Understanding Loan Terms, Costs, and Repayment Periods for Rural Housing Agency Loans, Exercises of Construction

Download Understanding Loan Terms, Costs, and Repayment Periods for Rural Housing Agency Loans and more Exercises Construction in PDF only on Docsity! SECTION 1: OVERVIEW OF THE UNDERWRITING PROCESS 6.1 INTRODUCTION The underwriting process brings together the applicant eligibility requirements discussed in Chapter 4 and the property requirements discussed in Chapter 5 with the loan and subsidy requirements that are discussed in detail in this chapter. By putting all of this information together, the Loan Originator can determine the applicant’s repayment ability, whether a loan can be approved, and the amount of the loan. This chapter is structured as follows: • Section 1 reviews the concept of underwriting; • Section 2 describes loan terms and requirements; • Section 3 provides policies and procedures for determining whether the applicant is eligible for payment subsidy and the amount of the subsidy; and • Section 4 provides policies and procedures for underwriting a loan for a specific property and preparing the loan approval recommendation. 6.2 WHAT IS UNDERWRITING? Through the underwriting process, the Loan Originator evaluates an applicant’s circumstances and the condition and value of the property to determine whether making a particular loan is a prudent use of funds. Exhibit 6-1 summarizes key underwriting decisions. Underwriting has both objective and subjective elements. For example, income eligibility is an objective factor -- if the applicant’s income exceeds program income limits, the applicant cannot receive a program loan. On the other hand, analyzing an applicant’s credit history and estimating the value of the property both involve some degree of judgment. The underwriter’s challenge is to make both objective and subjective decisions in a fair and impartial manner for all applicants. 6-1 (01-23-03) SPECIAL PN Revised (02-01-18) PN 508 CHAPTER 6: UNDERWRITING THE LOAN HB-1-3550 Paragraph 6.2 What is Underwriting? The Agency’s underwriting standards and procedures are similar in many respects to those used by private lenders. However, because the Agency’s mission, in part, is to serve home buyers who are unable to obtain private credit, the underwriting process differs in 4 key respects: • The Agency’s criteria for an acceptable credit history are somewhat less stringent than those used by private lenders; • Agency loan-to-value requirements enable many applicants to become homeowners with little or no down payment; • In most circumstances, the Agency has the ability to offer subsidies that enhance an applicant’s ability to repay the loan; and • The Agency conducts quality checks on new loans as well as on withdrawn and rejected applications to confirm that the Loan Originator complied with the underwriting standards and procedures. Refer to Attachment 6-B for guidance on monitoring requirements. 6-2 Exhibit 6-1 Key Underwriting Decisions Does the Applicant Meet Program Requirements? The applicant must: • Have the legal capacity to enter into a loan agreement; • Have the financial resources to repay the loan; • Have an acceptable credit history; and • Meet the specific requirements for participation in the program, such as eligibility based on income and citizenship status. • A first-time homebuyer must complete a homeownership education course prior to entering into a contract to purchase or construct a home for maximum benefit (or shortly thereafter). Does the Property Meet Program Requirements? The property must: • Meet Agency standards regarding location and housing quality; • Meet the Agency’s environmental review requirements; • Not have legal hindrances to the borrower’s ownership of the property; and • Have sufficient value to protect the Agency’s financial investment in the property. Does “The Deal” Work? • Can the Agency offer loan terms and conditions that enable the applicant to afford the loan? • Is the applicant willing and able to meet the terms and conditions the Agency can offer? HB-1-3550 6-5 (01-23-03) SPECIAL PN Revised (09-19-18) PN 516 Paragraph 6.4 Eligible Loan Purposes and Uses [7 CFR 3550.52] C. Fees and Related Costs Other eligible costs include: • Reimbursement for certain items paid by the borrower outside of closing (i.e. earnest money deposit, inspection fees required by the Agency, and the first year’s hazard insurance premium); legal fees; architectural and engineering services; costs of title clearance and loan closing services; the Agency-approved appraisal fee; surveying, environmental and tax service services; personal liability insurance fees under Mutual Self-Help Housing; and other incidental expenses approved by the Loan Approval Official. Commissions, finders’ fees, homeowner association fees, placement fees, and administrative fees charged to the buyer by the real estate agent are not eligible costs; • Fees for acceptable homeownership education under 7 CFR 3550.11 provided the fee does not exceed the reasonable costs determined by the State Director. Fees may be added to the loan amount in excess of the area loan limit and the appraised value of the house in cases where the borrower requests it be included in the loan; • The buyer’s portion of real estate taxes that the applicant must pay at the time of closing including delinquent taxes on a property owned by the applicant; • Real estate taxes that become due during the construction period on houses to be built; • The borrower’s share of Social Security taxes and similar taxes for labor hired by the borrower in connection with making the planned improvements; • Establishment of escrow accounts, including the initial escrow deposit, for the payment of taxes and property insurance premiums; • Payment of recapture amounts deferred by a former borrower; • Costs associated with implementation of mitigation measures to ensure environmental compliance; • For leveraged loans, lender charges and reasonable fees related to obtaining the non- Agency loan; and HB-1-3550 6-6 Paragraph 6.4 Eligible Loan Purposes and Uses [7 CFR 3550.52] • Fees to public agencies and private nonprofit organizations that are tax exempt under the Internal Revenue Code for the packaging of loan applications. The charges must be reasonable considering the services provided and the cost of similar services in the same or a similar rural area. The fee cannot exceed the amount listed in Attachment 3-A and the package must comply with the requirements outlined in the aforementioned attachment. D. Loan Restrictions [7 CFR 3550.52(e)] Agency loans cannot be used to finance properties that include in-ground swimming pools. It is not acceptable to remove a pool after closing to meet this requirement. Agency funds cannot be used to purchase or improve structures designed for income- producing purposes or income-producing land. Home-based operations such as child care, product sales, or craft production that do not require specific features are not restricted. 6.5 REFINANCING In general, Agency funds should not be used to refinance existing debt and are never to be used to refinance existing Agency debt when a property is sold to a new Agency borrower. In such cases, an assumption on new rates and terms transfers the debt to the new owner. However, refinancing is permitted in limited circumstances. A. Refinancing Agency Debt [7 CFR 3550.52(c)] Borrowers with Agency nonprogram loans (nonprogram assumptions or credit sales) or initial Section 502 program loans with a term less than 25 years are not eligible for payment subsidy. Borrowers with these types of loans may be permitted to refinance if the borrower is eligible to receive a program loan, the property is program-eligible, and the borrower is in danger of losing the property due to circumstances beyond the borrower’s control. HB-1-3550 6-7 (01-23-03) SPECIAL PN Revised (02-01-18) PN 508 Paragraph 6.5 Refinancing B. Refinancing Non-Agency Debt [7 CFR3550.52(b)] 1. Situations in Which Refinancing is Permissible Refinancing of non-Agency debt, except for debt on manufactured homes, is permissible in 3 circumstances. • Refinancing for an existing home at risk of foreclosure. An applicant who owns a home but is clearly unable to continue making payments and risks losing the home through foreclosure may be eligible for Agency refinancing if the risk is due to circumstances beyond the applicant’s control. Risk of foreclosure doesn’t necessarily mean that the applicant’s mortgage is currently delinquent; it means that foreclosure is a highly likely eventuality because the mortgage payments are no longer sustainable due to circumstances beyond the applicant’s control. • Refinancing for an existing home in need of repairs. Debt on an existing home may be refinanced if the home is in need of repairs totaling $5,000 or more to correct major deficiencies and make the dwelling decent, safe, and sanitary; and refinancing is necessary for the borrower to show repayment ability. In such cases the owner need not be at risk of losing the property through foreclosure. • Refinancing for a site without a dwelling. Agency funds may be used to refinance non-Agency debt on a building site without a dwelling if the debt is for the sole purpose of purchasing the site, the applicant is unable to pay the debt, and the applicant is otherwise unable to acquire decent, safe, and sanitary housing. The site must meet the conditions described in Section 1 of Chapter 5. The Agency loan must include adequate funds to construct a dwelling on the site that conforms to the requirements of Section 2 of Chapter 5, and the applicant must occupy the property once it is constructed. In any of these circumstances, a non-Agency loan, including a Single Family Housing Guaranteed Loan, can be refinanced only if the Agency will have adequate security. 2. Eligible Debt In general, Agency funds can be used to refinance only debt that was incurred for eligible purposes, as described in Paragraph 6.4. For applicants who are in danger of foreclosure, Agency funds also may be used to repay a protective advance made by a mortgagee for costs related to the delinquency, such as accrued interest, insurance premiums, real estate tax advances, or preliminary foreclosure costs. HB-1-3550 6-10 Paragraph 6.6 Maximum Loan Amount [7 CFR 3550.63] Exceptions also can be granted for subsequent loans that may cause the entire indebtedness to exceed the area loan limit only if necessary to protect the Government’s interests. The State Director can authorize subsequent loans that exceed the area loan limits to accommodate the cost of necessary repairs, reasonable closing costs, and allowable excess costs (including the appraisal fee, tax service fee, homeownership education fee, and initial deposit to fund the escrow account), without authorization from the Deputy Administrator, Single Family Housing, even if the increase exceeds $5,000. B. Special Situations To further ensure that only modest housing is financed, the maximum loan amount will be limited in the following situations: 1. Housing Other than Self-Help • If the applicant owns the building site free and clear or if an existing non- Agency debt on the site will not be refinanced with Agency funds, the market value of the lot will be deducted from the area loan limit. • If Agency funds will be used to refinance non-Agency debt on the building site, the equity (market value minus the debt owed against the site) will be deducted from the area loan limit. • When the applicant is purchasing a site below the market value, the difference between the market value and the sales price will be deducted from the area loan limit. • When an applicant is receiving a housing grant or other form of affordable housing assistance for eligible loan purposes other than closing costs, the amount of such grants and other affordable housing assistance will be deducted from the area loan limit. 2. Self-Help Housing The maximum loan amount for self-help housing will be determined by adding the total of the market value of the lot (including reasonable and typical costs of site development), the cost of construction, and the value of sweat equity. The total of these factors cannot exceed the area loan limit for the area. HB-1-3550 6-11 (01-23-03) SPECIAL PN Revised (03-15-19) PN 522 Allowable Excess Costs • Appraisal fee • Tax service fee • Homeownership education fee • Initial contribution to escrow 6.7 LOAN-TO-VALUE (LTV) RATIO [7 CFR3550.63(b)] The LTV ratio is the relationship between the amount to be financed, including all leveraged loans and grants (where a lien will be taken), and the market value of the security property. The value of the property is determined using the appraisal procedures described in Section 5 of Chapter 5. A loan may exceed the LTV limitations discussed in Paragraphs 6.7 A. and B. to allow the borrower to finance certain allowable excess costs. For any Agency loan, the amount that can be financed in excess of the allowable LTV includes the Agency-approved appraisal fee, the tax service fee, homeownership education fee, and the initial contribution to the escrow account. A. Loans for Existing Dwellings (100% LTV) For existing dwellings, the LTV limitation for a Section 502 loan, plus any other liens on the security property, is 100 percent of value plus allowable excess costs. B. Loans for New Dwellings (90-100% LTV) For loans on new dwellings, the permitted LTV ratio depends upon whether the applicant provides documentation that the construction quality is acceptable to the Agency. If construction that meets the Agency standards can be documented, the LTV limitation is 100 percent of value plus allowable excess costs. If construction quality is not adequately documented, loans for new dwellings are limited to 90 percent of the market value plus allowable excess costs. The following are acceptable documentation of construction quality: • The Agency has issued a conditional commitment and inspected the property, as described in Section 1 of Chapter 9. Example - Maximum Loan Based on Loan to Value Ratios $50,000 Appraised Value $51,740 Total Costs Including: $49,500 Purchase Price $ 340 Appraisal and Tax servicing $ 1,500 Closing Costs $ 400 Costs to Establish Escrow If the allowable LTV is 100%, the maximum loan is $50,740 (the appraised value plus allowable excess costs). $1,000 of the closing costs must be paid by the borrower in cash. If the allowable LTV is 90%, the maximum loan is $45,740 (90% of the appraised value plus allowable excess costs). $6,000 must be paid by the borrower in cash. HB-1-3550 6-12 Paragraph 6.7 Loan-to-Value (LTV) Ratio [7 CFR 3550.63(b)] • The dwelling is covered by an approved 10-year warranty plan, as described in RD Instruction 1924-A, and there is a certificate of occupancy when issued by the local governing agency. In areas where there is no local authority to issue a certificate of occupancy or similar document, the State Office will provide appropriate guidelines for what will be considered acceptable documentation of a dwelling’s or unit’s livable condition. • The loan will be closed prior to the start of construction so that the Agency can monitor the construction following the procedures described in Section 6 of Chapter 5. • The new dwelling is a manufactured home that meets the requirements set forth in Section 3 of Chapter 9. • Applicant provides a complete set of plans and specifications and, to demonstrate that the construction was properly inspected, copies of all construction-phase reports prepared by a licensed construction inspector. In the case of properties inspected by the Federal Housing Administration (FHA) or Veterans Affairs (VA), a certification that the dwelling was built in accordance with approved plans and specification may be submitted in lieu of construction-phase reports. C. Subsequent Loans for Necessary Repairs If necessary to protect the Government's security interest, the Agency may make a subsequent loan that causes the total indebtedness to exceed the market value of the property and/or the area loan limit. The excess amount cannot exceed the cost of the necessary repairs, reasonable closing costs, and allowable excess costs. The Loan Originator should review the status of the borrower’s account in MortgageServ and coordinate with the National Financial and Accounting Operations Center (NFAOC) as necessary. D. Subsequent Loans for Closing Costs Only When the Agency makes a subsequent loan to a program borrower for closing costs only at the time of the sale of an REO property or a property transfer and assumption, total indebtedness may exceed the market value and/or the area loan limit by up to 1 percent, plus allowable excess costs. HB-1-3550 6-15 (01-23-03) SPECIAL PN Revised (09-19-18) PN 516 Paragraph 6.9 Interest Rates [7 CFR 3550.66] For non-program loans, the non-program rate in effect at loan approval must be used for the promissory note. For program and non-program loans, the date the loan was approved must be the same date the loan was obligated in MortgageServ. If the dates differ, the date of obligation will be used when determining the interest rate; not the date of approval. B. Subsidized Rate As described in Section 3, borrowers who qualify may receive payment subsidies based upon a lower interest rate. The subsidized rate does not affect the promissory note. Instead, a separate agreement is executed annually (or more often if the subsidy amount changes) to document the amount of payment subsidy provided. 6.10 USE OF ASSETS [7 CFR3550.64] A. Asset Limits Applicants with assets in excess of established limits must use those assets for a down payment or other costs associated with the purchase of the property. Section 2 of Chapter 4 discusses assets in detail. Applicants may choose to use assets that fall below the established limits toward the purchase, even though they are not required to do so. • Nonelderly applicants must use nonretirement assets in excess of $15,000 toward the purchase of the property. • Elderly applicants must use nonretirement assets in excess of $20,000 toward the purchase of the property. Example - Effect of Interest Rate and Repayment Period on Monthly Payments Loan Amount Loan Term Monthly Payment $50,000 @ 7% 33 years $324.05 $50,000 @ 7% 38 years $313.79 $50,000 @ 1% 33 years $148.29 $50,000 @ 1% 38 years $131.84 HB-1-3550 6-16 Paragraph 6.10 Use of Assets [7 CFR 3550.64] B. Eligible Uses of Assets Eligible uses for excess assets or assets the applicant has elected to contribute include making payments to: • Reduce the principal balance; • Pay architectural, engineering, inspection, or testing fees related to new construction or repairs; • Establish the escrow account for taxes and insurance; • Pay closing costs and related fees; • Reduce non-housing debts; • Contribution to a retirement asset; or • Purchases not considered a net family asset (Exhibit 4-3). C. Ineligible Uses of Assets If an applicant has excess assets, those assets cannot be used for purposes other than those listed in Paragraph 6.10 B. Required Down Payment If an applicant was issued a Certificate of Eligibility that listed a required down payment and they subsequently spend or dispose of those funds for ineligible loan purposes and now no longer have assets sufficient to cover the required down payment, the Loan Approval Official will re-evaluate eligibility at the time of approval or denial. If the applicant is no longer eligible, the reasons for denial will include Attachment 1-B with appeal rights. HB-1-3550 SECTION 3: PAYMENT SUBSIDIES [7 CFR 3550.68] 6.11 AN OVERVIEW OF PAYMENT SUBSIDIES The Agency uses payment subsidies to enhance an applicant’s repayment ability for Section 502 loans. UniFi calculates the applicant’s payment subsidy. The sample calculations provided in this section are intended to help the Loan Originator understand how the calculation works so that it can be explained to the applicant. A. Three Types of Subsidy 1. Interest Credit A borrower who initially received subsidy in the form of interest credit can continue to do so as long as the borrower remains eligible and continuously receives interest credit assistance. Subsequent loans to these borrowers should be subsidized with interest credit. Paragraph 6.13 describes the method for calculating subsidies using the interest credit method. 2. Payment Assistance Method 1 A borrower currently receiving payment assistance using payment assistance method 1 will continue to receive it for the initial loan as the borrower is eligible for payment assistance method 1. However, if a borrower receiving payment assistance method 1 receives a subsequent loan, payment assistance method 2 will be used to calculate the subsidy for the initial loan and subsequent loan. Paragraph 6.12 B describes the method for calculating subsidies using payment assistance method 1. 3. Payment Assistance Method 2 All other eligible applicants will receive payment assistance method 2. This includes: applicants who receive new initial loans; borrowers obtaining subsequent loans who qualify for payment subsidy, but who are not currently receiving interest credit or payment assistance method 1; and applicants who assume loans under new rates and terms. Borrowers who cease to receive interest credit or payment assistance method 1 for 6 months or more will receive payment assistance method 2 if they subsequently begin to receive payment subsidies. Paragraph 6.12 A describes the method for calculating payment assistance method 2. 6-17 (01-23-03) SPECIAL PN Revised (07-22-19) SPECIAL PN HB-1-3550 Paragraph 6.11 An Overview of Payment Subsidies 6-20 3. Annual Payment Borrowers For an applicant currently paying an annual installment who receives a subsequent loan, the initial payment subsidy agreement, including the subsequent loan, will be in effect until the next January 1st. E. Recapture Requirement Borrowers are required to repay all or a portion of the payment subsidy received over the life of the loan when the title to the property transfers or when the borrower ceases to meet the occupancy requirement described in Paragraph 6.11 B. 2. The borrower must sign Form RD 3550-12, Subsidy Repayment Agreement, at the time of loan closing for existing properties, when a construction loan is converted to a permanent loan, or whenever the borrower qualifies for payment subsidy for the first time. 6.12 CALCULATING PAYMENT ASSISTANCE A. Payment Assistance Method 2 The amount of payment assistance granted is the lesser of the difference between: • The annualized promissory note installments for the combined RHS loan and eligible leveraged loans plus the cost of taxes and insurance less 24 percent of the borrower’s adjusted income, or • The annualized promissory note installment for the RHS loan less amount the borrower would pay if the loan were amortized at an interest rate of 1 percent. Borrowers receiving payment assistance method 2 must pay the greater of: • A payment to RHS based on 24 percent of their adjusted annual income less the amortized payment for the eligible leveraged loan less the cost of taxes and insurance; or • A payment to RHS based on an interest rate of 1 percent plus the amortized payment for the eligible leveraged loan plus the cost of taxes and insurance. An eligible leveraged loan is a loan with payments amortized over a period of not less than 30 years and an interest rate that does not exceed 3 percent. 6-21 (01-23-03) SPECIAL PN Revised (01-06-17) PN 492 HB-1-3550 Paragraph 6.12 Calculating Payment Assistance B. Payment Assistance Method 1 The amount of payment assistance granted is the difference between the installment due at the promissory note rate and the amount the borrower must pay based upon income. Borrowers receiving payment assistance method 1 must pay the greater of: • A floor payment calculated as a percentage of adjusted income, less the cost of taxes and insurance; or • The loan payment amortized at the applicable EIR. Borrowers who receive leveraged loans are not subject to floor payments. Exhibit 6-3 provides a sample payment assistance method 1 calculation. 1. Establishing the Floor Payment The floor payment is a minimum percentage of adjusted income that the borrower must pay for Principal, Interest, Taxes, and Insurance (PITI). • Very low-income borrowers must pay a minimum of 22 percent. • Low-income borrowers with adjusted incomes below 65 percent of the applicable adjusted median income must pay a minimum of 24 percent. HB-1-3550 Paragraph 6.12 Calculating Payment Assistance 6-22 Exhibit 6-2 Sample Payment Assistance Method 2 Calculation The Jones family wishes to purchase a home for $90,000. They have been approved for a $60,000 loan from RHS and a $30,000 Affordable Leveraged Loan. Principal Amount Payment Period Note Rate RHS Loan $60,000 33 years 6.0% Affordable Leveraged Loan $30,000 30 years 3.0% The family’s adjusted income is $23,000; monthly taxes and insurance are estimated at $150/month. (1) Calculate the combined Annual Payment at the Note Rate plus Taxes and Insurance less 24% of the Adjusted Annual Income (AAI). $349 RHS Loan ($60,000 @ 6% for 33years) $127 Affordable Leveraged Loan ($30,000 @ 3% for 30 years) $150 Estimated Monthly Taxes and Insurance(T&I) $626 Combined Principal, Interest, Taxes and Insurance (PITI at Note Rate) -$460 AAI ($23,000 X 24%) $166 Total Monthly Subsidy (2) Calculate the annualized RHS note installment less the annualized 1% installment. $349 RHS Monthly Note Installment -$178 RHS 1% Payment ($60,000 @ 1% for 33years) $171 Total Monthly Subsidy PAYMENT SUBSIDY WILL BE THE LESSER OF (1) OR (2). $166 Monthly Subsidy Calculate Monthly Installment (P&I) $460 24% of AAI -$127 Affordable Leverage -$150 T&I $183 Total Monthly P&I Installment 6-25 (01-23-03) SPECIAL PN Revised (01-06-17) PN 492 HB-1-3550 Paragraph 6.13 Calculating Interest Credit Exhibit 6-5 Sample Interest Credit Calculation The Joneses have received an interest credit subsidy on their initial loan since it was approved and have recently been approved for a subsequent loan to make needed repairs. The terms of the 2 loans are as follows: Principal Amount Payment Period Note Rate Initial Loan $60,000 33 years 7.0% Subsequent Loan $15,000 33 years 6.5% The family’s adjusted income is $22,000; monthly taxes and insurance are estimated at $90/month. (1) Calculate the Annual Payment at the Note Rate $389 Initial Loan (Amortized amount for $60,000 @ 7% for 33years) $ 92 Subsequent Loan ($15,000 @ 6.5% for 33 years) $481 Total (2) Calculate the Minimum Payment for Principal and Interest $367 Minimum amount for PITI* ($22,000 ÷ 12 months x0.20) $277 Minimum amount for PI* ($367 -$90) (3) Calculate the Required Payment at 1 Percent $222 Monthly payment at the subsidized rate ($75,000 @ 1% for 33years) (4) Compute Monthly Interest Credit $481 Monthly payment at the note rate -$277 Required payment is the greater of (2) or (3) $204 Monthly payment subsidy * PI = Principal and Interest PITI = Principal, Interest, Taxes, and Insurance EIR = Equivalent Interest Rate ____________________________________________________________________________________________ 6-26 HB-1-3550 SECTION 4: UNDERWRITING A LOAN FOR A SPECIFIC PROPERTY 6.14 APPROVING A SPECIFICPROPERTY Underwriting for a specific property begins after the applicant has been determined eligible and submits information about the property. • Applicants who do not currently own the property must submit an option or sales contract. The sales contract must specify whether the purchaser or seller will be paying for the inspections and certifications. • Applicants who already own the property must submit evidence of ownership as described in Paragraph 5.11, a legal description, and a property survey showing all structures on the site. If the property appears to be acceptable (refer to Paragraph 5.17 B. for additional guidance), the Loan Originator requests an appraisal of the property. If the property is not acceptable, the Loan Originator must notify the applicant and provide a new Form RD 1944-59, Certificate of Eligibility. 6.15 FUNDS AVAILABLE FORCLOSING If the applicant must pay for closing costs that cannot be financed, or plans to make a down payment to reduce the loan amount, the Loan Originator must obtain complete copies of the borrower’s two most recent consecutive bank statements to ensure that the applicant has sufficient funds to pay the required costs, or can demonstrate that the funds will be available before closing. If additional funds are to be received from an outside source, the Loan Originator must ensure that the applicant has completed Form RD 3550-2, Request for Verification of Gift/Gift Letter, to certify that the additional funds will not need to be repaid. HB-1-3550 6.16 CALCULATING THE APPROVABLE LOAN AMOUNT Once the Loan Originator verifies and enters all applicable applicant information and receives the appraisal, then UniFi can be used to determine whether the applicant appears to qualify for the needed loan amount, and if not, determine whether there are ways to make the loan feasible. A. Calculating the Approvable Loan at Standard Terms Once the required information is entered, the worksheet automatically computes the PITI and TD ratios, determines whether the applicant is eligible for a payment subsidy and the amount, and determines whether the applicant can afford the selected property using standard loan terms. If UniFi indicates that the loan can be approved, the Loan Originator should prepare the loan approval package, as described in Paragraph 6.17. B. Working with Applicants Who Do Not Qualify Using Standard Terms If the applicant cannot be approved for a loan using standard terms, the Loan Originator should determine whether any of the adjustments described below are possible. If any of the adjustments make the loan feasible, the Loan Originator should prepare the loan approval package, as described in Paragraph 6.17. 1. Possible Applicant Actions To Make A Loan Feasible The Loan Originator should discuss with the applicant options for enhancing their ability to obtain Agency financing including: (1) identifying additional parties to the note; (2) seeking down payment assistance or other assistance programs to supplement the Agency loan; (3) providing an additional down payment to reduce the principal amount of the loan; (4) seeking a less expensive dwelling; or (5) obtaining leverage funds with terms more favorable than available from the Agency. 2. Possible Agency Actions to Make A Loan Feasible The Loan Originator should first consider any compensating factors, as described in Paragraph 4.24 A., that have not yet been considered and does not result in multiple risk layering. The Loan Originator should then recompute the loan using a 38 year term provided the applicant’s income qualifies for a 38 year loan. 6-27 (01-23-03) SPECIAL PN Revised (03-15-19) PN 522 PROPERTY ELIGIBILITY HB-1-3550 Attachment 6-A Page 2 of 2 PROPERTY INFORMATION Sales Contract or RD 3550-34, Option to Purchase Real Property Metes and Bounds Description Plot Plan (new construction and major rehabilitation only) ENVIRONMENTAL INFORMATION RD Instruction 1970-B, Exhibit D “Environmental Checklist for Categorical Exclusions” Environmental Report/Environmental Assessment (if necessary, prepared in accordance with RD Instruction 1970- B, Exhibit C “Guide to Applicants for Preparing Environmental Reports for Categorical Exclusions under §1970.54” or RD Instruction 1970-C, Exhibit B “Guide to Applicants for Preparing Environmental Assessments,” respectively) (as appropriate) FEMA’s Standard Flood Hazard Determination Form FEMA’s Elevation Certificate (if necessary) 1970-F, Exhibit B, Attachment 2 “Private Party Notice to Applicant/Lender for Floodplain” (if necessary) APPRAISAL INFORMATION UNLESS THE SUBJECT TO APPRAISAL ALLOWANCE WAS USED Uniform Residential Appraisal Report Form 1007, Marshall and Swift Square Foot Appraisal Form (optional) RD 1922-15, Administrative Appraisal Review for Single Family Housing CERTIFICATES (for existing housing and already-existing new construction not covered by a 10-year warranty) Termite Inspection Certificate Plumbing/Water/ Sewage Certification Electrical Heating/Cooling Certification EXISTING HOUSING Documentation of Whole House Inspection Contractor’s Estimate or Bid (if applicable) NEW CONSTRUCTION OR REHABILITATION Drawings and Specifications (for new construction must have RD 1924-25, Plan Certification) RD 1924-2, Description of Materials RD 1924-19, Builder’s Warranty or Insured 10-Year Home Warranty [Type here] [Type here] [Type here] HB-1-3550 Attachment 6-B Page 1 of 8 ATTACHMENT 6-B LOAN QUALITY REVIEW Quality loan underwriting ensures that the Agency properly and prudently uses funds and contributes to reducing the first and second year delinquency rates, when coupled with homeownership education. I. State Office Monitoring State Offices must periodically conduct quality checks on new loans, as well as on withdrawn and rejected applications, for each Field Office to confirm that the Loan Approval Official complied with the underwriting standards and procedures. A minimum of one first year loan, one withdrawn, and one rejected application, or five percent of loans in each of these categories (whichever is greater) will be reviewed for each Loan Approval Official at least annually using the questions in item IV. of this attachment. A State Office Summary of these reviews (item III. of this attachment) will be submitted to National Office at SFHDIRECTPROGRAM@usda.gov for the prior fiscal year no later than December 31st. In addition to these annual reviews, the National Office will generate a list of severely delinquent first and second year loans (loans that were three plus installments behind or in foreclosure, bankruptcy, or moratorium) for State Office review. The list will be generated at least two times (more often if the State’s new loan delinquency rate warrants) during the fiscal year. Selected State Offices will conduct these reviews using this attachment. Upon receiving an email notice from the National Office, the State Office will have 30 days to review the selected new loans in-house and then email the results to the National Office at SFHDIRECTPROGRAM@usda.gov. II. National Office Monitoring The National Office will hold a teleconference with State Offices to discuss their submitted review results and actions they have or will take to address noted underwriting weaknesses or trends. (01-23-03) SPECIAL PN Revised (03-19-20) PN 534 HB-1-3550 Attachment 6-B Page 2 of 8 III. State Office Summary Date: State: State’s (current) 1st Year Delinquency Rate: State’s (current) 2nd Year Delinquency Rate: Number of Loan Approval Officials: Number of Loan Originators: A. Please describe any underwriting and/or post-closing reviews or other oversight activities the State Office has completed in the last year. B. Please describe issues or trends that were identified through State Office oversight in the last year, and what has been done to resolve them. C. Please address any issues, trends, or factors you think may be contributing to new loan delinquency (first and second year loans) in your state. D. Based on the results of the individual file reviews, list any follow up action needed (e.g. training to be provided, action to be taken in an automated system, follow up with NFAOC, etc.) and timeframe for completion. Use a continuation sheet if necessary. Action Item Person Responsible Target Date Recommended Reports: • 24 Report • Summary of Active MonthlyNew Loans (Hyperion – SFH (rddw)>SFH Direct>Loan Servicing>SFHD New Loans Drilldown – Servicing State) • UniFi State and Field Office Management Reports a. Are the Loan Originator’s income projections within 10 percent of the reviewer’s income calculations? _____ Yes _____ No b. Explain any difference between annual and repayment calculations (e.g. non-taxable income “grossed up” as applicable, different sources of income were used, etc.). B. Creditworthiness: 1. What was the credit score(s) for the applicant(s)? Applicant: __________ Co-applicant: __________ 2. Did the applicant(s) have more than one credit score? _____ Yes _____ No If no, reviewer to provide brief narrative on this issue, including any non-traditional credit verifications that were used: 3. If the applicant’s credit score was under 640, was Form RD 1944-61 used to evaluate the TMCR? _____ Yes _____ No _____ NA 4. If the applicant’s credit history as reported on the TMCR and third-party verifications indicated unacceptable credit handling: i. Were the circumstances properly documented? _____ Yes _____ No _____ NA Reviewer to provide brief narrative on this issue below: ii. Was an allowable exception approved by the Loan Approval Official? _____ Yes _____ No _____ NA (01-23-03) SPECIAL PN Revised (03-19-20) PN 534 HB-1-3550 Attachment 6-B Page 5 of 8 C. Qualifying Ratios: 1. Were all debts reported on the credit report included in the debt-to-income ratios? _____ Yes _____ No If no, which debts were excluded and what kind of documentation was used to support the decision? 2. Based on the reviewer’s repayment income calculation as determined above as well as the established and verified factors at the time of loan closing (loan amount, monthly taxes and insurance, liabilities listed on the TMCR, etc.), were the resulting qualifying ratios within the applicable parameters? Reviewer’s ratio calculations below: PITI: Total Debt: If no, was a compensating factor properly used and documented? _____ Yes _____ No Reviewer to provide brief narrative on this issue below: 3. Was an exception approved by the Loan Approving Official or by a higher-level supervisor when required? _____ Yes _____ No _____ NA If yes, name of supervisor (if applicable): _____________________________________________ 4. Did the applicant have payment shock? _____ Yes _____ No Reviewer calculation below or enter “could not be measured” if applicable: Payment shock = (Total proposed principal, interest, taxes, and insurance payment after subsidy / current housing expense excluding utilities) – 1 HB-1-3550 Attachment 6-B Page 6 of 8 If payment shock is more than 100%: a. Were there other risk layers (adverse credit waivers, use of compensating factors, etc.)? _____ Yes _____ No _____ NA b. Did the Loan Approval Official counsel the applicant about payment shock? _____ Yes _____ No _____ NA D. Eligible Loan Purposes: Were Agency funds used for eligible purposes? _____ Yes _____ No If no, explain: E. Property Eligibility Requirements: 1. Was the property located in an eligible area per http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do? _____ Yes _____ No If a printout from this site is not on file, the reviewer should enter the property address into this site. 2. Was the appropriate environmental analysis completed prior to obligation of funds? _____ Yes _____ No 3. Was there proof of adequate insurance at closing? _____ Yes _____ No F. Debts vs. Market Value: Were the total of all debts secured by the property less than or equal to the property’s market value as determined by the appraisal, except by allowable excess costs? _____ Yes _____ No If no, provide explanation below: (01-23-03) SPECIAL PN Revised (03-19-20) PN 534 HB-1-3550 Attachment 6-B Page 7 of 8