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FHA Lending Guide
03/18/2015
Equal Housing Lender © 2015 Ocwen Loan Servicing, LLC - 1661
Worthington Road, Suite 100 - West Palm Beach, FL 33409. (800-7664622)NMLS #1852. Trade/Service marks are the property of Ocwen Loan
Servicing, LLC. Some products may not be available in all states.
Information, rates and pricing are subject to change without notice at the
sole discretion of Ocwen Loan Servicing, LLC. All loan programs subject to
borrowers meeting appropriate underwriting conditions. Advertisement for
Mortgage Professionals Only. This is not a commitment to lend. Other
restrictions apply. All rights reserved.
FHA Lending Guide
300 - Table of Contents
300 -
FHA LOANS ........................................................................................................................................ 300-1
PRODUCT DESCRIPTION ...................................................................................................................................... 300-1
Product Description ....................................................................................................................................... 300-1
Notice ............................................................................................................................................................ 300-1
AUS Guidelines ............................................................................................................................................. 300-1
FRM Product Codes ...................................................................................................................................... 300-2
ARM Product Codes ...................................................................................................................................... 300-4
Ineligible FHA Programs ............................................................................................................................... 300-5
ARM Features................................................................................................................................................ 300-6
ARM Interest Adjustment Table.................................................................................................................... 300-7
Case Number Assignment and Cancellation Requesting Case Numbers ...................................................... 300-8
Automatic Case Number Cancellation .......................................................................................................... 300-8
Case Number Reinstatement .......................................................................................................................... 300-8
Transferring Case Numbers ........................................................................................................................... 300-9
HUD Handbooks & Mortgagee Information ............................................................................................... 300-10
HUD Section of the Act and ADP Codes .................................................................................................... 300-10
LOAN TERMS .................................................................................................................................................... 300-11
Loan Terms .................................................................................................................................................. 300-11
Maximum Loan Amount ............................................................................................................................. 300-11
Minimum Loan Amount .............................................................................................................................. 300-11
Base Loan .................................................................................................................................................... 300-12
Maximum LTV ............................................................................................................................................ 300-12
Identity of Interest Transactions .................................................................................................................. 300-13
Non-Occupying Co-Borrowers .................................................................................................................... 300-14
Three and Four Unit Properties ................................................................................................................... 300-15
Building On Own Land ............................................................................................................................... 300-15
Paying Off Land Contract ............................................................................................................................ 300-16
Occupancy of Former Investment Property ................................................................................................. 300-17
Required Minimum Cash Investment .......................................................................................................... 300-17
Maximum Number of FHA Loans............................................................................................................... 300-18
Financed Properties and Maximum Exposure ............................................................................................. 300-19
ELIGIBLE TRANSACTIONS ................................................................................................................................. 300-20
Temporary Buydowns ................................................................................................................................. 300-20
Construction ................................................................................................................................................ 300-20
Housing History ........................................................................................................................................... 300-20
Eligible Borrowers ....................................................................................................................................... 300-21
Occupancy ................................................................................................................................................... 300-21
Paying Off Debt ........................................................................................................................................... 300-21
Purchase ....................................................................................................................................................... 300-22
Refinances ................................................................................................................................................... 300-23
General Refinance Requirements ................................................................................................................ 300-24
FHA Refinance Credit Query ...................................................................................................................... 300-25
County Loan Limits ..................................................................................................................................... 300-25
Rate and Term Refinance ............................................................................................................................ 300-26
Occupancy ................................................................................................................................................... 300-26
LTV Calculation Seasoning Requirements .................................................................................................. 300-26
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Maximum Insurable Mortgage .................................................................................................................... 300-27
Maximum Cash Back to the Borrower ........................................................................................................ 300-28
Mortgage Payment History Requirements ................................................................................................... 300-28
Subordinate Financing ................................................................................................................................. 300-29
Refinance Buyouts ....................................................................................................................................... 300-29
Short Payoffs ............................................................................................................................................... 300-30
Cash Out Refinance ..................................................................................................................................... 300-31
Maximum LTV/CLTV ................................................................................................................................ 300-31
Secondary Financing ................................................................................................................................... 300-32
Ownership Seasoning Requirements ........................................................................................................... 300-32
STREAMLINE REFINANCES................................................................................................................................ 300-33
Streamline Refinances ................................................................................................................................. 300-33
Ineligible Non-Credit Qualifying Streamlines ............................................................................................. 300-33
Max Loan Amount without Appraisal ......................................................................................................... 300-34
Max Loan Amount Credit Qualifying with Appraisal ................................................................................. 300-35
Max Loan Amount Non-Credit Qualifying with Appraisal ......................................................................... 300-36
Net Tangible Benefit ................................................................................................................................... 300-37
Seasoning Requirements .............................................................................................................................. 300-38
Max Cash Back to Borrower ....................................................................................................................... 300-38
Secondary Financing ................................................................................................................................... 300-38
Occupancy and Property Types ................................................................................................................... 300-38
Employment / Income Verification ............................................................................................................. 300-39
Social Security Validation ........................................................................................................................... 300-39
Qualifying Ratios - ...................................................................................................................................... 300-40
For Case Numbers Assigned prior to April 21, 2014 .................................................................................. 300-40
Qualifying Ratios - ...................................................................................................................................... 300-41
For Case Numbers Assigned on or after April 21, 2014 .............................................................................. 300-41
Qualifying Ratios - ...................................................................................................................................... 300-42
For Case Numbers Assigned on or after April 21, 2014 (Continued).......................................................... 300-42
Qualifying Ratios - ...................................................................................................................................... 300-43
For Case Numbers Assigned on or after April 21, 2014 (Continued).......................................................... 300-43
Maximum Qualifying Ratio Matrix ............................................................................................................. 300-44
Credit Requirements .................................................................................................................................... 300-45
Mortgage Payment History .......................................................................................................................... 300-45
Asset Documentation ................................................................................................................................... 300-45
Appraisal Requirements............................................................................................................................... 300-45
Loan Application ......................................................................................................................................... 300-46
CAIVRS ...................................................................................................................................................... 300-46
LPD/GSA List ............................................................................................................................................. 300-46
TOTAL Scorecard ....................................................................................................................................... 300-46
Mortgage Insurance ..................................................................................................................................... 300-46
IRS Form 4506-T......................................................................................................................................... 300-47
SECONDARY FINANCING .................................................................................................................................. 300-48
Overview ..................................................................................................................................................... 300-48
Permissible Sources ..................................................................................................................................... 300-48
Ineligible Secondary Financing Sources ...................................................................................................... 300-48
Secondary Financing From Family Members for Purchase Transactions ................................................... 300-49
Borrowed Down Payment ............................................................................................................................ 300-49
Terms and Conditions .................................................................................................................................. 300-50
92900 Completion for Secondary Financing ............................................................................................... 300-51
Modified HELOC ........................................................................................................................................ 300-51
GEOGRAPHIC RESTRICTIONS ............................................................................................................................ 300-52
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Approved States ........................................................................................................................................... 300-52
OCCUPANCY AND PROPERTY ............................................................................................................................ 300-53
Property Types ............................................................................................................................................. 300-53
Primary Residence ....................................................................................................................................... 300-53
3-4 Units Properties ..................................................................................................................................... 300-53
Condos ......................................................................................................................................................... 300-54
PUDs............................................................................................................................................................ 300-54
HUD REO ................................................................................................................................................... 300-55
HUD REO (Continued) ............................................................................................................................... 300-56
HUD REO (Continued) ............................................................................................................................... 300-57
HUD REO (Continued) ............................................................................................................................... 300-58
Repair Escrows ............................................................................................................................................ 300-58
Deed Restrictions ......................................................................................................................................... 300-59
Listed for Sale .............................................................................................................................................. 300-59
Ineligible Property Types ............................................................................................................................ 300-59
Leasehold Estates ........................................................................................................................................ 300-60
Requirements ............................................................................................................................................... 300-60
Lease Requirements ..................................................................................................................................... 300-60
Ground Rents ............................................................................................................................................... 300-61
ELIGIBLE BORROWERS ..................................................................................................................................... 300-62
Number of Borrowers .................................................................................................................................. 300-62
Borrower Requirements ............................................................................................................................... 300-62
Borrower Identity Verification .................................................................................................................... 300-63
Borrower Names .......................................................................................................................................... 300-63
Co-Borrowers / Co-Signors ......................................................................................................................... 300-64
HUD Employees .......................................................................................................................................... 300-65
Living Trust ................................................................................................................................................. 300-65
Living Trusts and Security Instrument ........................................................................................................ 300-65
Certification of Trust ................................................................................................................................... 300-66
Trust Loan Documentation Requirements ................................................................................................... 300-66
Military Personnel ....................................................................................................................................... 300-66
Non-Purchasing Spouse ............................................................................................................................... 300-66
Mandatory Rejection of a Borrower ............................................................................................................ 300-67
Borrower Waiting Period ............................................................................................................................. 300-68
Eligibility for Federal Related Credit .......................................................................................................... 300-68
Effect of Past Delinquencies on Eligibility .................................................................................................. 300-68
Ineligible Parties .......................................................................................................................................... 300-69
Documenting Borrower Eligibility .............................................................................................................. 300-69
INCOME ............................................................................................................................................................ 300-70
General Income............................................................................................................................................ 300-70
Stable Monthly Income................................................................................................................................ 300-70
Employment History.................................................................................................................................... 300-70
Verbal VOE ................................................................................................................................................. 300-71
Verbal VOE Self-Employed ........................................................................................................................ 300-72
AUS Documentation .................................................................................................................................... 300-72
IRS Form 4506-T prior to April 15th ........................................................................................................... 300-73
IRS Form 4506-T prior to June 15th............................................................................................................. 300-74
IRS Form 4506-T after June 15th ................................................................................................................. 300-75
IRS Form 4506-T Not Required to File ....................................................................................................... 300-75
Salaried / Wage Income ............................................................................................................................... 300-76
Paystub and W2 Requirements .................................................................................................................... 300-76
Alimony, Child Support, Maintenance ........................................................................................................ 300-77
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Auto Allowances and Expense Account Payments ..................................................................................... 300-78
Capital Gains ............................................................................................................................................... 300-78
Commission Income .................................................................................................................................... 300-79
Employer Differential Payments ................................................................................................................. 300-79
Employment by Family Owned Business .................................................................................................... 300-79
Employment Gaps ....................................................................................................................................... 300-80
Government Assistance Programs ............................................................................................................... 300-80
Section 8 Home Ownership Vouchers ......................................................................................................... 300-81
Interest and Dividend Income ...................................................................................................................... 300-81
Military Income ........................................................................................................................................... 300-82
Mortgage Credit Certificate ......................................................................................................................... 300-82
New Employment ........................................................................................................................................ 300-82
Non-Taxable Income ................................................................................................................................... 300-83
Note Receivable Income .............................................................................................................................. 300-83
Overtime / Bonus Income ............................................................................................................................ 300-84
Second Job Income ...................................................................................................................................... 300-85
Projected Income ......................................................................................................................................... 300-86
Recent Return to Work Force ...................................................................................................................... 300-86
Rental Income .............................................................................................................................................. 300-87
Rent Loss Insurance ..................................................................................................................................... 300-88
Retirement and Social Security.................................................................................................................... 300-89
Self-Employed Overview ............................................................................................................................ 300-89
Effective Income .......................................................................................................................................... 300-90
Length of Time in Business ......................................................................................................................... 300-91
Self-Employed Income Documentation ....................................................................................................... 300-92
Foreign Income ............................................................................................................................................ 300-93
Tip Income ................................................................................................................................................... 300-93
Temporary Leave and Short Term Disability Income ................................................................................. 300-94
Trailing Spouse ............................................................................................................................................ 300-95
Trust Income ................................................................................................................................................ 300-95
VA Benefits ................................................................................................................................................. 300-95
Borrowers on Strike ..................................................................................................................................... 300-96
LIABILITIES AND QUALIFYING RATIOS ............................................................................................................. 300-97
Alimony ....................................................................................................................................................... 300-97
Child Support ............................................................................................................................................... 300-97
Authorized User Accounts ........................................................................................................................... 300-97
Condominium Fees ...................................................................................................................................... 300-97
Contingent Liability ..................................................................................................................................... 300-98
Conversion of Existing Primary Residence ................................................................................................. 300-99
Installment Debt ........................................................................................................................................ 300-100
Obligations not considered as Debt ........................................................................................................... 300-100
Projected Debt ........................................................................................................................................... 300-101
PITIA ......................................................................................................................................................... 300-101
Qualifying Ratios ....................................................................................................................................... 300-102
For Case Numbers Assigned prior to April 21, 2014 ................................................................................ 300-102
Qualifying Ratios - .................................................................................................................................... 300-103
For Case Numbers Assigned on or after April 21, 2014 ............................................................................ 300-103
Qualifying Ratios - .................................................................................................................................... 300-104
For Case Numbers Assigned on or after April 21, 2014 (Continued)........................................................ 300-104
Qualifying Ratios - .................................................................................................................................... 300-105
For Case Numbers Assigned on or after April 21, 2014 (Continued)........................................................ 300-105
Qualifying Ratios - NOTES....................................................................................................................... 300-105
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For Case Numbers Assigned on or after April 21, 2014 ............................................................................ 300-105
Maximum Qualifying Ratio Matrix ........................................................................................................... 300-106
Compensating Factors ............................................................................................................................... 300-107
For Case Numbers assigned prior to April 21, 2014.................................................................................. 300-107
Compensating Factors ............................................................................................................................... 300-108
For Case Numbers assigned on or after April 21, 2014 ............................................................................. 300-108
Residual Income for Manually Underwritten FHA Loans ......................................................................... 300-110
Residual Income for Manually Underwritten FHA Loans (Continued) .................................................... 300-111
Residual Income for Manually Underwritten FHA Loans (Continued) .................................................... 300-112
Residual Income for Manually Underwritten FHA Loans (Continued) .................................................... 300-113
Undisclosed Debt ....................................................................................................................................... 300-114
Revolving or Open-Ended Debt ................................................................................................................ 300-114
Student Loans ............................................................................................................................................ 300-115
CREDIT ........................................................................................................................................................... 300-116
General ...................................................................................................................................................... 300-116
TOTAL Scorecard and AUS ..................................................................................................................... 300-116
Bankruptcy Documentation ....................................................................................................................... 300-117
Chapter 7 Bankruptcy ................................................................................................................................ 300-118
Chapter 13 Bankruptcy .............................................................................................................................. 300-119
Disputed Accounts ..................................................................................................................................... 300-120
Analysis of Collections and Judgments ..................................................................................................... 300-121
Capacity Analysis of Collections and Judgments ...................................................................................... 300-122
Consumer Credit Counseling ..................................................................................................................... 300-123
CAIVRS .................................................................................................................................................... 300-124
Credit Inquiries .......................................................................................................................................... 300-124
Credit Reports ............................................................................................................................................ 300-125
Escrow Waivers ......................................................................................................................................... 300-125
Credit Score Requirements ........................................................................................................................ 300-126
Debts Omitted from Credit Report ............................................................................................................ 300-126
Authorized User Accounts ......................................................................................................................... 300-126
Delinquent Federal Debt ............................................................................................................................ 300-127
Duplicate Public Records .......................................................................................................................... 300-127
Foreclosures / Short Sales .......................................................................................................................... 300-128
Housing History ......................................................................................................................................... 300-129
Privately Held Mortgages .......................................................................................................................... 300-130
Multiple Mortgages ................................................................................................................................... 300-130
Non-Traditional Credit .............................................................................................................................. 300-130
Non-Arms Length Transactions................................................................................................................. 300-130
ASSETS ........................................................................................................................................................... 300-131
Asset Verifications .................................................................................................................................... 300-131
Cash Reserve Requirements ...................................................................................................................... 300-131
Ineligible Assets for Cash Reserves ........................................................................................................... 300-132
Business Funds .......................................................................................................................................... 300-132
Cash Reserves – Retirement Accounts ...................................................................................................... 300-133
Cash on Hand............................................................................................................................................. 300-134
Private Savings Clubs ................................................................................................................................ 300-135
Checking, Savings, CDs ............................................................................................................................ 300-135
Joint Assets ................................................................................................................................................ 300-135
Large Deposits ........................................................................................................................................... 300-136
Commission from Sale .............................................................................................................................. 300-137
Credit Card Financing................................................................................................................................ 300-137
Disaster Relief Grants / Loans ................................................................................................................... 300-137
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Down Payment .......................................................................................................................................... 300-138
Earnest Money Deposit.............................................................................................................................. 300-138
Employer Assistance Plans ........................................................................................................................ 300-139
Employer Guarantee Plans ........................................................................................................................ 300-139
Foreign Assets ........................................................................................................................................... 300-139
Gift Funds .................................................................................................................................................. 300-140
Gift Documentation Requirements ............................................................................................................ 300-141
Gift of Equity ............................................................................................................................................. 300-142
Down Payment Assistance Programs ........................................................................................................ 300-142
Individual Development Accounts ............................................................................................................ 300-142
Loans from Family Members .................................................................................................................... 300-143
Collateralized Loans .................................................................................................................................. 300-144
Homeowners Bridal Registry .................................................................................................................... 300-144
Real Estate Proceeds .................................................................................................................................. 300-145
Real Estate Tax Credit ............................................................................................................................... 300-145
Rent Credit................................................................................................................................................. 300-146
Retirement Funds ....................................................................................................................................... 300-147
Sale of Personal Property........................................................................................................................... 300-147
Savings Bonds ........................................................................................................................................... 300-148
Stocks and Bonds....................................................................................................................................... 300-148
Sweat Equity .............................................................................................................................................. 300-148
Trade Equity .............................................................................................................................................. 300-148
Lender Credit ............................................................................................................................................. 300-149
Seller Contributions ................................................................................................................................... 300-150
Unused Funds from Escrow Account ........................................................................................................ 300-151
CLOSING COSTS.............................................................................................................................................. 300-152
Allowable Fees .......................................................................................................................................... 300-152
Discount Points .......................................................................................................................................... 300-152
Rate Lock or Lock-In Fees ........................................................................................................................ 300-153
UFMIP ....................................................................................................................................................... 300-153
Real Estate Broker Fees ............................................................................................................................. 300-154
Premium Pricing ........................................................................................................................................ 300-154
Higher priced Mortgage Loans .................................................................................................................. 300-155
Safe Harbor Qualified Mortgage Loans ..................................................................................................... 300-156
Rebuttable Presumption Qualified Mortgage Loans .................................................................................. 300-156
Interest Credit ............................................................................................................................................ 300-156
MORTGAGE INSURANCE ................................................................................................................................. 300-157
Overview ................................................................................................................................................... 300-157
Determining UFMIP .................................................................................................................................. 300-157
MIP Premiums ........................................................................................................................................... 300-158
MIP Premiums (Con’t) .............................................................................................................................. 300-159
UFMIP Refunds ......................................................................................................................................... 300-159
APPRAISAL REQUIREMENTS ........................................................................................................................... 300-160
General ...................................................................................................................................................... 300-160
Responsibilities .......................................................................................................................................... 300-160
Appraisal Logging ..................................................................................................................................... 300-161
AMC Management .................................................................................................................................... 300-161
Appraiser Independence Safeguards .......................................................................................................... 300-162
Quality of Report ....................................................................................................................................... 300-163
Appraiser Eligibility .................................................................................................................................. 300-163
Converted Appraisals................................................................................................................................. 300-164
Appraisal Portability / Transfers ................................................................................................................ 300-164
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Acceptable Second Appraisals................................................................................................................... 300-165
Re-using the Appraisal .............................................................................................................................. 300-165
Appraisal Updates...................................................................................................................................... 300-166
Photos ........................................................................................................................................................ 300-166
Uniform Appraisal Dataset ........................................................................................................................ 300-167
Appraisal Reporting Forms ........................................................................................................................ 300-167
Lead-Based Paint Standards ...................................................................................................................... 300-168
Environmental Hazards ............................................................................................................................. 300-168
Site Hazards ............................................................................................................................................... 300-169
Mineral Rights ........................................................................................................................................... 300-169
Property Conditions ................................................................................................................................... 300-169
Termite Inspections ................................................................................................................................... 300-169
Well Inspections ........................................................................................................................................ 300-170
Community Water Systems ....................................................................................................................... 300-170
Individual Well Water Systems ................................................................................................................. 300-171
Shared Wells .............................................................................................................................................. 300-171
Well Location ............................................................................................................................................ 300-172
Septic / Sewage Inspections ....................................................................................................................... 300-173
Roof Inspections ........................................................................................................................................ 300-174
Heating Source .......................................................................................................................................... 300-175
Public and Private Streets .......................................................................................................................... 300-176
Carbon Monoxide Detectors ...................................................................................................................... 300-177
Repair Escrow Holdback ........................................................................................................................... 300-178
General Required Repairs .......................................................................................................................... 300-178
Private Transfer Fees ................................................................................................................................. 300-179
3-4 Unit Properties..................................................................................................................................... 300-179
Construction .............................................................................................................................................. 300-179
Existing Construction less than One Year ................................................................................................. 300-180
HUD Form 92541 ...................................................................................................................................... 300-180
Existing Construction, Less than One Year ............................................................................................... 300-181
High Ratio (Over 90% LTV) ..................................................................................................................... 300-181
Low Ratio (90% or less) ............................................................................................................................ 300-182
NATURAL DISASTERS ..................................................................................................................................... 300-183
Overview ................................................................................................................................................... 300-183
Procedure ................................................................................................................................................... 300-183
Example ..................................................................................................................................................... 300-183
Requirements for Affected Areas .............................................................................................................. 300-184
PROPERTY FLIPPING ....................................................................................................................................... 300-185
General ...................................................................................................................................................... 300-185
Overview of FHA Flipping Policy............................................................................................................. 300-185
Owner of Record ....................................................................................................................................... 300-185
90-day Flip Waiver .................................................................................................................................... 300-186
Exceptions to 90 Day Restriction .............................................................................................................. 300-187
Resale 91-180 Days ................................................................................................................................... 300-188
Resale 91-One Year ................................................................................................................................... 300-189
Date of Property Acquisition ..................................................................................................................... 300-190
Anti-Flipping and the Sales Contract ......................................................................................................... 300-190
AUTOMATED UNDERWRITING SYSTEMS ......................................................................................................... 300-191
TOTAL Scorecard ..................................................................................................................................... 300-191
Resubmission ............................................................................................................................................. 300-191
DU ............................................................................................................................................................. 300-192
AUS Resubmission .................................................................................................................................... 300-193
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AUS Tolerances ......................................................................................................................................... 300-193
Post Close Resubmissions ......................................................................................................................... 300-194
AUS Reports .............................................................................................................................................. 300-194
Underwriting Issues ................................................................................................................................... 300-195
Manual Downgrade ................................................................................................................................... 300-196
Downgrade Triggers .................................................................................................................................. 300-197
APPLICATION, DISCLOSURES & COMPLIANCE ................................................................................................ 300-198
General ...................................................................................................................................................... 300-198
Electronic Signatures ................................................................................................................................. 300-198
Laws .......................................................................................................................................................... 300-199
Laws, continued ......................................................................................................................................... 300-200
Predatory Lending ..................................................................................................................................... 300-201
Compliance with Points & Fees................................................................................................................. 300-201
Points and Fees Calculation ....................................................................................................................... 300-202
High Cost Loans ........................................................................................................................................ 300-203
Face-to-Face Interview .............................................................................................................................. 300-203
Sales Contract ............................................................................................................................................ 300-204
Disclosures ................................................................................................................................................ 300-205
Origination Disclosures ............................................................................................................................. 300-205
Social Security Numbers ........................................................................................................................... 300-206
Power of Attorney ..................................................................................................................................... 300-207
Review of Final HUD-1............................................................................................................................. 300-208
CLOSING POLICIES & PROCEDURES ................................................................................................................ 300-209
Scheduling a Loan ..................................................................................................................................... 300-209
Closing Practices ....................................................................................................................................... 300-209
Verification of Employment ...................................................................................................................... 300-209
Closing Protection Letter ........................................................................................................................... 300-209
Taxes.......................................................................................................................................................... 300-209
Insurance .................................................................................................................................................... 300-209
Seller Contributions ................................................................................................................................... 300-210
Premium Pricing Credits............................................................................................................................ 300-210
Principal Reductions .................................................................................................................................. 300-211
HUD Approval Process ............................................................................................................................. 300-211
Funding ...................................................................................................................................................... 300-212
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300 -
FHA Loans
Product Description
Product
Description
Fixed and Adjustable Rate Loans that meet applicable Federal Housing
Administration (FHA) government guidelines.
IMPORTANT: Refer to the 4155.2 for all FHA guidelines not addressed in
this product summary.
Notice
This FHA 203(b) lending guide is an addendum to the HUD 4155
and all corresponding Mortgagee Letters and updates. Brokers
who are approved to submit Ocwen Loan Servicing LLC FHA loans
should refer to the most recent published HUD guidelines for the
Overview, Eligibility Standards, Quality Control, Representations
and Warranties, Registration and Commitments, and Compliance
not referenced herein.
AUS
Guidelines
All Loans must be submitted through FHA TOTAL Scorecard, except for
Streamline Refinance transactions. Brokers may use Fannie Mae’s
Desktop Underwriter.
See Loans Downgraded to a Manual Underwrite section for requirements
on when Ocwen will approve loans that have been run through TOTAL
Scorecard, but were downgraded to a manual underwrite.
IMPORTANT: All FHA loan approvals, whether through AUS or manually
underwritten, are at the discretion of the DE Underwriter.
Continued on next page
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Product Description,
FRM Product
Codes
The following Product Code Matrix outlines the applicable product codes
for FHA FRM Loan products.
Product Name
FHA Fixed Rate
FHA High Balance
NOTE: For loan
amounts >$417,000
Continued
Product Code
Product Feature Options
G1000BEF
Years: 10
FHA Fixed Rate:
G1500BEF
Years: 11-15
G2000BEF
Amortizations 10 to 30 years in 12 month
increments.
Years: 16-20
G2500BEF
Years: 21-25
G3000BEF
Loan Purpose: Purchase, Rate Term
Refinance, and Cash Out Refinance
available.
Years: 26-30
G1512BEF
Years: 10-15
G3015BEF
Years: 16-30
CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES
Product Name
FHA Fixed Rate
FHA High Balance
NOTE: For loan
amounts >$417,000
Product Code
Product Feature Options
GS1000BEF
Years: 10
FHA Fixed Rate:
GS1500BEF
Years: 11-15
GS2000BEF
Amortizations 10 to 30 years in 12 month
increments.
Years: 16-20
GS2500BEF
Years: 21-25
Loan Purpose: Qualifying Streamline
Refinance available.
GS3000BEF
Years: 26-30
GS1512BEF
Years: 10-15
GS3015BEF
Years: 16-30
Continued on next page
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Product Description,
Continued
NON-CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES
Product Name
FHA Fixed Rate
FHA High Balance
NOTE: For loan
amounts >$417,000
Product Code
Product Feature Options
GSNC1000BEF
Years: 10
FHA Fixed Rate:
GSNC1500BEF
Years: 11-15
GSNC2000BEF
Amortizations 10 to 30 years in 12 month
increments.
Years: 16-20
GSNC2500BEF
Years: 21-25
Loan Purpose: Qualifying Streamline
Refinance available.
GSNC3000BEF
Years: 26-30
GSNC1512BEF
Years: 10-15
GSNC3015BEF
Years: 16-30
Continued on next page
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Product Description,
ARM Product
Codes
The following Product Code Matrix outlines the applicable product codes
for FHA ARM Loan products.
Product Name
FHA Adjustable Rate
FHA High Balance
NOTE: For loan
amounts >$417,000
Continued
Product Code
Product Feature Options
GA3100BEF
3/1 Treasury ARM
FHA Adjustable Rate:
GA5100BEF
5/1 Treasury ARM
Amortizations 30 years.
GA7100BEF
7/1 Treasury ARM
GA3115BEF
3/1 Treasury ARM
GA5115BEF
5/1 Treasury ARM
GA7115BEF
7/1 Treasury ARM
Loan Purpose: Purchase, Rate Term
Refinance, and Cash Out Refinance
available.
CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES
Product Name
FHA Adjustable Rate
FHA High Balance
NOTE: For loan
amounts >$417,000
Product Code
Product Feature Options
GAS3100BEF
3/1 Treasury ARM
FHA ARM Rate:
GAS5100BEF
5/1 Treasury ARM
Amortizations 30 years.
GAS7100BEF
7/1 Treasury ARM
Loan Purpose: Qualifying Streamline
Refinance available.
GAS3115BEF
3/1 Treasury ARM
GAS5115BEF
5/1 Treasury ARM
GAS7115BEF
7/1 Treasury ARM
Continued on next page
FHA Loans
300-4
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Product Description,
Continued
NON-CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES
Product Name
Product Code
FHA Adjustable Rate
FHA High Balance
NOTE: For loan
amounts >$417,000
Ineligible FHA
Programs
Product Feature Options
GASNC3100BEF
3/1 Treasury ARM
FHA ARM Rate:
GASNC5100BEF
5/1 Treasury ARM
Amortizations 30 years.
GASNC7100BEF
7/1 Treasury ARM
Loan Purpose: Qualifying Streamline
Refinance available.
GASNC3115BEF
3/1 Treasury ARM
GASNC5115BEF
5/1 Treasury ARM
GASNC7115BEF
7/1 Treasury ARM
The following are ineligible by Ocwen Loan Servicing LLC:













FHA 203K Renovation Loans
$100 Down Payment Program
FHA loans to nonprofit organization borrowers
FHA Military Impacted Area loans
FHA refinance Loans for Borrowers in Negative Equity Position
FHA Section 8 Loans
Hawaiian Homeland Loans
Hope for Homeowners program
HUD 184 Program (Indian Home Loan Guarantee Program)
Texas Section 50(a)(6)
HUD Good Neighbor Next Door (Teacher, Law Enforcement, Fire
Fighter, EMT)
Buydowns
FHA 203(h) Mortgage Insurance for Disaster Victims
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-5
FHA Lending Guide
Product Description,
ARM Features
Continued
The FHA ARM features detailed below provide definitions and other
important loan details:
Features
Comments
Interest Only Feature
Not Available.
Index
The weekly average yield on U.S. Treasury securities adjusted to a
constant maturity of one year.
Conversion Option
None
Prepayment Penalty
Not Permitted
Assumable
Assumable permitted subject to conditions and fees.
Negative Amortization
None
Caps
3/1: 1/1/5
7/1: 2/2/6
5/1: 1/1/5
Rate Adjustments
The interest rate is fixed for the initial period and is then subject to
change on an annual basis thereafter, using the most recent index figure
45 days prior to the interest rate adjustment. The interest rate is rounded
to the nearest 1/8 of one percent point after adding the mortgage margin
to the index
Refer to the ARM Interest Adjustable Table within this
summary.
Floor
The floor rate is never lower than the margin.
Margin
2.000%
Note Rate

ARM Plans
3/1:
3549
5/1:
3550
All plans qualify at Note Rate.
7/1:
3551
Continued on next page
FHA Loans
300-6
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Product Description,
ARM Interest
Adjustment
Table
Continued
The below are exact first payment change dates based on loan
disbursement date required by HUD since FHA ARM loans only adjust 4
times per year.
IMPORTANT: DocMagic will return a Fatal Warning if the interest change
date does not match one of the months below; data entry must be
reviewed and cross-referenced with the below dates to ensure accuracy.
FHA 3/1 ARM Interest Adjustment Date
If the First Payment of the New Loan is:
The last day to Fund:
The First Interest Rate
Change Date Must Be:
January, February, March 2015
02/07/2015
04/01/2018
April, May, June 2015
05/07/2015
07/01/2018
July, August, September 2015
08/07/2015
10/01/2018
October, November, December 2015
11/07/2015
01/01/2019
If the First Payment of the New Loan is:
The last day to Fund:
The First Interest Rate
Change Date Must Be:
January, February, March 2015
02/07/2015
04/01/2020
April, May, June 2015
05/07/2015
07/01/2020
July, August, September 2015
08/07/2015
10/01/2020
October, November, December 2015
11/07/2015
01/01/2021
If the First Payment of the New Loan is:
The last day to Fund:
The First Interest Rate
Change Date Must Be:
January, February, March 2015
02/07/2015
04/01/2022
April, May, June 2015
05/07/2015
07/01/2022
July, August, September 2015
08/07/2015
10/01/2022
October, November, December 2015
11/07/2015
01/01/2023
FHA 5/1 ARM Interest Adjustment Date
FHA 7/1 ARM Interest Adjustment Date
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-7
FHA Lending Guide
Product Description,
Continued
Case Number
Assignment
and
Cancellation
Requesting
Case Numbers
FHA Connection requires users to:
Automatic
Case Number
Cancellation

FHA Connection automatically cancels any uninsured case number
where there has been no activity for six months since the last action
except for:

Loans where an appraisal update has been entered, and/or

Loans that have received the UFMIP.

Last action includes;

Case number assigned,

Appraisal information entered,

Firm commitment issued by FHA,

Insurance application received and subsequent updates, and

Notice of Return and resubmissions.

Last action does NOT include updates to borrower names and/or
property addresses.
Case Number
Reinstatement
Certify, via a checkbox question, that they have an active loan
application for the subject property.
 Provide the subject borrower’s name and social security number for all
existing construction and existing construction less than one year old.
NOTE: Ocwen does not accept FHA loan that are considered Proposed
Construction.

FHA will not reinstate any automatically cancelled case numbers, including
case numbers for condominium units, unless:


The mortgagee provides verification that not reinstating the case
number causes an undue hardship to the borrower that is not
related to recent updates to premiums and underwriting
requirements, or
The mortgagee provides verification that the subject loan closed
prior to cancellation of the case numbers, such as a HUD-1
Settlement Statement.
Continued on next page
FHA Loans
300-8
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Product Description,
Transferring
Case Numbers






Continued
Ocwen will accept loans where the Case Number was transferred from
another lender.
Transferring lenders are expected to cooperate in the transfer of case
numbers. At the borrower’s request, the lender must assign the case
number to Ocwen using the Case Transfer function in the FHA
Connection.
Additionally, the transferring lender:

is not entitled to a fee for the transfer of a streamline refinance
case number, regardless of the current stage of processing for the
loan,

may be entitled to any lock-in fee collected from the borrower at
the time of application,

is required to provide Ocwen with the appraisal, but is not required
to provide any processing documents.
NOTE: If processing documents are provided, the transferring lender
must negotiate the fee with Ocwen, and is not authorized to charge
the borrower a separate fee for the transfer of the processing
documents.
If a case number transfer involves a new borrower using an existing
appraisal, Ocwen

collects an appraisal fee from the new borrower, and

sends the fee to the original lender, who, in turn, refunds the fee
to the original borrower.
If the transfer involves a rejected loan, the original lender must
complete the Mortgage Credit Reject function in FHA Connection prior
to transferring the loan.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-9
FHA Lending Guide
Product Description,
HUD
Handbooks &
Mortgagee
Information
Continued
This product description contains only a portion of HUD’s various lending
Handbooks and Mortgagee Letters. It is the responsibility of the
originating office to ensure that mortgages processed for 203(b) loans
meet HUD’s guidelines.
See the following HUD Handbooks for further clarification or for complete
guidelines:










4000.2 Mortgagees’ Handbook Application through Insurance
(Single Family)
4000.4 Singly Family Direct Endorsement Program
4060.1 FHA Title II Mortgage Approval Handbook
4145.1 Architectural Processing and Inspections for Home
Mortgage Insurance
4150.1 Valuation Analysis for Home Mortgage Insurance
4150.2 Valuation Analysis for Single Family One to Four Unit
Dwellings
4155.1 Mortgage Credit Analysis for Mortgage Insurance on Oneto-Four-Family Properties
4155.2 Lender’s Guide to Single Family Mortgage Insurance
Processing
4165.1 Endorsement for Insurance for Home Mortgage Programs
(Single Family)
Handbooks and Mortgagee Letters can also be obtained from
HUD’s general web site, http://www.hud.gov/index.html.
HUD Section of
the Act and ADP
Codes
Section
203(b)
234(c)
FHA Loans
300-10
HUD Section of Act and ADP Codes
Description
Basic Home Mortgage Insurance FRM
703
Basic Home Mortgage Insurance ARM
729
Condominium FRM
734
Condominium ARM
731
ADP Code
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Loan Terms
Fixed Rate 10, 15, 20, 25 or 30 years (increments of 12 months)
Adjustable Rate: 3/1, 5/1 and 7/1 terms
The maximum term of any refinance with an appraisal is 30 years.
The maximum term for a Streamline refinance mortgage without an
appraisal is the lesser of:

30 Years, or

the remaining term of the mortgage plus 12 years
Loan Terms




Maximum
Loan Amount
Effective with case numbers assigned on or after January 1, 2015:
Maximum Loan Amounts (Continental U.S)
Units
“Floor” Limits
Maximum Standard Loan
Maximum High Balance
Limits
Loan Limits
1
$271,050
$417,000
$625,500
2
$347,000
$533,850
$800,775
3
$419,425
$645,300
$967,950
4
$521,250
$801,950
$1,202,925
Maximum Loan Amounts (Alaska and Hawaii)
Units
“Floor” Limits
Maximum Standard Loan
Maximum High Balance
Limits
Loan Limits
1
$271,050
$625,500
$938,250
2
$347,000
$800,775
$1,201,150
3
$419,425
$967,950
$1,451,925
4
$521,250
$1,202,925
$1,804,375
NOTE: Maximum loan amounts by MSA/County can be located in the FHA Forward limit type
at https://entp.hud.gov/idapp/html/hicostlook.cfm Base loan amounts cannot exceed the
limit set for the individual county.
Minimum Loan
Amount
Ocwen does not have a minimum loan amount.
Continued on next page
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FHA Loans
300-11
FHA Lending Guide
Loan Terms,
Base Loan


Continued
LTVs are determined using the “base” loan amount.
The “base” loan is the maximum loan amount prior to adding any
financed mortgage insurance premium. The type of transaction will
determine the calculation of the base loan amount.
Maximum LTV
LTV Limitations
Purchase
Rate/Term Refinance
Primary Residence
LTV
96.50%¹
97.75%²
Minimum Credit Score
620 (all loan amounts)
620 (all loan amounts)
620 (Standard Loan Amounts)
Cash Out Refinance
1-4
85.00%³
640 (High Balance Loans)
1
Ocwen accepts Secondary Financing only from Family Members for Purchase Transactions. The
Maximum CLTV is 96.50%.
2
The maximum CLTV allowed for fully qualifying and documented Rate / Term Refinance transactions is
97.75%.
3
# of Units
1-4
1-4
The maximum CLTV for a Cash Out Refinance transaction is 85.00%.
LTV Limitations
All Streamline
Refinance with or
without an Appraisal
# of Units
LTV
1
97.75%/97.75%
Minimum Credit Score
620
Continued on next page
FHA Loans
300-12
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Loan Terms,
Identity of
Interest
Transactions


Continued
Identity of Interest Transactions are transactions between family
members, business partners or other business affiliates. Identity-ofinterest transactions are restricted to a maximum LTV of 85%.
However, maximum financing above 85% is permissible under the
following circumstances:
o A family member purchases another family member’s home as
a principal residence.
o If the property is sold from one family member to another and
is the seller’s investment property, the maximum mortgage is
the lesser of:
 85% of the appraised value, or
 the appropriate LTV factor applied to the sales price,
plus or minus required adjustments.
NOTE: The 85% limit may be waived if the family
member has been a tenant in the property for at least
six months immediately predating the sales contract. A
lease or other written evidence must be submitted to
verify occupancy.
o An employee of builder purchasing one of the builder’s new
homes or models as a principal residence.
o A current tenant (including a family member) purchasing a
home that the tenant has rented for at least six (6) months
predating the sales contract, (with lease or other written
evidence), and
o When a corporation transfers an employee to another location,
purchases the employee’s home and sells the home to another
employee.
For identity-of-interest transactions, a family member includes a child,
parent, grandparent (biological, foster or step), sister, step-sister,
brother, step-brother, legally adopted son or daughter, a child who is
a member of the borrower’s household due to placement by an
authorized agency for legal adoption, aunt, or uncle.
Continued on next page
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FHA Loans
300-13
FHA Lending Guide
Loan Terms,
NonOccupying CoBorrowers





Continued
A non-occupying borrower transaction involves two or more
borrowers where one or more of the borrower(s) will not occupy the
property as his/her primary residence.
Non Occupying Co-Borrowers are restricted to a maximum LTV of
75%. However, maximum financing above 75% is permissible under
the following circumstances:
o borrowers are related by blood, marriage, or law, (spouses,
parents/children, siblings, stepchildren, aunts/uncles and
nieces/nephews) or
o unrelated individuals that can document evidence of a family-type,
longstanding and substantial relationship not arising out of the
loan transaction, and
o the subject property is a one unit property.
All borrowers, regardless of occupancy status, must sign the security
instrument and the mortgage note.
If a parent is selling to a child, the parent cannot be the co-borrower
with the child on the new mortgage, unless the LTV is 75% or less.
New non-occupant co-borrowers are not permitted on cash-out
transactions.
Continued on next page
FHA Loans
300-14
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Loan Terms,
Three and
Four Unit
Properties





Building On
Own Land
Continued
Maximum mortgage is limited so that the ratio of the monthly
mortgage payment (PITI plus Homeowners association dues, if
applicable) divided by the monthly net rental income does not exceed
100%.
The monthly payment includes principal, interest, taxes, insurance,
monthly mortgage insurance, and homeowner’s association dues
computed at the note rate.
Net rental is the appraiser’s estimate of fair market rent from all units,
including the unit the borrower will occupy, less the appraisers
estimate for vacancies and maintenance or vacancy factor used by the
jurisdictional Homeownership Center (HOC).
The projected rent may be considered only as gross income for
qualifying purposes, and not used to offset the monthly mortgage
payment.
Three (3) months reserves (PITI) after closing are required on all
transactions. (Reserves may not be derived from a gift.)
Building on own land is not eligible for sale to Ocwen.
Continued on next page
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FHA Loans
300-15
FHA Lending Guide
Loan Terms,
Paying Off
Land Contract
Continued

If a borrower does not receive cash at closing, the new mortgage may
be processed as a purchase or refinance transaction with maximum
FHA-insured financing if the borrower uses the loan to complete
payment on a
o Land contract
o contract for deed, or
o other similar financing arrangements in which the borrower
does not have title to the property.
 Lenders should process cash-out transactions to pay off land
contracts, or refinances on properties subject to ground rents as if
they were cash-out refinances on properties held in fee simple, as
described in the Cash Out Refinance Transactions section of this guide.
 If the property was acquired fewer than 12 months earlier, and the
loan proceeds are to be used to pay off the outstanding balance on the
land contract, plus eligible repairs and renovations, the loan-to-value
(LTV) ratio is applied to the lesser of the
o appraised value of the land and improvements, or
o total cost to acquire the property, which includes the original
purchase price, plus any documented costs the borrower
incurred for rehabilitation, repairs, renovation, or
weatherization, closing costs and reasonable discount points, if
treated as a refinance.
 Equity in the property (original sales price minus the amount owed)
may be used for the borrower’s entire cash investment. However, if
the property was acquired fewer than 12 months earlier, and the
borrower receives more than $500 cash at closing, the loan is limited
to 85% of the lesser of the
o appraised value of the land and improvements, or
o total cost to acquire the property, which includes the original
purchase price, plus any documented costs the borrower
incurred for rehabilitation, repairs, renovation, weatherization,
closing costs and reasonable discount points, if treated as a
refinance.
NOTE: Replenishing the borrower’s own cash expended for repairs,
improvements, renovation, or weatherization is not considered “cash
back,” provided that the borrower can substantiate with cancelled checks
and paid receipts all out-of pocket funds for the improvements.
Continued on next page
FHA Loans
300-16
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Loan Terms,
Continued
Occupancy of
Former
Investment
Property

The maximum mortgage amount available for borrowers who reoccupy
their former investment property as their primary residence and wish
to refinance are subject to the following restrictions:

If occupancy of the former investment property was 12 months or
more prior to the loan application date, then maximum financing
as an owner-occupant is allowed (97.75% for rate/term
refinances; 85% for cash-out refinances)

If occupancy of the former investment property was less than 12
months prior to the loan application date, then the loan is eligible
as a rate/term refinance only with a maximum LTV of 85%.
Required
Minimum Cash
Investment

The minimum cash investment by the borrower is three and one half
percent (3.50%) of the lesser of the appraised value of the property
or the sales price.
Funds used to cover the required minimum cash investment (down
payment), as well as closing costs and fees, must come from the
borrower’s own funds or an acceptable sources as quoted within HUD’s
4155.1 5.B.1.b (Acceptable Sources of Borrower Funds) and must be
verified and properly documented.

Continued on next page
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FHA Loans
300-17
FHA Lending Guide
Loan Terms,
Maximum
Number of
FHA Loans
Continued
Ocwen will limit the number of FHA loans to a borrower to one (1) unless
the borrower meets the circumstances in which a borrower may keep his
current FHA-insured mortgage below.

Relocating

The borrower is relocating and re-establishing residency to another
area that is not within reasonable commuting distance from the
current HUD insured home. There is no need to reduce the
principal balance or sell the current home. Other items of
clarification are shown below.

The relocation need not be employer mandated.

If the borrower returns to an area where he/she owns a property
with an FHA Mortgage, it is not required that the borrower reestablish primary residency in that property in order to obtain
another FHA mortgage.

Family Size Increase

The borrower’s family has increased in the number of legal
dependents and the present home no longer meets the family
needs and the following applies:
 satisfactory evidence must be provided of the increase in
dependents and an explanation of why the property no longer
meets the family needs; and
 the outstanding mortgage balance on the present home is paid
down to a maximum LTV of 75% (excluding financed MIP).
 a current residential appraisal must be used to determine LTV
compliance.
Co-Borrower for Family Member

The borrower will be a non-occupying co-borrower on property
being purchased as a primary residence by other family members,
may have a joint interest in that property as well as his own
primary residence, which is a FHA-insured mortgage too.


Vacating a Jointly Owned Property

The borrower is vacating a residence that will remain occupied by
a co-mortgagor. Acceptable situations include following a divorce
where the borrower is purchasing a new home or where the
borrower is vacating the property.
Continued on next page
FHA Loans
300-18
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REV 03/18/2015
FHA Lending Guide
Loan Terms,
Financed
Properties and
Maximum
Exposure


Continued
Maximum of four (4) financed residential properties (including subject)
combined for all borrowers.
Maximum total exposure of one Borrower with Ocwen is the lesser of
four (4) loans or $2,000,000.
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REV 03/18/2015
FHA Loans
300-19
FHA Lending Guide
Eligible Transactions
General Information
Temporary
Buydowns
Not Permitted
Construction
Construction Financing requires all of the below:





Housing
History

Building on own land is not eligible
Borrower may not be in title or have ownership of the lot.
Borrower may not have the construction loan in their name.
Borrower may not be their own general contractor.
Status of construction at the time of underwriting is at the
discretion of the underwriter. (NOTE: Property must be 100%
complete prior to closing the loan).
In scenarios as indicated, the borrower must report:

AUS Approval: No more than 1x30 within the most recent 12
months for Purchase and Rate Term Refinance transaction.

Manual Underwrite: No more than 0x30 within the most recent 12
months for Purchase and Rate Term Refinance transactions.

All Approval Methods: No more than 0x30 within the most recent
12 months for Cash Out Refinance transactions. NOTE:
Mortgages with less than 6 months of payment history are not
eligible for a cash out refinance. Properties owned free and clear
are eligible for a cash out refinance.
NOTE: Refer to the Credit section for additional details.
For Refinances:
 Verification of a satisfactory mortgage payment history must be
provided through the month prior to closing, ensuring that all
payments have been made within the month due for the previous 12
months.
 An updated credit report or Verification of Mortgage (VOM) is required,
if the mortgage payment history provided in the loan file is not
reporting through the month prior to loan closing.
Continued on next page
FHA Loans
300-20
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FHA Lending Guide
Eligible Transactions,
Continued
General Information
Eligible
Borrowers


Occupancy



Paying Off
Debt

Any co-borrower or co-signer being added to the Note must be an
occupant of the subject property.
New non-occupant co-borrowers or co-signers are not permitted.
Cash-out refinances are eligible only for primary residences.
Primary residences owned free and clear must be refinanced as cashout transactions.
Owner-occupied One-to-four (1-4) unit dwellings are eligible.
If the borrower is paying off revolving debt at closing (on the HUD-1),
careful evaluation of this type of transaction is required. The
Underwriter should review the Borrowers carefully when they are
paying off debts in order to qualify. The credit history and the
Borrower’s use of credit should be a factor in determining whether it is
appropriate to exclude debts for qualification purposes.
Continued on next page
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REV 03/18/2015
FHA Loans
300-21
FHA Lending Guide
Eligible Transactions,
Continued
Purchase Transaction
Purchase





The borrower must make a cash investment at least equal to 3.5%
down payment from an acceptable source of funds.
NOTE: When seller tax proration reduces cash from borrower at
closing to < 3.5% per the HUD-1, it is acceptable as long as assets
were verified in the file which would cover the 3.5% minimum
investment into the transaction. At no time may the borrower receive
cash back due to the seller tax proration.
The borrower may not be on title prior to the loan closing. The seller
that is on title (the vested owner of record) must be the individual
who executes the sales contract. Additionally, the seller must be on
title prior to when the HUD-1 and closing documents are executed.
Seller must be the vested owner of records in all cases, including
relocation scenarios.
Purchase agreements renegotiated after the completion of the
appraisal that increases the sales price are only acceptable under the
following circumstances:

The sales price adjustment is due to price overruns that impact the
tangible value of the property on new construction. An updated
appraisal must be obtained to verify the value of the modifications.

A renegotiation of only seller paid closing costs and/or prepaids
occurs where seller paid closing cost/prepaids are common and
customary for the market and supported by comparables.

Changes in the purchase contract resulting from renegotiating
terms of sale may require review by the appraiser and delays
could result.
Continued on next page
FHA Loans
300-22
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Transactions,
Continued
Refinances
Refinances

Ocwen offers the following types of refinance transactions:

Cash Out Refinance (85.00% LTV), Rate/Term Refinance, and

Streamline Refinances (FHA loan to FHA loan,)
 Credit Qualifying with an appraisal
 Credit Qualifying without an appraisal
 Non-Credit Qualifying with an appraisal
 Non-Credit Qualifying without an appraisal
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-23
FHA Lending Guide
Eligible Transactions,
Continued
Refinances, continued
General
Refinance
Requirements





A new FHA appraisal is required for each refinance transaction
requiring an appraisal. An appraisal used for the purchase of the
property cannot be used again for a subsequent refinance even if 120
days has not passed.
All Rate/Term refinance and Streamline Refinance transactions must
have a payoff statement in the file.
The payment due in the month the loan is closing must be paid either
prior to closing or included in the payoff amount at closing. (i.e., if the
borrower closes and funds on a refinance in the month of December,
the borrower does not need to have made the December payment.
However, if the loan doesn’t close/fund until January, the December
payment cannot be included in the loan amount and the borrower will
need to pay the December payment from his/her own cash.)
All subordinated financing, whether it will be subordinated to the new
refinance or will be paid off by the new refinance (unless FHA’s more
restrictive twelve (12) month period applies), must be seasoned for at
least six (6) months with 0x30 day late payments (i.e., six (6)
permanent mortgage payments made) prior to application for the new
Ocwen.
Confirm the borrower is current on the mortgage being refinanced for:

the month prior to the month in which they close, and

the month they close.

NOTE: The borrower has the option to make the current payment
at the beginning of the month or include it in the payoff amount at
closing, when closing within the month the payment is due.
Continued on next page
FHA Loans
300-24
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Transactions,
Continued
Refinances, continued
FHA Refinance
Credit Query








County Loan
Limits
If the existing loan is a FHA loan, there could be a refund of a portion
of the Upfront MIP. If the new loan will also be a FHA loan, this refund
is applied as a credit in determining the new loan amount. FHA
provides Refinance Credit Query to use in determining this amount
“upfront.”
The Refinance Credit Query is used to determine the amount of the
MIP credit available for an active FHA-insured loan that is being
refinanced.
It provides 30-day and 60-day calculations based on the projected
closing date of the new loan.
This feature can be used to determine the credit or refund without
ordering a new case number.
This enables users to know the amount of the MIP credit or refund at
the pre-application stage.
The refund schedule for FHA-to-FHA refinances is modified to a three
(3) year time period for those mortgages endorsed for insurance on or
after December 8, 2004.
In order to accurately determine the correct UFMIP has been charged,
DE Underwriters must complete a FHA Case Query on each borrower
to verify the accuracy of the case number assignment date. A copy of
the case query results must be included in the loan file.
Additionally, users MUST investigate, resolve and document in the
loan file, any other case number matches that are found under the
borrower’s social security number.
Ocwen currently does not permit FHA-to-FHA refinance transaction to
exceed the new county loan limits.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-25
FHA Lending Guide
Eligible Transactions,
Continued
Rate Term Refinance
Rate and Term
Refinance
(No Cash Out Refinance)
 The existing mortgage being refinanced can be either a current FHA,
conventional, or VA loan.
 This transaction requires an appraisal, full processing documentation
and underwriting.
Occupancy
Owner-occupied, primary residence only.
LTV
Calculation
Seasoning
Requirements


If the subject property was purchased less than one (1) year prior to
loan application and is not already FHA-insured, the maximum loan
will be determined by using the lesser of the appraised value or the
original sales price.
If the subject property was purchased more than one (1) year prior to
loan application, the maximum loan will be determined from the
appraised value.
Continued on next page
FHA Loans
300-26
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Transactions,
Continued
Rate Term Refinance, continued
Maximum
Insurable
Mortgage

The maximum insurable mortgage is based on the lesser of:

multiply the appraised value of the property by 97.75%,

NOTE: If the property was acquired less than one year before the
loan application and is not already FHA-insured, the lesser of the
current appraised value or original sales price of the property must
be used; Or,

Existing Debt defined as the amount of the existing first mortgage
which includes the interest charged by the servicing lender when
the payoff will not likely be received on the first day of the month
(as is typically assessed on FHA-insured mortgages), any
prepayment penalties assessed on a conventional mortgage or an
FHA Title I loan, late charges, escrow shortages (may not include
delinquent interest), plus any purchase money second mortgage,
any junior liens over 12 months old, closing costs, prepaid
expenses (per diem interest to the end of the month on the new
loan, hazard insurance premium deposits, monthly mortgage
insurance premiums, and any real estate tax deposits needed to
establish the escrow account), and discount points minus any
refund of UFMIP.

NOTE: If the balance or any portion of an equity line of credit in
excess of $1000 was advanced within the last 12 months and was
for purposes other than repairs and rehabilitation of the property,
that portion above and beyond $1,000 of the line of credit is not
eligible for inclusion in the new mortgage. The resulting figure is
the existing debt.

The total FHA mortgage is limited to 100% of the appraised value,
including any financed upfront mortgage insurance premium (UFMIP).
NOTE: Any appraisal requirements, including, repairs, must be
complied with before the mortgage is eligible.
See the FHA Refinance Loan Amount Worksheet for assistance in
calculating the loan amount.
Ocwen does not allow the maximum mortgage to exceed the statutory
limit, except by the amount of any new UFMIP.



Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-27
FHA Lending Guide
Eligible Transactions,
Continued
Rate Term Refinance, continued
Maximum
Cash Back to
the Borrower


The borrower may not receive cash back in excess of $500 at closing.
Delinquent interest may not be included. The refinance does not
permit a borrower to obtain cash back by not making a mortgage
payment when due.
Mortgage
Payment
History
Requirements


The mortgage being refinanced must be current for the month due.
Ocwen requires no more than 1 x 30 within the most recent 12
months for all mortgage trade lines.
The payment does not need to be paid for the month in which the loan
closes/funds.
The amount of the existing first mortgage may include the interest
charged by the servicing lender when the payoff will not likely be
received on the first day of the month (as is typically assessed on
FHA-insured mortgages).


Continued on next page
FHA Loans
300-28
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Transactions,
Continued
Rate Term Refinance, continued
Subordinate
Financing







Refinance
Buyouts



If new subordinate financing is being offered by a permitted entity,
the CLTV is limited to 97.75% (the FHA-insured first mortgage and
any new junior liens when added together).
Existing subordinate financing may remain in place, but must be
subordinated to the FHA- insured first mortgage, provided the
borrower qualifies for making scheduled payments on all liens. The
CLTV is limited to 97.75%.
The maximum accessible credit limit of the existing subordinate lien
must be used to calculate the CLTV ratio.
All existing liens (to be paid off or remain subordinate to the new first
mortgage) must be seasoned for at least six (6) months (i.e., six (6)
permanent mortgage payments made), with an acceptable payment
history (i.e., no late payments of 30 days or beyond).
Many subordinate lien holders request modifications to the terms of
the lien (typically a reduction in the amount of the lien) in exchange
for remaining in a subordinate position. Modifying a subordinate lien in
this manner often results in re-executing the lien at closing, which is
acceptable. In this case, FHA does not consider the lien a new
subordinate lien.
Subordinate financing, except purchase money seconds, must be
seasoned twelve (12) months (i.e. twelve [12] permanent mortgage
payments made) to be included in the loan amount.
New and existing subordinate financing is permitted up to a maximum
CLTV of 97.75%.
When the purpose of the new loan is to refinance an existing
mortgage in order buy-out an ex-spouse’s or other co-borrower’s
equity, the specified equity is considered property related
indebtedness and can be included in the new mortgage.
The specified equity must be documented in a recorded property
settlement agreement or divorce decree.
If the borrower is newly separated and no property settlement
agreement has been prepared, a legally recorded document prepared
by an attorney specifically outlining the division of equity is
acceptable.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-29
FHA Lending Guide
Eligible Transactions,
Continued
Rate Term Refinance, continued
Short Payoffs
To be eligible for refinancing with a short payoff, a borrower must be
current on his/her mortgage. FHA will insure the first mortgage where the
existing note holder(s) write off the amount of the indebtedness that
cannot be refinanced into the new FHA insured mortgage if




there is insufficient equity in the home based on its current appraised
value, and/or
the borrower has experienced a reduction in income and does not
have the capacity to repay the existing indebtedness against the
property.
For instances where the existing note holders are reluctant to write
down indebtedness, a new subordinate lien may be executed for the
amount by which the payoff is short.
If payments on subordinate financing are required, they must be
included in the qualifying ratios unless payments have been deferred
for no less than 36 months. This policy applies only to no cash out
(rate and term) refinances with short payoffs.
Continued on next page
FHA Loans
300-30
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Transactions,
Continued
Cash Out Refinance
Cash Out
Refinance
HUD considers cash out refinances for debt consolidation a high risk,
especially if borrowers have not demonstrated a significant increase in
income and appears to be heavy credit users. These transactions should
be scrutinized more carefully.
Maximum
LTV/CLTV


A combined CLTV of 85% of the appraised value may be used if the
borrower has owned and occupied the subject property as their
primary residence for at least one (1) year prior to loan application.
If the borrower has owned and occupied the subject property as their
primary residence for more than 6 months and less than one (1)
year prior to loan application, the maximum loan is limited to a
combined CLTV of 85% of the lesser of:

appraised value (no closing costs, discount points or prepaid
items), or

the original sales price of property (no closing costs, discount
points or prepaid items).

NOTE: A sales price need not be considered if the property was
acquired as the result of inheritance and is, or will become, the
borrower’s primary residence.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-31
FHA Lending Guide
Eligible Transactions,
Continued
Cash Out Refinance, continued
Secondary
Financing





Ownership
Seasoning
Requirements
FHA Loans
300-32
If new subordinate financing is being offered by a permitted entity,
the CLTV is limited to 85% (the FHA-insured first mortgage and any
new junior liens when added together).
Existing subordinate financing may remain in place, but must be
subordinated to the FHA- insured first mortgage, regardless of the
total indebtedness or CTLV ratio, provided the borrower qualifies for
making scheduled payments on all liens.
The maximum accessible credit limit of the existing subordinate lien
must be used to calculate the CLTV ratio.
All existing liens (to be paid off or remain subordinate to the new first
mortgage) must be seasoned for at least six (6) months (i.e., six (6)
permanent mortgage payments made), with an acceptable payment
history (i.e., no late payments of 30 days or beyond).
Many subordinate lien holders request modifications to the terms of
the lien (typically a reduction in the amount of the lien) in exchange
for remaining in a subordinate position. Modifying a subordinate lien in
this manner often results in re-executing the lien at closing, which is
acceptable. In this case, FHA does not consider the lien a new
subordinate lien.
The borrower must have been in title to the subject property for 6 months
prior to the application date to be eligible for a cash out refinance
transaction.
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances
Streamline
Refinances
Streamline refinances are designed to lower the monthly principal and
interest (P&I) on a current FHA mortgage and must involve no cash back
to the borrower, except for minor adjustments at closing not to exceed
$500 ($0 in Texas). Ocwen offers the following types of streamline
refinance transactions:




Credit Qualifying Streamline Refinance with an appraisal,
Credit Qualifying Streamline Refinance without an appraisal,
Non-Credit Qualifying Streamline Refinance with an appraisal,
Non-Credit Qualifying Streamline Refinance without an appraisal,
Loan Terms
Ineligible
Non-Credit
Qualifying
Streamlines

Streamline Refinance without an appraisal:

Term is lesser of 30 years, or

remaining term plus 12 years.

NOTE: A reduction in the loan term without a net tangible benefit
must be processed, underwritten, and closed as a no cash-out
(rate/term) refinance.
The below scenarios are not eligible for Non-Credit Qualifying Streamline
Refinances and may only be processed as Credit Qualifying Streamlines:




When a change in the mortgage terms result in an increased
mortgage payment of more than 20%.
When deletion of a borrower(s) will trigger a due-on-sale clause.
Following the assumption of a mortgage that (1) occurred less than
six (6) months prior to AND does not contain restrictions (i.e. due-onsale) limiting assumption on a credit worth borrower; OR,
Following the assumption of a mortgage that (1) occurred less than
six (6) months prior to AND did not trigger the transferability
restriction (i.e. due-on-sale) such as property transfer resulting from a
divorce, by devise or descent.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-33
FHA Lending Guide
Streamline Refinances,
Max Loan
Amount
without
Appraisal

Continued
For both credit and non-credit qualifying streamlines without an
appraisal, the maximum total loan amount may not exceed the
outstanding principal balance, plus interest due on the current
mortgage, minus the applicable refund of the UFMIP, plus the new
UFMIP.

Discount points may not be included in the new mortgage. If the
borrower has agreed to pay discount points, document in the file
that the borrower has the assets to pay the discount point, along
with any other financing costs that are not included in the new
loan amount.

Delinquent interest, late charges or escrow shortages may not be
included in the outstanding principal balance of the mortgage
being paid off for the maximum mortgage calculation.

The base loan amount may not exceed the maximum county loan
limits for the property.

FHA will compute a new LTV by dividing the new loan amount,
exclusive of any UFMIP, by the lower of the sales price or
appraised value that is in their Single Family Insurance System
(SFIS, i.e. Refinance Authorization) database for the existing loan
being refinances.

If there is missing information in the database and a computed
value is not possible, only then will the new LTV default to
89.99%.
Continued on next page
FHA Loans
300-34
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances,
Max Loan
Amount Credit
Qualifying
with Appraisal
Continued
The maximum insurable mortgage amount for a streamline refinance with
an appraisal is the lesser of:


the existing principal balance minus the applicable refund of
upfront mortgage insurance premium(UFMIP) plus closing costs,
prepaid items to establish the escrow account, and the new UFMIP
that will be charged on the refinance transaction, or
97.75% of the appraised value of the property plus the new UFMIP
that will be charged on the refinance.
NOTES:




The outstanding principal balance may include interest charged by the
servicing lender when the payoff is not received on the first day of the
month, but may not include delinquent interest, late charges or
escrow shortages.
Prepaid expenses may include per diem interest to the end of the
month on the new loan, hazard insurance premium deposits monthly
mortgage insurance premiums, and any real estate tax deposits
needed to establish the escrow account, regardless of whether or not
the lender refinancing the existing loan is also the servicing lender for
that mortgage.
Discount points may not be included in the new mortgage. If the
borrower has agreed to pay discount points, the lender must verify
that the borrower has the assets to pay them, along with any other
financing costs not included in the new mortgage amount.
The base loan amount may not exceed the maximum county loan
limits for the property.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-35
FHA Lending Guide
Streamline Refinances,
Max Loan
Amount NonCredit
Qualifying
with Appraisal
Continued
The maximum total loan amount may not exceed outstanding principal
balance plus the new UFMIP.



An appraisal may not be used to increase the insurable balance, nor
add discount points, closing costs, prepaid items, or other financing
costs. If the borrower has agreed to pay discount points, document in
the file that the borrower has the assets to pay the discount point,
along with any other financing costs that are not included in the new
loan amount.
Delinquent interest, late charges or escrow shortages may not be
included in the outstanding principal balance of the mortgage being
paid off for the maximum mortgage calculation.
The base loan amount may not exceed the maximum county loan
limits for the property.
Continued on next page
FHA Loans
300-36
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances,
Net Tangible
Benefit
Continued

The borrower must receive one of the following net tangible benefits
from the new Streamline transaction, with or without an appraisal:

a 5% reduction to the principal and interest (P&I) of the mortgage
payment plus the annual MIP, or

refinancing from an ARM to a fixed rate mortgage.

Reducing the term of the mortgage alone is not a net tangible
benefit. The table below illustrates the net tangible benefit
requirements for streamline refinances.

Refinancing to a Fixed Rate

from a Fixed Rate – A Reduction of at least 5% of P&I and MIP is
required.

from a One-Year ARM – the new interest rate must be no
greater than two percentage points above the current interest rate
of the existing ARM.

from a Hybrid ARM During Fixed Period – A Reduction of at
least 5% percent of P&I and MIP is required.

from a Hybrid ARM During Adjustable Period – the new
interest rate must be no greater than two percentage points above
the current interest rate of the existing Hybrid ARM.

Refinancing to a Hybrid ARM Rate

from a Fixed Rate – A Reduction of at least 5% of P&I and MIP is
required.

from a One-Year ARM – the new interest rate must be at least
two percentage points below the current interest rate of the
existing ARM.

from a Hybrid ARM During Fixed Period – A Reduction of at
least 5% percent of P&I and MIP is required.

from a Hybrid ARM During Adjustable Period – the new
interest rate must be at least two percentage points below the
current interest rate of the existing Hybrid ARM.

Evidence that the borrower received one of the above net tangible
benefits must be documented within the loan file.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-37
FHA Lending Guide
Streamline Refinances,
Continued
Seasoning
Requirements

Max Cash Back
to Borrower
Streamline refinances are designed to lower the monthly principal and
interest (P&I) on a current FHA mortgage and must involve no cash back
to the borrower except for minor adjustments at closing not to exceed
$500 or as limited by state law ($0 in Texas).
Secondary
Financing



Occupancy
and Property
Types



On the date of the new FHA case number assignment,

the borrower must have made at least six (6) payments on the
existing FHA first mortgage.

at least six (6) full months must have passed since the first
payment due date of the refinanced first mortgage, and

at least 210 days must have passed from the closing date of the
current mortgage being refinanced.
New subordinated financing is not allowed on any Streamline refinance
transactions
Existing secondary financing may be subordinated.
The maximum CLTV is 97.75%:
Eligible for owner occupied only.
1-unit only.
NOTE: Re-warranting of condo and PUD projects is not required for
streamlines without a new appraisal.
Continued on next page
FHA Loans
300-38
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances,
Continued
Employment /
Income
Verification
Credit Qualifying
 Standard employment/income documentation requirements must be
met as outlined in the Income topic subsequently presented in this
lending guide.
Non-Credit Qualifying
 Salaried borrowers require a verbal VOE.
 Self-employed borrowers required 3rd party verification of business.
 Retirement/Social Security require award letters or most recent bank
statements with direct deposit.
 Other income that is the only source of income will require
documentation as outlined in the Income topic subsequently presented
in this lending guide.
Social Security
Validation
Evidence of valid Borrower’s Social Security number continues to be
required in all cases. For Non-Credit Qualifying scenarios in which a W-2
and/or paystub is not required, additional satisfactory evidence of social
security number(s) must be provided.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-39
FHA Lending Guide
Streamline Refinances,
Qualifying
Ratios For Case Numbers
Assigned prior to
April 21, 2014
Continued
Credit Qualifying
 31% / 43%.
 Housing ratios exceeding 31% may be acceptable ONLY if significant
compensating factors, as defined within the Liabilities and Qualifying
Ratios section of this guideline, are documented and recorded on the
FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT).
Total debt ratios may not exceed 43.00%.
 The maximum DTI for Ocwen on any Manually Underwritten
Transaction is 43.00%.
Non-Credit Qualifying

Ratios are not calculated.
NOTE:


Streamline refinances are not eligible for TOTAL Scorecard, they must
be manually underwritten.
ARM transactions are qualified at the Note Rate.
Continued on next page
FHA Loans
300-40
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances,
Qualifying
Ratios For Case Numbers
Assigned on or
after April 21,
2014
Continued
Borrowers With Minimum Decision Credit Scores of 620 or More and No
Compensating Factors
The maximum allowable qualifying ratios for borrowers with minimum
decision credit scores of 620 or more and no compensating factors are as
follows:
 total monthly mortgage payment may not exceed 31% of gross
effective monthly income (33% for Energy Efficient Homes); and
 total monthly fixed payment may not exceed 43% of gross effective
monthly income.
Borrowers With Minimum Decision Credit Scores of 620 or More and One
Compensating Factor
The maximum allowable qualifying ratios for borrowers with minimum
decision credit scores of 620 or more provided they meet one of the
compensating factors specified below are as follows:
 total monthly mortgage payment may not exceed 37% of gross
effective monthly income; and
 total monthly fixed payment may not exceed 43% of gross effective
monthly income.
Acceptable compensating factors are limited to the following:
 Verified and documented cash reserves that equal or exceed three
total monthly mortgage payments (one and two units) or that equal or
exceed six total monthly mortgage payments (three and four units);
 New total monthly mortgage payment is not more than $100 or 5%
higher than previous total monthly housing payment, whichever is
less, and there is a documented twelve month housing payment
history with no more than one 30 day late payment. In cash-out
transactions all payments on the mortgage being refinanced must
have been made within the month due for the previous twelve
months.
 Residual income (see below).
NOTE: See the following section below in this Lending Guide for full detail
on Compensating Factors and Residual Income:


Compensating Factors (For Case Numbers assigned prior to April 21,
2014)
Residual Income for Manually Underwritten FHA Loans
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-41
FHA Lending Guide
Streamline Refinances,
Qualifying
Ratios For Case Numbers
Assigned on or
after April 21,
2014 (Continued)
Continued
Borrowers With Minimum Decision Credit Scores of 620 or More and Two
Compensating Factors
The maximum allowable qualifying ratios for borrowers with minimum
decision credit scores of 620 or more provided they meet two of the
compensating factors specified below are as follows:
 total monthly mortgage payment may not exceed 40% of gross
effective monthly income; and
 total monthly fixed payment may not exceed 43% of gross effective
monthly income.
Acceptable compensating factors are limited to the following:
 Verified and documented cash reserves that equal or exceed three
total monthly mortgage payments (one and two units) or that equal or
exceed six total monthly mortgage payments (three and four units);
 New total monthly mortgage payment is not more than $100 or 5%
higher than previous total monthly housing payment, whichever is
less, and there is a documented twelve month housing payment
history with no more than one 30 day late payment. In cash-out
transactions all payments on the mortgage being refinanced must
have been made within the month due for the previous twelve
months.
 Verified and documented significant additional income that is not
considered effective income; and
 Residual income (See below)
NOTE: See the following section below in this Lending Guide for full detail
on Compensating factors and Residual Income:


Compensating Factors (For Case Numbers assigned prior to April 21,
2014)
Residual Income for Manually Underwritten FHA Loans
Continued on next page
FHA Loans
300-42
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances,
Qualifying
Ratios For Case Numbers
Assigned on or
after April 21,
2014 (Continued)
Continued
Borrowers With Minimum Decision Credit Scores of 620 or More with No
Discretionary Debt
The maximum allowable qualifying ratios for borrowers with minimum
decision credit scores of 620 or more with established credit lines in their
own name open for at least six months who carry no discretionary debt
(housing payment is only account with an outstanding balance and
borrower can document that revolving credit has been paid off in full
monthly for at least the previous six months) are as follows:
 total monthly mortgage payment may not exceed 40% of gross
effective monthly income; and
 total monthly fixed payment may not exceed 40% of gross effective
monthly income.
For borrowers meeting this criterion no other compensating factors are
required
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-43
FHA Lending Guide
Streamline Refinances,
Maximum
Qualifying Ratio
Matrix
Continued
The maximum total monthly mortgage payment to gross effective income ratios and total
monthly fixed payments to gross effective income ratios applicable to manually underwritten
loans are summarized in the matrix below.
NOTE: See the following section below in this Lending Guide for full detail on Compensating
factors and Residual Income:

Compensating Factors (For Case Numbers assigned prior to April 21, 2014)

Residual Income for Manually Underwritten FHA Loans
Manual Underwriting Matrix For Case Numbers Issued on or After April 21, 2014
Lowest
Minimum
Decision Credit
Score
620 and above
620 and above
Maximum
Qualifying
Ratios (%)
31/43
37/43
620 and above
40/40
620 and above
40/43
Acceptable Compensating factors
No compensating factors required.
One of the following:
 Verified and documented cash reserves equal to at least three total
monthly mortgage payments (1-2 units) or six total monthly mortgage
payments (3-4 units).
 New total monthly mortgage payment is not more than $100 or 5%
higher than previous total monthly housing payment, whichever is less;
and a there is documented twelve month housing payment history with
no more than one 30 day late payment. In cash-out transactions all
payments on the mortgage being refinanced must have been made within
the month due for the previous 12 months.
 Residual Income
Borrower has established credit lines in his/her own name open for at least six
months but carries no discretionary debt (i.e., monthly total housing payment
is only open installment account and borrower can document that revolving
credit has been paid off in full monthly for at least the previous six months).
Two of the following:
 Verified and documented cash reserves equal to at least three total
monthly mortgage payments (1-2 units) or six total monthly mortgage
payments (3-4 units).
 New total monthly mortgage payment is not more than $100 or 5%
higher than previous total monthly housing payment, whichever is less;
and a there is documented twelve month housing payment history with
no more than one 30 day late payment. In cash-out transactions all
payments on the mortgage being refinanced must have been made within
the month due for the previous 12 months.
 Verified and documented significant additional income that is not
considered effective income (i.e., part-time or seasonal income verified
for more than one year but less than two years).
 Residual Income.
Continued on next page
FHA Loans
300-44
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances,
Credit
Requirements
Continued
Minimum credit scores for all borrowers on streamline refinances are:


Credit Scores below 620 are not eligible.
Ocwen requires ALL borrowers on the loan to meet the minimum
credit score requirement. Non-Traditional Credit is not permitted
NOTE: For Non-Credit Qualifying Streamline refinances, the file must contain
either:

A tri-merge credit report or a mortgage only credit report which
contains mortgage account ratings with scores.

Mortgage
Payment
History


Asset
Documentation
The borrower’s payment history cannot reflect more than 1x30 day
lates over the most recent 12 month history for the first mortgage and
has made all mortgage payments within the month due for the three
months prior to the date of the loan application.
6 to 12 month payment history is acceptable as long as there are no
late payments for the life of the loan.
Standard asset documentation requirements must be met as outlined in
the Asset section below.
Note: For FHA to FHA Non-Credit Qualifying streamline refinance
transactions, the cash reserve requirement is not applicable.
Appraisal
Requirements


Streamline refinances may be done with or without an appraisal.
If an appraisal is obtained, Ocwen does not require repairs to be
completed prior to closing the loan, unless the repairs impact the
health and safety of the occupants.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-45
FHA Lending Guide
Streamline Refinances,
Continued
Loan
Application
Credit Qualifying
 The loan application (Form 1003) must be fully completed.
Non-Credit Qualifying
 An abbreviated loan application (1003) omitting income, liabilities, and
declaration (a) through (k) is allowed. The asset section may be
omitted if funds for closing are not required. The current employer
information is required to complete the Verbal Verification of
Employment.
CAIVRS


Streamline refinances can be insured with or without an appraisal, and
without HUD’s Credit Voice Alert Interactive Response System
(CAIVRS).
Documentation of CAIVRS codes is not required.
LPD/GSA List

The underwriter comments section of the FHA Loan Underwriting and
Transmittal Summary must reflect LDP/GSA information.
TOTAL
Scorecard

Streamline Refinance transactions are eligible for traditional
underwriting and should not be submitted through TOTAL Scorecard
(via DU).
Mortgage
Insurance
See the MIP Premiums for Streamline Refinances ONLY subtopic
subsequently presented in the Mortgage Insurance topic for additional
information on mortgage insurance for streamline refinance transactions.
Continued on next page
FHA Loans
300-46
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Streamline Refinances,
IRS Form
4506-T
Continued
Non-Credit Qualifying: Signed at application and closing, but not
process.
Credit Qualifying: Signed at application, signed at closing and
processed.
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-47
FHA Lending Guide
Secondary Financing
Overview


Any financing other than the first mortgage that creates a lien against
the property is considered secondary financing. Such financing is not
considered a gift.
The following documentation must be obtain and retained in the loan
file from the secondary lien holder:

documentation showing the amount of funds provided to the
borrower for each transaction, and

copies of the loan instruments.
Permissible
Sources

Ineligible
Secondary
Financing
Sources
The following sources of Secondary Financing are ineligible for sale to
Ocwen:





Secondary Financing from Family Members
Secondary Financing from Government Agencies
Secondary Financing from a Nonprofit Agency Considered an
Instrumentality of the Government
Secondary Financing from a Nonprofit Agency not Considered an
Instrumentality of the Government
Secondary Financing from Private Individuals or Other Organizations
(that require prior approval from HUD).
Secondary Financing obtained with advance approval from HUD by
borrowers 60 years of age or older as defined in Handbook 4155.1
Section 5-C-16.
Continued on next page
FHA Loans
300-48
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Secondary Financing,
Secondary
Financing
From Family
Members for
Purchase
Transactions



Borrowed
Down
Payment
Continued
FHA permits lending from family members on a secured or unsecured
basis, up to 100% of the borrower’s required funds to close. This may
include the down payment, closing costs, prepaid expenses, and
discount points.
If the loan from the family member, whether borrowed from an
acceptable source or the family member’s own savings, is secured by
the subject property, only the family member provider may be the
note holder.
FHA will not approve any form of securitization of the note that results
in any entity other than the family member being the note holder,
whether at loan settlement or at any time during the mortgage life
cycle.
When the funds loaned by the family member are borrowed from an
acceptable source, the borrower may not be a co-obligor on the note.
Example: A son may not be the co-obligor on the note used to secure
the money borrowed by his parents which, in turn, was loaned to the son
for the down payment on the property.
Continued on next page
Ocwen Loan Servicing LLC Client Select
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FHA Loans
300-49
FHA Lending Guide
Secondary Financing,
Terms and
Conditions
Continued
Terms and Conditions for Secondary Financing Provided by Family
Members for Purchases
The table below describes additional policies regarding the terms and
conditions for FHA-insured loans with secondary financing provided by
family members.
Category
Maximum insurable
mortgage
Combined loan-tovalue (CLTV)limit on
financing
Borrower cash back
Secondary financing
payments
Second lien balloon
payments
Family member
supplying borrowed
funds
Policy Description
The maximum insurable mortgage amount is not affected by loans from
family members.
The combined loan-to-value (CLTV) limit on financing may not exceed
96.50% of the lesser of the property’s

appraised value, or

sales price, plus normal closing costs, prepaid expenses, and
discount points.
A family member may lend 100% of the borrower’s required funds to close,
but cash back to the borrower at closing (beyond the refund of any earnest
money deposit) is not permitted
If periodic payments of the secondary financing are required, the combined
payments may not exceed the borrower’s reasonable ability to repay.
Note: The secondary financing payments must be included in the total debt
to income ratio (i.e. the “back end” ratio) for qualifying purposes.
The second lien may not provide for a balloon payment within five years
from the date of execution.
If the family member providing the secondary financing borrows the funds,
the lending source may not be an entity with an identity-of-interest in the
sale of the property, such as the

Seller

Builder

loan officer, or

real estate agent.
Mortgage companies with retail banking affiliates may have the affiliate loan
the funds to the family member.
However, the terms and conditions of the loan to the family member cannot
be more favorable than they would be for any other borrowers.
Example: There may not be any special consideration given between the

making of the mortgage, and

Secondary financing
documentation
lending of funds to family members to be used for secondary
financing for the purchase of the home.
An executed copy of the document(s) describing the terms of the secondary
financing must be included in the loan file, and another executed copy
provided in the endorsement binder.
Continued on next page
FHA Loans
300-50
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Secondary Financing,
92900
Completion for
Secondary
Financing
The following items need to be indicated on the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT):



Modified
HELOC
Continued


2nd mortgage proceeds,
2nd mortgage monthly payment, and
Underwriter comments - provide details on 2nd mortgage (i.e.,
lender, term, payment).
HCLTV limits must be calculated using the full amount of the line of
credit available based on recording or title information unless updated
by a formal modification; letters or other alternative forms of
documentation regarding changes to line amounts are not acceptable.
For example, if the value for a property is determined to be $100,000,
the new first mortgage is $50,000, the current outstanding balance of
a line of credit being subordinated is $20,000 and the full amount of
the line of credit being subordinated based on the recording and title
information or formal modification agreement is $30,000, the
LTV/CLTV/HCLTV would be 50.00%/70.00%/80.00%.
($50,000/$100,000 = 50.00%) ($50,000 + $20,000 / $100,000 =
70.00%) ($50,000 + $30,000 / $100,000 = 80.00%).
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-51
FHA Lending Guide
Geographic Restrictions
Approved
States
FHA Loans
300-52
Ocwen Loan Servicing currently lends in the states of Alabama, Arizona,
Arkansas, California, Colorado, Connecticut, Delaware, DC, Florida,
Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine,
Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Nebraska, New Hampshire, New Mexico, North Carolina, North Dakota,
Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina,
South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington,
West Virginia, Wisconsin and Wyoming.
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Occupancy and Property
Property
Types

Ocwen will accept 1-4 family units (1 Unit only for Streamline
Refinance transactions). The mortgaged premises must be a detached
or semi-detached dwelling, row dwelling, townhouse, or unit within a
condominium project or PUD.
Primary
Residence

The primary borrowers, for the majority of the calendar year, must
occupy the property.
Occupancy must take place within 60 days after signing the security
instrument, with continued occupancy for one (1) year.
Ineligible: Second Homes and Investment Properties


3-4 Units
Properties






Three and four-unit properties must be self-sufficient, i.e., the
maximum mortgage is limited so that the ratio of the monthly
mortgage payment divided by the monthly net rental income does not
exceed 100 percent.
The monthly payment is defined as principal, interest, taxes, and
insurance, including mortgage insurance (PITI), as well as any
homeowner’s association dues, computed at the note rate.
Net rental income is the appraiser’s estimate of fair market rent from
all units, including the unit chosen by the borrower for occupancy, less
the FHA office’s allowance for vacancies and maintenance (or 25% if
the local FHA has not established a separate allowance).
The above calculation is used only to determine the maximum loan
amount. Borrowers must still qualify for the mortgage based on
income, credit, cash to close, and the projected rents received from
the remaining units. The projected rent may only be considered as
gross income for qualifying purposes; it may not be used to offset the
monthly mortgage payment.
The borrower must have a reserve of three (3) months’ mortgage
payments (PITI) after closing on all transactions. Reserves cannot be
derived from a gift.
FHA’s Hotel and Transient Use Certification (HUD form 92561) must be
signed by the borrower and included in the case binder file.
Continued on next page
Ocwen Loan Servicing LLC Client Select
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FHA Loans
300-53
FHA Lending Guide
Occupancy and Property,
Condos
Continued
HUD Review & Approval Process (HRAP): Under this option, the
applicable project documentation is submitted to HUD for their review and
approval of the condo project.
To confirm if the project is HUD approved, visit HUD’s website at:
https://entp.hud.gov/idapp/html/condlook.cfm
IMPORTANT:






PUDs


A print out confirming HUD’s approval from the above website must be
included in the loan package.
Ocwen Condo questionnaire required.
The loan must be insured by FHA prior to HUD’s project expiration
date; this will require the loan to close and fund well within project
approval period or the HOA will need to submit the necessary
documents directly to HUD for recertification.
Spot loans and Direct Endorsement Lender Review and Approval
Process (DELRAP) are NOT ALLOWED, including DELRAP approvals
listed on HUD’s website.
Refer to HUD Mortgagee Letter 2009-46B for full details.
NOTE: Condos are not permitted in the State of Florida.
PUDs do not require pre-approval by FHA or the underwriter.
A PUD is defined as a mixed-use residential development of singlefamily dwellings in conjunction with rental, condominium, cooperative
or town house properties. A residential development should be
processed as a PUD if it has the following minimum characteristics:

a homeowner association that holds either title in fee or a lease of
prescribed length on the common area,

mandatory membership of all unit owners (or units) in the
association,

the right of all unit owners to participate by vote in the operation
of the association,

lien supported assessment of the members to meet the
association’s budgeted operating costs (special assessments may
be handled differently), and

the appraisal for a detached PUD must be ordered as a detached
PUD, not as a single family residence.
Continued on next page
FHA Loans
300-54
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Occupancy and Property,
HUD REO










Continued
HUD may contribute up to three percent (3.00%) of the property’s
gross purchase price towards the borrower’s allowable closing costs,
including up to one percent (1.00%) of the loan origination fee.
If the borrower’s total closing costs reflected on the HUD I Settlement
Statement are less than the amount indicated as being paid by HUD
on the sales contract, HUD will credit ONLY the actual costs charged
and will not credit the purchaser with any difference, either in cash or
through a reduced purchase price.
A valid HUD REO sales contract must be ratified within 120 days of the
appraisal effective date, or a new appraisal or an Appraisal Update
and/or Completion Report (Fannie Mae form 1004D/Freddie Mac form
442) must be obtained.
HUD REO appraisal reports are valid for 120 days from the effective
date of the appraisal report.
The appraiser MUST be state certified with an unexpired license.
See “Ordering New Appraisals for REO Properties below.
HUD REO properties that are approved for the reduced down payment
option (HUD REO $100 Down Payment Program) are not eligible for
sale to Ocwen.
The UFMIP can be financed into the total loan amount. The total loan
amount may never exceed 100% of the “as is” appraised value.
Closing costs and prepaids may not be included in the mortgage.
Ordering New Appraisals for HUD REO Properties
Mortgagees must order a new appraisal that is valid for a HUD REO
property financed with an FHA-insured mortgage if any of the
conditions in the following chart exists:
NOTE: A new appraisal is a full appraisal of a HUD REO property that
must meet the requirements of Mortgagee Letter 2006-09 and any
superseding policy.
Continued on next page
Ocwen Loan Servicing LLC Client Select
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FHA Loans
300-55
FHA Lending Guide
HUD REO
(Continued)
Condition
There are material deficiencies
with the current HUD REO
appraisal, as determined by the
Direct Endorsement (DE)
Underwriter.
The purchaser of a HUD REO
property is applying for a
203(k) loan, and an “asrepaired” appraisal is required.
NOTE: Homeward does not
participate in the 203(k)
program.
The REO sales contract was not
ratified within 120 days of the
HUD-REO appraisal’s effective
date.
The appraisal ordered by HUD is
no longer valid.
The contract sales price on a
property securing the FHAinsured loan is greater than the
value of the appraisal ordered
by HUD and/or the “as-is”
appraised value is not available.
Maximum FHA insurable
mortgage amount (subject to
underwriting requirements for
down payments, financing of
closing costs, etc.) will be:
Based on the value of the property
as determined by the new
appraisal.
Based on the value of the property
as determined by the new
appraisal.
Based on the value of the property
as determined by the new
appraisal.
Based on the value of the property
as determined by the new
appraisal.
Limited to the lesser of (a) the
contract sales price, (b) the new
appraisal value, or (c) the initial
list price of the HUD REO property.
Continued on next page
FHA Loans
300-56
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Occupancy and Property,
HUD REO
(Continued)
Continued
If a new FHA appraisal is ordered, then:
 The original appraisal ordered by HUD may not be used to underwrite
the loan;
 HUD will not reimburse the mortgagee for the cost of the new
appraisal. Consequently, the borrower/purchaser can be charged for
the expense of the new appraisal as part of the borrower’s closing
costs on the Form HUD-1, Settlement Statement;
 The mortgagee must provide a written justification for ordering a new
appraisal; and
 The mortgagee must retain copies of all appraisals available to the
mortgagee in its loan file.
Establishing Market Value for REO Properties
To ensure that HUD REO properties are sold at or near market value,
mortgagees and appraisers are reminded of FHA’s definition of market
value. A “market value” price should reflect the price appropriate for
properties sold in a competitive and open market, under all conditions
requisite to a fair sale, with the buyer and seller each acting prudently
and knowledgeably, and assuming the price is not affected by undue
stimulus. Implicit in this characterization is the consummation of a sale as
of a specified date and the passing of title from seller to buyer under
conditions whereby:
 Buyer and seller are typically motivated;
 Both parties are well-informed/well-advised and acting in what they
consider their own best interests;
 A reasonable time is allowed for exposure in the open market;
 Payment is made in terms of cash in U.S. dollars or in terms of a
financial arrangement comparable thereto; and
 The price represents the normal consideration for the property sold,
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Continued on next page
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FHA Loans
300-57
FHA Lending Guide
Occupancy and Property,
Continued
HUD REO
(Continued)
Comparables for Appraisals
 When considering sales to be used as comparables, the appraiser
must note the conditions of sale and the motivations of the sellers and
purchasers. If REO sales and pre-foreclosure sales (PFS)/short sales
are part of the market competing with the subject property, the
appraiser must analyze the effect that these types of sales
transactions have on the market and specifically on the subject
property.

 In some markets, REO and PFS sales may constitute the majority of
recent transactions of similar properties and, thus, are significant in
the analysis of the property for which financing is sought. However, in
developing an opinion of market value, REO sales and PFS sales
transactions should not automatically be chosen as comparables. If
there is compelling evidence in the market to warrant their use, the
appraiser must provide an additional explanation on the appraisal
form.

 Transfers to a mortgagee or entity owning the mortgage loan by deed
of trust through foreclosure sale or sheriff’s sale are not acceptable as
comparable sales under any circumstances.
Repair
Escrows
Not Permitted
Continued on next page
FHA Loans
300-58
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Occupancy and Property,
Continued
Deed
Restrictions
Properties with resale restrictions are not eligible (except for age
restricted).
Listed for Sale



Ineligible
Property
Types
Properties currently listed for sale are not eligible for refinancing
Listing agreement must have been cancelled prior to application date
for rate & term refinance.
Listing agreement must have been cancelled six (6) months prior to
application date to be eligible for a cash out refinances.
The following property types are not eligible for sale under the FHA
product to Ocwen:

















Manufactured Housing
Commercial properties
Cooperatives
Multi-family dwellings over 4 units
Mobile homes
Condo-tels
Farms or working ranches
Non-warrantable Condominiums
Timeshares
Unimproved land
Properties with resale restrictions, other than age restricted
communities
Common Interest Apartments
Properties that do not meet local health and safety standards
Properties currently listed for sale on all refinance transactions
Properties in Hawaii Lava flow Hazard Zones one (1) and Two (2)
Condominiums in Florida
Community Land Trust
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-59
FHA Lending Guide
Occupancy and Property,
Continued
Leasehold
Estates
A Leasehold Estate is an interest in real property held by virtue of a lease.
Leasehold refers to land that is leased to the individual who owns
appurtenant structures on the land. The leasehold estate may consist of
both the improvement and the land, although in most cases the
improvement is purchased in fee simple, subject to ground rent. Ground
rent is rent paid for the right to use and occupy land. When the term of
the lease expires, all rights to possession and use revert back to the
lessor / fee simple owner and the Leasehold Estate terminates.
Requirements
Properties that are secured by Leasehold Estates are acceptable provided
they conform to all of the following:




Lease
Requirements
The lease is for the rental of a property with a fee ownership interest
Residential properties in the area consisting of leasehold or ground
rent estates are readily marketable and acceptable in the subject area
The leasehold is in full force and effect and is not subject to any prior
lien or encumbrance by which the leasehold could be terminated or
subjected to any charge or penalty
The remaining term or exercised renewal of the lease with any
renewals enforceable by the mortgage do not terminate earlier than
ten years after the maturity date of the loan
The lease must comply with the following:




The lease (including all amendments) is recorded and no party is in
any way in breach of any provision of the lease or amendment
Leases may not contain restrictions of assignability
In most cases, the lease must allow for an option to purchase. For
exceptions see Section 6-31 in the HUD Handbook 4150.1 Rev 1
For a complete list of all leasehold estate requirements, refer to
section 6-31 of HUD Handbook 4150.1 Rev 1, Chapter 6 Approaches
To Value.
Continued on next page
FHA Loans
300-60
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Occupancy and Property,
Ground Rents
Continued

Ground rent is established in the local market place, but in no case
may the annual rental exceed the lesser of:

12 percent of the site value or

The mortgage interest rate at the time of underwriting, less two
percent, times the site value. Ground rent may increase
periodically, subject to the following:

Rent may not be increased for the first three years of the lease
term. Subsequent rent increases may occur no more than once
every 12 months

Increases must be stated in the lease document in exact dollar
amounts

Establishment of future rentals by negotiation or by formula is not
permitted

Increases in any 12-month period may equal no more than 2% of
HUD's original site valuation, but at no time may annual ground
rental exceed 12% of HUD's original site valuation

For complete information on the Capitalization Process of Ground
Rents and Ground Leases and calculation of ground rent, refer to HUD
Handbook 4150.1 Rev 1 Chapter 6 Approaches To Value, Section 632.
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-61
FHA Lending Guide
Eligible Borrowers
Number of
Borrowers
Ocwen limits the number of borrowers on a loan to 4.
Borrower
Requirements


Ocwen does not lend to business entities; it is required that all
Borrowers be individuals. Any person who signs the application is to
be considered a Borrower and all Borrowers must sign the Note.
All Borrowers must meet one of the following:

U.S. Citizen: It is necessary that Borrower(s) have a valid social
security number and be a citizen of the United States.

Permanent Residents: In order to verify a borrower has the
necessary Permanent Resident card (“green card”), a copy of the
Form I-551 is required. Borrower must have a valid social security
number.

Non-Permanent Residents: If a Borrower is a non-permanent
resident, the following will need to be verified:
 A valid social security number
 Appropriate documentation that supports eligibility to work
in the U.S. A copy of current work authorization
documentation is needed (such as H Visa, L, E-1, G series
and TN Visa; EAD may be acceptable evidence of work
status, refer to HUD 4155.1 4.A.3.d for additional
requirements).
Continued on next page
FHA Loans
300-62
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Borrowers,
Borrower
Identity
Verification


Borrower
Names
Continued
The identity of the borrower(s) must be verified by reviewing an
acceptable form of identification, with a photo. All parties involved in
the transaction are also responsible (i.e. Closing Agent, Attorney, etc.)
to also follow these procedures.
Our description of acceptable forms of identification includes:

Valid state driver’s license, with photo

Valid state non-driver’s license, with photo

Military photo ID

Work ID with photo

US passport, with photo

Permanent Resident Card, with photo

Borrower must have a valid social security number. Verification can
be made by viewing the social security card, pay-stub, or W-2. Social
security number should be consistent on all documentation, including
credit report. Resolution of any discrepancies is required to Ocwen’s
satisfaction.


Borrower names must match the title commitment exactly.
If the borrower’s name changes during loan application, such in cases
of marriages, the following items must be cured prior to closing:

Social Security card must have been applied for to reflect the new
name. Copy of new card or evidence of change made by SSA will
be required.

Signed AKA Letter

Case Number Assignment must be corrected to the new name.

It is imperative that if the borrower’s last name, generational suffix
(Sr., Jr.) and/or social security number is entered incorrectly, the DU
data entry must be corrected immediately and a new credit report run.
Continued on next page
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FHA Loans
300-63
FHA Lending Guide
Eligible Borrowers,
Co-Borrowers
/ Co-Signors
Continued

A co-borrower is eligible under the following conditions:

must be on the title, note and security instrument.

the co-borrower’s income, liabilities, assets and credit history is
used to determine creditworthiness,

the co-borrower does not have an interest in the transaction (i.e.,
seller, builder or real estate agent), exceptions may be granted if
seller and co-borrower are related to the owner by blood, marriage
or law),

if the parent is selling to a child, the parent cannot be co-borrower
with the child on the new mortgage unless the loan-to-value is
75.00% or less, and

the co-borrower must be eligible for participation (not suspended
or debarred or owe any delinquent Federal debts).

Non-occupant co-borrowers must have a principal residence in the
U.S. unless otherwise exempted (i.e., military service with
overseas assignments, U.S. citizens living abroad). While FHA does
not object to legitimate transactions where non-occupant
borrowers assist in the financing of the property, this arrangement
may not be used by non-occupant borrowers to develop a portfolio
of rental properties.

A non-occupant co-borrower is only eligible on a one (1) unit
property.

When there are two (2) or more borrowers, but one or more will not
occupy the property as a principal residence, the maximum mortgage
is usually limited to 75.00% LTV; however, maximum financing is
available for borrowers related by blood, marriage or law that meet
the requirements shown in the Identity of Interest Transactions in this
sellers guide.
Continued on next page
FHA Loans
300-64
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Borrowers,
HUD
Employees



Living Trust
Living Trusts
and Security
Instrument
Continued
Loan applications for HUD employees may be processed and
underwritten by Ocwen; however, they must be submitted to the
attention of the Processing and Underwriting Division at the
jurisdictional HOC for final signoff and approval PRIOR to closing.
Ocwen will accept a Purchase, Streamline Refinance, Rate/Term or
Cash Out Refinance transaction.
Streamline refinance applications do not require final HUD sign-off
prior to closing.

Property held in a living trust is eligible for FHA mortgage insurance
when an individual borrower

remains the beneficiary, and

occupies the property as a principal residence.

The DE Underwriter must be satisfied that the trust provides
reasonable means to assure that it will be notified of any changes to
the trust regarding

occupancy changes, or

transfer of beneficial interest.

Although mortgages defined under the terms of Living Trust may be
exempt from Ability to Repay under the Truth-in-Lending Act and its
implementing regulations, Ocwen will require such mortgages to meet
all requirements within the Lending Guide, including meeting the
Qualified Mortgage and Ability to Repay (ATR covered loan)
definitions.

The name of the living trust must appear on the security instrument,
such as the mortgage, deed of trust, or security deed.
The individual borrower must appear on the security instrument when
required to create a valid lien under state law. The owner-occupant,
and other borrowers, if any, must also appear on the note with the
trust.
The individual borrower is not required to appear on the property deed
or title.


Continued on next page
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FHA Loans
300-65
FHA Lending Guide
Eligible Borrowers,
Continued
Certification of
Trust
A certification of trust or a summary of trust is acceptable if required by
state law
Trust Loan
Documentation
Requirements
The loan file must contain either:


A complete copy of the trust agreement; or
In states that require a lender to rely on an abstract, summary or
certification of the trust agreement instead of the trust agreement,
a copy of the abstract, summary or certification.
Military
Personnel
Military personnel are eligible for maximum financing if a member of the
immediate family will occupy the subject property as a principal
residence, even if the active duty borrower is stationed elsewhere.
NonPurchasing
Spouse






If it is required by state law in order to perfect a valid and enforceable
first lien, the non-purchasing spouse may be required to sign either
the security instrument or documentation evidencing that he/she is
relinquishing all rights to the property.
If the non-purchasing spouse executes the security for such reasons,
he/she is not considered a borrower for HUD’s purposes and does not
need to sign the loan application.
Except for those obligations specifically excluded by state law, the
debts of the non-purchasing spouse must be considered in the
qualifying ratios if the borrower resides in a community property state
or the property to be insured is located in a community property state.
If the borrower resides in a community property state or the property
is located in a community property state, a credit report on the nonpurchasing spouse must be obtained.
The non-purchasing spouse’s credit history is not to be considered a
reason for credit denial.
HUD requires that DE underwriters know the state laws concerning
community property and apply them appropriately to ensure that
there is no increased risk to HUD.
Continued on next page
FHA Loans
300-66
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Borrowers,
Mandatory
Rejection of a
Borrower




Continued
A borrower is not eligible to participate in FHA-insured mortgage
transactions if he/she is suspended, debarred, or otherwise excluded
from participating in HUD programs.
A borrower must be rejected from participation if the borrower is on
the:

HUD Limited Denial of Participation (LDP) list. The HUD LDP list
can be found on the HUD website or on the FHA Connection
(FHAC).

U.S. General Services Administration (GSA) List of Parties
Excluded from Federal Procurement or Non-procurement
Programs. The GSA List can be found at http://epls.arnet.gov or
on the FHAC, and/or

HUD’s Credit Alert Interactive Voice Response System (CAIVRS),
A borrower must also be rejected if he/she is presently delinquent on
any Federal debt or has a lien placed against his/her property for a
debt owed to the United States Government.
If, after checking public records, credit information or CAIVRS, a
borrower is found to be presently delinquent on any Federal debt or
has had a lien (including taxes) placed against his/her property for a
debt owed to the Federal government, he/she is not eligible for an
FHA mortgage until

the delinquent account is brought current, paid, or otherwise
satisfied, or

a satisfactory repayment plan is established between the borrower
and the Federal agency owed, which is verified in writing.

Tax liens may remain unpaid provided the lien holder subordinates
the tax lien to the FHA-insured mortgage.
Continued on next page
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FHA Loans
300-67
FHA Lending Guide
Eligible Borrowers,
Borrower
Waiting Period
Waiting Period for Borrowers With Past Delinquencies, Defaults or
Claims on FHA Loans



Eligibility for
Federal
Related Credit
If the borrower has had past delinquencies or has defaulted on an
FHA-insured loan, there is a three-year waiting period before he/she
can regain eligibility for another FHA-insured mortgage.
The three-year waiting period begins when FHA pays the initial claim
to the lender. This includes deed-in-lieu of foreclosure, as well as
judicial and other forms of foreclosures.
DE Underwriters may contact the Homeownership Center (HOC)
having jurisdiction over the area where the property subject to default
is located for information such as the:

date the claim was paid, and

date of the initial default.
Tax Liens and Eligibility for Federally Related Credit



Effect of Past
Delinquencies
on Eligibility
Continued
The Internal Revenue Service (IRS) routinely takes a second lien
position without the need for independent documentation. For this
reason, eligibility for FHA mortgage insurance is not jeopardized by
outstanding IRS tax liens remaining on the property, unless there is
information that the IRS has demanded a first-lien position.
Tax liens may remain unpaid if the lien holder subordinates the tax
lien to the FHA-insured mortgage.
NOTE: If any regular payments are to be made, they must be
included in the qualifying ratios.
Although a borrower’s eligibility for an FHA-insured mortgage may be
established by performing the actions described previously in this topic,
the overall analysis of the borrower’s creditworthiness must consider a
borrower’s previous failure to make payments to the Federal agency in
the agreed-to manner, and document the analysis as to how the previous
failure does not represent a risk of mortgage default.
Continued on next page
FHA Loans
300-68
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Eligible Borrowers,
Ineligible
Parties
A mortgage loan application is not eligible for FHA mortgage insurance if
the name of any of the following parties to the mortgage transaction is
found on HUD’s LDP list or the GSA List:





Documenting
Borrower
Eligibility
Continued
borrower
seller
listing or selling real estate agent, or
loan officer.
Exception: A seller on the GSA list is exempt if the property being
sold is his/her principal residence.
To determine whether a borrower is eligible to participate in an FHA
mortgage loan transaction or must be rejected, the DE Underwriter must:


examine HUD’s LDP list, the GSA List and CAIVRS, and
document the reviews on the HUD-92900-LT, FHA Loan
Underwriting and Transmittal Summary.
Ocwen Loan Servicing LLC Client Select
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FHA Loans
300-69
FHA Lending Guide
Income
General
Income


Stable Monthly
Income


Employment
History


HUD generally requires all income to continue through, at a minimum,
the first three (3) years of the mortgage loan. If the borrower intends
to retire during this period, the effective income must be the amount
of documented retirement benefits, social security payments, etc.
Borrowers that change jobs frequently within the same line of work,
who continue to advance in income or benefits, should be considered
favorably. In this instance, income stability takes precedence over job
stability.
Stable monthly income is defined as income that has a two year
history of receipt from either part time or full time employment, with a
likelihood of continuation for at least three years. A Borrower who has
frequently changed jobs is acceptable and stable as long as it is
evident that earnings remained at a consistent level and the Borrower
has consistently met their obligations. It is necessary to the
determination that income is stable for every source of income being
used for qualification purposes.
Satisfactory verification of income for the prior two years and
probability of continuance must be provided, as detailed in this
chapter. If there are indications that the income will terminate within
the next three years, the income cannot be used for qualification
purposes. Income that cannot be documented or verified is not
acceptable.
Verification of applicant’s previous 2-year employment history is
required.
If employment has changed in the previous 2 years one or a
combination of the following are required to verify the applicants 2
year employment history:

W-2(s) for all jobs

VOE(s) for all jobs

School – college transcripts, Diploma/Degree

Military – discharge papers
Continued on next page
FHA Loans
300-70
Ocwen Loan Servicing Client Select
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FHA Lending Guide
Income,
Verbal VOE
Continued




A verbal verification must be performed within 5 business days prior
to the date of the note. Ocwen defines the Note date as the date the
borrowers sign the Note and will validate the “signing” date by using
the Notary Date from the closing documents.
The employer should be contacted and you should verbally confirm the
borrower’s current employment status and job title.
A verbal verification form must specifically document the following
information:

Date of the verification

Source used to obtain the phone number (i.e. directory assistance,
internet, etc.)

Name and title of person at the employer’s office who confirmed
the employment

Name and title of the person who completed the Verbal VOE
Exception: If the borrower is in the military, a Leave and Earnings
Statement (dated within 30 days of the note date) may be used in lieu
of the Verbal VOE.
Verification of Employment for salaried, hourly and commission
income using Third Party Verification Sources

If the Employer will not verbally verify the employment, but uses a
Third Party Verification source (i.e. The Work number), this will be
acceptable. A verification from the Third Party within 5 business days
prior to the Note Date must be obtained.
Continued on next page
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FHA Loans
300-71
FHA Lending Guide
Income,
Verbal VOE
Self-Employed
Continued



AUS
Documentation
It is necessary to verify the existence of the Borrower’s business
within 30 calendar days prior to the note date. Ocwen defines the
Note date as the date the borrowers sign the Note and will validate
the “signing” date by using the Notary Date from the closing
documents.
This verification can be made with a third party, such as CPA,
regulatory agency or applicable licensing bureau, or by verifying the
phone listing and address for the business using a telephone book, the
Internet or directory assistance. It is also necessary to verify the
phone listing and address for the business.
The written Verbal VOE form should include:

Date of the verification

Source of verification of the phone listing and address of the
business (i.e. internet)

Name and title of CPA or details of other source used to verify the
business; or

Name and title of the person who completed the Verbal VOE

The DU Findings Report will provide specific messages on the following
income types when identified correctly:

base salary for salaried borrower,

base salary for self-employed borrower,

commission, bonus, and overtime income,

positive net rental income,

social security and disability income,

alimony and child support, and

pension or retirement income.

For all other income types, standard FHA guidelines apply.
Continued on next page
FHA Loans
300-72
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
IRS Form
4506-T prior
to April 15th
Continued
For loans receiving an approval through TOTAL, obtain tax transcripts for
the number of years of income documentation required on the Desktop
Underwriter Findings Report (DU). Ocwen requires the most recent Tax
Return Transcript for all borrowers.

For loans underwritten (defined as the last run date in DU) before
April 15, 2015, if the borrower has NOT filed their 2014 tax returns,
obtain the number of year(s) income documentation according to the
DU findings. If the borrower has filed 2014, then follow instructions
under the prior to June 15th section.


For Salaried Borrowers:
□ If DU requires 1 year documentation, obtain 2013 tax
transcript, current paystub and 2013 W-2.
□ If DU requires 2 years documentation, obtain 2012 and
2013 tax transcripts, current paystub and 2012 and 2014
W-2s.
For Self-Employed Borrowers:
□ DU requires 2 years documentation therefore obtain 2012
and 2013 tax returns and transcripts.
□ 2014 unaudited P&L and must be signed by the borrower;
declining incomes will be taken into account. Note 2014
income may not be used in qualifying when only an
unaudited P&L is provided.
Continued on next page
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FHA Loans
300-73
FHA Lending Guide
Income,
IRS Form
4506-T prior
to June 15th
Continued

For loans underwritten (defined as the last run date in DU) prior to
June 15, 2015, if the borrower has filed their 2014 tax returns, and
the tax transcripts are not yet available, the tax transcript request will
be returned from the IRS and reflect “No Record Found”, the following
must be provided:



NOTE:
2014 Tax Transcript showing “No record of return filed”; and,
For Salaried Borrowers:
□ If DU requires 1 year documentation, obtain 2013 tax
transcript, current paystub and 2014 W-2.
□ If DU requires 2 years documentation, obtain 2012 and
2013 tax transcripts, current paystub and 2012 and 2014
W-2s.
For Self-Employed Borrowers:
□ DU requires 2 years documentation therefore obtain 2012
and 2013 tax returns and transcripts.
□ In declining income scenarios, the 2014 unaudited P&L is
required and must be signed by the borrower; declining
incomes will be taken into account for qualifying ratios.
□ In increasing income scenarios, the 2014 audited P&L is
required in order to be used for qualifying purposes.
□ Copy of the 2014 Tax Return reflecting proof of filing and
evidence of tax payment.
See below if borrower filed an extension.
Continued on next page
FHA Loans
300-74
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FHA Lending Guide
Income,
IRS Form
4506-T after
June 15th
Continued

For loans underwritten on or after June 15, 2015, the 2014 Tax Return
Transcripts must be provided. If a borrower has filed an extension, the
following must be provided:





The official IRS period for extension expires October 15,2015;
therefore, loans closing after this date will require 2013 tax returns for
income verification. File must include a copy of the signed 2014
returns and if the IRS transcripts indicate “No Record of Return Filed”,
then the below must be documented:


IRS Form
4506-T Not
Required to
File
Evidence that the extension was filed and evidence of tax
payment; and,
A 2014 Tax Transcript showing “No record or return filed”; and,
For Salaried Borrowers: See above directions based on DU
recommendations.
For Self-Employed Borrowers: See above directions based on
DU recommendations. 2014 unaudited P&L and must be signed by
the borrower; declining incomes will be taken into account.
“Stamped” copy of the tax returns from the IRS; OR
If the borrower(s) E-filed their returns, then obtain evidence that
the return was “accepted” by the IRS.
Borrowers Not Required to File a 2013 Tax Return
If a borrower is not required to file a 2013 tax return and the source of
income cannot be validated through the 4506-T process, alternative
documentation must be obtained. Examples of documentation include
1099 transcripts or an award letter with a bank statement.
Continued on next page
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FHA Loans
300-75
FHA Lending Guide
Income,
Salaried /
Wage Income
Continued
All of the following documentation is required:




Paystub and
W2
Requirements
Pay stubs for the most recent 30 day period,
W-2’s for the previous two (2) years,
Verbal verification of employment from the current employer as
noted above, and
signed IRS form 4506-T.
 The pay-stub must cover the most recent 30-day period.
 The paystub must not be any older than 120 days as of the Note date.
 The Pay-stub must be computer generated (typed) and clearly identify
the borrower as the employee, all necessary information to calculate
income, including gross year-to-date earnings, base salary with pay
period specified, and must clearly specify the employer’s name.
 If the borrower receives “handwritten” pay stubs, Ocwen will accept
provided the following is obtained:

Written Verification of Employment

Most recent two years of computer generated W-2s

Copies of the borrowers filed individual federal tax returns signed,
with all schedules, for the most recent two years.

IRS W-2 forms must be computer generated (typed) and clearly
identify the Borrower, Borrower’s address, social security number and
Employer’s Name.
Continued on next page
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300-76
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FHA Lending Guide
Income,
Alimony, Child
Support,
Maintenance
Continued

Fannie Mae DU

If “Approve/Eligible,” the following is required:
 A copy of the front page of the divorce decree,
 Copies of applicable pages from the divorce decree that
provide details of support payments, including verification that
the income will continue for at least three (3) years after loan
closing, and
 Verification of receipt of income for the last three (3) months,
Bank statements or cancelled checks are acceptable.

Manually Underwritten

Income received from alimony, child support or maintenance
payments must continue the first three (3) years after closing.
 A copy of the divorce decree, legal separation agreement,
voluntary agreement, or court order specifying the amount of
support and the period of time over which it will be received is
required.
 Evidence (i.e., deposit slips, bank statements, front and back
of canceled checks, court records or Federal tax returns) must
be provided to reflect that the funds have been received for
the last 12 months.
 Period of less than 12 months may be acceptable provided the
payer’s ability and willingness to make timely payments is
adequately documented.

Properly documented child support income may be grossed up under
the same terms and conditions as other non-taxable sources.

See the subtopic Non-Taxable Income subsequently presented in this
topic for additional information.
Continued on next page
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300-77
FHA Lending Guide
Income,
Auto
Allowances
and Expense
Account
Payments
Continued






Capital Gains



Only the amount that an auto allowance and/or expense account
exceeds actual expenditures can be considered as income.
Income is documented with the most recent two (2) years’ tax returns
(IRS Form 2106 - Employee Business Expenses).
The employer must verify that the allowance/account will continue.
The borrower’s car payment is treated as a recurring debt and cannot
be offset by the car allowance.
If there is a loss between the allowance and actual expenditures, that
amount is considered a recurring debt and counted in the total debt
ratio.
If the borrower uses the standard per-mile rate in calculating auto
expenses, as opposed to the “actual cost” method, the portion that
the IRS considers depreciation may be added back to income.
Capital gains (or loss) as shown on Schedule D of the Individual Tax
Returns (IRS form 1040) generally occurs only one (1) time and
should not be considered in determining effective income.
If the borrower has a constant turnover of assets resulting in gains or
losses, the capital gain or loss may be considered in determining the
income, provided the borrower has at least three (3) years’ tax
returns evidencing capital gains. Example: An individual who
purchases old houses, remodels them and sells them for a profit.
Must obtain copies of the borrowers filed individual federal tax returns
signed, with all schedules, for the most recent three years. Schedule D
reflects the Capital Gain income. A three year average must be
completed when using Capital Gain income as qualifying income.
Continued on next page
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FHA Lending Guide
Income,
Commission
Income
Continued
Commission income can be used to qualify:





Must obtain copies of the borrowers filed individual federal tax returns
signed, with all schedules, for the most recent two years, along with
his/her most recent pay stub.
the commission income is averaged over the two (2) year period.
NOTE: commission income showing a decrease requires significant
compensating factors to justify loan approval.
any un-reimbursed business expenses (Schedule A of tax returns)
must be deducted from the borrower’s income.
income received between one (1) and two (2) years may be
considered if the underwriter is able to make a sound rationalization
for acceptance and can document the likelihood of continuance.
Employer
Differential
Payments
If the employer subsidizes the mortgage payment, the amount of the
payments is considered gross income. It may NOT be used to offset the
mortgage payment directly, even if the employer pays the servicing
lender directly.
Employment
by Family
Owned
Business
The borrower must provide the Salary and Hourly Wage Earner Income as
defined above, as well as evidence of not being an owner of the business.
This evidence may include one of the following:


a signed copy Federal personal tax returns, and/or
a signed copy of the Federal corporate tax return showing
ownership percentages (usually evidenced on the Schedule K-1), if
applicable.
Continued on next page
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300-79
FHA Lending Guide
Income,
Employment
Gaps
Continued
A borrower’s income may be considered effective and stable when
recently returning to work after an extended absence if he/she:


Is employed in the current job for six (6) months or longer, and
Can document a two (2) year history prior to an absence from
employment using:

Traditional employment verifications and/or

Copies of W-2 forms or paystubs.
NOTE: An acceptable employment situation includes an individual who
took several years off from employment to raise children, then returned
to the workforce.
IMPORTANT: Employment situations not meeting the criteria listed
above may only be considered as compensating factors. Extended
absence is defined as six (6) months.
Government
Assistance
Programs



Government assistance in the form of workman’s compensation,
welfare programs, payments for foster children, unemployment
income, etc. may be used to qualify the borrower.
Documentation must be provided from the agency paying benefits to
verify that the benefits are likely to continue for at least three (3)
years after closing. If continuance of such income is not expected for
three (3) years, it may be considered as a compensating factor.
Unemployment income must be documented for two (2) years.
Reasonable assurance of its continuance is also required. This applies
to individuals employed on a seasonal basis, such as farm workers,
resort employees, etc.
Continued on next page
FHA Loans
300-80
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Section 8
Home
Ownership
Vouchers
Interest and
Dividend
Income
Continued

Procedures for loan applications where the homebuyer receives a
monthly homeownership assistance payment under the housing choice
voucher homeownership program (Section 8) are shown below.

All Section 8 subsidized mortgage loans must have “88” entered as
the program identification code in the FHA Connection or its
functional equivalent.

FHA will assume that the subsidy will continue for at least three
(3) years so that it may be considered effective income.

The methods for qualifying the borrower are shown below.

The homeownership assistance payment must be paid directly to
the homeowner/borrower.

The amount of the monthly subsidy may only be considered as
income in determining the borrower’s qualifying ratios.

Qualifying instructions for this scenario are shown below.

The amount of the non-taxable subsidy that is received directly by
the homeowner may be grossed up by 25%.

The amount of the subsidy plus 25% of that subsidy may be added
to the borrower’s income from employment and/or other sources
in calculating the qualifying ratios.

NOTE: Although HUD allows the homeownership assistance payments
to be made directly to the servicing lender to offset the mortgage
payment, Ocwen is unable to facilitate the procedure for receiving or
allocating these funds. Therefore, the requirements shown above must
be adhered to for eligibility purposes, without exception.

Evidence required showing that the borrower still owns the assets
generating the income used to qualify.
Interest and dividend income must be documented as received for the
past two (2) years.
A two (2) year average is required to use such income to qualify for
the mortgage.
Two (2) years signed Federal tax returns or account statements must
be provided. Funds used for down payment and/or closing costs must
be subtracted before the interest is calculated.



Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-81
FHA Lending Guide
Income,
Military
Income
Continued
In addition to base pay, military personnel may be entitled to additional
forms of pay provided its continuance is verified by a written Verification
of Employment:





Mortgage
Credit
Certificate


New
Employment



flight or hazard pay,
BAS, Basic Allowance for subsistence (rations),
clothing allowance,
proficiency pay, and
BAH, Basic Allowance for housing.
If a government entity subsidizes a mortgage payment, either through
direct payments or tax rebates, these payments are considered as
acceptable income if verified in writing.
Either type of subsidy may be added to gross income or used to offset
the mortgage payment before calculating the qualifying ratios.
If a borrower is about to begin a new job, there must be a
guaranteed, non-revocable contract, fully executed by employee and
employer, to begin the new position within 60 days of closing, and the
income is acceptable for qualifying purposes.
If the loan will close more than 60 days before the employment
begins, the loan is not eligible for endorsement.
There must be sufficient, verified income/cash reserves to support
debt during the interim between closing and start of employment.
Continued on next page
FHA Loans
300-82
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Non-Taxable
Income
Continued


Note
Receivable
Income



If a portion or all of the borrower's income comes from a source which
is not subject to federal income tax, the amount of the tax savings on
the non-taxable portion of income may be added to the borrower's
gross income ("grossed up"). The percentage which may be added
may not exceed the appropriate tax rate for that income. The
underwriter must justify the "grossed up" portion and document the
source of the tax rate. The underwriter should use the tax rate used to
calculate the past year's tax.
If the borrower is not required to file a federal income tax return, a
rate of 25% may be used.
Income received from the repayment of a note must be verified by a
copy of the note to establish the amount and length of payments.
Payments must continue for the first three (3) years after closing.
Evidence (i.e., front and back of canceled checks, deposit slips or
Federal tax returns) must be provided evidencing that the funds have
been received consistently for the past 12 months.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-83
FHA Lending Guide
Income,
Overtime /
Bonus Income
Continued


Overtime and bonus income is treated as salaried income.
Overtime or bonus income may be used to qualify the borrower if it
meets the following guidelines:

There must be a two (2) year history.

The likelihood that the overtime or bonus income will continue
must be written on the verbal verification of employment or
verified on the written verification of employment.

The income is averaged over the most recent two (2) year period.
If there is a decline in income, there must be justification for using
it as qualifying income.

If the income is not consistent from year to year, more than two
(2) years’ income must be averaged to calculate an acceptable
qualifying income.

If received less than two (2) years, the income may be acceptable
if it can be documented that it will continue.

A trend must be established and analyzed.

The reason for using the income for qualifying purposes must be
justified and documented in writing.
Continued on next page
FHA Loans
300-84
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Second Job
Income
Continued






HUD defines part-time income (second job income) as income from a
job taken in addition to a borrower’s regular employment that
supplements the borrower’s income.
If a borrower’s regular employment is less than the typical 40 hour
work week, the stability of that income should be evaluated as any
other regular, on-going primary employment.
Part-time income from second job may be used if it can be verified as
having been uninterrupted for the previous two (2) years and if it has
a strong likelihood of continuation.
A seasonal part-time or second job (such as that received by a person
who works part-time at a department store during the Christmas
shopping period) can be considered as uninterrupted if the borrower
has worked in the same job “in season” for the past two years and
expects to be rehired for the next season. (i.e., umpiring baseball
games in summer).
Income from a part-time position that has been received for less than
two (2) years may be included as effective income provided that the
continuance of such income can be verified, and use of this income is
justified and documented in the file.
Income that does not meet these requirements may be considered as
a compensating factor.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-85
FHA Lending Guide
Income,
Projected
Income
Continued


Recent Return
to Work Force
Projected or hypothetical income is not acceptable for qualifying
purposes.
However, exceptions to this rule are permitted as shown below.

Income from bonuses, cost-of-living adjustments, or performance
raises (must be well documented with verification from the
borrower’s employer) may be used if documentation verifies that it
will be received within 60 days after closing.

Income from an accepted (but not yet started) job with a
guaranteed, non-revocable contract for employment beginning
within 60 days of loan closing may be used in qualifying.

However, it must be verified that there will be sufficient income or
cash reserves to support the mortgage payment and other
obligations during the interim period between loan closing and
start of employment. (i.e., teachers whose contracts begin with
the new school year, or physicians who will begin residency after
the loan is scheduled to close.)

If the loan will close more than 60 days before the borrower’s
employment begins, the loan is NOT eligible for insuring until
receipt of a pay stub or other acceptable evidence that the
borrower has begun the new job.
Borrowers who have been out of the work force for a significant period of
time may use income they receive from returning to work provided the
following guidelines are met:



the borrower must be employed in his/her current job for at least
six (6) months,
a two-year work history prior to the absence from the work force
(i.e., written verification of employment or W-2’s) must be
documented, and
income from employment may only be considered as a
compensating factor if these requirements cannot be met.
Continued on next page
FHA Loans
300-86
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Rental Income
Continued









Rent received for other properties owned by the borrower is acceptable if
documented that the rental income is stable.
Rent received from additional units in the subject property (if a 2-4 unit
property) may be used for qualifying purposes.
See the subtopic Conversion of Existing Primary Residence to Rental Property
or Second Home for additional information on rental income.
Net rental income is calculated by taking the gross rents, minus the twentyfive percent (25.00%) reduction (or local office’s percentage reduction for
vacancies and repairs), then subtract the monthly payment of PITI.
If this yields a positive number, add it to the borrower’s monthly gross
income; if negative, consider it a recurring monthly obligation.
Rental income is verified using one (1) of the following documentation
methods:

Schedule E of IRS Form 1040 (any depreciation is added back to the net
income or loss reflected on the Schedule and the current ownership of the
properties listed on Schedule E must be compared to the real estate
owned section of the loan application), or

NOTE: To be considered stable income, when tax returns are used to
calculate the rental income and a current lease (or agreement to lease) is
not provided, the 24-month rental history must be free of any unexplained
gaps greater than three (3) months.

current leases (if the property was acquired since the last income tax year
and is not listed on Schedule E, a current signed lease or other rental
agreement must be provided and the gross rental is reduced by 25%* to
allow for vacancies and maintenance before calculating net rental
income).

NOTE: Please check your HOC for their specific vacancy factor.
To calculate rental income using the 1040 Schedule E, use the net income plus
depreciation for both tax years and average the figures over the 24 month
period. Using this calculation, you will not include the mortgage payment in
the total debt as the debt is already reflected in the net income after
expenses. *Note: If income has declined from previous year, take the same
considerations as declining self-employed income to determine the stability for
qualification. When using a lease is necessary to calculate rental income, use
the gross monthly amount of the lease less the appropriate jurisdictional HOC
vacancy factor and include the payment in the debt ratios.
Income from “boarders” is acceptable when it is received from a relative and
can be shown on the borrower’s Federal tax returns. Otherwise, it may be
used as a compensating factor.
If six (6) or more units are owned in the same general area, a map disclosing
the locations must be submitted evidencing compliance with FHA’s seven (7)
unit limitation.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-87
FHA Lending Guide
Income,
Rent Loss
Insurance
Continued





When rental income is being used to qualify AND the subject property
is secured by a 2-4 unit primary residence, Ocwen will require the
borrower to obtain rent loss insurance to cover at least six (6) months
of gross monthly rent.
Rent loss insurance is not required if rental income from the subject
property is not being used to qualify.
Rent loss coverage must be included as a part of the hazard insurance
policy as an endorsement. The yearly hazard insurance premium must
include the additional premium the borrower must pay for this
coverage. The rent loss coverage provided in the hazard insurance
policy must cover a minimum of six (6) months of gross monthly rent.
If the insurance company will not issue an endorsement to the hazard
insurance policy for the rent loss coverage, the acceptance of a
separate insurance policy will be considered on a case-by-case basis.
Current published hazard insurance policy requirements (i.e., policy
term, policy prepayment, escrow collection, etc.) will apply for the
separate policy.
Rent loss insurance covers rental losses that are incurred during the
period that a property is being rehabilitated following a casualty.
Continued on next page
FHA Loans
300-88
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Retirement
and Social
Security
Continued





Self-Employed
Overview

Retirement income must be verified with documentation from the
former employer or with the most recent Federal tax returns.
The income must continue for at least three (3) years after closing;
otherwise, it can be used only as a compensating factor.
Income received from the Social Security Administration (SSA) which
can include Supplemental Security Income (SSI), Social Security
Disability Income (SSDI) and Social Security Income must be verified
with a copy of the last Notice of Award letter or equivalent document
that establishes award benefits to the borrower AND one (1) of the
following:

Most recent federal tax returns

Most recent bank statement evidencing receipt of income from the
SSA

A Proof of Income Letter, also known as a Budget Letter or
Benefits Letter

A copy of the borrower’s Social Security Benefit Statement, SSA
1099/1042S

Documentation should establish the income is likely to continue for
at least three (3) years after the date of the mortgage application.
However, if the Notice of Award or equivalent document does not
have a defined expiration date the income can be considered likely
to continue.
NOTE: Pending or current re-evaluation of medical eligibility for
benefit payments is not considered an indication the benefit payment
is not likely to continue.
Inquiries into or request for additional documentation concerning the
nature of the disability or medical condition of the borrower are not
allowed.
Individuals who own twenty-five percent (25.00%) or more interest in
a business are considered self-employed.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-89
FHA Lending Guide
Income,
Effective
Income
Continued
Effective Income
The total net profit of the business if a sole proprietorship with
depreciation or depletion added back to the adjusted gross.
 The amount of the draw or bonus taken from the capital account if the
business is a partnership plus the borrower’s share of the net profit.
Or
 The amount of wages or salary as shown on the W-2 if the business is
a corporation, plus any bonus or other compensation, deducting any
spousal income.
Income Analysis






Establish an earnings trend over the previous two (2) years. Three (3)
years may be used if all three (3) years tax returns are provided.
Quarterly tax return income may be included through the period
covered by the tax filings. If no quarterly returns, the income shown
on the P&L statement may be included provided the income stream is
consistent with the previous years’ earnings. If the P&L shows an
income stream considerably greater than previous years, the analysis
must be based solely on the income verified through the tax returns.
Careful analysis of the business’ financial strength, the source of its
income, and the general economic outlook for similar businesses in
the area.
A borrower whose business shows a significant decline in income over
the period analyzed is not acceptable, even if current income and debt
ratios meet HUD guidelines.
A borrower’s withdrawal of cash from the business may have a severe
negative impact on the ability of the business to continue operating
and must be carefully considered in the analysis.

Ocwen will accept the use of business funds only when the
borrower is a Schedule C.

The file must contain the conclusion that the withdrawal of the
business funds will not negatively affect the operation of the
business. Examples of supporting documents in the analysis are
(but not limited to) a CPA letter or 12 month business account
bank statements.
Continued on next page
FHA Loans
300-90
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Length of
Time in
Business
Continued



If the borrower has been in business for at least two (2) years, income
may be considered stable and effective.
If the borrower has been in business between one (1) and two (2)
years, he/she must have at least two (2) years previous employment
or a combination of one (1) year employment and formal schooling or
training in the occupation.
If the borrower has been in business less than one year, income is not
eligible due to lack of earnings history.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-91
FHA Lending Guide
Income,
Self-Employed
Income
Documentation
Continued
Fannie Mae DU
 The borrower must provide two (2) years of individual federal tax
returns and corporate or partnership federal tax returns (if applicable
to business).
 If “Approve/Eligible”, the borrower is not required to provide business
tax returns if ALL of the following can be met:

Individual Federal tax returns show increasing self employed
income over the past two (2) years,

Funds to close are not coming from business accounts,

The loan is not a cash out refinance.

NOTE: A business credit report is not required for a corporation or
“S” corporation.
A profit and loss statement (P&L) and a balance sheet is required if
more than a calendar quarter has elapsed since date of most recent
calendar year or fiscal-year end tax return was filed by the borrower.
If income used to qualify the borrower exceeds the two-year average
of tax returns, an audited P&L or signed quarterly tax returns obtained
from the IRS are required.
Manually Underwritten
 Signed and dated Federal individual income tax returns with all
schedules for the two (2) most recent previous years (if current year
taxes have been filed, proof of filing may be required (i.e. IRS stamp
on the tax return).
 Signed and dated current financial statement, including a year-to-date
balance sheet and income statement.
 If the business is a corporation or partnership signed and dated
Federal business tax returns for the most recent two (2) years with all
schedules (if current year taxes have been filed, proof of filing may be
required, i.e., canceled checks or IRS stamp on the tax return).
 Business credit report on corporations and “S” corporations.
Reference: See HUD Handbook 4155.1 Chapter 4 Section D (4155.1
4.D.70b) for additional information on analyzing Individual, Corporate,
“S” Corporation, and Partnership tax returns.

Continued on next page
FHA Loans
300-92
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Foreign
Income
Continued




Tip Income




Borrower must be US citizens receiving foreign employment income
generated from a non-U.S. employment source.
Borrower(s) must provide a two (2) year history of receipt, as well as
a three (3) year continuance after loan application must be
established for the income to be used to qualify.
Non-US source of income may not include sanctioned countries
administered by OFAC.
Foreign income must be supported by:

the most recent two (2) years signed U.S. federal tax returns, and

standard income documentation and requirements, based on
source and type of income (i.e., year-to-date paystub and W-2s or
other comparable documents).

The income must be translated into US dollars.

Foreign tax returns translated into U.S. dollars are NOT
acceptable.

Underwriter must use due diligence in determining continuance of
income and focus on borrower’s occupation, tenure, past
employment history, probability of continued employment.
Must have been received for at least the most recent two (2) years.
Documentation that the current employer expects the tip income to
continue is required.
Tip income should be averaged over the past two (2) years to
determine the amount of income that may be considered in qualifying
the borrower.
NOTE: Tip income must be entered in DU as “Other Types of Income.”
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-93
FHA Lending Guide
Income,
Temporary
Leave and
Short Term
Disability
Income
Continued





Temporary leave from employment is generally short in duration and may
encompass various circumstances such as maternity, medical, short-term
disability, or other temporary leaves with or without pay.
The period of time that a borrower is on temporary leave is determined by various
factors such as applicable law, employer policies, and short term insurance and/or
benefit terms.
Leave from work ceases being considered temporary when the borrower does not
intend to return to the current employer or does not have a commitment from the
current employer to return to work.
Underwriters must determine the allowable qualifying income as follows:

If the borrower will return to work prior to the first mortgage payment, then
the borrower’s regular employment income that will be received upon their
return to work may be used for qualifying.

If the borrower will return to work after the first mortgage payment, then the
borrower’s temporary leave income is used for qualifying.

Documentation evidencing amount, duration, and consistency for all temporary
leave income sources must be obtained when used for qualifying.

Verify the borrower’s pre-leave income and employment, regardless of leave
status.

Obtain documentation from current employer confirming the borrower’s
statutory right to return to work (or employer’s commitment to permit the
borrower to return to work), the confirmed date of return, and the borrower’s
post-leave employment and income.

Obtain written statement signed by the borrower confirming that they will
return to their current employer and stating the confirmed date of return.

When a borrower is currently receiving short-term disability payments that will
decrease to a lesser amount within the next three (3) years because they are
being converted to long-term benefits, the amount of the long-term payments
must be used in determining the borrower’s stable income.
In addition to the above guidelines, the following applies for worker’s
compensation:

Benefits that have a defined expiration date must have a remaining term of at
least three (3) years from the date of the mortgage application in order to be
used for qualifying the borrower.

A copy of the borrower’s disability policy or benefits statement must be
obtained to verify the amount of the disability payments and to determine
whether there is a contractually established termination or modification date.

A statement from the benefits’ payer (insurance company, employer, or other
qualified and disinterested party) must be obtained to confirm the borrower’s
current eligibility for the disability benefits.
Continued on next page
FHA Loans
300-94
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Income,
Continued
Trailing
Spouse
Not Permitted.
Trust Income



VA Benefits



A copy of the Trust Agreement or the Trustee’s statement confirming
the amount, frequency and duration of payments must be provided.
The income must continue for at least three (3) years after closing.
Lump sum distributions made before loan closing may be used for
down payment or closing costs if they are verified by a copy of the
check or the Trustee’s letter that shows the distribution amount. If a
distribution was made that reduces the Trust income, the reduction
must be taken into consideration in computing the income.
Income received in the form of VA benefits must be documented by a
letter or distribution form from the Veterans Administration.
The income must continue for at least three (3) years after closing.
Education benefits are not acceptable income, as it offsets education
expenses.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-95
FHA Lending Guide
Income,
Borrowers on
Strike
Continued



FHA Loans
300-96
The guidelines below apply to a borrower who is currently out of work
due to a strike at his/her place of employment.
The file must contain evidence that the borrower has returned to
work.
One of the following methods may be used for confirmation:

a written verification from the employer confirming the borrower is
back to work, or

a verbal verification with either the Human Resources Department,
Payroll Department or the borrower’s supervisor.

NOTE: Ocwen must be able to verify and obtain the information
directly with the employer (no third party documentation).
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios
Alimony

Payment of alimony may be treated in one (1) of two (2) ways:

as a reduction from the borrower’s gross income, or

as a monthly obligation.

DE Underwriter should choose whichever method benefits the
borrower the most.
Child Support

Child support must be treated as a monthly obligation.
Authorized
User Accounts

All monthly debt obligations on authorized user accounts must be
included in the debt-to-income ratio or the borrower must be removed
as an authorized user.
Condominium
Fees

With proper verification, that portion of the condo fee that clearly
covers the utilities may be subtracted from the mortgage payment
before computing ratios.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-97
FHA Lending Guide
Liabilities and Qualifying Ratios,
Contingent
Liability



Continued
A contingent liability exists when a borrower holds a joint obligation with
another person or persons.
Obligations where the borrower is a co-signer must be listed as the
borrower’s debt, unless the borrower can provide conclusive evidence
from the debt holder that there is no possibility the debt holder will
pursue debt collection against him/her should the other party default.
Mortgage Debt:

If a borrower is obligated on an outstanding HUD, VA or conventional
mortgage secured by a property which has been sold by assumption,
contract for Deed or traded within the last twelve (12) months without a
release of liability, or a property was transferred because of divorce,
contingent liability must be considered a recurring liability unless the
following circumstances apply:
 the Servicer of the assumed loan provides a payment history
showing that the mortgage has been current during the previous
twelve months, or
 an appraisal or closing statement from the sale of the property
supports a value that results in a seventy-five percent (75.00%)
LTV ratio (i.e., the outstanding balance on the mortgage loan,
minus any UFMIP, cannot exceed seventy-five percent (75.00%)
of the appraised value or sales price).
 A copy of the divorce decree ordering the former/separated
spouse to make payments or the assumption agreement and the
deed showing transfer of title out of the borrower’s name is
required.
 If “Approve/Eligible”, the following is required:
 obtain a copy of the divorce decree ordering the other spouse to
make payments, or
 the assumption agreement and the deed showing transfer of title
out of the borrower’s name. There is no twelve (12) month
payment history requirement.

Co-Signed Obligations:

If the borrower is a co-signer, or otherwise co-obligated on a car loan,
student loan, mortgage, or any other obligation, contingent liability
applies unless documentation is obtained to prove the primary obligor
has been making payments during the previous 12 months on a
regular basis and does not have a history of delinquent payments on
the loan.

Business Paid Debt. For a Partnership, Corporation, or S-Corporation,
Installment and Revolving debt paid by the borrower’s owned business may
be omitted from debt calculation with 12 month canceled checks from the
business. If the business structure is a Schedule C/Sole Proprietor, then the
debt cannot be excluded from ratios.
Continued on next page
FHA Loans
300-98
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios,
Conversion of
Existing
Primary
Residence
Continued
Conversion of existing Primary Residence to a Second Home or
Investment Property:
 This guidance applies solely to a principal residence being vacated in
favor of another principal residence.
 The housing payments for the current primary residence and the new
proposed primary residence must be included in the debt to income
calculation.
 Underwriters are not permitted to include rental income from a
primary residence being vacated in favor of another principal
residence unless one of the following applies:

the homebuyer has a 75% LTV/CLTV or less, as determined by a
current residential appraisal (no more than six months old as of
the Note Date and may be exterior-only) on the current primary
residence, OR

the homebuyer is relocating with a new employer, or being
transferred by the current employer to an area that is not within a
reasonable commuting distance.

Evidence of a properly executed lease agreement of at least one
year in term after the loan closing date and evidence of the
security deposit and/or the first month’s rent was paid to the
homeowner must be in the loan file.

Traditionally underwritten loans must document the following reserve
requirements:

three (3) months reserves on BOTH properties, if the homebuyer
cannot provide evidence of a seventy-five percent (75.00%)
LTV/CLTV or less on the current primary residence,

two (2) months reserves on BOTH properties, if the homebuyer
can provide evidence of a seventy-five percent (75.00%)
LTV/CLTV or less on the current primary residence. Note: TOTAL
Scorecard will determine reserve requirements for AUS approved
transactions.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-99
FHA Lending Guide
Liabilities and Qualifying Ratios,
Installment
Debt







Obligations
not considered
as Debt









Continued
Generally, installment debt with less than ten (10) remaining
payments is not considered in the qualifying ratios. If the debt is other
than a fixed installment, the underwriter must verify that the monthly
installments plus interest are equal to an amount that can be paid off
within ten (10) months. Reliance solely on the credit report is
insufficient. Thus, it will be necessary to obtain a copy of the
borrower’s pay statement, or other documentation, to determine the
interest rate and number of payments required to satisfy the debt.
If the monthly payment on debts with less than ten (10) remaining
payments is large enough to seriously affect the borrower’s ability to
make the mortgage payment in the months immediately following
closing, the monthly payment must be included in the debt ratios. An
exception may be granted if the borrower has sufficient cash reserves
after loan closing to supplement his/her income for payment of the
debt.
FHA TOTAL Scorecard:
If a liability has less than ten (10) remaining payments and the
payment is less than $100, it is not counted in the borrower’s debt
ratio.
All other liabilities listed on the 1003 will be considered in the
borrower’s ratio.
Manually Underwritten:
All liabilities listed on the 1003 will be considered in the borrower’s
ratio.
Federal/state/local taxes,
FICA or other retirement contributions such as 401Ks (including
repayment of debt secured by these funds),
Commuting costs,
Union dues,
401(k) payments,
Automatic deductions to savings accounts,
Child care, and
Other voluntary deductions.
Open Accounts with zero balances
Continued on next page
FHA Loans
300-100
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios,
Projected Debt


PITIA




Continued
If a debt, such as a student loan or balloon note, is scheduled to begin
repayment or to become due within the first 12 months of loan
closing, the client must include the monthly obligation or take into
consideration the note when qualifying the borrower.
Debt payments do not have to be classified as projected obligations if
the borrower provides written evidence that the debt will be deferred
to a period outside the 12-month timeframe.
The taxes, insurance and HOA assessments, if applicable, due on a
property owned by a borrower must always be considered in the
borrower’s debt to income ratios, including properties that are
currently owned free and clear.
Generally, for a current FHA insured loan it is assumed that, if the
mortgage has been reported to the credit repositories, the payment
includes taxes and insurance. This assumption also includes
mortgages that are not on the credit report and other verification has
been provided.

However, for non-FHA insured current loans, the underwriter
should confirm taxes and insurance(s) are included.
If the mortgage is with a private individual, it is assumed that the
payment does NOT include taxes and insurance.
If the borrower discloses that the mortgage payment does not include
taxes and/or insurance or the mortgage is with a private individual,
the following applies:

the borrower must provide the amount of taxes and/or insurance
(translated into a monthly figure),

the monthly taxes and/or insurance must be treated as a liability,
and

documentation of the taxes and/or insurance is determined by
underwriter discretion based on the borrower’s cash reserves.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-101
FHA Lending Guide
Liabilities and Qualifying Ratios,
Qualifying
Ratios

For Case Numbers
Assigned prior to
April 21, 2014





Continued
If “Approve/Eligible”, no explanation is required for qualifying the
borrower at ratios above FHA guidelines when this occurs.
For Manually Underwritten Loans, housing ratios exceeding 31% may
be acceptable ONLY if significant compensating factors, as defined
below, are documented and recorded on the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT). Total debt ratios may not
exceed 43.00%.
The maximum DTI for Ocwen on any Manually Underwritten
Transaction is 43.00%.
The housing ratio includes the PITI of the new mortgage, mortgage
insurance, homeowner’s association dues, and payments on secondary
financing.
The debt ratio includes housing ratio items, installment loans,
revolving credit, other mortgage payments and any other monthly
debt.
Victims of a Presidentially-Declared Major Disaster Area may have a
debt ratio up to 45% without compensating factors. This debt ratio
may be exceeded with appropriate compensating factors. Evidence
that the borrower resided in the disaster area during the occurrence
must be provided. This remains in effect for up to one-year from the
date of the President’s declaration. Check the FEMA website to obtain
specific affected counties and corresponding declaration dates for the
Major Disaster Areas.
Continued on next page
FHA Loans
300-102
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios,
Continued
Qualifying
Ratios -

If “Approve/Eligible”, no explanation is required for qualifying the borrower at
ratios above FHA guidelines when this occurs.
For Case Numbers
Assigned on or
after April 21,
2014

Manually Underwritten Loans:
Borrowers With Minimum Decision Credit Scores of 620 or More and No
Compensating Factors
The maximum allowable qualifying ratios for borrowers with minimum decision
credit scores of 620 or more and no compensating factors are as follows:
 total monthly mortgage payment may not exceed 31% of gross effective
monthly income (33% for Energy Efficient Homes); and
 total monthly fixed payment may not exceed 43% of gross effective monthly
income.
Borrowers With Minimum Decision Credit Scores of 620 or More and One
Compensating Factor
The maximum allowable qualifying ratios for borrowers with minimum decision
credit scores of 620 or more provided they meet one of the compensating factors
specified below are as follows:
 total monthly mortgage payment may not exceed 37% of gross effective
monthly income; and
 total monthly fixed payment may not exceed 43% of gross effective monthly
income.
Acceptable compensating factors are limited to the following:
 Verified and documented cash reserves that equal or exceed three total
monthly mortgage payments (one and two units) or that equal or exceed six
total monthly mortgage payments (three and four units);
 New total monthly mortgage payment is not more than $100 or 5% higher
than previous total monthly housing payment, whichever is less, and there is
a documented twelve month housing payment history with no more than one
30 day late payment. In cash-out transactions all payments on the mortgage
being refinanced must have been made within the month due for the previous
twelve months.
 Residual income (see below).
NOTE: See the following section below in this Lending Guide for full detail on
Compensating factors and Residual Income:

Compensating Factors (For Case Numbers assigned prior to April 21,
2014)

Residual Income for Manually Underwritten FHA Loans
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-103
FHA Lending Guide
Liabilities and Qualifying Ratios,
Qualifying
Ratios For Case Numbers
Assigned on or
after April 21,
2014 (Continued)
Continued
Borrowers With Minimum Decision Credit Scores of 620 or More and Two
Compensating Factors
The maximum allowable qualifying ratios for borrowers with minimum
decision credit scores of 620 or more provided they meet two of the
compensating factors specified below are as follows:
 total monthly mortgage payment may not exceed 40% of gross
effective monthly income; and
 total monthly fixed payment may not exceed 43% of gross effective
monthly income.
Acceptable compensating factors are limited to the following:
 Verified and documented cash reserves that equal or exceed three
total monthly mortgage payments (one and two units) or that equal or
exceed six total monthly mortgage payments (three and four units);
 New total monthly mortgage payment is not more than $100 or 5%
higher than previous total monthly housing payment, whichever is
less, and there is a documented twelve month housing payment
history with no more than one 30 day late payment. In cash-out
transactions all payments on the mortgage being refinanced must
have been made within the month due for the previous twelve
months.
 Verified and documented significant additional income that is not
considered effective income; and
 Residual income (See below)
NOTE: See the following section below in this Lending Guide for full detail
on Compensating factors and Residual Income:


Compensating Factors (For Case Numbers assigned prior to April 21,
2014)
Residual Income for Manually Underwritten FHA Loans
Continued on next page
FHA Loans
300-104
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios,
Qualifying
Ratios For Case Numbers
Assigned on or
after April 21,
2014 (Continued)
Continued
Borrowers With Minimum Decision Credit Scores of 620 or More with No
Discretionary Debt
The maximum allowable qualifying ratios for borrowers with minimum
decision credit scores of 620 or more with established credit lines in their
own name open for at least six months who carry no discretionary debt
(housing payment is only account with an outstanding balance and
borrower can document that revolving credit has been paid off in full
monthly for at least the previous six months) are as follows:
 total monthly mortgage payment may not exceed 40% of gross
effective monthly income; and
 total monthly fixed payment may not exceed 40% of gross effective
monthly income.
For borrowers meeting this criterion no other compensating factors are
required
Qualifying
Ratios NOTES
For Case Numbers
Assigned on or
after April 21,
2014
NOTEs
The maximum DTI for Ocwen on any Manually Underwritten
Transaction is 43.00%.
 The housing ratio includes the PITI of the new mortgage, mortgage
insurance, homeowner’s association dues, and payments on secondary
financing.
 The debt ratio includes housing ratio items, installment loans,
revolving credit, other mortgage payments and any other monthly
debt.
Victims of a Presidentially-Declared Major Disaster Area may have a debt
ratio up to 45% without compensating factors. This debt ratio may be
exceeded with appropriate compensating factors. Evidence that the
borrower resided in the disaster area during the occurrence must be
provided. This remains in effect for up to one-year from the date of the
President’s declaration. Check the FEMA website to obtain specific affected
counties and corresponding declaration dates for the Major Disaster Areas

Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-105
FHA Lending Guide
Liabilities and Qualifying Ratios,
Maximum
Qualifying Ratio
Matrix
Continued
The maximum total monthly mortgage payment to gross effective income ratios and total
monthly fixed payments to gross effective income ratios applicable to manually underwritten
loans are summarized in the matrix below.
NOTE: See the following section below in this Lending Guide for full detail on Compensating
factors and Residual Income:

Compensating Factors (For Case Numbers assigned prior to April 21, 2014)

Residual Income for Manually Underwritten FHA Loans
Manual Underwriting Matrix For Case Numbers Issued on or After April 21, 2014
Lowest
Minimum
Decision Credit
Score
620 and above
620 and above
Maximum
Qualifying
Ratios (%)
31/43
37/43
620 and above
40/40
620 and above
40/43
Acceptable Compensating factors
No compensating factors required.
One of the following:
 Verified and documented cash reserves equal to at least three total
monthly mortgage payments (1-2 units) or six total monthly mortgage
payments (3-4 units).
 New total monthly mortgage payment is not more than $100 or 5%
higher than previous total monthly housing payment, whichever is less;
and a there is documented twelve month housing payment history with
no more than one 30 day late payment. In cash-out transactions all
payments on the mortgage being refinanced must have been made within
the month due for the previous 12 months.
 Residual Income
Borrower has established credit lines in his/her own name open for at least six
months but carries no discretionary debt (i.e., monthly total housing payment
is only open installment account and borrower can document that revolving
credit has been paid off in full monthly for at least the previous six months).
Two of the following:
 Verified and documented cash reserves equal to at least three total
monthly mortgage payments (1-2 units) or six total monthly mortgage
payments (3-4 units).
 New total monthly mortgage payment is not more than $100 or 5%
higher than previous total monthly housing payment, whichever is less;
and a there is documented twelve month housing payment history with
no more than one 30 day late payment. In cash-out transactions all
payments on the mortgage being refinanced must have been made within
the month due for the previous 12 months.
 Verified and documented significant additional income that is not
considered effective income (i.e., part-time or seasonal income verified
for more than one year but less than two years).
 Residual Income.
Continued on next page
FHA Loans
300-106
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios,
Compensating
Factors
For Case
Numbers
assigned prior
to April 21,
2014
Continued
Compensating factors may be used if a borrower’s debt ratios exceed the
guidelines if an approval is granted. Underwriters must state in the
“underwriter comments” section of the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT) the compensating factors used to
justify their loan approval. Some common examples of compensating
factors listed below:












borrower has substantial documented cash reserves after closing. (At
least three (3) months’ worth of liquid or readily convertible to cash
without retirement or job termination. Other exclusions are gift funds,
funds borrowed against IRAs, thrift savings plans, 401(k)s, etc.,
equity in other properties or proceeds from a cash out refinance).
borrower has demonstrated the ability to accumulate savings.
borrower makes a large down payment (ten percent (10%) or more.),
borrower has demonstrated a “conservative” use of credit.
borrower has demonstrated the ability to pay housing expenses equal
to or greater than the proposed monthly housing expense for the new
mortgage over the past 12-24 months.
previous credit history shows that the borrower has the ability to
devote a greater portion of income to housing expenses.
the borrower receives documented compensation or income not
reflected in effective income, but directly affecting the ability to pay
the mortgage, including food stamps and similar public benefits.
there is only a minimal increase in the borrower’s housing expense.
the borrower has substantial non-taxable income (if no adjustment
made previously in the ratio computations).
the borrower has potential for increased earnings, as indicated by job
training or education in the borrower’s profession, or
the home is being purchased as the result of relocation of the primary
wage earner and the secondary wage-earner has an established
history of employment, is expected to return to work, and there is
reasonable prospects for securing employment in a similar occupation
in the new area. The Underwriter must address the availability of such
possible employment.
NOTE: It is not permissible to require the borrower to make advance
payments on his mortgage for consideration as a compensating factor.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-107
FHA Lending Guide
Liabilities and Qualifying Ratios,
Compensating
Factors
For Case
Numbers
assigned on or
after April 21,
2014



Verified and
Documented
Cash Reserves
Minimal
Increase in
FHA Loans
300-108
Continued
Compensating factors cited to support the underwriting decision must
be recorded in the Underwriter Comments section of Form HUD92900-LT, FHA Loan Underwriting and Transmittal Summary.
Documentation supporting the compensating factors cited must be
included in the endorsement case binder including, if applicable, a
worksheet attached to Form HUD-92900-LT reflecting the calculation
of residual income.
The table below describes the compensating factors (and the
documentation required to support the compensating factors) that
may be used to justify approval of manually underwritten loans with
ratios that exceed FHA standard qualifying ratios:

Verified and documented cash reserves may be cited as a compensating factor
subject to the following requirements.

reserves are equal to or exceed three total monthly mortgage payments
(one and two units); or

reserves are equal or exceed six total monthly mortgage payments (three
and four units).

Funds and/or “assets” that are not to be considered as cash reserves include

gifts;

equity from another property;

borrowed funds; and

cash received at closing in a cash-out refinance transaction or incidental
cash received at closing in the loan transaction.

The mortgagee may use a portion of a borrower's retirement account (IRA,
Thrift Savings Plan, 401k, and Keogh accounts) to calculate cash reserves,
subject to the following conditions:

to account for withdrawal penalties and taxes, only 60% of the vested
amount of the account, less any outstanding loans, may be used. The
mortgagee must document the existence of the account with the most
recent depository or brokerage account statement. In addition, evidence
must be provided that the retirement account allows for withdrawals under
conditions other than in connection with the borrower's employment
termination, retirement, or death.

if withdrawals can be made only in connection with the borrower's
employment termination, retirement, or death, the retirement account may
not be used to calculate the borrower’s cash reserves. If any of these funds
are also to be used for loan settlement, that amount must be subtracted
from the amount included as cash reserves

A minimal increase in housing payment may be cited as a compensating factor
subject to the following requirements:
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Housing
Payment



No
Discretionary
Debt
Significant
Additional
Income Not
Reflected in
Gross
Effective
Income

Reference: Refer to HUD Handbook 4155.1, Chapter 1, Section B.2.a for
information on documenting the previous housing payment

No discretionary debt may be cited as a compensating factor subject to
the following requirements:

the borrower’s housing payment is the only open account with an
outstanding balance that is not paid off monthly;

the credit report shows established credit lines in the borrower’s
name open for at least six months; and

the borrower can document that these accounts have been paid off
in full monthly for at least the past six months)

Borrowers who have no established credit other than their housing
payment, no other credit lines in their own name open for at least six
months, or who cannot document that all other accounts are paid off in
full monthly for at least the past six months, do not qualify under this
criterion. Credit lines not in the borrower’s name but for which he or
she is an authorized user do not qualify under this criterion.
Additional income from bonuses, overtime, part-time or seasonal
employment that is not reflected in gross effective income can be cited
as a compensating factor subject to the following requirements

the mortgagee must verify and document that the borrower has
received this income for at least one year, and it will likely continue;
and

the income, if it were included in gross effective income, is sufficient
to reduce the qualifying ratios to not more than 37/47.



Residual
Income
the new total monthly mortgage payment does not exceed the current total
monthly housing payment by more than $100 or 5%, whichever is less; and
there is a documented twelve month housing payment history with no more
than one 30 day late payment. In cash-out transactions all payments on the
mortgage being refinanced must have been made within the month due for
the previous 12 months.
If the borrower has no current housing payment mortgagees may not cite
this compensating factor.

Income from non-borrowing spouses or other parties not obligated for
the mortgage may not be counted under this criterion.
This compensating factor may be cited only in conjunction with another
compensating factor when qualifying ratios exceed 37/47 but are not
more than 40/50.
Residual income may be cited as a compensating factor provided it can
be documented and it is at least equal to the applicable amounts for
household size and geographic region found on the Table Of Residual
Incomes By Region found in VA Pamphlet 26-7
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-109
FHA Lending Guide
Liabilities and Qualifying Ratios,
Residual
Income for
Manually
Underwritten
FHA Loans
Continued
 VA Guidance on Residual Income
FHA has modeled the calculation of residual income on underwriting
guidance provided by the Department of Veterans Affairs (VA) in Chapter
4 of VA Pamphlet 26-7 at http://www.benefits.va.gov/warms/pam26_7.asp, as
modified in this Mortgagee Letter. FHA is also using the tables from the
VA guidelines for the determination of whether residual income is
sufficiently high to qualify as a compensating factor.
 Calculating Residual Income
Residual income is calculated in accordance with the following:

Calculate the total gross monthly income of all occupying
borrowers.

Deduct from gross monthly income the following items:
Residual Income, Deductions From Gross Monthly
Income
State income taxes
Federal income taxes
Municipal or other income taxes
Retirement or Social Security
Proposed total monthly fixed payment
Estimated maintenance and utilities
Job related expenses (e.g., child care)
NOTE: Evidence of Job Related Expense must be in
the file.)


Subtract the sum of the deductions from the table above from the
total gross monthly income of all occupying borrowers.
The balance is residual income.

Reference: Total monthly fixed payment is defined in HUD
Handbook 4155.1, Chapter 4, Section F.2.c.
Continued on next page
FHA Loans
300-110
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios,
Residual
Income for
Manually
Underwritten
FHA Loans
(Continued)
Continued

Calculating Gross Monthly Income

Gross monthly income should be calculated only for the occupying
borrowers consistent with the requirements of HUD Handbook
4155.1, Chapter 4, Section D.

Do not include bonus, part-time or seasonal income that does not
meet the requirements for effective income as stated in HUD
Handbook 4155.1, Chapter 4, Section 2.b-e.

Do not include income from non-occupying co-borrowers, cosigners, non-borrowing spouses, or other parties not obligated on
the mortgage.

Because taxes are taken into account in the calculation of residual
income, non-taxable income may not be “grossed up.”

Calculating Monthly Expenses

If available, mortgagees must use Federal and state tax returns
from the most recent tax year to document state and local taxes,
retirement, Social Security and Medicare. If tax returns are not
available, mortgagees may rely upon current pay stubs.

For estimated maintenance and utilities in all states, mortgagees
should multiply the living area of the property (square feet) by
$0.14.

Example: 1,500 square feet
x .14
$210.00 per month
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-111
FHA Lending Guide
Liabilities and Qualifying Ratios,
Residual
Income for
Manually
Underwritten
FHA Loans
(Continued)



Family Size
1
2
3
4
5
over 5
Family Size
1
2
3
4
5
over 5
Continued
To use residual income as a compensating factor, count all members of the
household of the occupying borrowers without regard to the nature of their
relationship and without regard to whether they are joining on title or the
note.
Exception: As stated in the VA Guidelines, the mortgagee may omit any
individuals from "family size" who are fully supported from a source of verified
income which is not included in effective income in the loan analysis. These
individuals must voluntarily provide sufficient documentation to verify their
income to qualify for this exception.
From the table below, select the applicable loan amount, region and
household size. If residual income equals or exceeds the corresponding
amount on the table, it may be cited as a compensating factor.
Table of Residual Incomes by Region
For loan amounts of $79,999 and below
Northeast
Midwest
South
$390
$382
$382
$654
$641
$641
$788
$772
$772
$888
$868
$868
$921
$902
$902
Add $75 for each additional member up to a family
Table of Residual Incomes by Region
For loan amounts of $80,000 and above
Northeast
Midwest
South
$450
$441
$441
$755
$738
$738
$909
$889
$889
$1025
$1003
$1003
$1062
$1039
$1039
Add $80 for each additional member up to a family
West
$425
$713
$859
$967
$1,004
of seven
West
$491
$823
$990
$1117
$1158
of seven
Continued on next page
FHA Loans
300-112
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Liabilities and Qualifying Ratios,
Residual
Income for
Manually
Underwritten
FHA Loans
(Continued)

Continued
States Included in Regions

The Regions on the Table of Residual Income include the following
states:
Region
States
Northeast
CT, MA, ME, NH, NJ, NY, PA, RI, VT
Midwest
IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI
South
AL, AR, DC, DE, FL, GA, KY, LA, MD, MS, NC, OK, PR, SC,TN, TX, VA, VI,
WV
West
AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY

Note: HUD is adopting this VA guidance solely for the purposes of
calculating residual income for use as a compensating factor on
manually underwritten loans. Other VA underwriting policies cannot
be used in connection with FHA loans, or cited as compensating
factors
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-113
FHA Lending Guide
Liabilities and Qualifying Ratios,
Undisclosed
Debt




Revolving or
Open-Ended
Debt


Continued
Information disclosed on the loan application must be accurate and
current through loan closing. This information includes (but is not
limited to) any additional credit applied for or incurred during the
application process and through loan closing.
If the borrower indicates new debt has been incurred which is not
present on the initial application or on the credit report,
documentation must be obtained from the borrower which indicates
the balance and payment of the debt. This information must be
included as a liability on the 1003 and the borrower must be requalified and/or the loan re-priced based on this new information.
If any additional liabilities or an increase in existing credit is revealed
during the loan application process, the borrower must be re-qualified
based on this new information.
Requalification may included, but is not limited to, obtaining a new
credit report including an updated credit score, which may impact the
qualifying interest rate and pricing, as well as, the borrower’s ability to
qualify based on current program information.
Monthly payments on revolving, 30-day (American Express type
accounts) or open-end accounts, regardless of balance, must be
included in the borrower’s monthly debt payment. If there is no
balance, there is no monthly payment.
In the absence of a stated payment, the greater of 5% of the
outstanding balance or $10 will be used as the required monthly
payment.
NOTE: Cash out refinancing for debt consolidation represents
considerable risk, especially if the borrowers have not had a
corresponding increase in income.
Careful evaluation of this type of transaction is required. The
Underwriter should review the Borrowers carefully when they are
paying off debts in order to qualify. The credit history and the
Borrower’s use of credit should be a factor in determining whether it is
appropriate to exclude debts for qualification purposes.
Continued on next page
FHA Loans
300-114
Ocwen Loan Servicing Client Select
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FHA Lending Guide
Liabilities and Qualifying Ratios,
Student Loans


Continued
If the debt repayment is scheduled to begin within twelve months
from the date of the mortgage loan closing, the anticipated monthly
obligation must be included in the debt ratio, unless written evidence
that the debt will be deferred to a period outside this timeframe is
provided.
If the credit report does not reflect a monthly payment amount, a
copy of the Note or a letter from the lender must be used to
determine the monthly payment amount.
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-115
FHA Lending Guide
Credit
General
The overall analysis and underwriting of a borrower’s credit is to
determine a borrower’s ability and willingness to repay a mortgage debt
through:



TOTAL
Scorecard and
AUS
Considering the type of income the borrower needs in order to
qualify,
Analyzing the borrower’s liabilities to determine creditworthiness,
and
Reviewing ratios, including debt-to-income, and compensating
factors.

The use of Desktop Underwriter (DU) is initially required for nonstreamline scenarios; however, if the loan does not receive Approval
then a manual underwriter is permitted. The mortgage credit portion
of loan applications receiving an “Approve” risk classification will be
deemed acceptable unless otherwise stated with applicable overlays
detailed within this Lending Guide.

Approval is at the discretion of the DE underwriter.

In all cases, Ocwen remains accountable for compliance with FHA
guidelines and those credit, capacity, and documentation aspects not
addressed by the AUS system. A FHA-registered DE underwriter must
review the appraisal on all loans, and must fully underwrite those
applications where either system Refers the file to an individual
underwriter or a manual downgrade is required.
If a borrower’s current address is outside of the United States, the
AUS systems will not issue a recommendation. The loan must then be
manually underwritten.
Streamline refinances do not have the option of TOTAL scorecard
approval and must be manually underwritten.


Continued on next page
FHA Loans
300-116
Ocwen Loan Servicing Client Select
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FHA Lending Guide
Credit,
Continued
Bankruptcy
Documentation




Copy of the bankruptcy petition,
Schedule of Debts and Discharge, and
Written explanation from borrower.
If the bankruptcy was discharged at least 2 years from the date of the
loan application and the risk-classification is acceptable through
TOTAL, then no further documentation regarding the bankruptcy is
required.
Continued on next page
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FHA Loans
300-117
FHA Lending Guide
Credit,
Chapter 7
Bankruptcy
Continued
Bankruptcy must have been discharged for at least two (2) years to
be eligible for AUS.
 There cannot be any new derogatory credit information, unless TOTAL
Scorecard approves the transaction and the credit report accurately
reflects the derogatory credit information. Note, Underwriter review
and approval continues to be required in addition to TOTAL Scorecard
approval.
DOWNGRADE: Bankruptcies discharged less than 2 years from the date
of loan application or incorrectly reported on the credit report require the
mortgage application to be downgraded to a Refer and submitted to a DE
Underwriter for manual underwrite.





If bankruptcy is discharged for at least one year (but not less than 12
months), it may be acceptable if it occurred due to extenuating
circumstances beyond the borrower’s control (i.e., death of principal
wage earner, or serious long-term illness) and are not likely to
recover,
Provide documentation that the borrower’s current situation indicates
that the events that led to the bankruptcy are not likely to reoccur.
The borrower must have re-established good credit, or has chosen not
to incur new credit obligations,
NOTE: If the bankruptcy included a foreclosure, the more restrictive
three (3) year wait still remains in effect. This three (3) year waiting
period is based on the date the claim is paid. Refer to Foreclosures
within this guide for additional information.
NOTE: Multiple bankruptcies are not permitted.
Continued on next page
FHA Loans
300-118
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Credit,
Chapter 13
Bankruptcy
Continued

A borrower paying off debts under a court approved wage earner’s
plan pursuant to Chapter 13 of the Bankruptcy Act may be eligible if
he/she is:

Otherwise meets credit standards, including minimum credit score
requirements,

Bankruptcy must have been discharged for at least two (2) year to
be eligible for AUS, and

There cannot be any new derogatory credit information, unless
TOTAL Scorecard approves the transaction and the credit report
accurately reflects the derogatory credit information. Note,
Underwriter review and approval continues to be required in
addition to TOTAL Scorecard approval.

DOWNGRADE: Bankruptcies discharged less than 2 years from the
date of loan application or incorrectly reported on the credit report
require the mortgage application to be downgraded to a Refer and
submitted to a DE Underwriter for manual underwrite.
If borrower is currently in a Chapter 13 bankruptcy for at least one
year (but not less than 12 months), it may be acceptable if:

One (1) year of the pay-out period has elapsed with the entire
balance paid out,

The performance under the plan has been satisfactory and all
required payments have been made on time,

The borrower receives court approval to enter into the mortgage
transaction,

In lieu of an established credit history, credit letters covering the
past 12 months from two of the following are acceptable:
telephone, cable, gas or electric companies, etc., and

There cannot be any new derogatory credit information.

NOTE: If the bankruptcy included a foreclosure, the more
restrictive three (3) year wait still remains in effect. This three (3)
year waiting period is based on the date the claim is paid. Refer to
Foreclosures within this guide for additional information.
NOTE: Multiple bankruptcies are not permitted.

Continued on next page
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FHA Loans
300-119
FHA Lending Guide
Credit,
Disputed
Accounts
Continued

Derogatory Disputed Accounts: If the cumulative outstanding balance of
disputed derogatory credit accounts of all borrowers is equal to or greater
than $1,000, the mortgage application must be downgraded to a “Refer”
and the loan must be manually underwritten.

Disputed medical accounts are excluded from the $1,000 limit and do
not require documentation.

Disputed derogatory credit accounts resulting from identity theft,
credit card theft, or unauthorized use are also excluded from the
$1,000 limit; however, the credit report, letter from the creditor or
other appropriate documentation to support the dispute, such as a
police report disputing the fraudulent charges, must be provided and
included in the case binder.

Defined to include disputed charge-offs, disputed collection accounts
or disputed accounts with late payments reported within the most
recent 24 months.

Disputed derogatory credit accounts of a non-purchasing spouse in a
community property state are not included in the cumulative
balance for determining if the mortgage application is downgraded to
a “Refer”.

Non-derogatory disputed accounts are excluded from the $1,000
cumulative total.

If the total outstanding balance of all disputed, derogatory credit
accounts, excluding medical, are less than $1,000, a downgrade to a
manual underwrite is not required.

Non-derogatory Disputed Accounts and Disputed Accounts Not Indicated
on the Credit Report:

Defined to include disputed accounts with zero balance, disputed
accounts with late payments aged 24 months or greater and disputed
accounts that are current and paid as agreed.

If a borrower is disputing non-derogatory accounts, or is disputing
accounts which are not indicated on the credit report as being disputed,
the loan is not required to be downgraded to a “Refer”; however, the
underwriter must analyze the effect of the disputed accounts on the
borrower’s ability to repay the loan. If the dispute results in the
borrower’s monthly debt payments utilized in computing the debt-toincome ratio being less than the amount indicated on the credit report,
the borrower must provide documentation of the lower payments.
Continued on next page
FHA Loans
300-120
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Credit,
Analysis of
Collections
and
Judgments
Continued
TOTAL Scorecard Underwrite:
 There are no documentation or letter of explanation requirements for
loans with collection accounts or judgments run through TOTAL
Mortgage Scorecard receiving an “Accept/Approve” despite the
presence of collection accounts or judgments as these accounts have
already been taken into consideration and evaluated within the
borrower’s credit score.
 If TOTAL Mortgage Scorecard generates a “Refer”, the loan must be
manually underwritten with the below applicable guidance as to
collection accounts and judgments.
Manual Underwrite: The following criteria apply for loans that do not
receive an “Accept/Approve” through TOTAL:

Underwriter must provide comments on the FHA Loan Underwriting
and Transmittal Summary (HUD-92900-LT) regarding his/her
analysis of the collections and the borrower’s willingness to repay
obligations.

Borrower(s) must provide a letter of explanation with supporting
documentation for each outstanding collection account and
judgment. The explanation and supporting documentation must
be consistent with other credit information in the file.
NOTE: Regardless of underwriting method, medical collections and
medical charge off accounts are excluded from this guidance.
Continued on next page
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FHA Loans
300-121
FHA Lending Guide
Credit,
Capacity
Analysis of
Collections
and
Judgments
Continued
Collections
If the total outstanding balance of all collection accounts for all borrowers is equal
to or greater than $2,000, then any one of the below capacity analysis is required:




Payment in full of the collection account at the time of or prior to closing
(verification of acceptable source of funds is required); or
The borrower(s) makes payment arrangements with the creditor. If the
borrower has entered into a payment arrangement with the creditor, a credit
report or letter from the creditor verifying the monthly payment is required.
The monthly payment must be included in the borrower’s debt-to-income
ratio; or
If evidence of a payment arrangement is not available, the underwriter must
calculate the monthly payment using 5% of the outstanding balance of each
collection, and include the monthly payment in the borrower’s debt-to-income
ratio.
TOTAL Mortgage Scorecard: Regardless of the
Accept/Approve/Refer recommendation by TOTAL Mortgage
Scorecard, the payment amount must be included in the calculation of
the borrower’s debt-to-income ratio.
NOTE: All medical collections and medical charge off accounts are excluded from
this guidance and do not require resolution.
Judgments
FHA requires judgments to be paid off before the mortgage loan is eligible for FHA
insurance. An exception to the payoff of a court ordered judgment may be made
if the borrower has an agreement with the creditor to make regular and timely
payments. The borrower must provide a copy of the agreement and evidence that
payments were made on time in accordance with the agreement, and a minimum
of three (3) months of scheduled payments have been made prior to credit
approval.
Borrowers are not allowed to prepay scheduled payments in order to meet the
required minimum of three (3) months of payments. Furthermore, underwriters
must include the payment amount in the agreement in the calculation of the
borrower’s debt-to-income ratio.
FHA requires judgments of a non-purchasing spouse in a community property
state to be paid in full, or meet the exception guidance for judgments above,
unless excluded by state law.
Continued on next page
FHA Loans
300-122
Ocwen Loan Servicing Client Select
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FHA Lending Guide
Credit,
Consumer
Credit
Counseling
Continued


Voluntary participation in CCCS along with an approval through TOTAL
does not required further information from the borrower.
Manual Underwrite The following must be documented for loans that
do not receive an approval through TOTAL:

One year of the pay-out period has elapsed under the plan,

The borrower’s payment performance has been satisfactory and all
required payments have been made on time, and

The borrower has received written permission from the counseling
agency to enter into the mortgage transaction.
Continued on next page
Ocwen Loan Servicing LLC Client Select
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FHA Loans
300-123
FHA Lending Guide
Credit,
CAIVRS
Continued







Credit
Inquiries



The CAIVRS code is required on all FHA loans except streamline
refinances.
The CAIVRS system will verify if the borrower(s) has had an insurance
claim paid in the three (3) years prior to loan application on a previous
HUD-insured mortgage or if there is a current delinquency on a HUDinsured mortgage.
If CAIVRS results show a claim delinquency, the loan in ineligible for
sale to Ocwen.
Ocwen will access the CAIVRs number through the FHA Connection on
behalf of the broker.
The authorization code and message provided for each borrower by
the CAIVR system must be written on the FHA Loan Underwriting and
Transmittal Summary (HUD-92900-LT).
HUD does not allow credit bureaus to obtain the CAIVRS numbers.
All borrowers must have a clear CAIVRS; Lenders may not simply
“clear” a CAIVRS when in possession of independent evidence of
erroneous or outdated information residing in CAIVRS.
All inquiries within the most recent 90 days indicated on the credit
report must be explained in writing by the borrower.
If the explanation or any further investigation reveals new debt has
been incurred which is not present on the initial application or the
credit report, sufficient documentation must be obtained from the
borrower indicating the current unpaid balance and the monthly
payment of the debt.
This information must be included as a liability on the 1003, AUS
system if applicable and the borrower must be qualified based on this
new information.
Continued on next page
FHA Loans
300-124
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Credit,
Continued
Credit Reports







Escrow
Waivers
A merged in-file credit report from three (3) repositories is acceptable
in lieu of a full Residential Mortgage Credit Report (RMCR).
Credit Reports with truncated SSN’s (Example: x-xx-1234) are
acceptable under the following guidelines:

The credit report must reflect a minimum of the last four digits of
the borrower’s social security number,

The mortgage application (1003) must have the complete 9 digit
social security number,

The borrowers name, social security number and date of birth
must be validated through FHA connection or its equivalent, and

Lenders are responsible for verifying each borrower’s social
security number as well as each borrower’s identity.
All copies of all credit report must be retained along with a written
analysis of the reasons for any discrepancies between the credit
reports. If any information is received that is inconsistent with the
information on the credit report, the inconsistency must be reconciled.
Ocwen will not accept a Non-Traditional credit report (NTMCR) to
offset derogatory references found in the borrower’s traditional credit,
such as collections and judgments.
If applicable, the feedback certificate must identify the borrower’s
credit report used for TOTAL’s risk evaluation.
If the subject property is located in a community property state and
the borrower has a non-purchasing spouse, individual credit reports
are required. The non-purchasing spouse’s report should be ordered
outside of the AUS system, if applicable.
Credit Report must be dated no more than 120 days prior to the Note
Date.
Waiver of tax and/or insurance escrow is not allowed.
Continued on next page
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FHA Loans
300-125
FHA Lending Guide
Credit,
Continued
Credit Score
Requirements




Ocwen requires ALL borrowers on the loan to meet the minimum
credit score requirement regardless of credit factors and/or AUS
recommendation.
Non-Traditional Credit is not permitted
The credit scores must be entered into the FHA Connection.
Only one credit score is required for an occupant borrower for the loan
to be eligible for the FHA TOTAL Scorecard.

Purchase and Rate Term Refinance - Credit scores below 620 are
not eligible

Cash Out Refinance - Credit scores below 620 are not eligible for
Standard loan amounts

Cash Out Refinance - Credit scores below 640 are not eligible for
High Balance Loan amounts

Streamline refinance - Credit Scores below 620 are not eligible
Debts Omitted
from Credit
Report
Separate written verification must be obtained (this includes accounts
listed as “will rate by mail only” or “need written authorization”).
Authorized
User Accounts
All monthly debt obligations on authorized user accounts must be included
in the debt-to-income ratio or the borrower must be removed as an
authorized user.
Continued on next page
FHA Loans
300-126
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FHA Lending Guide
Credit,
Continued
Delinquent
Federal Debt



Duplicate
Public Records
A borrower is not eligible for a HUD insured loan if he/she has any
outstanding Federal debt (this includes debt of borrower sponsor,
general contractor, and all principal of these entities), until the
delinquent account is brought current, paid, or satisfied.
Federal debts include direct loans, HUD-insured mortgage loans, VAinsured mortgages, student loans, Small Business Administration
loans, or judgments/liens against property for a debt owed the Federal
Government.
A borrower with prior Federal defaults or claims must submit an
explanation of the circumstances surrounding the delinquency with the
following documents:

Detailed explanation of how delinquent debt was incurred,

Letterhead advice from affected agency, signed by an officer and
stating that the delinquent debt is current or that satisfactory
arrangement for repayment has been made,

Lender’s reason(s) for recommendation of the borrower (can
include worksheets and remark sections from processing
documents or a cover letter),

Note, a clear CAIVRS continues to be required.
If it is unclear from the credit report that an item is duplicated, each item
should be treated individually and appropriate documentation must be
obtained.
Continued on next page
Ocwen Loan Servicing LLC Client Select
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FHA Loans
300-127
FHA Lending Guide
Credit,
Continued
Foreclosures /
Short Sales
If the foreclosure, deed-in-lieu of foreclosure or short sale was
completed at least three (3) years prior to loan application and
receives an approval through TOTAL, then no further documentation is
required. Note if the foreclosure was part of a bankruptcy, the more
restrictive three (3) year recovery period remains in effect.
 Multiple foreclosures/short sales are not permitted.
 Manual Underwrite: The following must be documented for loans that
do not receive an approval through TOTAL:

There is an exception if the foreclosure was on the borrower’s
principal residence and was the result of extenuating
circumstances beyond borrower’s control (i.e., death of the
principal wage earner, or serious long-term illness).

In the case of an exception, the borrower must have reestablished new credit with no derogatory credit since the
foreclosure and he/she provide a letter from the lender who held
the lien showing no outstanding liability.

Inability of a borrower to sell his/her home when transferred from
one area to another is not an acceptable reason for foreclosure or
deed-in lieu.

Also divorce is not considered an extenuating circumstance;
however, an exception may be considered where a borrower’s loan
was current at the time of his/her divorce, the ex-spouse was
awarded the property and the loan was later foreclosed.
Supporting evidence must be documented.
NOTE: Deed-in-lieu is determined by date when the Deed of Release
discharging the mortgage debt is completed, not recorded.

Continued on next page
FHA Loans
300-128
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REV 03/18/2015
FHA Lending Guide
Credit,
Housing
History
Continued

In scenarios as indicated, the borrower must report:

AUS Approval: No more than 1x30 within the most recent 12
months for Purchase and Rate Term Refinance transaction.

Manual Underwrite: No more than 0x30 within the most recent 12
months for Purchase and Rate Term Refinance transactions.

All Approval Methods: No more than 0x30 within the most recent
12 months for Cash Out Refinance transactions. NOTE:
Mortgages with less than 6 months of payment history are not
eligible for a cash out refinance. Properties owned free and clear
are eligible for a cash out refinance.

The borrower’s housing payment history must be determined through
the below documentation:

Credit report,

Verification of rent directly from the landlord (for landlords with no
identity-of interest with the borrower),

If the landlord has an identity-of interest with the borrower or is
an individual, Homeward will require 12 months cancelled checks
as verification of rent payment.

Verification of mortgage (VOM) directly from the mortgage
servicer, or

The review of canceled checks that cover the most recent 12
month period.

Verification/documentation of the previous 12 months housing
history must be obtained even if the borrower states they are
living rent free.

NOTE: If the loan receives an approval through TOTAL, the
housing/rental history documentation requirement stated above is
waived. Refer to Privately Held Mortgages subsequently presented
for additional information regarding payment verification
requirements for privately held mortgages.

Downgrade: The loan must be manually downgraded to a “Refer” and
traditionally underwritten if the following applies:

The information was reported incorrectly on the credit report

The account was not reflected on the credit report but direct
verification outside of AUS reflects more than 1x30 day late in the
last 12 months.
Continued on next page
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FHA Loans
300-129
FHA Lending Guide
Credit,
Continued
Privately Held
Mortgages

If a borrower is refinancing a privately held mortgage, the following
payment verification requirements apply:

A mortgage payment history of 12 months must be met.

At a minimum, at least six (6) months mortgage payments on the
current privately held mortgage must be verified. The remaining
six (6) months can come from a previous mortgage or rental
verifications.

Evidence must be included in the loan file that the lien being paid
off is a current recorded lien against the subject property.

All other FHA credit history requirements apply.

NOTE: These guidelines apply for all manually underwritten AND
AUS processed FHA loans.
Multiple
Mortgages


Maximum of four (4) financed properties for all borrower(s).
Any person individually or jointly owning a home covered by a FHA
insured mortgage in which ownership is maintained may not purchase
other principal residence with FHA insurance, except in the following
(refer to HUD 4155.1, Chapter 4, Section B for complete details):

Relocation

Increase in family size

Vacating a jointly owned property

Cases of Non-Occupying Co-borrower
NonTraditional
Credit
If a borrower does not have traditional credit references with which to
generate a credit score, the loan scenario is not eligible for financing with
Ocwen.
Non-Arms
Length
Transactions
See the “Identity of Interest” transactions notes in the Transactions That
Affect Maximum Mortgage Calculations section above.
FHA Loans
300-130
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FHA Lending Guide
Assets
Asset
Verifications





Cash Reserve
Requirements



If written verification forms are used, the file must contain the original
form (or a faxed form) with a signature of the party completing the
form.
Verification forms must pass directly between the Broker and creditor
without being handled by a third party.
Internet downloads may be used but must be placed in the file in
paper form. The documents must clearly identify the firm’s name and
source of information. Ocwen will ascertain the authenticity of the
document by examining that information included on any headers,
footers, and the banner portion of the print outs of the downloaded
web pages(s). The printed web page(s) must also show the Uniform
Resource Locator (URL) address and the date and time printed. The
DE Underwriter is to verify the existence of the web site from which
the documents were derived.
The Internet downloaded documents must be identifiable as belonging
to the borrower.
Documents relating to credit, assets, employment or income of the
borrowers that are handled by, transmitted from or through interested
third parties (i.e., real estate agents, builders, sellers) or by using
their equipment are not acceptable and may not be used as
documentation.
Must verify all cash reserves that are submitted to the AUS system.
Cash reserves after closing are not required but are evaluated in
determining the risk classification of the loan. For example, cash
reserves may be needed for a compensation factor if debt ratios
exceed guidelines.
For 3-4 Unit properties, three (3) months PITI reserves are required
on all transactions types.
For any Manually Underwritten Loan, the borrower must have reserves
equal to or exceeding the following:

1 and 2 unit properties: Reserves must be equal to or exceed one
(1) total monthly mortgage payment.

3 and 4 unit properties: Reserves must be equal to or exceed
three (3) total monthly mortgage payments.
Note: For FHA to FHA Non-Credit Qualifying streamline refinance
transactions, the cash reserve requirement is not applicable.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-131
FHA Lending Guide
Assets,
Continued
Ineligible
Assets for
Cash Reserves

The following assets are not considered “cash reserves”:

Equity in other properties (not including a primary residence being
sold with proceeds applied to the purchase of the subject
property),

Proceeds from a cash-out refinance (if this is the subject
transaction),

Funds that are borrowed against a liquid account (i.e., 401k loan).

Any surplus gift funds that remain in the borrower’s account
following closing, subject to proper documentation, may be
considered as cash reserves when scoring the mortgage
application through TOTAL Scorecard.
Business
Funds

A borrower’s withdrawal of cash from the business may have a severe
negative impact on the ability of the business to continue operating
and must be carefully considered in the analysis.
Ocwen will accept the use of business funds only when the borrower is
a sole proprietor filing a Schedule C.
The file must contain the conclusion that the withdrawal of the
business funds will not negatively affect the operation of the business.
Examples of supporting documents in the analysis are (but not limited
to) a CPA letter or 12 month business account bank statements.


Continued on next page
FHA Loans
300-132
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Continued
Cash Reserves
– Retirement
Accounts

A portion of the borrower’s retirement account may be used as cash
reserves when scoring a mortgage application through TOTAL
Scorecard subject to the conditions listed below:

Only 60% of the VESTED amount of the account may be used to
account for withdrawal penalties and taxes.

The DE Underwriter must document the existence of the account
with the most recent depository or brokerage account statement.

Evidence must be provided that the retirement account allows for
withdrawals for conditions other than in connection with the
borrower’s employment termination, retirement, or death.

Retirement funds that can only be withdrawn under the conditions
noted above may not be used as cash reserves.

Any retirement funds that are also used for loan settlement must
be subtracted from the amount included in cash reserves.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-133
FHA Lending Guide
Assets,
Cash on Hand
Continued





Borrowers who have saved cash at home and are able to adequately
demonstrate the ability to do so, are permitted to use this money as
an acceptable source of funds to close.
Funds must be verified either on deposit in a financial institution or
held by the escrow/title company. If held by a title company or
realtor, a company representative must verify the receipt of the funds,
the amount of the deposit, the date received and person providing the
funds.
Additional documentation must include:

A borrower budget letter,

Evidence supporting ability to accumulate such a savings; and

Written explanation from the Borrower on how such funds were
accumulated, the amount of time taken to do so, why conventional
depository sources were not used and explanation as to where
funds were stored until their deposit.

Borrower certification that the privately accumulated funds were
not received from any party to the transaction, nor were they the
proceeds of a gift or the result of the sale of an asset must be
included in the loan file.
Note income that is not reported to the IRS cannot be used for source
of cash saved at home.
The recognition of such funds carries with it the potential for abusive
practices; therefore, each case should stand the test of reason and
common sense.
Continued on next page
FHA Loans
300-134
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Continued
Private
Savings Clubs


Checking,
Savings, CDs


Joint Assets
Some borrowers may choose to use non-traditional methods of saving
money by making deposits into private savings club. Often these
private savings clubs pool resources for use among the membership.
If a homebuyer claims that the cash to close a FHA-insured mortgage
is from savings held with a private savings club, the borrower must be
able to adequately document the accumulation of those assets with
the club. While such clubs are not supervised banking institutions,
the clubs must – at a minimum – have account ledgers, receipts from
the club, verification from the club treasurer, and identification of the
club so that the information can be re-verified. It must also be
determined that it was reasonable for the borrower to have saved the
money claimed and that there is no evidence these funds were
borrowed with an expectation of repayment.
The most recent bank statement (two bank statements for manually
underwritten loans) may be used to verify savings and checking
account. If there is a large increase in an account, or the account was
opened recently, an explanation and documentation supporting the
source of those funds will be required.
Written Verification of Deposit (VOD) can be used as long as the most
recent back statement has been received as well.
When a borrower has a joint account with another individual who is NOT a
borrower on the transaction, the following must be documented:


Relationship between borrower and individual on the account AND
Confirmation that the borrower has full access to all funds in the
account.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-135
FHA Lending Guide
Assets,
Continued
Large Deposits

Purchase Transactions: If there is a large increase in an account, or
the account was recently opened, the borrower must provide a signed
and dated credible letter of explanation of the source of the funds.

The DE Underwriter should use their discretion when analyzing
asset statements for large deposits. At a minimum, the file
should obtain an explanation and documentation for multiple
deposits over the time covered by the bank statement in excess of
2% of the property sales price or any single deposit that exceeds
50% of the total monthly qualifying income for the loan. However,
if the DE Underwriter determines a deposit (or series of deposits)
is not within the savings pattern of the borrower, additional
documentation should be obtained on those deposits.

If the source of a large deposit is readily identifiable on the
account statement, such as direct deposits where the source of the
deposit is printed on the statement, further explanation or
documentation is not required. However, if the source of the
deposit is printed on the statement, but the DE Underwriter still
has questions as to whether the funds may have been borrowed;
additional documentation should be obtained.

Refinance Transactions: If there is a large increase in an account, or
the account was recently opened, the borrower must provide a
credible explanation of the source of the funds.

The DE Underwriter should use their discretion when analyzing
asset statements for large deposits. At a minimum, the file
should contain an explanation and documentation for any single
deposit that exceeds 50% of the total monthly qualifying income
for the loan. However, if the DE Underwriter determines a deposit
(or series of deposits) is not within the savings pattern of the
borrower, additional documentation should be obtained on those
deposits.

If the source of a large deposit is readily identifiable on the
account statement, such as direct deposits where the source of the
deposit is printed on the statement, further explanation or
documentation does not need to be obtained. However, if the
source of the deposit is printed on the statement, but the DE
Underwriter still has questions as to whether the funds may have
been borrowed; additional documentation must be obtained.
Continued on next page
FHA Loans
300-136
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Continued
Commission
from Sale



If the borrower is a licensed real estate agent entitled to a real estate
commission from the sale of the property being purchased, those
funds may be used as part of the down payment. A letter from the
Real Estate Agency must state how much will be credited to the Sales
Agent (after any commission split or deduction of other fees) at
closing on the HUD-1.
A family member entitled to the commission may also gift the funds to
the borrower.
There is no required adjustment to the maximum mortgage.
Credit Card
Financing

The actual cost of a credit report and appraisal may be charged on a
credit card when these costs are paid outside of closing under then
following conditions:

A payment for the amount charged is included in the total debt
ratio, and

The borrower has sufficient assets (documentation in file) to pay
charged fees, in addition to funds needed for other closing costs
and the down payment.
Disaster Relief
Grants /
Loans

Eligible grants and loans that may be used for the down payment with
no adjustment to the maximum mortgage include the following:

Grants or loans from state and federal agencies that provide
immediate housing assistance to individuals displaced due to
natural disaster, and

Secured or unsecured disaster relief loans administered by the
Small Business Administration (SBA).

If the SBA loan is secured by the subject property, it must be
subordinate to the HUD insured first mortgage lien and the
monthly payment must be included in the debt ratios.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-137
FHA Lending Guide
Assets,
Continued
Down
Payment







Earnest Money
Deposit




HUD requires a minimum down payment of three and one half percent
(3.50%).
The minimum down payment is based on the lesser of the appraised
value or sales price (without considering closing costs) minus any
required adjustments.
The minimum down payment must be provided from borrower’s own
cash funds (“own cash” is defined as inclusive of gifts, loans from
family members, or loans from a governmental agency or
instrumentality).
Discount points or prepaid items, such as homeowners, flood
insurance, HOA, taxes, cannot be used in meeting the cash
investment requirements, whether paid at closing or outside of
closing.
Closing costs paid by the borrower, seller or interested party may not
be used to meet the minimum investment requirement.
Sweat equity is not permitted.
NOTE: Down payment funds may not be provided by the seller or any
other person or entity that financially benefits from the transaction;
OR, any third party or entity that is reimbursed, directly or indirectly,
by the seller or any other person or entity that financially benefits
from the transaction.
The earnest money deposit (EMD) amount and source of funds must
be verified if it is two percent (2.00%) or more of the sales price, if it
appears excessive based on the borrower’s previous savings pattern
or if the borrower is “tight” on closing funds.
A copy of the canceled check (front and back) must be provided and
the source of the funds must be verified.
A certification from the deposit holder acknowledging receipt of funds
is acceptable as long as it accompanies separate evidence of the
source of funds.
Evidence of source of funds includes a verification of deposit or bank
statement showing at the time the deposit was made the average
balance was sufficient to cover the amount of the EMD.
Continued on next page
FHA Loans
300-138
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Continued
Employer
Assistance
Plans



If the employer, in order to entice or keep a valuable employee, pays
the borrower’s closing costs, mortgage insurance premium, or any
part of the down payment, no adjustment to the maximum mortgage
amount is required.
If the employer does this as a reimbursement after closing the
borrower must show evidence of sufficient funds to close.
Salary advances are not allowed as these are considered an unsecured
loan.
Employer
Guarantee
Plans

If the employer guarantees to purchase the borrower’s previous
residence, as the result of relocation, the borrower must submit
evidence of a relocation agreement and the net proceeds guaranteed.
Foreign Assets

If borrower’s source of funds for the down payment and/or closing
costs are from accounts located in a foreign county, additional due
diligence is required to ensure compliance with all related OFAC
restrictions, confirmation of exchange rates, borrower ownership of
accounts, seasoning requirements and any additional conditions
deemed responsible by the Underwriter.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-139
FHA Lending Guide
Assets,
Gift Funds
Continued




A gift may be used for 100% of the borrower’s closing costs and down
payment.
Gift funds cannot be used as reserves. If the borrower is receiving a
gift for more than the amount to close, the “excess” cannot be used as
reserves. Only the amount of funds that will be used for closing should
be shown as gift funds not received, or as an asset.
Note: Any gift funds that remain in the borrower’s account following
loan closing, subject to the proper documentation, may be considered
as cash reserves when scoring the mortgage application through
TOTAL.
Eligible donors include the following:

Close relative of the borrower,

Close friend with a clearly defined and documented interest in the
borrower,

Borrower’s employer or labor union.

Ineligible donors include:

Federal/State/Local government agency or instrumentality
providing home ownership assistance without repayment or
established lien requirements,

A corporation established for humanitarian, welfare, or charitable
purposes, or

Those individuals with an interest in the sale of the property (i.e.,
builder or seller, real estate broker, marketing agent, or any
person/corporation/organization associated with them). Gifts or
credits from these sources are considered inducements to
purchase and must be subtracted from the contract sales price.

Nonprofit entities are not allowed to provide gifts to homebuyers for
the purpose of paying off installment loans, credit cards, collections,
judgments, and similar debts.
Down Payment Assistance (DPA) programs are not permitted.

Continued on next page
FHA Loans
300-140
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Continued
Gift
Documentation
Requirements


Documentation of gift funds must a gift letter with donor’s and borrower’s signature that
specifically states the following information:

dollar amount given,





no repayment is necessary,

NOTE: It is not acceptable to notate the loan file/application with the above gift
donor information in lieu of a gift letter.

the gift letter must state, “We ARE AWARE OF THE FOLLOWING : I/We fully
understand that it is a Federal crime punishable by fine or imprisonment, or both,
to knowingly make any false statements when applying for this mortgage, as
applicable under the provision of Title 18, United States Code, Section 1014 and
Section 1010.”
The borrower’s deposit receipt and bank statement showing the deposit.
Evidence that those funds came from an acceptable source.
If the gift funds transfer at closing and the transfer of funds is by certified check from
the donor’s account, the donor must provide the following documentation:

A bank statement reflecting the withdrawal from the donor’s personal account, and


donor’s signature, and
When gift funds are transferred at closing, the following verifications are required:

The closing agent’s receipt of the gift funds from the donor for the amount of the
gift, and


the address of the property being purchased/refinanced
If the gift funds transfer before closing, the following documentation is required:

A copy of the donor’s canceled check or other withdrawal document showing that
the withdrawal is from the donor’s account, and


the donor’s name, address, telephone number and relationship to borrower,
A copy of the certified check.
If the gift funds transfer at closing and the donor purchased a cashier’s check, money
order, or other official bank check, the donor must provide a withdrawal document or
canceled check for the amount of the gift to verify that the funds came from the donor’s
personal account.
If the donor borrowed the gift funds and cannot provide the documentation from his/her
bank or other savings account, the donor must provide evidence that those funds were
borrowed from an acceptable source (i.e., not from a party to the transaction including
the mortgage lender). Donors may borrow gift funds from any other acceptable source
provided that the borrowers are not obligors to any note to secure money borrowed to
give the gift.

“Cash on hand” or “mattress money” is not an acceptable source of the donor’s gift
funds. The source of funds must be verifiable.
IMPORTANT: Regardless of when or how the gift funds are made available to a borrower,
the Underwriter must always be able to determine and adequately document that the gift
funds were provided by an acceptable source and were the donor’s own funds; therefore, a
copy of the donor’s bank statement is required.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-141
FHA Lending Guide
Assets,
Continued
Gift of Equity
Only family members may provide equity credit as a gift on a property
being sold to other family members. This must be reflected on the HUD 1.
Down
Payment
Assistance
Programs
Not Permitted.
Individual
Development
Accounts
Not Permitted.
Continued on next page
FHA Loans
300-142
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Loans from
Family
Members
Continued




HUD will allow family member to make loans to borrowers for 100% of
the funds required for closing.
The loans may be secured or unsecured.
A family member includes a child, parent, grandparent (biological,
foster or step), sister, step-sister, brother, step-brother, legally
adopted son or daughter, a child who is a member of the borrower’s
household due to placement by an authorized agency for legal
adoption, aunt, or uncle.
The following conditions must be met:

The borrower cannot receive any cash back at closing (beyond the
refund of any earnest money deposit),

If period payments are required, the borrower must still qualify
with the payment added to the total debt ratio (not housing ratio),

The financing cannot provide for balloon payments within five (5)
years from the date of the note,

If the family member borrows the funds, the initial source of loan
funds cannot be any party with an identity of interest in the sale of
the property (i.e., seller, builder, loan officer, or real estate agent),
and

A family member can borrow the loan funds from the retail
banking affiliate of a mortgage company as long as the financing
made available is made under the terms and conditions that are
available to all other borrowers (special considerations are not
allowed).

When the funds loaned by the family member are borrowed from
an acceptable source, the borrower may not be a co-obligor on the
note.

The CLTV limit on financing may not exceed 96.50% of the lesser
of the property’s appraised value or sales price, plus normal
closing costs, prepaid expenses and discount points.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-143
FHA Lending Guide
Assets,
Continued
Collateralized
Loans



Homeowners
Bridal Registry
HUD will accept collateralized loans for the total required investment
as long as satisfactory evidence is provided that the funds are fully
secured by investment accounts or real property and the borrower can
qualify with the repayment. The payment is included in the total debt
ratio.
Such assets include those listed below.

Investment Accounts

Real Property (i.e., cars, trucks, boats)

Real Estate (other than the property being purchased)

Stocks and Bonds

Certain types of loans that are secured against deposited funds in
which repayment may be obtained through extinguishing the asset
do not require consideration of a repayment for qualifying
purposes. The asset securing the loan may not be included as
assets to close or otherwise be considered as available to the
borrower. The assets listed below are included in this category.

Cash value of life insurance policies

Loans secured by 401(k)s

Loans secured by a Certificate of Deposit

Verification of the loan terms (i.e., copy of the note) must be
provided. If the loan was made after verification of deposit was
completed, a copy of the check and the borrower’s deposit receipt
or bank statement must be furnished.

The real estate agent or broker, lender, seller or other party to the
transaction may not provide these funds.
HUD Unacceptable Sources of Collateralized Loans

Signature loans

Cash advances on credit cards

Borrowing against household goods and furniture

Other similar unsecured financing (i.e., jewelry, tools)
Refer to Mortgagee Letter 1997-20 HUD Guidelines for complete details.
Continued on next page
FHA Loans
300-144
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Real Estate
Proceeds
Continued


Real Estate
Tax Credit



The net proceeds from an arm’s length sale of a currently owned
property may be used for the down payment requirement.
A fully executed HUD-1 Settlement Statement must be provided as
satisfactory evidence of the proceeds to the borrower.
In some states it is customary for a borrower to pay property taxes in
arrears, (and he/she may not pay property taxes on the
improvements until a year or more after closing). The credit from the
seller at closing for the seller’s portion of those taxes may be used to
reduce the actual amount of cash that needs to be brought to the
closing table. It may not be used to offset minimum investment
or cash to close requirements.
The use of the tax credit only facilitates the exchange of cash. All cash
to close documentation requirements must be met (i.e., the mortgage
amount is calculated the same, down payment requirements are the
same, the verification of the money is the same.)
Sufficient assets to close must be verified from the borrower’s own
funds without consideration to the tax credit. However, the borrower
only needs to bring funds to the closing for the amount of the bottom
line on the HUD-1, Settlement Statement, after the tax credit has
been applied.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-145
FHA Lending Guide
Assets,
Rent Credit
Continued




The cumulative amount of the rental payments that exceed the
appraiser’s estimate of fair market rent may be considered towards
the borrower’s down payment.
Both the rent-with-option to purchase agreement and the appraiser’s
estimate of market rent must be included in the case binder file.
If the sales agreement provides for a rent credit or a reduced rent and
states that the credit is to apply toward the down payment
requirement, one of the following applies:

If the rent paid prior to the sale is less than the appraiser’s
estimate of rental value, the difference between the rent paid and
the appraiser’s estimate (multiplied by the number of months the
borrower was living in the property) is deducted from the contract
sales price,

If the rent paid prior to the sale exceeds the appraiser’s estimate
of rental value, the amount paid in excess of the appraiser’s
estimate (multiplied by the number of months the borrower was
living in the property) is applied towards closing funds, or

If the borrower occupied the property (or one owned by the seller)
“rent free” as an inducement prior to the sale, the appraiser’s
estimate of rental value (multiplied by the number of months the
borrower was living in the property) is deducted from the sales
price.
NOTE: Exceptions may be granted in a situation whereby a builder
fails to deliver a property at an agreed-to-time and then permits the
borrower to occupy that or another unit for less-than-market rent
“temporarily” until construction is complete.
Continued on next page
FHA Loans
300-146
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Retirement
Funds
Continued


Sale of
Personal
Property
When utilizing retirement accounts as assets (even if not using for
closing), 60% of the borrower’s vested interest may be used unless
the borrower provides documentation that a higher percentage may
be withdrawn after subtracting any federal income tax, withdrawal
penalties and any outstanding loans against the account.
The borrower must provide all of the following:

copy of the most current retirement account statement,

copy of the check representing account funds, and

copy of the deposit receipt where funds were deposited into the
borrower’s account (or copy of the bank statement reflecting the
deposit).

Evidence of liquidation is not required unless more than 60% of
the amount in the account is used.

Funds from retirement accounts may be used as cash reserves.
Refer to the Reserve Requirements within this Lending Guide for
additional information.

If approved through TOTAL, documentation of terms and conditions to
include the following:

Evidence that the account allows for withdrawals for conditions
other than that related to the borrower’s employment or death and
that the borrower qualifies for withdrawal and/or borrowing,

Proof of liquidation is not required.

If a borrower sells personal property for funds to close (i.e., cars,
recreational vehicles, stamp or coin collections), conclusive evidence
of the sale and an estimate of the value of the item being sold must
be obtained.
Value must be established through the Blue Book for cars, Philatelic
Association for stamps, Numismatic Association for coins, or a
qualified appraiser with no financial interest in the transaction who
could provide a written appraisal of the item. The lesser of the
estimate of value or actual sales price is used as assets to close.

Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-147
FHA Lending Guide
Assets,
Continued
Savings Bonds



Government issued bonds are given to the value at the original
purchase price.
Exceptions may be made if eligibility for redemption and the
redemption value are confirmed.
The borrower’s receipt of the funds at redemption must be verified.
Stocks and
Bonds

The value of securities must be verified through the borrower’s
stockbroker or financial institution. If statements are available, the
borrower must provide one of the following:

Two (2) months of account statements, if received monthly, or

Most recent quarterly account statement if received quarterly.

Evidence of liquidation and borrower’s receipt of the funds must be
documented; not required if the loan receives an approval
recommendation through TOTAL.
Sweat Equity

Sweat Equity is not an acceptable source of funds.
Trade Equity

The borrower may agree to trade his or her real property to the seller
as part of the down payment. The amount of the borrower’s equity
contribution is determined by:

Subtracting all liens against the property being traded (including
real estate commission) from the lesser of that property’s
appraised value or sales/trade price.

An appraisal on the trade property is required as well as evidence
of ownership.

The appraisal must be a residential appraisal (conventional, FHA,
or VA) and cannot be more than six (6) months old.

If the property being traded has an FHA mortgage, assumption
processing requirements and restrictions apply.
Continued on next page
FHA Loans
300-148
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Lender Credit
Continued






Lender credit resulting from premium pricing is allowable by HUD
under the requirements shown below.
Lender credit may be applied to closing costs, prepaid items and
discount points; however, it may not exceed the allowable fee
permitted by the jurisdictional FHA Home Ownership Center (HOC).
Lender credit cannot be applied to down payment or to outstanding
obligations of the borrower, including missed (delinquent) mortgage
payments.
Lender credit is not considered a seller concession and is not subject
to any limitations.
If lender credit is applied to closing costs that are being financed into
the loan in a refinance transaction, the amount of these closing costs
must be deducted from the total acquisition before calculating the
maximum base loan amount.
Lender credit must be used to reduce the principal balance if the
premium pricing agreement establishes a specific dollar amount for
closing costs and prepaid expenses with any remaining funds, in
excess of actual costs, reverting to the principal curtailment.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-149
FHA Lending Guide
Assets,
Seller
Contributions
Continued
Interested parties include, but are not limited to, the builder, developer, seller of the
property and the real estate agent. Contributions from interested parties are acceptable with
the following limitations:














Maximum contribution is 6% of the property’s sales price towards the buyers actual
closing costs, prepaid expenses, discount points, and other financing concessions.
Contributions exceeding 6% of sales price must be treated as an inducement to
purchase thereby reducing the amount of the mortgage.
FHA deems the payment of consumer debt by third parties to be an inducement to
purchase. While FHA permits sellers and other parties to make contributions of up to six
percent of the sales price of a property toward a buyer's actual closing costs and
financing concessions, this policy applies exclusively to the provision of mortgage
financing. Other expenses paid on behalf of the borrower must result in a dollar-for
dollar reduction to sales price.
Closing costs paid by the seller or other interested parties may not be used to meet the
minimum investment requirement.
Contributions may only be applied to closing costs and prepaids. If the contribution
exceeds actual cost, the remainder may not be applied to the principal balance
(including unpaid principal balance).
When the seller makes a contribution to more than one expense for the borrower, the
contributions must be itemized on page 2 of the HUD-1. Disclosing only lump sums is
not acceptable.
Seller contributions may not be used toward borrower’s outstanding obligations.
Contributions from sellers or other interested third parties to the transaction that
exceed six (6) percent of the sales price, or other financing concessions, are to be
treated as inducements to purchase, thereby reducing the amount of the mortgage.
Each dollar exceeding the six (6) percent limit must be subtracted from the property’s
sale price before applying the appropriate loan-to-value (LTV) ratio.
Job Loss Insurance is considered a “sales concession,” but does not require a dollar-fordollar reduction from the sales price when calculating the LTV and CLTV ratios.
The dollar-for-dollar reduction to the sales price also applies when gift funds do not
meet FHA requirements.
Items typically paid by the seller (i.e., real estate commissions, charges for pest
inspections, fees paid to release a deed of trust) are not considered contributions.
If a seller (builder) is paying HOA dues or taxes that come due during the first year of
the mortgage, the borrower must qualify on the full PITI (including the monthly tax
escrow and HOA fee). In addition, when determining the borrower’s three and one half
(3.50%) down payment, these “advance” payments cannot lower the borrower’s cash to
close.
Real estate broker fees paid to a buyer-broker by the seller on behalf of the borrower
are not considered a seller concession as long as the seller is paying the sales
commission that is typical for that market. The HUD-1 Settlement Statement must be
reviewed to ensure that the seller did not pay a sales commission separately inclusive of
the buyer-broker fee.
If the seller is charged for closing costs that are “unallowable” to the borrower by HUD
(i.e., underwriting fee, tax service fee, or document review fee), the payment on such
costs must be OUTSIDE of seller contributions listed on the contract. In addition, these
“unallowable” costs should not be reflected on the GFE.
Unacceptable type of fees for seller contributions are those similar to one (1) year golf
course fees, initiation fees into a club, etc.
Continued on next page
FHA Loans
300-150
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Assets,
Continued
Unused Funds
from Escrow
Account
Effective with Case Number Assignments on or after November 1, 2013:
Application of Unused Borrower-Funds from an Escrow Account on an
Existing Mortgage to a Newly Originated FHA-Insured Refinanced
Loan
Mortgagees processing any FHA-insured refinance mortgage may apply
unused borrower funds from an existing mortgage for any purpose authorized
by the borrower. For example, the borrower may authorize the mortgagee to
apply unused borrower funds from an existing mortgage to reduce the payoff
amount on the existing mortgage (also referred to as “netting escrows”); pay
closing costs on a new FHA-insured mortgage; buy down the interest rate on
the new FHA-insured mortgage; or set up an escrow account on the new FHAinsured mortgage loan. These examples are not all inclusive.
NOTE: The return of unused borrower funds from an existing mortgage to
the borrower at closing is not considered cash back to the borrower.
Documentation Requirements for Unused Borrower Funds from an
Escrow Account on an Existing Mortgage to a Newly Originated FHAInsured Refinance Loan




Obtain written authorization from the borrower to apply the unused
borrower funds from an existing mortgage for any purpose prior to using
them. The borrower’s written authorization must clearly state the
purpose(s) for which the authorization is provided.
Include the borrower’s written authorization in the Direct Endorsement
case binder. Mortgagees are instructed to place the borrower’s written
authorization on the right side of the case binder directly after the HUD-1
Settlement Statement.
Show a credit and document the purposed on the HUD-1 Settlement
Statement when a mortgagee either applies unused borrower funds from
an existing mortgage to the new FHA-insured refinance transaction for the
amount authorized to offset settlement charges associated with the new
FHA-insured mortgage or establishes the new escrow account.
The process for handling the netting of escrows at closing may differ
depending upon whether the servicing mortgagee is the same as the
originating mortgagee, and whether funds are netted from the payoff
amount by the servicing mortgagee or all funds are sent to the closing
table. It is up to the servicing mortgagee on the existing mortgage and
the mortgagee on the new FHA-insured mortgage to work through the
netting and the transfer of funds process to ensure that, depending on the
use of funds, that they are accurately reflected on the payoff statement
and the HUD-1 Settlement Statement.
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-151
FHA Lending Guide
Closing Costs
Allowable
Fees







Discount
Points
These include those FHA-approved non-recurring costs associated with
the mortgage transaction, including the appraisal fee, any inspection
fees, the actual cost of credit reports, the loan origination fee,
settlement fee, deposit verification fees, home inspection service fees
up to $300, the cost of title examination and title insurance, document
preparation fees (if performed by a third-party), property survey fees,
attorney’s fees, recording fees, transfer stamps, and taxes, as well as
test and certification fees, such as flood-zone determination fees,
water tests, and other costs as determined by the appropriate HOC.
The lender may only collect fair, reasonable, and customary fees and
charges from the borrower for all origination services. FHA will monitor
to ensure that borrowers are not overcharged. Furthermore, the FHA
Commissioner retains the authority to set limits on the amount of any
fees that a lender may charge a borrower(s) for obtaining an FHA
loan.
Additionally, FHA does not allow “mark-ups.” The cost for any item
charged to the borrower must not exceed the cost paid by the lender,
or charged to the lender by the service provider.
Only the actual cost for the service may be charged to the borrower.
Closing costs may not be used to help meet the minimum 3.5% down
payment requirement.
Closing costs are not considered in the mortgage amount or down
payment calculation for purchase money mortgages.
The appropriate Homeownership Center (HOC) may reject charges,
based on what is reasonable and customary for the area.
Discount points paid by the borrower:



Become part of the total cash required to close
Are not eligible for meeting the minimum down payment
requirements, and
Must appear on Line 10 of Page 3 of form HUD 92900-A, HUD/VA
Addendum to Uniform Residential Loan Application.
Continued on next page
FHA Loans
300-152
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Closing Costs,
Continued
Rate Lock or
Lock-In Fees
Lender may assess a rate lock fee but it is not considered a closing cost.
Such fees provide a written guarantee that ensures the loan terms will not
change for a definite period of time or are limited to the extent to which
the terms may change.
UFMIP
Any upfront mortgage insurance premium (UFMIP) amounts paid in cash
are added to the total cash settlement requirements. The UFMIP must be:


Entirely financed into the mortgage, except any amount less than
$1.00, or
Paid entirely in cash and all mortgage amounts rounded down to a
multiple of $1.00
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-153
FHA Lending Guide
Closing Costs,
Real Estate
Broker Fees

If a borrower is represented by a real estate broker and must pay any
fee directly to the broker, that expense must:

Be included in the total of the borrower’s settlement requirements,
and

Appear on the HUD-1 Settlement Statement.

If the seller pays the broker fee as part of the sales commission, it is
not considered an inducement to purchase, or part of the seller
contributions limitation, as long as the seller is paying only the normal
sales commission for that market.
Any additional seller-paid commission to the broker is considered an
inducement to purchase.
To determine if the seller paid a buyer-broker fee in addition to the
normal sales commission for the market, a copy of the original listing
agreement must be obtained, and compare it with the HUD-1
Settlement Statement.


Premium
Pricing
Continued
Borrower’s closing costs, and/or prepaid items may be paid from “premium
pricing.” Closing costs paid in this manner do not need to be included as part of
the seller contribution limitation. The funds derived from a premium priced
mortgage:




May never be used to pay any portion of the borrower’s down payment
Must be disclosed on the GFE and the HUD-1 Settlement Statement
Must be used to reduce the principal balance if the premium pricing
agreement establishes a specific dollar amount for closing costs and
prepaid expenses, with any remaining funds in excess of actual costs
reverting to the borrower as principal curtailment, and
May not be used for payment of debts, collection accounts, escrow
shortages or missed mortgage payments, or judgments.
Continued on next page
FHA Loans
300-154
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Closing Costs,
Higher priced
Mortgage
Loans
Continued
Definition: A higher-priced mortgage loan is a consumer credit transaction
secured by the consumer's principal dwelling with an annual percentage rate
that exceeds the average prime offer rate for a comparable transaction as of
the date the interest rate is set by 1.5 or more percentage points for loans
secured by a first lien on a dwelling, or by 3.5 or more percentage points for
loans secured by a subordinate lien on a dwelling. (NOTE: Ocwen does not
offer subordinate lien financing).

Tables of the average prime offer rates can be located on the FFIEC’s
website:

http://www.ffiec.gov/ratespread/newcalc.aspx
Loans that are defined as higher priced mortgage loans are permitted for FHA
products only and are subject to ALL of the following restrictions:

Repayment ability; a creditor shall not extend credit based on the value of
the consumer’s collateral without regard to the consumer’s repayment
ability as of consummation.

Therefore all borrowers must provide standard income and
employment documentation as required within the FHA Lending Guide.
Ratios will be calculated and must meet all guidelines.

Due to its nature, HPML loans will not be permitted for Non-credit
qualifying streamline refinance. If a NCQ loan is determined to be
defined as a HPML, it may convert to a Credit Qualifying Streamline.
Prepayment penalties are not permitted (NOTE: Prepayment penalty
options are not currently offered by Ocwen Loan Servicing).
 Escrow Accounts are required at time of closing and must be maintained
for a minimum of 5 years (NOTE: Escrow accounts are required for ALL
FHA loans at time of closing and maintained for the life of the loan
regardless of HPML classification per HUD guidelines).
 Evasion not permitted; a creditor shall not structure a home-secured loan
as an open-end plan to evade the requirements of this regulation (NOTE:
Ocwen Loan Servicing does not offer any open-ended/HELOCs product
types).
 Adjustable Rate Mortgages with initial periods less than seven years are
not eligible.
IMPORTANT: HPML prohibited acts are mandated by Regulation Z 226.35
from the Federal Reserve Board and may NOT be waived under any
circumstances.

Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-155
FHA Lending Guide
Closing Costs,
Safe Harbor
Qualified
Mortgage
Loans
Continued
A Safe Harbor Qualified Mortgage (QM) as defined by HUD is a FHA loan
transaction where the APR is less than or equal to the APOR for a
comparable mortgage, as of the date the interest rate is set, plus the
combined annual MIP (expressed by HUD in basis points or as a
percentage) and 1.15% for first-lien transactions.
Ocwen will fund Safe Harbor Qualified Mortgage (QM) FHA Loan
transactions.
Rebuttable
Presumption
Qualified
Mortgage
Loans
A Rebuttable Presumption Qualified Mortgage (QM) is a FHA loan
transaction where the APR exceeds the APOR for a comparable
transaction, as of the date the interest rate is set, by more than the
combined annual MIP (expressed by HUD in basis points or as a
percentage) and 1.15% for a first-lien.
To rebut the presumption of compliance, it must be proven that the
mortgage exceeded the points and fees limit or that, despite the
mortgage having been endorsed for insurance under the National Housing
Act, the mortgagee did not make a reasonable and good faith
determination of the mortgagor’s repayment ability at the time of
consummation, by failing to evaluate the mortgagor’s income, credit, and
assets in accordance with HUD underwriting requirements.”
Ocwen will fund Rebuttable Presumption Qualified Mortgage (QM) Loan
transactions on FULLY Qualified FHA loan transactions only.
Interest Credit
PURCHASE LOANS: Permitted up to the 7th day of the month.
REFINANCE LOANS: Permitted up to the 10 th day of the month.
FHA Loans
300-156
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Mortgage Insurance
Overview


Determining
UFMIP


An annual Mortgage Insurance Premium (MIP) is charged and
collected in monthly installments on most FHA loans. The percentage
amount of the annual premium is based upon the LTV and the term of
the mortgage.
There is also an initial Upfront Mortgage Insurance Premium (UFMIP)
required on certain FHA loans which can be financed in the loan
amount or paid in cash at closing. If any of the UFMIP is paid in cash,
then the entire amount must be paid in cash.
UFMIP is determined by multiplying the initial premium percentage by
the base loan amount. The total FHA-insured mortgage amount is
limited to 100% of the appraised value, and the UFMIP is required to
be included within that limit.
The UFMIP must be either:

entirely financed into the mortgage, with the mortgage amount
rounded down to a whole dollar (with the exception of instances in
which the borrower chooses to pay up to $49.99 of the UFMIP in
cash, in which case it would not then be reflected in the total
mortgage amount), or

paid entirely in cash and all mortgage amounts must be rounded
down to a multiple of $1.00.

The mortgage amount must be rounded down to a multiple of
$1.00, regardless of whether the UFMIP is financed or paid in cash.
The UFMIP amount, that is part of the total mortgage amount, is
not considered when determining compliance with statutory loan
limits or LTV limits. The base mortgage amount must comply with
the requirements. The total mortgage amount may exceed this
limit by the financed UFMIP amount.

NOTE: Any UFMIP amounts paid in cash are added to the total
cash settlement amount.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-157
FHA Lending Guide
Mortgage Insurance,
MIP Premiums
Continued
MIP Premiums for Purchase and Refinances
(including Streamline Refinances endorsed after May 31, 2009)
For case numbers assigned on or after January 26, 2015
Upfront MIP; FOR ALL: 1.750%
(Streamline Refinances endorsed on or before May 31, 2009: 0.01%)
Annual MIP for Loan Amounts less than or equal to $625,500
Greater than 15 year terms
15 year or less terms
LTV
Annual
LTV
Annual
> 95.00%
0.85%
> 90.00%
0.70%
<=95.00%
0.80%
78.01-90.00%
0.45%
Annual MIP for Loan Amounts greater than $625,500
Greater than 15 year terms
15 year or less terms
LTV
Annual
LTV
Annual
> 95.00%
1.05%
> 90.00%
0.95%
<=95.00%
1.00%
78.01-90.00%
0.70%
<=78.00%
0.45%
Annual MIP for Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009
0.55% (regardless of loan amount or term)
For case numbers assigned Prior to January 26, 2015
Upfront MIP; FOR ALL: 1.750%
(Streamline Refinances endorsed on or before May 31, 2009: 0.01%)
Annual MIP for Loan Amounts less than or equal to $625,500
Greater than 15 year terms
15 year or less terms
LTV
Annual
LTV
Annual
> 95.00%
1.35%
> 90.00%
0.70%
<=95.00%
1.30%
78.01-90.00%
0.45%
Annual MIP for Loan Amounts greater than $625,500
Greater than 15 year terms
15 year or less terms
LTV
Annual
LTV
Annual
> 95.00%
<=95.00%
1.55%
> 90.00%
0.95%
1.50%
78.01-90.00%
0.70%
<=78.00%
0.45%
Annual MIP for Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009
0.55% (regardless of loan amount or term)
Continued on next page
FHA Loans
300-158
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Mortgage Insurance,
MIP Premiums
(Con’t)
For all mortgages regardless of their amortization terms, any
mortgage involving an original principal obligation (excluding financed
Up-Front MIP (UFMIP)) less than or equal to 90 percent LTV, the
annual MIP will be assessed until the end of the mortgage term or for
the first 11 years of the mortgage term, whichever occurs first.
For any mortgage involving an original principal obligation (excluding
financed UFMIP) with an LTV greater than 90 percent, FHA will assess
the annual MIP until the end of the mortgage term or for the first 30
years of the term, whichever occurs first.


UFMIP
Refunds
Continued
Borrowers are entitled to a partial refund of the UFMIP paid at closing if:
The borrower is refinancing a current FHA loan to another FHA loan
within 3 years, a refund credit may be applied to reduce the amount
of the UFMIP paid on the refinanced loan.
Refund calculations are the below (applicable) percentages multiplied
by the original Upfront MIP.
NOTE: On any refinance where the MIP refund exceeds the Upfront
MIP required on the new loan, the overage will be refunded directly to
the borrower from HUD. The lesser of the MIP refund or the new
upfront MIP should be subtracted from the unpaid principal balance
before calculating the new mortgage amount.



3 Year Refund Schedule: Upfront Mortgage Insurance Premium Refund percentages
Month of Year
Year
1
2
3
4
5
6
7
8
9
10
11
12
1
80
78
76
74
72
70
68
66
64
62
60
58
2
56
54
52
50
48
46
44
42
40
38
36
34
3
32
30
28
26
24
22
20
18
16
14
12
10
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-159
FHA Lending Guide
Appraisal Requirements
General












Responsibilities
All appraisals must be completed by an approved FHA appraiser. The
information in the report must be accurate, internally consistent,
written in clearly understandable language, fully supported, and
sufficiently documented to FHA standards.
The appraisal report must be dated within 120 days of the note date
for all appraisals. If more than 120 days, then an update on FNMA
Form 1004D must be provided dated prior to the expiration date of
the original appraisal and must be dated within 120 days of the Note.
If more than 240 days from the date of the appraiser’s signature, then
a new appraisal is required.
If the appraisal is due to expire and the Borrower has a fully executed
sales contract or the loan was approved prior to the expiration date of
the appraisal, the expiration date may be extended up to 30 days to
allow for the approval AND closing of the loan.
Note that the 1004D may NOT be used in conjunction with the 30 day
extension.
See details within this summary regarding FHA Anti-Flipping Rule
Operating Income Statement will be required on all 2-4 unit properties
Appraiser must analyze the subject sales contract (on all purchase
transactions).
Must include Market Conditions Addendum (FNMA Form1004MC)
NOTE: Reduced appraisal forms, including waivers, are not permitted.
All loans must have a FHA case number assigned to the subject
property. HUD assigns case numbers through FHA Connection.
New FHA case numbers are required if the borrower changes
properties.
The FHA case number must be provided to the appraiser before the
appraiser may release the appraisal.
All appraisal practices utilized must (a) conform to the requirements of
HUD, (b) comply with Appraiser Independence Requirements (AIR) issued
by the Federal Housing Finance Agency, and (c) meet the minimum
standards established under FIRREA.
Continued on next page
FHA Loans
300-160
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Appraisal
Logging
The Appraisal Logging Screen in FHA Connection will require input of the
appraiser information along with the following data:






AMC
Management
Continued
Appraiser's License ID
Property Information
Neighborhood Information
Site Information
Physical Improvement Information
Reconciliation Information
Ocwen must always ensure that:





an FHA appraiser is not prohibited by the company, the AMC or other
third party, from recording the fee he/she was paid for performing
the appraisal in the appraisal report,
FHA roster appraisers are compensated at a rate that is customary
and reasonable for appraisal services performed in the market area of
the property being appraised,
the fee for the actual completion of an FHA appraisal does not include
a fee for management of the appraisal process or any activity other
than the performance of the appraisal,
any management fees charged by an AMC or other third party must
be for actual services related to ordering, processing or reviewing of
appraisals performed for FHA financing, and
AMC and other third party fees must not exceed what is customary
and reasonable for such services provided in the market area of the
property being appraised.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-161
FHA Lending Guide
Appraisal Requirements,
Appraiser
Independence
Safeguards
Continued
FHA prohibits lenders from accepting appraisal reports completed by an appraiser selected,
retained or compensated in any manner by a real estate agent. To ensure appraiser
independence, FHA-approved lenders are also prohibited from accepting appraisals prepared
by FHA roster appraisers who are selected, retained or compensated in any manner by a
third-party sponsored originator or any member of a lender’s staff who is compensated on a
commission basis tied to the successful completion of a loan.
Lenders, and third parties working on behalf of lenders, are prohibited from:














withholding or threatening to withhold timely payment or partial payment for an
appraisal report
withholding or threatening to withhold future business from an appraiser
demoting or terminating, or threatening to demote or terminate, an appraiser
expressly or impliedly promising future business, promotions or increased compensation
for an appraiser conditioning the ordering of an appraisal report or the payment of an
appraisal fee, salary or bonus on the opinion, conclusion or valuation to be reached, or
on a preliminary value estimate requested from an appraiser
requesting that an appraiser provide an estimated, predetermined or desired valuation
in an appraisal report prior to the completion of that report
requesting that an appraiser provide estimated values or comparable sales at any time
prior to the appraiser's completion of an appraisal report.
providing to the appraiser an anticipated, estimated, encouraged or desired value for a
subject property or a proposed or target amount to be loaned to the borrower, except
that a copy of the sales contract for purchase must be provided
providing stock or other financial or non-financial benefits to the appraiser, the appraisal
company, the appraisal management company, or any entity or person related to the
appraiser, appraisal company or management company
allowing the removal of an appraiser from a list of qualified appraisers, or the addition
of an appraiser to an exclusionary list of qualified appraisers, used by any entity without
prompt written notice to such appraiser, which notice shall include written evidence of
the appraiser's illegal conduct, violation of the Uniform Standards of Professional
Appraisal Practice (USPAP) standards, violation of state licensing standards or improper
or unprofessional behavior or other substantive reason for removal
ordering, obtaining, using, or paying for a second or subsequent appraisal or automated
valuation model (AVM) in connection with a mortgage financing transaction unless:
there is a reasonable basis to believe that the initial appraisal was flawed or tainted and
such appraisal is clearly and appropriately noted in the loan file
such appraisal or automated valuation model is done pursuant to written, preestablished bona fide pre- or post-funding appraisal review or quality control process or
underwriting guidelines, and
the lender adheres to a policy of selecting the most reliable appraisal, rather than the
appraisal that states the highest value, or
any other act or practice that impairs or attempts to impair an appraiser's
independence, objectivity or impartiality, or violates law or regulation, including, but not
limited to the Truth in Lending Act (TILA) and Regulation Z and USPAP.
Continued on next page
FHA Loans
300-162
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Continued
Quality of
Report
The DE Underwriter who is responsible for the quality of the appraisal
report is allowed to communicate with the appraiser, to request
clarifications and discuss components of the appraisal that influence its
quality. The underwriter bears the primary responsibility for determining
the eligibility of a property for FHA insurance.
Appraiser
Eligibility



The FHA Roster appraiser selected to perform an appraisal must be
listed as being active on the FHA Appraiser Roster at time of selection
and at time in which the appraisal was performed. Mortgages
predicated upon appraisals that were performed by appraisers who
were not current on the FHA Appraiser Roster at time of effective date
of appraisal will not be insured.
The effective date of the FHA appraisal cannot be before the case
number assignment date unless the DE Underwriter certifies, via the
certification field in the Appraiser Logging Screen in FHA Connection,
that the FHA appraisal was initially ordered for conventional lending,
HUD REO, or government guaranteed purposes, but was performed by
a FHA Roster Appraiser who subsequently converted the appraisal to
meet FHA standards and will support the new FHA-insured mortgage.
See additional requirements below.

Must provide evidence such as signed initial and new GFEs, official
lender decision letters, etc. to document that such a change in
borrower financing occurred.

Must ensure that the appraisal was performed in accordance with
FHA appraisal reporting requirements. Ensuring compliance with
this requirement may entail a re-inspection of the property by the
appraiser.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-163
FHA Lending Guide
Appraisal Requirements,
Converted
Appraisals
When a conventional loan flips to FHA and the appraisal pre-dates
issuance of Case Number Assignment:



Appraisal
Portability /
Transfers
Continued
A 1004D Update is required to be completed by the FHA appraiser
confirming HUD minimum property standards are met. The
recognized appraisal date = date on the 1004D.
If the appraiser is not FHA approved, a new appraisal will be required.
NOTE: Confirmation of the initial conventional financing request must
be provided and documented within the loan file.
When a borrower changes from one lender to Ocwen, the initial lender
must at the borrower’s request transfer the case to the second. This
requires the initial lender to:





Transfer the FHA case number to the second lender using the Case
Transfer functionality within FHA Connection.
Provide Ocwen with a copy of the appraisal report ordered by and
completed for the initial lender.
Initial lender must provide written assurance such as an AIR
Certification and borrower receipt that the appraisal was obtained in a
manner consistent with AIR Compliance.
NOTE: It is acceptable for the client name listed on the appraisal
report to continue to reflect the initial lender. FHA does not require
that the client name on the original appraisal to be changed into our
name.
IMPORTANT: The DE Underwriter should review the original
appraisal as provided from the initial lender to determine if it is
acceptable collateral as required by HUD. A Conditional Commitment
issued by the first lender’s DE Underwriter is not transferable and may
not be utilized or considered by Ocwen.
Continued on next page
FHA Loans
300-164
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Acceptable
Second
Appraisals
Re-using the
Appraisal
Continued

A second appraisal under certain circumstances as indicated below:

Where the first appraisal contains material deficiencies as
determined by a DE Underwriter.

Where the appraiser performing the initial appraisal has been
excluded from the Ocwen’s acceptable appraisers.

Where failure of the first lender to provide a copy of the appraisal
to Ocwen in a timely manner causing closing delays, thus creating
potential harm to the borrower(s), such as interest rate lock
expiring, sales contract expiration, accumulated late fees, etc. The
DE Underwriter must document the loan file accordingly.
IMPORTANT: Though delivered untimely, the initial appraisal
must eventually be delivered and retained in the loan file.

Additional guidance on ordering Second Appraisals when permitted:

A new FHA Case Number must not be ordered.

If the second appraisal is ordered from a different appraiser, the
FHA Case Number Assignment screen must be updated to reflect
the name of the new appraiser.

The DE Underwriter must thoroughly document and retain within
the loan file the explanation for ordering a second appraisal and
explanation MUST meet the ‘allowed for’ circumstances.

Both appraisals must be retained within the loan file, including
scenarios in which the initial appraisal is delivered in an untimely
manner.

Purchase Appraisal cannot be used for refinance transactions, even if
less than six months.
New appraisal is required for each refinance transaction requiring an
appraisal.

Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-165
FHA Lending Guide
Appraisal Requirements,
Appraisal
Updates

FHA has adopted FNMA Form 1004D for the purposes of appraisal
updates and/or completion reports.

The 1004D Updated Appraisal must be dated prior to the
expiration date of the appraisal report.

The original FHA Roster appraiser continues to be required and must
sign the update

If the original appraiser is not available or no longer in good
standing, then a NEW appraisal must be ordered.


Property may not have declined in value
Building improvements that contribute value to the property must be
observable from the street or public way
If the exterior inspection reveals deficiencies, then the 1004D may not
be utilized.
HUD-92051 continues to be required for new construction
Per ML 2010-13, an original appraisal report can only be updated one
time via the Appraisal Update Report (1004D), limiting the use of the
Appraisal Update Report to one time.
The 1004D may not be used when ordered by a lender who is not
identified as an intended user in the original appraisal report unless
the appraiser incorporates the original report being updated by
attachment rather than by reference per Advisory Opinion 3 of the
Uniform Standards of Professional Appraisal Practice (USPAP).




Photos
Continued



The appraiser is required to take a picture of the front and rear of the
subject property from oblique angles so as to include the sides as well
as the front and rear of the property and all buildings on the subject
property having contributory value.
The appraiser must also take a frontal picture of each comparable
used in the report.

NOTE: The appraiser must take the pictures; it is not acceptable
for the photos to be taken by anyone other than the appraiser.
In addition, the appraiser is required to provide a copy of a local street
map showing the subject and each comparable.
Continued on next page
FHA Loans
300-166
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Continued
Uniform
Appraisal
Dataset
Mortgagee Letter 2011-30 announced that FHA was adopting the Uniform
Appraisal Dataset (UAD) for the Uniform Residential Appraisal Report
(URAR, Fannie Mae Form 1004 and Individual Condominium Unit
Appraisal Report, Fannie Mae Form 1073).
Appraisal
Reporting
Forms
The appraisal reporting form used depends on the type of property that is
being appraised. The table below lists the appraisal forms used by the
appraiser.
Appraisal Form
Uniform Residential Appraisal Report (URAR)
(Fannie Mae Form 1004, March 2005)
Individual Condominium Unit Appraisal
Report
(Fannie Mae Form 1073, March 2005)
Small Residential Income Property Appraisal
Report
(Fannie Mae Form 1025)
Appraisal Update and/or Completion Report
(Fannie Mae Form 1004D/Freddie Mac Form
442/March 2005)
Form Usage
Required to report an appraisal of
• a one-unit property, or
• a one-unit property with an accessory unit.
Required to report an appraisal of a
• unit in a condominium project, or
condominium unit in a planned unit
development (PUD).
Required to report an appraisal of a two to
four unit property.
This is a dual-purpose form.
• Part A, Summary Appraisal Update
Report provides for updates of existing
appraisals when the appraiser concurs
with the original appraisal report, and
updates the appraisal by incorporating
the original appraisal report.
• Part B, Completion Report, provides for
compliance repair and completion
inspections for existing and new
construction dwellings.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-167
FHA Lending Guide
Appraisal Requirements,
Lead-Based
Paint
Standards




Environmental
Hazards





Continued
If the property was built before 1978 the seller must disclose known
information on lead-based paint and/or lead-based paint hazards
before selling the house.
The sales contract must include a Disclosure Of Information On LeadBased Paint And/Or Lead-Based Paint Hazards, and
The buyer must receive a 10-day opportunity (or mutually agreed
upon period) to conduct a risk assessment or inspection for the
presence of lead based paint and/or lead-based paint hazards.
FHA may insure a mortgage on a house, even with lead-based paint, if
defective paint surfaces are treated. However, FHA will not pay the
cost to have the lead-based paint removed, treated, or repaired.
Properties may not violate any environmental law, rule or regulation with
respect to the subject property, and may not contain toxic materials or other
environmental hazards on, in or that could affect the subject property.
Appraiser must disclose any known or suspected environmental hazards on or
near the subject property, e.g., land fills, toxic waste dumps, or junk yards;
including any hazardous conditions observed during the inspection of the
subject property or information that he or she became aware of through the
normal research involved in performing an appraisal.
If an environmental hazard is located on or near the subject property, the
appraiser must comment on any influence that the hazard has on the
property’s value and marketability and make appropriate adjustment in the
overall analysis of the property’s value.
If any environmental hazard is suspected, an environmental study of the
subject property is required prior to loan approval. In such cases, a nationally
recognized and reputable environmental engineering firm must perform the
written report. The report must include an analysis and detailed list of clean
up costs, if any.
Ocwen will not fund a loan without acceptable evidence confirming any known
or suspected environmental hazards will not have an adverse affect upon the
marketability, livability, or appraised value of the subject property. This
confirmation must be evidenced by either acceptable or documented clean-up
efforts or by verification of comparable market data confirming no buyer
resistance to the hazard.
Continued on next page
FHA Loans
300-168
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Continued
Site Hazards
The property site must be free of health and safety hazards.
Mineral Rights
If the rights are sold or leased, the title company must provide adequate
title endorsement coverage to insure over any property disruption and/or
damage.
Property
Conditions




Termite
Inspections



All appraisals must be completed with the UAD. The appraiser must
assign standardized condition and quality ratings to identify the
condition of the improvements and quality of construction for the
subject property and comparable sales.
Ocwen will accept loans where the appraisal is completed “as is” with
the property’s conditions rating C1 – C5 and the quality of
construction rating Q1-Q5.
The subject property must be maintained in at least average
condition.
All subject properties must be habitable with safe water, sanitary
facilities, adequate heating, domestic hot water and all appliances,
plumbing, electrical, etc. must be functional and in good working
condition.
Unless the appraiser indicates that there is active infestation or
mandated by governmental jurisdictions (see Pest Control Tip Zone
link below), termite inspections are not required.
The above Pest Inspection references apply to existing properties over
1 year old; for all other properties, refer to the Construction sections
within this summary.
A copy of the termite/pest inspection report is required to be included
in the file if evidence exists that a termite/pest inspection was
ordered, requested, required and/or completed, even if the borrower
elected to have it completed.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-169
FHA Lending Guide
Appraisal Requirements,
Well
Inspections
Connection to a Public Water System




Community
Water
Systems
Continued
The appraiser is required to report on the availability of connection
to public and/or community water system.
The DE Underwriter is responsible for the determination of the
feasibility for requiring connection.
Generally, connection must be made to a public water system or
community water system if connection costs to the public or
community system are reasonable (3% or less of the estimated
value of the property.)
A written estimate or appraiser comment for the cost of connection
must be obtained before the underwriter may waive this condition.
If connection costs exceed 3%, the existing on-site systems will be
acceptable provided they are functioning properly and meet the
requirements of the local health department.
A community water system is a central system, owned, operated and
maintained by a private corporation or a non-profit property owners
association. HUD no longer maintains a list of approved systems. The
appraiser must note in the appraisal report if public water is available to
the subject site. If a property is on community water, the appraiser
should note the name of the water company on the appraisal report.
Ocwen will require documentation that the community system(s) is/are
licensed and adequate to service the property.
Continued on next page
FHA Loans
300-170
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Individual
Well Water
Systems
Shared Wells
Continued

Test or inspection required: if mandated by the state or local
jurisdiction or if there is knowledge that well water may be
contaminated or when the water supply relies upon a water
purification system due to presence of contaminants or when there is
evidence of the following:

Corrosion of pipes (plumbing)

Areas of intensive agriculture within a ¼ mile

Coal mining or gas drilling operations within ¼ mile

Dump, junkyard, landfill, factory, gas station, or dry cleaning
operation within a ¼ mile

Unusually objectionable taste, smell or appearance of well water
(superseding the guidance in Mortgagee Letter 95-34 that requires
well water testing in the absence of local or state regulations)

Shared wells may serve existing properties that cannot feasibly be
connected to an acceptable public or community water supply system.
A shared well shall have a valve on each dwelling service line as it
leaves the well. A shared well shall service no more than four living
units or properties. A shared well must have a shared well agreement
and shall be binding upon signatory parties and their successors in
title.
More information on this agreement can be referenced in HUD
handbook 4150.1 Rev-1, Section 12-16.

Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-171
FHA Lending Guide
Appraisal Requirements,
Well Location





Individual water supply systems (wells) should be checked to establish the
distance from the septic systems.
The appraiser is to note in the appraisal if the distances appear to be met plus
note any adverse site conditions that might warrant further inspections or due
diligence.
The DE Underwriter must make a decision as to whether a qualified third party
should map out these distances.
The DE Underwriter may want to have these distances marked on a survey in
cases where the lot is particularly small, depending on the location of the well.
The minimum acceptable distances between wells and the sources of pollution
located on either the same or the adjoining lot are shown in the table below.
Source of Pollution
Property Line
Septic Tank
Absorption field/bed,
Seepage Pit
Sewer lines with
permanent tight
joints




Continued
Minimum
Horizontal
Distance
10 feet
50 feet
Source of Pollution
100 feet
Other sewer lines
Chemically Poisoned
Soil
Dry Well
10 fee
Other
Minimum
Horizontal
Distance
50 feet
25 feet
50 feet
Recommendations or
requirements of the
local health authority
Individual water systems/wells should be located ON the subject property site.
If not, they must be on an adjacent property, and evidence of water rights
and recorded maintenance agreement must be provided for acceptance of the
well as the primary source of water for an FHA insured property.
Cisterns-HUD indicates that properties served by cisterns are not acceptable
for mortgage insurance. However, the HOCs have the authority to consider
waivers in areas where cisterns are typical.
New wells must be drilled, no less than 20 feet deep, and cased. Casing
should be steel or other casing material that is durable, leak-proof, and
acceptable to (either) the local health authority and (or) the trade or
profession licensed to drill and repair wells in the local jurisdiction.
Individual Residential Water Purification Equipment-if a property is otherwise
eligible for insurance but does not have access to a continuing supply of safe
and potable water without the use of a water purification system, the
requirements in Mortgagee Letter 92-18 and 95-34 must be satisfied.
Continued on next page
FHA Loans
300-172
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Septic /
Sewage
Inspections
Continued

Community Sewer Systems

HUD no longer maintains list of approved systems. The appraiser
should note the name of the community system(s) on the
appraisal report. Ocwen will require documentation that the
community system(s) is/are licensed and capacity is adequate to
service the property. The appraiser must note if public sewer is
available to the subject site.

Individual sewage Systems

Individual sewage systems may be acceptable when the cost to
connect to a public or community sewage system is not
reasonable. 3% or less of the estimated value of the property is
the suggested benchmark.

If the property cannot be connected to a public system, FHA will
accept individual sewage systems that are acceptable to the local
health authorities. This includes numerous types of sewage
systems including cesspools, individual pit privies, and mound
systems.

Inspection and/or testing are not automatically required, but is
required when the appraiser suspects a problem with the system
or problems are common in the area. In these instances, the
appraiser is to condition for a certification by a professional such
as the local health authority, a licensed sanitarian or an individual
determined to be qualified by the DE Underwriter.

For distances between water sources and sewage, required for new
construction, refer to HUD Handbook 4150.2 Section 3-6 and CFR
200.926d. For existing properties, the appraiser is required to
confirm that the distances meet HUD requirements; sketch
drawings not required for existing properties. If the appraiser is
unable to provide, then measurements and drawings will be
required from a licensed professional.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-173
FHA Lending Guide
Appraisal Requirements,
Roof
Inspections




Continued
The covering must prevent moisture from entering and provide
reasonable future utility, durability and economy of maintenance. The
appraiser must visually examine the roof to determine whether
deficiencies present a health and safety hazard or do not allow for
reasonable future utility.
NOTE: The appraiser must exercise sound judgment when evaluating
roof conditions. The roof should have a remaining physical life of at
least two years. If the roof has less than two years remaining life,
then the appraiser must report this condition in the appraisal report.
Re-Roofing: FHA will accept a maximum of 3 layers of existing
roofing. If more than 2 layers exist and repair is necessary, then all
old roofing must be removed as part of the re-roofing.
Flat Roof: FHA no longer mandates automatic inspection of flat and/or
unobservable roofs. The appraiser must note in the appraisal that
he/she could not adequately observe the entire roof area and state
which area(s) were unobservable. As with any other type of roof the
appraiser is to look for signs that would indicate a possible roof
problem. Based on the information reported, either the appraiser or
underwriter may condition for a roofing inspection.
Continued on next page
FHA Loans
300-174
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Heating
Source





Continued
General: ALL habitable rooms must have a heat source. This does not
mean that each room must contain a heating device but that each
room must receive sufficient heat. (Exception: Homes located in
Florida counties of Lee, Charlotte, Glades, Hendry, Palm Beach,
Collier, Broward, Monroe and Miami-Dade do not require heat if, the
lack of, is "typical" for the market area and does not adversely affect
the marketability of the property.
Wood Stoves and Solar Systems: Dwellings with wood burning stoves
or solar systems as a primary heat source must have permanently
installed conventional heating systems that can maintain at least 50
degrees Fahrenheit in all living areas and those containing plumbing
systems. These systems must be installed in accordance with the
manufacturer’s recommendations.
Floor Heaters: Due to the inherit dangers of a floor heater it is highly
recommended that floor heaters in need of repair be replaced with
another permanent heat source.
Non-Conventional Heating Systems: All non-conventional heating
systems, such as space heaters and others, must comply with local
jurisdictional guidelines. Often these are not acceptable as the primary
source of heat.
Propane tanks must be a safe distance from the dwelling. Leased
tanks are acceptable when not offered for sale. Propane fired furnaces
located in a crawl space area are not acceptable.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-175
FHA Lending Guide
Appraisal Requirements,
Public and
Private Streets
Continued
When an appraisal indicates that the property has a privately owned and
maintained street, evidence of a road maintenance agreement is not
required; however, the following requirements must be met:

Property must have vehicular or pedestrian access.

If the property does not include an all weather surface, the
absence of such must be noted on the appraisal. FHA defines all
weather surface as a road surface over which emergency and the
area’s typical passenger vehicles can pass at all times.

Private streets and shared driveways must be protected by
permanent recorded easements (non-exclusive and non-revocable
easement without trespass from the property to a public street) or
be owned and maintained by the HOA.
 The recorded easement must be reviewed and approved by
the DE underwriter and documented in the file.

Shared driveways must meet all the requirements above.
Continued on next page
FHA Loans
300-176
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Carbon
Monoxide
Detectors
Continued
For California properties, evidence that a carbon monoxide detector has
been installed is required:
On purchase transactions when installation is required per sales
contract or appraisal report or when the appraisal indicates
detectors have not been installed.

On refinance transactions when installation is required per the
appraisal or when the appraisal indicates detectors have not been
installed.
For Connecticut properties effective January 1, 2014, evidence certain
properties adhere to Act PA 13-272-sHB 6160:

(http://cga.ct.gov/2013/sum/pdf/2013SUM00272-R02HB-06160-SUM.pdf)

Requires seller before transferring title to a 1 or 2 unit to provide:





Affidavit certifying the occupancy building permit was issued on or
after October 1, 1985; OR
Affidavit certifying the dwelling is equipped with smoke detection
and warning equipment (smoke detectors).
Affidavit must also certify that the building is equipped with carbon
monoxide (CO) detection and warning equipment (CO detector)
complying with the act; OR
Property does not pose a risk of CO poisoning because it does not
have a fuel-burning appliance, fireplace or attached garage.
The act exempts from the affidavit requirement transfers:








from one co-owner to another;
to the transferor’s spouse, parent, sibling, child, grandparent, or
grandchild where no consideration is paid;
under a court order;
by the federal government or any of its political subdivisions;
by deed in lieu of foreclosure;
involving refinancing of an existing mortgage debt;
by mortgage deed or other instrument to secure a debt where the
transferor’s title to the property is subject to a preexisting
mortgage debt; or
by executors, administrators, trustees, or conservators.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-177
FHA Lending Guide
Appraisal Requirements,
Continued
Repair Escrow
Holdback
Not permitted. All HUD required repairs must be completed prior to final
loan approval.
General
Required
Repairs

Required repairs are limited to those repairs necessary to preserve the
physical security of the property and to protect the health and safety
of the occupants. The three (3) S’s:

Soundness-correct physical deficiencies or conditions affecting
structural integrity.

Safety-protect the health and safety of the occupants.

Security-protect the security of the property (security for the FHA
insured mortgage.)

Avoid unnecessary requirements because they increase housing costs
without adding any basic amenities to the property.
While appraisers are not to add repairs beyond FHA’s guidelines, the
DE Underwriter may add requirements as a condition of making the
loan. Individual DE Underwriters have the right to make additional
requirements they feel necessary to protect the security or soundness
of the property and the health and safety of the occupants. The
applicant has the option of selecting another lender if they feel these
requirements/conditions are excessive.

Continued on next page
FHA Loans
300-178
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Continued
Private
Transfer Fees

Mortgages on properties encumbered by private transfer fee
covenants prohibited by C.F.R. Part 1228 in the Federal Register, are
ineligible if those covenants were created on or after February 8,
2011. Fees that do not directly benefit the property are subject to
C.F.R. Part 1228 and are therefore ineligible. Private transfer fees are
eligible for loans in which the covenants were created prior to
2/8/2011. However, if the creation date is not known, the loan is not
eligible.
3-4 Unit
Properties

Regardless of occupancy status or loan purposes, the property must
be self-sufficient (i.e., the maximum mortgage is limited so that the
ratio of the monthly mortgage payment, divided by the monthly net
rental income, does not exceed 100%).
The monthly payment is the principal, interest, taxes, and insurance
(PITI), including mortgage insurance, plus any homeowners’
association dues, computed at the note rate (no consideration for buy
downs may be given).
Net rental income is the appraiser’s estimate of fair market rent from
all units, including the unit chosen by the borrower for occupancy, less
the appraiser’s estimate for vacancies or the vacancy factor used by
the jurisdictional HOC, whichever is greater.
This calculation is used only to determine the maximum loan amount.
Borrowers must still qualify for the mortgage based on income, credit,
cash to close, and the projected rents received from the remaining
units. The projected rent may only be considered as gross income for
qualifying purposes; it may not be used to offset the monthly
mortgage payment.
Borrower must have a reserve of three (3) months' mortgage
payments (PITI) after closing. Reserves CANNOT be from a gift.




Construction
Proposed Construction and Under Construction are not permitted.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-179
FHA Lending Guide
Appraisal Requirements,
Existing
Construction
less than One
Year

Existing property less than one (1) year may be treated as a purchase
transaction only.

May not have the borrower in title or in ownership of the lot

Borrower may not have the construction loan in their name or

Borrower may not be their own contractor.

Properties not meeting the criteria shown below are considered
existing construction-less than one year old and are limited to 90.00%
LTV of the lesser of the appraiser’s estimate of value or sales price,
plus or minus the adjustments required by FHA. For a property to be
eligible for greater than 90.00% LTV, it must meet one of the criteria
described below. Otherwise, the property is classified as “less than
one year old” and is limited to 90.00% LTV.
Construction was completed more than one year preceding the
borrower’s signature on the Addendum to Uniform Residential Loan
Application (form HUD 92900-A, page 2); or
The local jurisdiction has issued both a building permit and a
Certificate of Occupancy or equivalent.

Does not apply to condominiums because of the special
circumstances regarding their approval.

If the building permit and COO are issued, a ten-year warranty is
not needed.


HUD Form
92541
Continued

The dwelling is covered by a builder’s ten-year insured warranty plan
that is acceptable to HUD.

HUD will accept certification via Form HUD 92541 by (1) the builder,
(2) the builder’s architect or (3) other qualified agent familiar with the
compliance of local or State building codes that were accepted by the
HUD Field Office according to 24 CFR 200.926a or National Building
Code criteria.
Continued on next page
FHA Loans
300-180
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Appraisal Requirements,
Existing
Construction,
Less than One
Year


High Ratio
(Over 90%
LTV)










Continued
Required exhibits to be included in case binder must be completed
signed and dated by the appropriate parties. Existing properties less
than 1 year old are properties that are 100% complete at the time
appraisal performed. The determination date for “less than 1 year
old” is the earliest date of the Certificate of Occupancy, date of final
approval reflected on the Building Inspection Card, or date of a letter
from a local or state authority showing the completion of construction.
NOTE: Title of the land must be or remain in the name of the builder.
URAR, with all standard exhibits, including the cost approach.
Appraiser to insert month and year completed in the “Age” section.
HUD-92541 (4/01) Builders Certification of Plans & Specifications and
site.
HUD-92544 (8/92)) Warranty of Completion of Construction
Inspections-If the property is 100% complete at the time of appraisal
then the **URAR may serve as the final inspection; see below.
If pre-approved, BOTH Building Permit & Certificate of Occupancy (or
equivalent).
10 Year WARRANTY – Evidence of acceptance from HUD approved 10year warranty plan is required if property was not pre-approved.
(Building Permit & Certificate of Occupancy)
PEST CONTROL – In those geographic areas favorable to termite
damage.
NPMA-99a & NPMA 99b
INDIVIDUAL SEWER/WELL SYSTEMS – If applicable, evidence of
approval from Local Health Authority.
Compliance Certification completed by a FHA Fee Inspector (carpet
identification, manufactured warranties, insulation)
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-181
FHA Lending Guide
Appraisal Requirements,
Low Ratio
(90% or less)







FHA Loans
300-182
Continued
URAR, with all standard exhibits, including the cost approach.
Appraiser to insert month and year completed in the “Age” section.
HUD-92541 (4/01) Builders Certification of Plans & Specifications and
site.
Inspections-If the property is 100% complete at the time of appraisal
then the **URAR may serve as the final inspection; see below.
PEST CONTROL – In those geographic areas favorable to termite
damage.
NPMA-99a & NPMA 99b
INDIVIDUAL SEWER/WELL SYSTEMS – If applicable, evidence of
approval from Local Health Authority.
NOTE: **URAR – Appraisal may serve as final inspection if the
property is 100% complete at the time of appraisal with no conditions.
The appraiser is to provide photos of each diagonally opposite front
and rear corner of the house reflecting adequate grading and
drainage. Appraiser is to verify general conformance with Plans &
Specs. (Refer to HUD Handbook 4145.1 REV-2, Section 6-3.A.3).
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Natural Disasters
Overview
Ocwen continually monitors FEMA for updates in regards to federally
declared disaster notifications. Once a location has been identified by
FEMA, a Natural Disaster Notification (NDN) will be disseminated
identifying the specific location, policies and procedures.
Procedure

Ocwen will require a re-inspection (DIR: Disaster Inspection Report)
of the subject property prior to issuing closing documents.

You will need to log into your account from Ocwen’s website and
select the Tab ORDER APPRAISAL to order a re-inspection/DIR
of the property.

A fee is associated with the re-inspection/DIR of these properties. If
you choose to charge the borrower for this fee, you will be required to
complete a “Change of Circumstance Form” (located on our
website under Forms) indicating the reason for the re-disclosure
(Natural Disaster) and the increased fee. This completed form must be
uploaded into Imageflow.
Closely examine your rate lock expiration date. If a rate lock
extension is needed (noting, any fee changes to the borrower will
require a change of circumstance form as well), select the tab from
our web site labeled “SELECT A RATE LOCK EXTENSION” and
complete. All extension fees are listed on the website for your
convenience.

Example
Below is an example of the declared location and effective dates that will
be announced on the specific NDN.
STATE
Declared Areas
Counties of _________________________
Effective Date
Expiration/End Date
01/01/2010
01/02/2010
IMPORTANT: Appraisals performed BEFORE the Expiration/End Date will require documentation as indicated on page two (2) of
this notification (referring to the NDN notification).
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-183
FHA Lending Guide
Natural Disasters,
Requirements
for Affected
Areas
Continued
Underwriting/Closing Requirements: For loans secured by properties
appraised and not closed/funded prior to the disaster declaration date,
Ocwen will require the following additional documentation on all loans.
REQUIREMENTS:
Property appraised prior to the
disaster THROUGH to FEMA’s
Expiration/Safe Date:
A thorough inspection/DIR (1004D accepted as well) of the property is required; it is
important to note that the degree and nature of the inspection will vary depending on
the nature of the disaster and property location:

The original appraiser (if available) should perform the inspection to the extent
he/she deems necessary so that a certification stating the below can be signed
and warranted:

Property is free from damage and is in the same condition as
previously/originally appraised;


Marketability and value remain the same.
Re-inspections will always be required regardless of time frame if the
appraisal was performed BEFORE the disaster date.
NOTE: In order to comply with AIR regulations, the re-inspection must be
ordered through Ocwen’s appraisal management company. Refer to the
previous page for specific instructions.
FHA Streamlines without An
Appraisal

For FHA Streamline Refinances without an Appraisal, only an interior/exterior reinspection will be required.

For all FHA loans requiring a re-inspection, it must include interior and exterior
with photographs.
Borrower’s Certification and Affidavit
for Weather Related Damage form
In addition to the re-inspection/DIR, the borrower must sign a certification of
acceptable property condition if their home is in one of the disaster areas. A copy of
this form is located on Ocwen’s website.
If the re-inspection/DIR, reports any
damage or change in value to the
property, then:
Prior to closing, Ocwen will require the property to be repaired adequately and
evidenced by the FNMA Form 1004D (appraisal update and/ or completion report).
IMPORTANT if the property location
is within a FEMA declared area AND
a FLOOD ZONE:
Loans in the NDN site AND in a FEMA Flood Zone will NOT be allowed to close
until after the Expiration/Safe Date has been published AND the re-inspection has
been performed.
Property appraised AFTER FEMA’s
Expiration/Safe Date for the
disaster:
For up to 90 calendar days after the Expiration/Safe Date is issued by FEMA, the
appraisal must include written certification by the appraiser that “The property is free
from damage and the disaster has had no affect on the subject property’s value or
marketability”.
FHA Loans
300-184
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Property Flipping
General
Property flipping is a practice whereby a recently acquired property is
resold for a considerable profit with an artificially inflated value. In an
effort to preclude homebuyers using FHA financing from becoming victims
of predatory property flipping activity, HUD has implemented a revised
property flipping policy.
Overview of
FHA Flipping
Policy
FHA requires that:




Owner of
Record
Only owners of record may sell properties that will be financed using
FHA insured mortgages,
Any re-sale of a property may not occur 90 or fewer days from the
last sale to be eligible for FHA financing, and
Re-sales that occur between 91 and 180 days, where the new sales
price exceeds the previous sales price by one hundred percent (100%)
or more, FHA will require additional documentation validating the
property’s value.
NOTE: HUD considers the re-sale date as, the date of execution of a
sales contract by a buyer that will result in a mortgage to be insured
by FHA.
To be eligible for a mortgage insured by FHA, the property must be
purchased from the owner of record and the transaction may not
involve any sale or assignment of the sales contract. This requirement
applies to all FHA purchase money mortgages regardless of the time
between re-sales.
 Ocwen must be able to obtain documentation verifying that the seller
is the owner of record and submit this to HUD as part of the
insurance endorsement binder; it is to be placed behind the
appraisal on the left side of the case binder.
This documentation may include, but is not limited to:
 A property sales history report,
 A copy of the recorded deed from the seller, or
 Other documentation such as a copy of a property tax bill, title
commitment or binder, demonstrating the seller’s ownership of the
property and the date it was acquired.

Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-185
FHA Lending Guide
Property Flipping,
90-day Flip
Waiver
Continued
Ocwen does not accept loans under the 90 day Flip Waiver detailed within
24 CFR 203.37a(b)(2) (also referenced within ML 2006-14) extended to
Sales by Private Individuals.
Continued on next page
FHA Loans
300-186
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Property Flipping,
Exceptions to
90 Day
Restriction

If the owner of record sells a property within 90 days after the date of acquisition,
that property is not eligible security for a mortgage insured by FHA unless the loan
file is documented that the transaction falls within one of the exceptions to the
time restrictions on re-sales listed below:

Sales by HUD of its own Real Estate Owned (REO) properties.












Sales by other United States Government agencies of single family properties
pursuant to programs operated by these agencies.
Sales of properties by non-profits approved to purchase HUD-owned single
family properties at a discount with resale restrictions.
Sales of properties that are acquired by the sellers by inheritance.
Sales of properties purchased by employers or relocation agencies in
connection with relocations of employees.
Sales of properties by state and federally charted financial institutions and
Government Sponsored Enterprises.
 NOTE: Most state and federally chartered financial institutions are
going to be banks, savings and loans, or credit unions.
Sales of foreclosed properties by state licensed mortgage lenders.
Any entity that sells foreclosed properties on behalf of an exempt lender or
financial institution.
Sales of properties by local and state government agencies.
Sales of a previously foreclosed or abandoned property acquired, rehabilitated
and resold by an entity using funds from and performing under agreements
with state and local government agencies under a Neighborhood Stabilization
Program (NSP).
Properties that were HUD REOs and then rehabilitated and resold are not eligible
under this exemption.

NSP fund providers must have established a written agreement or similar
document authorizing certain entities (for-profit and/or non-profit companies)
as a representative purchaser and rehabilitator of foreclosed and abandoned
properties.


Continued
Documentation proving a seller is exempt from any of the property flipping
guidelines is required in the endorsement file prior to approving the loan
transaction.
Upon FHA’s announcement of eligibility in a notice, i.e. Mortgagee Letter (ML),
sales of properties located in areas designated by the President as federal disaster
areas, will be exempt from the restrictions of the property-flipping rule.
The exemption does not provide an exception to additional appraisal requirements
when the re-sale price is 100% or more over the price paid by the seller when the
property was acquired in the last 180 days.
Re-sales that occur under this exemption within 90 days of last acquisition with a
sales price increase of 100% or more require a second appraisal.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-187
FHA Lending Guide
Property Flipping,
Resale 91-180
Days






Continued
If the re-sale date is between 91 and 180 days following acquisition by the
seller, a second appraisal is required made by another appraiser IF the re-sale
price is one hundred percent (100%) or more over the price paid by the seller
when the property was acquired.
EXAMPLE: If a property is re-sold for $80,000 within six (6) months of the
seller’s acquisition of that property for $40,000, the Branch must obtain a
second independent appraisal supporting the $80,000 sales price.
Documentation showing the costs and extent of rehabilitation that went into
the property resulting in the increased value may be provided, but must still
obtain the second appraisal.
The cost of the second appraisal may not be charged to the homebuyer and
will not be paid by Ocwen; however may be paid by the broker or seller.
FHA also reserves the right to revise the re-sale percentage level at which this
second appraisal is required, by publishing a notice in the Federal Register.
Requirements for the appraisals are listed below.

A conventional appraisal is not acceptable.

Both appraisals must be FHA appraisals prepared by independent
appraisers.

Both appraisers must be on HUD’s roster list of Approved Appraisers and
be state certified with an unexpired license.

Repairs on BOTH appraisals must be resolved.

If there is a difference in value of more than 5% between the two (2)
appraisals, the appraisal with the lowest value must be used.

The Conditional Commitment is issued based on the appraisal used by
underwriting.

Both appraisals must be entered into the FHA Connection in the fields
allocated as “First Appraisal” and “Second Appraisal.” Once the first
appraisal information is entered, the field for the second appraisal
information will appear.

USPAP requirements must be met on both appraisals. This rule requires
appraisers to analyze any prior sales of the subject property and
comparables that occurred within specific time periods.
Continued on next page
FHA Loans
300-188
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Property Flipping,
Resale 91-One
Year


Continued
If the re-sale date is more than 90 days after the date of acquisition
by the seller but before the end of the twelfth (12th) month following
the date of the acquisition, Ocwen reserves the right to require
additional documentation to support the re-sale value if the re-sale
price is five percent (5.00%) or greater than the lowest sales price of
the property during the preceding twelve (12) months.
At Ocwen’s discretion, such documentation may include, but is not
limited to, an appraisal from another appraiser.

NOTE: Refer to the appraisal requirements previously mentioned
in this section for guidance.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-189
FHA Lending Guide
Property Flipping,
Date of
Property
Acquisition






Anti-Flipping
and the Sales
Contract
FHA Loans
300-190
Continued
The DE Underwriter may depend on the appraiser to provide
information that is compliant with the updated Standard Rule 1-5 of
the Uniform Standards of Professional Appraisal Practice (USPAP). This
rule requires appraisers to analyze any prior sales of the subject
property that occurred within specific time periods, now set for the
previous three (3) years for one-to-four family residential properties.
As a result, the information contained on the Uniform Residential
Appraisal Report or other applicable appraisal report form describing
the Date, Price and Data for Prior Sales is to include all transactions
for the subject property within three (3) years of the date of the
appraisal and the comparable sales within twelve (12) months of the
date of the comparable sale.
Appraisers are responsible for considering and analyzing any prior
sales of the property being appraised within three (3) years of the
date of the appraisal and the comparables that are utilized within
twelve (12) months of the date of the comparable sale.
If the most recent sale of the property occurred at least one year
previously, no additional documentation is required.
The Ocwen DE Underwriter remains accountable for verifying that the
seller is the owner of record and may rely on information developed
by the appraiser for this purpose if provided.
Any conflicts in information must be resolved and the file must be
appropriately document.
It is not acceptable practice for the sales contract to be re-signed for the
sole purpose of circumventing HUD’s 90 day flip rule.
NOTE: This includes any evidence within the file, such as original sales
contract date on the appraisal, indicating that the loan was re-structured
for the sole purpose of circumventing HUD’s 90 day flip rule.
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Automated Underwriting Systems
TOTAL
Scorecard

All loans with the exception of Streamline Refinance transactions must
be run through TOTAL Scorecard.

NOTE: Streamline refinances must not be submitted through
TOTAL Scorecard.

Submitting a loan using TOTAL Scorecard allows the DE Underwriter to
receive the benefits of documentation reduction and credit policy
revisions.
Evidence of the TOTAL Scorecard evaluation MUST be in every loan
file.
TOTAL only provides an “Approve” or “Refer” and the reasons for the
Refer, including which rules were triggered. The AUS vendor provides
the feedback messages.


Resubmission


The DE Underwriter is responsible for the integrity of the data used to
obtain the risk assessment and for resubmitting the loan when
material changes are discovered or otherwise occur during loan
processing.
Ocwen requires 100% AUS data integrity prior to loan approval.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-191
FHA Lending Guide
Automated Underwriting Systems,
DU


Recommendation
Approve/Eligible
The following table provides descriptions to TOTAL Scorecard DU
recommendations.
NOTE: HUD requires only the final AUS findings report in the file,
whether it is an “Approval” or a “Refer”.
Description


Approve/Ineligible
Continued



If there is erroneous data in the credit report or contradictory or
derogatory information in the loan file that would justify additional
investigation or provide grounds for a decision different from the TOTAL
Scorecard/DU recommendation, the underwriter is required to take
appropriate action.
The loan is eligible for FHA mortgage insurance with reduced
documentation and credit requirements.
The DE Underwriter must determine that the reason for the ineligibility is
one that can be resolved in compliance with FHA Underwriting, and must
document the circumstances in the underwriter comments section of the
FHA Loan Underwriting Transmittal Summary (HUD-92900-LT). An FHA
Direct Endorsement Underwriter signature is not required on the FHA Loan
Underwriting Transmittal Summary (HUD-92900-LT), unless the loan is
downgraded to Refer in accordance with FHA Guidelines. The ZFHA should
be entered as the CHUMS ID on FHA Loan Underwriting Transmittal
Summary (HUD-92900-LT), except on streamline refinances.
If the ineligibility can be “cured” within TOTAL Scorecard/DU, the loan
data must be corrected as appropriate and the loan must be resubmitted
to TOTAL Scorecard/DU.
If the ineligibility cannot be overcome (within TOTAL Scorecard/DU or
outside of TOTAL Scorecard/DU), the loan is not eligible for FHA mortgage
insurance.
Refer/Eligible

These loans are underwritten to manual underwriting guidelines. Although
a DE underwriter must underwrite the loan, reduced documentation may
be used if allowed by the findings report and the DE underwriter.
Refer/Ineligible


The reason for the ineligibility must be determined.
If the ineligibility can be “cured,” the loan data must be corrected as
appropriate and the loan must be resubmitted to TOTAL Scorecard/DU.
If the ineligibility cannot be overcome, the loan is not eligible for FHA
mortgage insurance.
If the ineligibility is “cured,” see “Refer/Eligible” above.


Continued on next page
FHA Loans
300-192
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Automated Underwriting Systems,
AUS
Resubmission



AUS
Tolerances
Continued
Loans may be resubmitted to TOTAL Scorecard as needed before the
loan is endorsed.
Generally, if the information about the loan changes after the loan has
been submitted to TOTAL Scorecard, the loan should be resubmitted.
This practice ensures that the data submitted to TOTAL Scorecard,
and then to CHUMS, is of the best quality possible.
NOTE: Once the loan is endorsed, the loan may not be resubmitted to
AUS for any reason.

FHA provides a degree of tolerance for minor material data changes to
TOTAL Scorecard. When assessing TOTAL scorecard, there is no need
to resubmit the loan to FHA TOTAL Scorecard in the following
scenarios:

Cash reserves verified are not more than 10% less than what the
borrower reported on the loan application.

Verified income is not more than 5% less than what the borrower
reported on the loan application.

Tax and insurance escrows used at scoring do not result in more
than a 2% point increase in the payment and debt-to-income
ratios.

The terms and conditions of the closed loan and underwriting
information in the loan file must match the data on which the TOTAL
Scorecard risk classification is based, and other conditions specified in
the government section of the AUS verification messages were based.
The loan is eligible for FHA’s insurance endorsement if:

The AUS rated the mortgage loan application as an “Approve”.

The data entered into the AUS are true, complete, and accurate.

The entire loan package meets all other FHA requirements.

The AUS Feedback/Findings Report is included in the Case Binder.

Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-193
FHA Lending Guide
Automated Underwriting Systems,
Post Close
Resubmissions




AUS Reports
Continued
The DE Underwriter is responsible for ensuring the integrity and
accuracy of the data used to render a decision.
The DE Underwriter must include an explanation for the resubmission
after closing.
Provided the resubmission is done prior to endorsement, resubmitting
a loan to AUS after closing is acceptable.
If a loan is resubmitted after the loan has closed, the AUS
recommendation should be the same as the AUS recommendation
prior to closing.

The loan must be resubmitted to the DE Underwriter for final signoff.

If the AUS recommendation changes upon resubmission, the loan
must be traditionally underwritten and must meet traditional
underwriting guidelines to be eligible for insuring.
Fannie Mae DU Loans


The TOTAL Scorecard/DU decision is not valid without the DU Findings
Report AND the DU Underwriting Analysis form.
The most current DU Findings Report and DU Underwriting Analysis
form must be in the origination binder and must reflect loan terms as
approved and closed. This includes loan files where the
recommendation was “Approve/Ineligible” or “Refer” and loan files
where the loan had to be traditionally underwritten.
Continued on next page
FHA Loans
300-194
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Automated Underwriting Systems,
Underwriting
Issues







Continued
Regardless of the risk assessment provided, Ocwen remains
accountable for compliance with all FHA guidelines and will underwrite
the loan file accordingly.
Some examples of the accountability items provided by FHA are listed
below.

If the loan is a cash-out refinance, ensure the borrower meets the
eligibility requirements.

Data integrity must be verified.

Information in TOTAL must match the information in FHA
Connection.
NOTE: HUD will run a comparison. If results are a mismatch, HUD will
down grade the assessment and return the file.
If a loan was previously Rejected in FHA Connection, Ocwen will
require additional information and documentation that addresses (and
resolves) the cause of Rejection from the previous lender.
 The Ocwen DE Underwriter must explain and document the file
accordingly to justify the loan approval.
 NOTE: All previously rejected loans that are subsequently
approved will undergo a pre-endorsement review by HUD.
Ensure FHA Loan Underwriting Transmittal Summary (HUD-92900-LT)
indicates ZFHA as CHUMS ID if loan was approved through the TOTAL
scorecard, except on streamline refinances.
Sign HUD Form 92900-A page 3 and use ZFHA as CHUMS ID if the
loan was approved through the TOTAL Scorecard, except on
streamline refinances.
Check for potential manual downgrades.
Note: A manual downgrade is similar to a system override in that
they both require review and decision by an underwriter; however, the
manual downgrade is used when either Federal eligibility issues or
credit issues are discovered.
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-195
FHA Lending Guide
Manual
Downgrade


A manual downgrade becomes necessary if additional information, not
considered in the AUS/TOTAL decision, affects the overall insurability
or eligibility of a mortgage otherwise rated acceptable through TOTAL.
Manual downgrades may be triggered by inaccuracies in credit
reporting, eligibility issues, and for other reasons including the unlikely
failure of the TOTAL and/or AUS to recognize a derogatory credit
reference. Unless specifically permitted to continue to use the
Approved documentation class, such as following a favorable
resolution of a credit issue due to an error in reporting, the DE
Underwriter must document the mortgage loan application as a Refer
risk classification. If the AUS does not provide for a system override
for any of the conditions shown below, then the loan must be
downgraded to a Refer and forward the mortgage application to a DE
underwriter for risk evaluation.
Continued on next page
FHA Loans
300-196
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Automated Underwriting Systems,
Downgrade
Triggers
Continued
The following are acceptable Downgrade triggers to Ocwen






Delinquent Federal Debt (my opinion, must be paid and if overall profile of
loan/borrower is strong, approval may be warranted)
Previous mortgage foreclosure within the previous 3 years
BK discharged < 2 years from loan application
Late Mortgage Payments within past 12 months that are erroneously reported on
the credit report
Mortgage payment history with < 6 months
Derogatory Disputed Accounts: If the cumulative outstanding balance of disputed
derogatory credit accounts of all borrowers is equal to or greater than $1,000, the
mortgage application must be downgraded to a “Refer” and the loan must be
manually underwritten.

Disputed medical accounts are excluded from the $1,000 limit and do not
require documentation.

Disputed derogatory credit accounts resulting from identity theft, credit card
theft, or unauthorized use are also excluded from the $1,000 limit; however,
the credit report, letter from the creditor or other appropriate documentation
to support the dispute, such as a police report disputing the fraudulent
charges, must be provided and included in the case binder.

Defined to include disputed charge-offs, disputed collection accounts or
disputed accounts with late payments reported within the most recent 24
months.

Disputed derogatory credit accounts of a non-purchasing spouse in a
community property state are not included in the cumulative balance for
determining if the mortgage application is downgraded to a “Refer”.

Non-derogatory disputed accounts are excluded from the $1,000 cumulative
total.


If the total outstanding balance of all disputed, derogatory credit accounts,
excluding medical, are less than $1,000, a downgrade to a manual underwrite
is not required.
Non-derogatory Disputed Accounts and Disputed Accounts Not Indicated on the
Credit Report:

Defined to include disputed accounts with zero balance, disputed accounts with
late payments aged 24 months or greater and disputed accounts that are
current and paid as agreed.

If a borrower is disputing non-derogatory accounts, or is disputing accounts
which are not indicated on the credit report as being disputed, the loan is not
required to be downgraded to a “Refer”; however, the underwriter must
analyze the effect of the disputed accounts on the borrower’s ability to repay
the loan. If the dispute results in the borrower’s monthly debt payments
utilized in computing the debt-to-income ratio being less than the amount
indicated on the credit report, the borrower must provide documentation of
the lower payments.
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-197
FHA Lending Guide
Application, Disclosures & Compliance
General
Electronic
Signatures
All consumer disclosures or notices required by all federal, state and local
laws and regulations must be complied with. This includes, but is not
limited to, the Real Estate Settlement Procedures Act, the Equal Credit
Opportunity Act, the Flood Disaster Protection Act, the Truth-in-Lending
Act, and the Fair Credit Reporting Act, all as amended and all applicable
usury limitations. Further, all consumer disclosures relating to the
mortgage loan must have been properly given on a timely basis in
compliance with applicable laws, rules and regulations.


Ocwen will accept electronic signatures on third party documents
included in the case binder for mortgage insurance endorsement.
Third party documents are those that are originated and signed
outside of the mortgagee’s control, such as a sales contract.
These signatures must be in accordance with Electronic Signatures
in Global and National Commerce Act (ESIGN) and the Uniform
Electronic Transactions Act (UETA), as applicable.
NOTE: At this time, Ocwen is not accepting Electronic Signatures as
outlined in FHA Mortgagee Letter 2014-03.
Continued on next page
FHA Loans
300-198
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Application, Disclosures & Compliance,
Laws
Continued
Ocwen strictly complies will all applicable federal, state and local laws,
ordinances, and regulations. This includes but not limited to:














Equal Credit Opportunity Act (Regulation B)
Consumer Credit Protection Act
Fair Credit Reporting Act (FCRA)
Truth-in-Lending Act (Regulation Z); Ocwen will permit only
Qualified Mortgages as defined within the Truth-in-Lending Act.
Real Estate Settlement Disclosure Act (RESPA – Regulation X)
Home Mortgage Disclosure Act (HMDA – Regulation C)
Home Ownership and Equity Protection (HOEPA); note Ocwen
Residential will not proceed with any loan scenario that exceeds
HOEPA’s guidelines.
SAFE Act
Home Valuation Code of Conduct (HVCC) and subsequent
regulations
OFAC
Customer Identification Program (CIP) under USA Patriot Act
FHA (Fair Housing Act)
FTD Unfair and Deceptive Acts and Practices (UDAP)
DFA (Dodd-Frank Wall Street Reform & Consumer Protection Act;
and all implementing regulations thereto as regulations become
effective)
Continued on next page
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FHA Loans
300-199
FHA Lending Guide
Application, Disclosures & Compliance,
Laws,
continued




Continued
Loan Originator Compensation; amendment to §1026.36(h).
Disclosure and Delivery Requirements for Copies of Appraisals and
Other Written Valuations under the Equal Credit Opportunity Act
(Regulation B)
o Form C-9, Disclosure of Right to Receive a Copy of
Appraisal with language: "We may order an appraisal to
determine the property's value and charge you for this
appraisal. We will promptly give you a copy of any
appraisal, even if your loan does not close. You can pay for
an additional appraisal for your own use at your own cost."
must be executed and in the file.
o Must provide evidence that the applicants are provided a
copy of all written appraisals and valuations promptly upon
their completion or three business days before
consummation, whichever is earlier.
o The borrowers cannot be charged a fee for a copy of their
appraisal.
Adherence to the Ability to Repay and Qualified Mortgage
Standards under the Truth-in-Lending Act (Regulation Z).
Homeownership Counseling Amendments to the Real Estate
Settlement Procedures Act of Regulation X. Each file must include
confirmation the borrowers were provided with the List of
Homeowners Counseling Organizations within the three (3)
business days of loan application.
Continued on next page
FHA Loans
300-200
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Application, Disclosures & Compliance,
Continued
Predatory
Lending
Ocwen will not fund any loan that is considered to be “high rate” or “high
fee”, or any loan that is considered to be predatory in the jurisdiction
where the property is located.
Compliance
with Points &
Fees
The maximum points and fees applicable to a Qualified Mortgage vary
based upon the loan amount. In addition, all dollar amounts, including
loan amounts, will be adjusted for inflation annually on January 1 by the
CFPB. The applicable points and fees thresholds for 2015 are listed
below:
Points and Fees Thresholds
Note Amount
Points and Fees Threshold
$61,172 - $101,952
$3,059
$20,391 - $61,171
5% of Total Loan Amount
$12,744 - $20,390
$1,020
<=$12,743
8% of Total Loan Amount
$61,172 - $101,952
$3,059
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-201
FHA Lending Guide
Application, Disclosures & Compliance,
Points and
Fees
Calculation


Continued
The points-and-fees calculation is the same as that used in the HOEPA points-and-fees calculation.
To calculate the points-and-fees, a creditor will add together the amounts paid in connection with the
transaction in six categories of charges:
1. Finance Charge – In general, all items included in the finance charge under 1026.5(a) and (b)
will be included, except the following:
a. Interest or the time-price differential
b. Mortgage Insurance Premiums
i.
For federal or state government sponsored MIPs, exclude up-front and annual FHA
premiums, VA funding fees, and USDA guarantee fees
ii. For PMI, exclude monthly or annual PMI premiums. Also can exclude up-front PMI
premium if it is refundable on a prorated basis and a refund is automatically issued
upon loan satisfaction. However, if the premium can be excluded, you must still
include any portion exceeding the up-front MIP for FHA loans.
c. Bona Fide Third Party Charges - Cannot be retained by the creditor, loan originator, or an
affiliate of either
d. Bona Fide Discount Points
i.
Exclude up to 2 bona fide discount points if the interest rate before the discount
doesn’t exceed the APOR by more than 1 percentage point; or
ii. Exclude up to 1 bona fide discount point if the interest rate before the discount doesn’t
exceed the APOR by more than 2 percentage points.
2. Loan Originator Compensation – Compensation paid directly or indirectly by a consumer or
creditor to a loan originator that is not an employee of the creditor or mortgage broker must be
included.
a. Compensation paid by the creditor to its own employee loan originator on a transaction can
be excluded;
b. Compensation paid by a mortgage broker to its own employee loan originator on a
transaction can be excluded;
c. Compensation paid by a consumer directly to a mortgage broker can be excluded (so long
as the amount has already been included in the points-and-fees under the finance charge);
d. Compensation paid by a creditor to a mortgage broker that is not its own employee is to be
included
3. Real Estate-Related Fees – The following categories of charges are excluded if (i) the charge is
reasonable; (ii) the creditor receives no direct or indirect compensation; and (iii) the charge is
not paid to an affiliate of the creditor:
a. Title related fees
b. Loan-related documentation preparation fees
c. Notary and credit-report fees
d. Property appraisal or inspection fees
e. Amounts paid into escrow or trustee accounts that are not otherwise included in the finance
charge
4. Premiums for credit insurance; credit property insurance; other life, accident, health or loss-ofincome insurance where the creditor is beneficiary; or debt cancellation or suspension coverage
payments
a. Do not include these charges if they are paid after consummation of the loan
b. For purposes of this provision, credit property insurance is defined as insurance that
protects the creditor’s interest in the property and does not include homeowner’s insurance
that protects the consumer.
5. Maximum Prepayment Penalty – note Ocwen does not offer prepayment penalty options.
6. Prepayment Penalty Paid in a Refinance – If a creditor is refinancing a loan that it or its affiliate
currently holds or services, then any penalties charged for prepaying the previous loan must be
included – note Ocwen does not offer prepayment penalty options.
Continued on next page
FHA Loans
300-202
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Application, Disclosures & Compliance,
High Cost
Loans
Continued
Mortgage loans that are designated as “high-cost” or “high-risk” are not
eligible for funding with Ocwen.
By definition, a high-cost mortgage is any consumer credit transaction,
whether closed-end or open-end, that is secured by the consumer’s
principal dwelling in which:
Face-to-Face
Interview

The annual percentage rate applicable to the transaction will exceed
the average prime offer rate (“APOR”), as defined in § 1026.35(a)(2),
for a comparable transaction by more than:

6.5 percentage points for a first-lien transaction

8.5 percentage points for a first-lien transaction if the dwelling is
personal property and the loan amount is less than $50,000; or

8.5 percentage points for a subordinate-lien transaction; or

The transaction’s total points and fees will exceed:

5 percent of the total loan amount for a transaction with a loan
amount of $20,391 or more; the $20,391 figure shall be adjusted
annually on January 1 by the annual percentage change in the
Consumer Price Index that was reported on the preceding June 1;
or

The lesser of 8 percent of the total loan amount or $1,020 for a
transaction with a loan amount of less than $20,391; the $1,020
and $20,391 figures shall be adjusted annually on January 1 by
the annual percentage change in the Consumer Price Index that
was reported on the preceding June 1.


A face-to-face interview is not required for FHA transactions.
HUD requires the broker to ask the borrower if he/she wants a faceto-face interview. If the borrower does not desire such a meeting, it
must be so noted in the loan file.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-203
FHA Lending Guide
Application, Disclosures & Compliance,
Sales Contract





Continued
The sales contracts, any amendments or other agreements and
certifications are to be included in the case binder file.
Sales contracts do not need to refer to FHA financing in order to be
considered valid by HUD. However, the contract must provide the HUD
real estate certification and the amendatory clause. These may be
included in the language of the sales contract or as a separate
addendum(s) and must be signed and dated by the borrower, seller,
selling real estate agent or broker.
The criteria of the amendatory clause are as follows:

The sales price as stated in the contract is inserted in the
amendatory clause,

a new amendatory clause is not required if the sales price is
adjusted based on a value that is less than the sales price,
providing the original sales contract with a price matching the
amendatory clause and the revised or amended contract are
included in the case binder, and

The amendatory clause is not required on HUD REO sales, or if
Fannie Mae, Freddie Mac, Department of Veterans Affairs, Rural
Housing Services, or other Federal, State and local government
agencies, mortgagees disposing of REO assets, or sellers at
foreclosure sales.
If there are any seller concessions, these must be stated in the
contract (either as a percentage or a dollar amount). Failure to
perform a condition of the contract will not be grounds for denying
loan endorsement provided the loan closes in compliance with all
regulations and policies.
The FHA For Your Protection: Get a Home Inspection (HUD 92564-CN)
must be given to prospective homebuyers at first contact. HUD has
eliminated the requirements that the form be signed by purchasers
and included in the case binder.
Continued on next page
FHA Loans
300-204
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Application, Disclosures & Compliance,
Disclosures
Origination
Disclosures
Continued
In addition to the standard origination/processing/closing disclosures
required (i.e., 1003, TIL, GFE, etc.), the following HUD-specific
disclosures are required during the loan application process:












For Your Protection: Get a Home Inspection (HUD-92564-CN),
FHA Amendatory Clause (if not included in sales contract),
FHA Real Estate Certification (if not part of the sales contract)
HUD/VA Addendum to Uniform Residential Loan Application (HUD92900-A) pages 1 and 2,
NOTE: Page two (2) of the loan application addendum must be
signed by the borrower and in the file prior to submission to
underwriting.
FHA Importance Notice to Homebuyer,
FHA Informed Consumer Choice Disclosure Notice,
FHA Notice to Homeowner- Assumption of HUD/FHA Insured
Mortgages Release of Personal Liability,
Financial Privacy Act Notice,
FHA Pamphlet “Protecting Your Family from Lead in Your Home,”
and
State specific disclosures, if applicable.
MIP Statement
Continued on next page
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FHA Loans
300-205
FHA Lending Guide
Application, Disclosures & Compliance,
Social Security
Numbers




Continued
Each borrower, co-borrower, or co-signer must provide evidence of
his/her social security number. While the actual social security
card is not required, the social security number can be obtained
from pay stubs, the driver’s license, passport, etc. Tax returns
alone without a W2 are not sufficient evidence of social security
numbers.
Social Security numbers must be consistent throughout the file on
all documentation. Any multiple social security numbers or
discrepancies must be addressed, even if it is an obvious
transposition of numbers.
All individuals eligible for legal employment in the US must have a
social security number. Tax ID numbers issued by the Social
Security Office are unacceptable. This applies to purchase
transactions and all refinances.
NOTE: Ocwen requires that all credit reports indicate that a Social
Security validation vendor has validated the borrower’s Social
Security Number.
Continued on next page
FHA Loans
300-206
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Application, Disclosures & Compliance,
Power of
Attorney
Continued
The Power of Attorney must:







be specific to the transaction
be signed and dated by the party granting the power of attorney
be signed by an appropriate "witness" (if required by state law)
specifically identify the subject property address
be in effect on the date of the closing transaction
be notarized
not be an interested party in the transaction, i.e.: real estate
agent, seller, closing agent
A Durable Power of Attorney is acceptable. A durable power of attorney
allows a mentally competent person, called the "Principal", to authorize a
second party, called the "Agent or Attorney in Fact", to act on his or her
behalf, even if the Principal later becomes incapacitated. This particular
form becomes effective upon disability or incapacity of the Principal. A
durable power of attorney should always be notarized, especially if the
Agent will be dealing with real property. Notarization allows the Durable
Power of Attorney to be recorded as a public record, if necessary.
Example of Acceptable Signature Line for all documents:
(Signature Line)_________________________________
(Typed Name) John Doe by his Attorney in Fact Jane Doe
Jane Doe should sign as "John Doe by his Attorney in Fact Jane
Doe.
Example of an Unacceptable Signature Line:
(Signature Line)___________________________________
(Typed Name) John Doe
Signature as Jane Doe POA.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-207
FHA Lending Guide
Application, Disclosures & Compliance,
Review of
Final HUD-1



FHA Loans
300-208
Continued
Without exception, the final HUD-1 must be reviewed prior to closing.
If the transaction is a purchase, the allowable closing costs to both the
borrower and the seller must be verified (any “unallowable” costs
must be taken off the HUD-1 Settlement Statement.)
If the transaction is a refinance, both of the following steps are
required:

The allowable costs must be verified (any “unallowable” costs must
be taken off the HUD-1), AND

The mortgage amount must be recalculated if the estimated
closing costs used to calculate the mortgage result in an amount
exceeding $500 based on actual charges as reflected on the final
HUD-1 for a rate/term or streamline refinance transaction.
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Closing Policies & Procedures
Scheduling a
Loan

Loan must be Cleared to Close in order to schedule for Closing.

Request to Close (Broker Fee Sheet) and Preliminary HUD must be
uploaded into Image Flow.

To schedule the loan, the Broker will email closer@Ocwenfunding.com
with the date and time of the closing:


Allow a minimum of 48 hours from when loan is being scheduled to
closing/signing date.
A confirmation email will be sent to the Broker.
Closing
Practices
The next sections reiterate and highlight best practices for Ocwen Loan
Servicing’s closing and funding process.
Verification of
Employment

A verbal verification of employment must be completed within 5 days
of closing and must be completed prior to the Note Date and must
include:



Independent Verification of Employer’s phone number.
Borrower’s start date.
Verification borrower is still employed.
Closing
Protection
Letter
Ocwen Loan Servicing will validate all Closing Protection Letters as well as
Closing Agents wiring information prior to the loan funding.
Taxes
Any taxes that are due within 60 days of closing must be collected at
closing and be reflected on the HUD-1 settlement statement.
Insurance
Insurance must be paid through the first mortgage payment.
Continued on next page
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FHA Loans
300-209
FHA Lending Guide
Closing Policies & Procedures,
Seller
Contributions
Continued

Seller Contributions are limited to program maximums as identified on
the Loan Approval.

Allowable Seller Paid Fees on Lender Paid Transaction:


Any or all 3rd Party Fees (Title, Appraisal, Credit, etc.)
Allowable Seller Paid Fees on a Borrower Paid Transaction:


Any or all 3rd Party Fees (Title, Appraisal, Credit, etc.)
Broker Compensation MUST be paid in its entirety1,2
IMPORTANT:
1
If the Borrower is paying the Broker Compensation, the funds can be
paid by the Borrower OR funds from a seller concession; however, the
Borrower must pay 100% of the Broker Compensation or the Seller
Concession must pay 100% of the Broker Compensation.
2
Premium
Pricing Credits
The Broker can only receive compensation from ONE source, and the
fee cannot be “split”.
Allowable Fees Paid By Premium Credit:




Any and all Third Party Fees (Title, Appraisal, Credit, etc.)
Interest, Escrow Accounts, Taxes Due, HOA Dues, Oil Adjustments,
etc.
POC Items, such as appraisal and insurance on Purchase
Transactions.
Interest on loan being paid off as well as any fees associated with
payoff.
NOTE: Broker compensation of any kind may not be paid by the
Premium Credit.
Continued on next page
FHA Loans
300-210
Ocwen Loan Servicing Client Select
REV 03/18/2015
FHA Lending Guide
Closing Policies & Procedures,
Continued
Principal
Reductions
Lender Paid Transactions
On transactions where the loan originator is paid by the lender, Ocwen
will permit a Principal Curtailment on purchase and refinance loans unless
noted below as a result of excess premium rate credit. The excess
premium must be identified on the HUD-1 Settlement Statement and is
limited to the amount of the excess premium rate credit below. The
premium rate credit is the amount associated with the lowest pricing rate
option that allows for some or all of the borrower's closing costs to be
paid so the borrower does not have to pay those closing costs out of
pocket.
 Premium rate credits are permitted up to or equal to $2,000 for all
loan amounts.
 Note the principal reduction may not be used to the lower the loan
amount or LTV.
If the program permits, the borrower may also receive cash back within
program guidelines in addition to the amount of the curtailment. Check
your product summary for cash back eligibility criteria.
Borrower Paid Transactions
On transactions where the loan originator is paid by the consumer,
principal curtailments are not permitted of any amount. The premium rate
credit may not exceed the amount of third party costs.
HUD Approval
Process
Ocwen Loan Servicing will approve all HUD-1 statements prior to the loan
funding and wire being released.
 The HUD Approval Process ensures:





Borrower has brought the minimum funds to closing as required
per program.
Borrower’s funds to close do not exceed assets verified per the
loan approval.
Borrower is not receiving more than the allowable cash at closing
per program maximum.
Premium Pricing Credit does not exceed allowable costs.
Principal Reduction is within guideline.
Continued on next page
Ocwen Loan Servicing LLC Client Select
REV 03/18/2015
FHA Loans
300-211
FHA Lending Guide
Closing Policies & Procedures,
Funding

Continued
Wire cutoff time is 3:30pm EST.
Prior to ordering the wire, Ocwen Loan Servicing will verify the following:

VOE has been completed within 5 days of the closing

HUD has been approved

All Prior To Fund (PTF) conditions have been satisfied

FHA Loans
300-212
Fed Reference numbers are available upon request. Note, there may
be a delay in retrieving once the wire has been ordered.
Ocwen Loan Servicing Client Select
REV 03/18/2015