If you are a loan officer just learning your way around FHA financing you need to get up to speed quick. The FHA lending window of opportunity has been open for a little while now and it only seems like it will be around for quite some time to come. There are some differences between FHA loans and Conventional loans that you need to be aware of. For further details on these differences see the article on GetPreQualified.com called: Differences Between FHA Loans And Conventional Loans.
The following list of items spells out a few places where loan officers and the loan files get into trouble. Pay attention to these tips to keep loans in your pipeline moving forward. In my early days in the mortgage business, I was a processor and processed a lot of loan files. Here are some of the common sticky areas where the loan officers that I worked for got into some rough spots with their loans. This is not a complete list, but these are some of the highlights.
Common Sense Underwriting - Common Sense Explanations
Tell the borrower’s story. A good letter of explanation goes a long way to getting an underwriter to approve a loan. Make sure that the story makes sense and that the problems that caused the credit problems if there were some have been resolved. Also, present the loan in a way that the underwriter doesn’t have to dig for stuff. If the underwriter has to dig, they’ll probably dig a hole too big to get your loan approved.
Check CAIVRS
This is highly important to do right off the bat. If you are not allowed to do it at your company have your processor do it. CAIVRS stands for Credit Alert Interactive Voice Response System. This is a system used by FHA to track delinquent borrowers when it comes to federal loans, taxes etc. It happens all too often where a loan gets to final underwriting only to find out that the borrower is in the CAIVRS system and is disqualified from getting an FHA loan. Check this first before you put much time in to your loan.
Collect And Submit All Supporting Documents
This is a critical phase of the FHA loan process. Your processor should keep you out of trouble here, but as the Loan Officer it should be your responsibility to know exactly what you need for your borrower’s situation.
For example, let’s say that your borrower does not get an automated underwriting approval so you need to go to manual underwriting. When this is the case, you will most likely have to submit some type of proof of rent payments. In an automated approval scenario often you will not have to prove rent history unless it is specifically asked for. During the loan interview process have you asked about rental history? Have you asked how your borrower pays their rent? Make sure that you ask these questions up front.
Make Income Calculations and Review All Bank Statements
These two things are definitely deal killers. I don’t know how many loans I processed where the loan officer turned in the pay stubs without reviewing them. There two major themes that I came across when I was processing loans: loan officers not calculating income and debt to income ratios properly and not reviewing bank statements.
- Review Pay Stubs - Many times processors and underwriters catch more income than less. Often non taxable income was not grossed up by either 15 to 25%. However, more than one deal was killed because the Loan Officer failed to see different types of wage garnishments like child support, or 401K loan paybacks. As a loan officer, make sure that you review the pay stubs thoroughly and that they match closely to the W2’s for the previous year.
- Review Bank Statements - The worse case here is turning in bank statements with negative marks in them like NSF’s – non sufficient funds. NSF’s are a kiss of death for most deals as it brings into question that the borrower does not know how to manage their home. It also suggests that the borrower’s credit is not worthy of having a mortgage. What bank wants to set themselves up for a borrower who will write back checks?
The other deal killer here is large deposits. As a Loan Officer, you must go through the bank statements and look for large and unusual deposits. This is especially true if you have to use assets to get a loan approved.
Now that you have some additional information about FHA Loans, get the 2008 FHA Origination Guide to help you sell more loans and help more borrowers get into their new homes. Good luck and happy originating.
