The four Cs of underwriting are: 1. Character - The borrower's credit history 2. Capacity - The borrower's ability to repay based on income 3. Collateral - The value of the property securing the loan 4. Capital - The borrower's available funds, typically a down payment

1. FHA
 For use during Section 2 of the
SAFE 20 Hr Pre-licensing and Exam Prep
Course

2. HUD v. FHA (page 9 in the course
packet)
 U.S. Department of Housing and Urban
Development was created through the US
Housing Act of 1937
 FHA provides mortgage insurance on loans
made by FHA-approved lenders

3. What does HUD do?
 Provides opportunities for homeownership
 Provides housing assistance for low income
persons
 Helps to rehabilitate and maintain affordable
housing
 Enforces Fair Housing laws
 Helps the homeless
 Spurs economic growth in distressed
neighborhoods

4. Insuring and Endorsement
 When an FHA loan closes, the lender collects
and remits an up front MIP directly to HUD via
wire transfer.
 Then the lender sends the original loan file (aka
case binder) to the FHA HOC for review.
 If the paperwork is in order, HUD transmits an
electronic MIC (mortgage insurance certificate.)

5. GNMA
 Government National Mortgage Association
 Ginnie Mae is not a lender nor does it buy or sell
mortgages. GNMA guarantees Residential
Mortgage Backed Securities that are backed by
pools of FHA and VA loans
 GNMAs are backed by the federal government

6. Advantages of FHA Financing
 Only an FHA-approved lender can originate
FHA loans
 Property Types: 1 to 4 unit properties
 Purchases up to 96.5% LTV
 Borrower Contributions
 3.5% cash investment
 100% gift acceptable

7. Advantages of FHA Financing
 Reserves are not required on 1 & 2 unit
properties
 FHA loans are fully assumable
 No income limitations
 FHA Loans are only to owner occupied
borrowers
 Exceptions:
 HUD owned property
 Non-owner occupied purchase at 85% LTV

8. FHA Home Mortgage
Insurance Programs
 203b Single Family
 234c Condo
 203h Disaster Victims
 255 HECM
 203k Rehab
 EEM Energy Efficient Mortgage

9. Single Family 203b
 Single Family
 Owner occupied
 1 to 4 units
 PUDs (Planned Unit Developments)
 Manufactured Homes
The FHA Mortgage Insurance Fund is running out
of money….
$3.5 billion left after transferring $9.8 billion to
cover possible losses on its loan portfolio.
 This means higher mortgage insurance premiums

10. FHA LOAN
PROCESSING

11. Roles
 Loan originator satisfies the processor
 Processor satisfies the underwriter
 Underwriter satisfies management
 Management satisfies FHA
 Role of the underwriter is to build a defensible
position
 FHA satisfies minimum risk for FHA
 Lenders set minimum risk for themselves
 FHA might say yes but your lender might say
no.

12. Social Security Number SSN
 Handbook 4155.1 paragraph 3-1C
 HUD/FHA require all lenders to ensure that
each FHA borrower has their own valid Social
Security Number as issued by the Social
Security Administration
 Verification also through FHA Connection

13. U.S. Citizenship Not Required
 FHA will insure mortgages made to lawful
permanent and non-permanent resident aliens
 Permanent resident alien:
 Must have evidence of permanent resident status
 Have a valid social security number
 Non-permanent resident alien
 Property must be their principal residence
 Must be eligible to work in the U.S.
 Have a valid social security number
 Have likelihood of continued lawful status

14. Social Security Number Verif
 Acceptable verification includes:
 Paystub
 Valid tax return
 Copy of SSN card
 Driver’s license
 Medical information
 Service provider with access to SSA

15. INTRO TO FHA
UNDERWRITING

16. Total Scorecard Factors
 Credit FICO score
 Monthly housing expense ratio
 Number of monthly payments in reserve
 Loan to value ratio
 Loan term
 These are the five biggest risk factors and the
only things TOTAL looks at.
 Accept or Refer

17. Intro to Manual Underwriting
 What must an FHA borrower possess?
 Decent and reasonable credit history
 Perfect credit is not a requirement.
 Stable, reliable, and sufficient income
 Verified funds to close
 Sufficient security for the loan

18. THE FOUR CS OF
UNDERWRITING
Any guesses as to what they are?

19. The Four Cs of Underwriting
 Character
 Credit • Does the
 Capacity borrower have
 Income the ability and
 Collateral
willingness to
 Value
repay the
loan?
 Capital
 Liquid assets