To: VHDA Originating Lenders
Re: Changes to VHDA’s Interest Only Product
Date: February 12, 2007
Changes to VHDA's lst Choice Interest Only Product
In consideration of the recently released "Interagency Guidance on Nontraditional Mortgage Product Risks," VHDA has made changes to our 1st Choice Interest Only Loan Program Disclosure to comply with this agency recommendation and to more clearly explain the features, benefits and risk of our interest only loan product to potential borrowers.
This new disclosure is available immediately in the Forms and Documents section of VHDA’s website. The name of the disclosure has been changed from the 1st Choice Program Disclosure to "VHDA’s Interest Only Programs Disclosure." VHDA’s Exhibit E (Single Family Mortgage Revenue Bond Program Disclosure) has been changed to reference this new disclosure. Lenders are required to review this disclosure with potential borrowers and discuss the features of the interest only program explaining the impact of paying the lower interest only payment, lack of loan amortization and potential payment shock. Lenders may also choose to provide, in addition to the VHDA disclosure, the "Interest-Only Mortgage Payments and Payment-Options Arms – Are They Right for You?" publication made available through the federal agencies.
In consideration of other recommendations of the guidance document, VHDA will limit the maximum payment to income ratio to 35% and the maximum debt to income ratio to 43.00%. No exceptions to these ratio limits will be granted on our Interest Only programs.
VHDA Introduces Flex Alt Interest Only Pilot Program
VHDA is pleased to announce an interest only feature to our Flexible Alternative Product line. In order to assess the product – this program will be introduced with a specified allocation of $250 million and will be available for purchase transactions only – refinances will not be allowed. The program will follow the same structure as VHDA’s lst Choice Interest Only Program.
30 year fixed rate
Interest only for 7 years – fully amortizing years 8 - 30
No Mortgage Insurance
Flexible Alternative Program Income limits
$417,000 loan limit
Flexible Alternative 100 Program qualifying guidelines
Maximum 97.00% Loan to value (and 100% Total Loan to Value)
(Secondary financing in accordance with VHDA guidelines allowed up to 100%)
Pricing Options are available
Purchase only – refinances not eligible
Manufactured homes not eligible
Minimum 660 credit score (620 for 95% ltv or less)
We have updated VHDA’s lst Choice Note and Program Disclosure so that these documents may be used with both the lst Choice and Flex Interest Only programs. These documents are now “VHDA’s Interest Only Programs Disclosure” and “VHDA Interest Only Note”. We have also updated Exhibit D (2) Flexible Alternative Application Disclosure to reference the Interest Only Program Disclosure. These documents are available on the Forms and Documents section of VHDA.com and will be available through VMP Forms in the future.
Disclosure and explanation of Interest Only Features:
VHDA lenders are required to review the VHDA Interest Only Programs Disclosure with potential borrowers and explain the features of the Interest Only program prior to borrowers making loan application.
Loan reservations may be made on VHDA’s Online reservation system. Reservations may be made beginning Tuesday, February 13, 2007.
Delegated underwriting will be allowed for VHDA approved delegated lenders. Underwriters must check the Flex Alt Interest Only block on the new Delegated Approval Notice or may be handwritten on the older version of this form. The current Delegated Underwriter Mortgage Loan Commitment allows for interest only payments and may be used.
Unless noted differently in this announcement or the specific Flex Alt Interest Only Program Guidelines, qualifying will follow Flex Alt 100 program guidelines. Qualifying ratios will be 35% payment to income ratio and 43% debt to income ratio. VHDA will allow qualifying at the initial interest only payment with applicable taxes, insurance and HOA fee escrows. Payment to income and debt to income ratios may not exceed these limits. FasTrak will not be available initially and LP and DU approval are not accepted. All loans must be manually underwritten.
Delegated closing will be allowed for VHDA approved delegated lenders. Lenders must use the new VHDA Interest Only Note available on the web.
Since this is a pilot program and subject to change, the VHDA Origination Guide will not be updated to include this program information at this time. Please refer to specific program information and guidelines for the Flex Alt Interest Only on VHDA.com.
Since funding in this pilot will be limited, VHDA will provide periodic email notification of remaining available funding.
Lender Program Implementation:
All lender origination staff should confirm with their appropriate operations staff that their organization has implemented any necessary changes prior to the origination of VHDA Flex Alt Interest Only loans. Lenders must have the capacity to provide all required disclosures including Good Faith Estimates and Truth in Lending Disclosures prior to originating or reserving loans.
Additional Information and Questions:
Detailed program information is available in our Updates and Announcements section and Program Information on the web. Questions may be addressed to the lender’s assigned VHDA Business Development Officer or to VHDA’s Underwriting Department at (804) 783-5525. Questions may also be emailed to firstname.lastname@example.org.
We are excited about this addition to our Flexible Alternative products. This will offer an additional affordable financing option to moderate-income homebuyers seeking to purchase homes in Virginia.