Child Support and Loan Processing | When Life Inserts Itself Into The Mortgage Process.

Written by Michael A. Foote, CMB on . Posted in fha mortgage, fha mortgage insurance, fha mortgage loans, FHA purchase loan, Loan Processing, mortgage broker, Mortgage Processing

Case Study:

We try to share real world scenarios with you to educate the public and the professionals alike in our industry. This week we have a buyer who qualifies all around. He works hard, gets overtime and can afford to buy. He is the perfect candidate. He has a child and lives with his girlfriend. And here is where it gets a little weird.

Most will agree that the modern family isn’t always a husband and wife and 2.3 kids anymore. In fact, more and more couples aren’t even married. But whether married or not, families have issues and arguements. and here is one case where an old wound rears its ugly head to throw a wrench in the mortgage process.

When qualifying for a mortgage we take into consideration all income, all credit report payments, and all loans and other items disclosed as liabilities, including alimony and child support.

In our case study, the buyer/borrower had a baby with a girl. Then he decided to go to college and play sports but decided not to pay his child support. The “baby momma” then filed a claim with the family court. These delinquent payments are reported on the credit report.

Since then the buyer has reunited with his “baby momma”, and it feels so good, they’ve decided to buy a home. All parties are getting along and that is great for the child and for the mother and father. However, they never update the family court and completed the proper filings releasing the father from having delinquent obligations.

Underwriters are tasked with making sure all borrower obligations and potential obligations are accounted for and documented as to why they are or are not included. Since there was no order updating the status of payments the buyer/borrower still appears to have outstanding child obligations, and delinquent at that.

It’s easy but takes borrower focus to get this rectified. If the mother and father simply go to the court and ask for new filings to update the credit bureaus and inform the underwriter of the current status of payments, if any, the mortgage process can be completed. With the borrower showing delinquent obligations and no current payments being made, the underwriter cannot properly account for the debt to income ratio and therefore not approve the loan to close.

Moral of the story, if you filing something with a city, county, state, or federal agency, make sure you update those agencies of any updates, like thefamily is together and all is good! So update those family orders and make sure you are prepared to buy.

 

 

 

Today and Tomorrows FHA Borrower: New changes to FHA lending guidelines and their effects on borrower qualification.

Written by Michael A. Foote, CMB on . Posted in fha mortgage insurance

Well the summer is almost over and as we head into another fun filled school year in my home, FHA has some new rules for me to follow at the office. The job to qualify people for a home loan has never been tougher. As many recent mortgage borrowers can attest, the application process can be daunting, haunting, and overall intrusive to no end. Many borrowers feel the headache is not worth the reward.

Now we have word from HUD that FHA rules and guidelines will be changing yet again. Most notably and directly related to borrower qualification are the new MI requirements. These requirements were signed into law by President Obama on August 12, 2010 and gave the HUD secretary more authority and flexibility to change and modify the FHA program as needed to ensure continued liquidity in the mortgage market place.

Effective for originations in the beginning of October 2010, Upfront Mortgage Insurance goes from 2.25% to 1.0% for loans greater than 15 years in duration and over 95% loan to value. This is basically all low money down FHA purchase 30 year fixed loans. But wait, that’s good news. You thought this article would be glum didn’t you. Yes, that is good news, but HUD also changed the monthly mortgage insurance from the current .55% to 1.55% for the same type of transaction.

But what does this really mean to the average FHA borrower? Let’s take a simple hypothetical purchase transaction. The borrower is buying a home for $275,000 and is going to put down the 3.5% and will finance his upfront mortgage insurance premium. Here is how this deal looks today versus post October 2010 changes.

                                                Old                          New

Borrowers pmt. @ 4.500%     $1374.90                 $1358.06

MMI Monthly MI Pmt            $121.63                   $346.00

Totals                                      $1496.53                 $1704.26

FHA has essentially raised the borrowers Principal, Interest and Mortgage Insurance Payments by $60 a month. This is an increase of 12+%.

While this increase seems timely considering the government’s spending of late and talk of expiring tax credits and new taxes too. This increase will get FHA much needed capital, more quickly, by requiring borrowers to pay more monthly versus financing a large amount of the overall insurance over the life of the loan.

With rates still hovering slightly above the all-time lows, this modest increase should not impact the purchase market a great deal. There maybe a few borrowers who are squeezed out of financing a higher priced home, but maybe that is the strange side-effect, some borrowers will not be able to buy as expensive of a home as they would like. And that is OK.