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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2017

Prepare for Program Changes

Stay up to date on government loan programs to provide more options

With the refinance market shrinking and the availability of affordable housing dwindling in many markets, many loan programs will be loosening their guidelines. Government and government-sponsored enterprise (GSE) loans still remain the dominant programs for most borrowers, so it is important for originators to keep up with any changes in those programs.

Tracking all of the changes to lending guidelines made on Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA), U.S. Department of Veterans Affairs (VA), Fannie Mae and Freddie Mac loan programs can be difficult, however. One way to stay current is to subscribe to their newsletters, which will ensure you receive updates on changes in a timely fashion.

Continuing education is such a big part of a loan originator’s job function that it can’t really be overstated. You must know the guidelines of the loan programs you use or you risk losing clients when their mortgages get denied.

Check your findings

Change often comes fast in this industry, so when you run loan scenarios through automatic-underwriting and risk-assessment tools such as Fannie Mae’s Desktop Underwriter (DU), Freddie Mac’s Loan Prospector (LP), FHA’s TOTAL Scorecard or USDA’s Guaranteed Underwriter System (GUS), it is important to read the entire findings they return. Check how the findings address the income, credit and value sections, for example. You may be surprised at what is currently being requested — or not requested — by these findings.

r_2017-08_rufty_spotLately, many of these systems are not requesting federal tax returns on straight W2 wage earners. Instead, they want to see just a current paystub dated within the last 30 days and, sometimes, the borrowers’ W2s from the previous year. This reduces the amount of paperwork loan originators must request from borrowers.

GSE findings also will inform you if your borrower qualifies for Fannie Mae’s Home-Ready or Freddie Mac’s Home Possible Advantage low-downpayment program. These two programs allow qualified buyers to make 3 percent downpayments on conforming loans and will often pencil out better than the FHA 3.5 percent downpayment program.

It is OK to let borrowers know when you do not specialize in a program they are asking about.

In addition, GSE findings can reveal when borrowers looking to refinance their primary home with a rate-and-term or cash-out refinance may not be required to get a new appraisal done on the property. When was the last time that requirement was waived? Probably at least 10 years ago.

This is where educated originators outshine their competition. Staying up to date on government and GSE lending guidelines and running scenarios through DU, LP, GUS and Scorecard will help ensure you present your borrowers with the best program to fit their needs.

Presenting several loan options that fit your borrowers’ needs is better than trying to hard sell them on a single program that doesn’t quite fit. Today’s borrowers shop online, talk to Realtors and comparison shop with other mortgage companies. If you try to sell an FHA loan while another originator presents both FHA and GSE loans, guess who will work with that borrower?

Understand your programs

Beyond staying up to date on changes and reading the findings, it also is important to really know the government programs, so you can present their products with confidence. If your specialty is VA loans, for example, learn the residual income requirements, which are based on family size and estimated square footage of the property. This determines the residual income needed to close your loan.

Originators dealing with FHA loan products should know they often can get borrowers with a high debt-to-income ratios approved if those borrowers have good compensating factors such as high credit scores or larger downpayments. This is the type of information you can learn by reviewing Scorecard findings.

More online

Keep up with government loan programs by following their newsletters at:

FHA Lender Insight newsletters:

VA Loan Guaranty Service newsletters:

Fannie Mae Notification Center:

Freddie Mac Single-Family News Center:

The USDA Rural Development home-loan program allows borrowers to finance closing costs into the loan amount without increasing the interest rate for a lender credit. This is a good option for borrowers with limited funds, but only if they qualify. The home must appraise high enough to cover the purchase price and closing costs, and the home must be located in an approved USDA area. If you work in a state that has a high percentage of USDA-approved areas, this program will benefit a lot of your borrowers, especially those with limited funds.

The USDA also recently lowered its up-front fee from 2.75 percent to 1 percent. This fee is financed into the total loan amount, much like the 1.75 percent FHA mortgage insurance premium (MIP). In addition, USDA lowered its monthly mortgage insurance from 0.5 percent to 0.35 percent. These decreases make an already highly affordable loan product even better for buyers with limited funds.

Choose your niches

The recent USDA changes show why it is imperative to stay up to date on product guidelines. A few percentage points on a fee or rate can make a huge difference in how well a program fits your borrowers’ needs. Only once you know the guidelines and how each program works can you present the best options to your borrowers and educate them on why a government loan might work better than a GSE loan.

There are many different types of government loan programs, however, so it might be best to pick one entity and learn as much as you can about the guide-lines for its programs. Then when an opportunity presents itself, you will know how to explain how the FHA downpayment-assistance program or the VA energy-efficient mortgage works. You might even be able to help some buyers with limited funds purchase their first home through Freddie Mac’s Home Possible Advantage program.

Remember, however, that it is OK to let borrowers know when you do not specialize in a program they are asking about. If a borrower is looking for a stated-income loan, for example, and your company primarily underwrites and funds traditional financing through GSE-backed loans, then stick with those. Trying to be a catch-all originator will only hurt your business and reputation. Consumers do not go to a steakhouse to order fish.


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