Several years ago, HUD began to focus on underwriting (e.g., qualifying ratios and compensating factors), often engaging in Monday morning quarterbacking by focusing on early payment defaults.
Qualifying ratios and compensating factors--failure to have sufficient, documented compensating factors to justify loan approval to borrowers with high qualifying ratios;
Department of Energy, EEMs give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income
qualifying ratios on loans.
CBMA offers an affordable mortgage program for LMI borrowers through the Massachusetts Association of Community Organizations for Reform Now with below-market rates, liberal
qualifying ratios, and lowdownpayment requirements.
And last year HUD announced that homes that meet MEC qualify for a 2 percent stretch on loan
qualifying ratios.
These can include missing or incomplete verifications of employment and deposit, a failure to document adequately the borrower's source of funds invested in the transaction, approval of a borrower with high
qualifying ratios in the absence of sufficient documented compensating factors or with poor credit history, or a miscalculation of the maximum mortgage amount.
Fannie Mae and Freddie Mac responded by expanding
qualifying ratios - the "2 percent stretch." The rationale behind the stretch is simple: Lower energy bills effectively increase the homeowner's ability to handle higher mortgage payments, and hence larger mortgages, than would have been allowed under standard
qualifying ratios.
A second obstacle has been the conservative
qualifying ratios traditionally required by Fannie Mae and Freddie Mac.
According to HUD, the lender under this pilot program will first process the mortgage application and qualify the borrower using the standard underwriting requirements and
qualifying ratios under FHA rules.
During processing, for a loan to be locked-in, all criteria for the loan program must be met, including property type,
qualifying ratios and loan-to-value ratios.
The package can handle virtually unlimited co-borrowers with separate 1003s automatically tied to a single 1008 for quick submission and calculation of borrower loan
qualifying ratios. Like many similar software packages on the market, the amount of data the software is capable of storing is based on the size of the computer's hard disk--not the file size limitations of the software.
Expert systems are built with the ability to handle factual data (e.g., calculate borrower
qualifying ratios).
