Huntington Outline for MLO Webinar Questions from Case Study

Huntington Outline for MLO Webinar Questions from Case Study

A)Calculate Jeremiah’s stable, gross, monthly income $16.00x40x52/12=$2,773.33

Calculate Jennifer’s stable, gross, monthly income $13.25x40x52/12=$2,296.67

Overtime Calculation: $12.50x1.5=$18.75x6 hours=$112.50

$13.25x1.5=$19.88x6 hours=$119.25

Total/2 (average two years) =$115.88

$115.88x52/12 =$502.15

Combined stable, gross monthly income =$5,572.15

B)Calculate the monthly payment including annual MIP Principal & Interest $873.04

Taxes 121.67

Hazard Insurance 163.50

MIP 190.48

Total Monthly Pm’t $1,348.69

C)Calculate the front end ratio (Net of child support) $1348.69/$5572.15=24.20%

D)Calculate the back end ratio (Net of child support) $2502.69/$5572.15=44.91%

E)What is the payment shock on this application? $1348.69/$900=149.85%

F)Status the child support with respect to the inclusion of the $850.00 in the DTI calculation and calculate the new DTI. Given the debt ratios of 24.20%/44.91%, the inclusion of the child support (grossed up to $958.97 @1.1282% [new stable gross monthly income is $6,531.12])would reduce the ratios to 20.65%/38.32% and make the ratios more guideline compliant. This certainly would make the risk factor more attractive from an underwriting perspective.

G)How much of the 401k is available for use in this transaction and what is the statutory investment in this transaction.

Available in the 401k account: $18,000x.60=$10,800

Statutory Investment: $189,500x.035=$6,632

Balance of 401k for reserves: $4,170

H)Is there a compensating factor with respect to reserves in this transaction? Via the 401k reserves and if so, what is it? J & J can use the balance of the 401k account for reserves (there is an excess of three months) therefore giving a strong compensating factor because there are more than three months of liquid reserves which is a strong factor, especially with respect to a file that is over ratio without the child support. Regardless of the TOTAL recommendation, the lender must document the terms and conditions for withdrawal and/or borrowing from the account and that the borrower is eligible for these withdrawals.

I)What recourse does Jennifer have with respect to her credit since her traditional credit does not meet FHA guidelines? Assuming that her investor accepts non-traditional credit, Jennifer can reinforce her good credit with some credit lines from Group II credit. Further assuming that she and Jeremiah have some joint credit as a result of their marriage, that would help her as well. In fact, that would make the problem go away. Remember, non-traditional credit does not take the place of bad credit, but Jennifer has no bad credit, she just doesn’t have enough good credit to make it work. We could use non-traditional credit to get her to where she needs to be. Remember, she has a 640 credit score. STIO She has illustrated a responsible use of credit since her BK was discharged, and that is part of the underwriting guidelines as well as a compensating factor.

J)Status both the collection and judgment on Jeremiah’s credit report and what remedy is necessary to meet FHA underwriting guidelines in order to qualify for his 203b loan. FHA does not require collections to be paid off, especially medical collections. This collection was over two years old and it is a medical collection. (STIO) As far as the judgment is concerned, in a perfect world it would be paid off. However, this past summer of 2012, HUD changed the guidelines with respect to judgments and their effect on the qualifying process. If a repayment schedule is in place with the creditor and we can document that the payments have been made timely and on schedule, then the repayment agreement is acceptable to HUD and we can go forward with the underwriting process. NOTE: Most investors want to see at least a three (3) month history of repayment as per the schedule prior to the 1003. Check with you underwriting manager to ensure your corporate position on this exception.

K)Are there any reserves left and if so, from what source? Assuming reserves, what would be the best alternative for whatever monies are left and why? The 401k account had $18,000 verified funds that were fully vested. Of that number, sixty percent is available to us to use in this transaction which is $10,800. From that, we have to subtract our statutory investment of $6632 which leaves a balance of $4.170.00. For the sake of the math, we are assuming a penalty of $47.00 (not realistic) which leaves a balance o $4,023.00 which is three months reserves and is therefore a strong compensating factor. Remember, we are a bit over ratio as the case scenario was described. (Net of the inclusion of the child support). We have two options here: one would be to set up a repayment with the judgment creditor and use the remaining reserves referenced above as three months reserves in the transaction which would help justify the approval process since we are a bit over in the back without the child support. Or we could take the money, have no reserves (which is permitted since this is a SFR purchase), and pay off the judgment. Remember, if we set up a payment arrangement for the judgment, that is going to increase our back end ratio which is already over ratio without the child support, but acceptable with the child support included. Another alternative might be to get a gift, as described in the 4155, and pay off the judgment in which case we could go forward from that point.

L)CONCLUSION: Do J&J need a non-occupied co-borrower? What are the strong points as well as weaknesses of this file? Explain your answers and as a result, is this loan approvable and why? (Hint: Compensating Factors) Group discussion with group answers.