgage insurance if applicable.  P&I would just be the Principal & Interest portion of the payment.

    URLA/1003 - Uniform Residential Loan Application (form number is 1003), the standard loan application that nearly all mortgage lenders use.

    URAR - Uniform Residential Appraisal Report - what the standard appraisal report is called.

    Shane Milne | Loan Officer in Orange County, CA | NMLS #81195
    TheBestHomeLoans.com | About Shane & Client Testimonials
    Direct local #'s: 949-273-4161 or 646-257-4842
    Lending in all 50 states

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