SS Memo 06-07

SELLING GUIDE REVISIONS: CONTACT UNDERWRITING

Date: August 23, 2006

AHFC is pleased to announce expanded loan guidelines that are effective with the date of this memorandum. Some of these changes are included in the revision and reorganization of Sections 1003 and 1004 as described.

Payment of Settlement Costs and Interested Party Contributions

(new Section 1003.05, and Sections 4006.01, 4006.06)

In keeping with Industry standards, AHFC will allow interested party contributions on conventional loans. Contributions are subject to certain limitations and must be documented by the lender. Section 1003.05 (formerly 1004.05) has been revised to define interested parties, types of contributions, and the maximum allowable contributions, which are as follows:

  • Nine percent (9%) of value if the LTV is equal to or less than 75%
  • Six percent (6%) of value if the LTV is greater than 75% up to and including 90%
  • Three percent (3%) of value if the LTV is greater than 90%
  • Two Percent (2%) of value on Rural Non-Owner Occupied loans

Documentation of Cost and Reimbursement

(new Section 1003.B.1.C)

Documenting construction costs on an owner/builder loan can be difficult when borrowers do not keep accurate records of out-of-pocket expenses. AHFC currently requires that the “lender’s loan file contain documentation to support that the borrower paid for the expense from their own funds” in order to be reimbursed. AHFC’s expanded guidelines offer an alternative to this process. If construction cost cannot be documented, LTV will be limited to 70% of appraised value. This allows owner/builder reimbursement without the need to obtain paid receipts for out-of-pocket expenses. However, a “cash-back” or “cash-out” transaction is created and lenders are cautioned that valuation inaccuracies are more likely to occur in appraisals used in “cash-out” transactions. Appraisals in such transactions should be scrutinized with particular care in the underwriting process to ensure that the value conclusion is supported by appropriate comparables and related adjustments.

Revised Owner/Builder Worksheet (UND-9)

To assist lenders with calculating owner/builder transaction costs and to reflect the changes described on page one of this memorandum, AHFC revised the UND-9. The new form is attached and available for immediate use. Lenders should begin using the new form no later than September 15, 2006.

Gift Funds

(Section 4006.06)

AHFC is amending Section 4006.06 to indicate that gifts are acceptable from a “relative, domestic partner, or fiancée.” All other requirements of Section 4006.06 remain unchanged.

Health and Life/Safety Repairs

(Section 2001.07.A)

Section 2001.07.A of the Selling Guide currently states that a threat to health or safety must be “eliminated prior to closing.” This section is being amended to reflect that health and life/safety repairs must be completed “prior to loan purchase.” AHFC is also adding the following statement to this section: “AHFC relies on licensed professionals (i.e., appraisers, home inspectors, engineers) to determine what repairs are required.”

Revisions to Sections 1003 and 1004

AHFC revised Sections 1003 and 1004 to update and better organize information. Copies of the new sections are attached and will be incorporated into the next mortgage guides update.

Section 1003, Mortgage Loan Requirements, contains the following: Purchase Eligibility, Eligible Transactions, Amortization Requirements, Subordinate Financing, Payment of Settlement Costs, Personal Property and Purchase Incentives, Escrow Deposit Accounts, Mortgage Insurance, Hazard Insurance, and Interest Rates. (Interest Rate Buydowns has been moved to Section 1005.09 Fees and the topic, Age of Mortgage, has been deleted.)

Section 1004, Borrower Requirements, contains the following: Borrower Eligibility, Owner Occupancy, Primary Residence, Arms Length Transactions (formerly Identity of Interest), and incorporates Military Borrowers (4002.05), Permanent Resident Aliens (4002.06), and Non-Permanent Resident Aliens (4002.07).

Veterans Mortgage Program (VMP) - Form PRG 60 and 61

With the increased number of VMP loan submissions this is a good time to remind lenders that a properly completed PRG-60 and PRG-61 will help avoid unnecessary delays obtaining a loan commitment. The borrowers (qualified veteran and his/her spouse if applicable) are required to read, sign and date the PRG-60, Information Certificate. The borrowers are required to read, initial each statement, sign and date the PRG-61, Mortgagor Affidavit. Additionally, the borrower’s signatures must be notarized on the PRG-61 and all fill-in-the-blank questions must be answered. A Form PRG-61 submitted without initials or the required data is considered incomplete and may result in the loan submission file being returned to the lender.

Veterans Mortgage Program (VMP) - Initial Tour of Duty

(Refer to Section 5003.05 and .06)

Recently, AHFC has received inquiries about what constitutes an “initial tour of duty” and what documentation is acceptable evidence. A veteran who re-enlists in a branch of the Armed Services has completed an initial tour of duty. Typically, the veteran receives a DD214, which verifies the dates of his/her active duty service or initial tour of duty. If this documentation cannot be obtained, a Statement of Service or other documentation will be reviewed on a case-by-case basis.

Revised Mortgage Voucher (PUR-1 and PUR-1A)

AHFC revised the PUR-1 and PUR-1A to delete the Discount Percentage. Lenders should begin using the revised form (dated 08/06) no later than September 15, 2006.

SERVICING GUIDE REVISIONS: CONTACT SERVICING

Attorneys Fees and Legal Costs

(Section 13001.10.A)

Reimbursement will be provided for any out-of-pocket costs paid to a third party vendor for the crying of any sale or postponement in the fourth judicial district, as long as the costs are actual, reasonable, and necessary provided they are included in any applicable FHA, VA, RHS, or MI claim filed.

FORMS GUIDE REVISIONS: CONTACT UNDERWRITING

Replacement forms are available in MSWord and PDF. Adobe Acrobat 5 is required to read and print PDF files.

Revised or Deleted Forms

PUR-1 (08/06)

PUR-1A (08/06)

UND-9 (08/06)

Attachments

Attachments will be incorporated into the online mortgage guides application during the next quarterly update. Attachments are available in PDF.

Selling Guide Section 1003

Selling Guide Section 1004