To: VHDA Originating Lenders
Date: October 5, 2006
1st Choice Interest Only – Now available on VHDA’s FasTrak System
VHDA’s 1st Choice Interest Only program is now available on VHDA’ FasTrak Automated Underwriting System. FasTrak provides quick loan approvals, flexibility in documentation requirements and qualifying criteria for our Flexible Alternative and lst Choice products. If you have questions regarding the use of FasTrak you may refer to the FasTrak Instruction Guide on VHDA.org., contact your assigned VHDA Business Development Officer or the VHDA Underwriting Department.
Flexible Alternative Reminder– Refinancing Opportunities
VHDA’s Flexible Alternative Programs are available for rate and term refinances for seasoned mortgages. The refinance loan may include: the first and second mortgage loan(s) balance payoff, origination fee, discount points, closing costs, discount points and prepaids. Cash back to the borrower may not exceed the total amount of POC’s plus up to an additional $500 variance to eliminate the need for changing loan amounts at closing.
Loan(s) to be refinanced must be no less than one year old on the date of closing of the new loan. First and second liens may be included. In the case of equity lines, the seasoning requirement will apply to the date of the most recent advance (advances totaling $2000 or less will not be considered). The seasoning requirement will be waived in the following situations:
- The refinance will payoff the loan(s) obtained to acquire the property – in such cases the loan amount will be based on the lesser of the original sales price or current appraised value
- Documentation is provided evidencing the second mortgage was used for improvements to the property
This refinance option may provide an excellent opportunity for borrowers with adjustable rate mortgages and 80/20 piggy back loans with increasing second mortgage rates to refinance into a fixed rate mortgage. The Flex Advantage program will also allow the inclusion of closing costs for the refinance of higher loan to value loans.
Acceptance of LP and DU decision on VHDA Flexible Alternative Loans.
A recent analysis of Loan Prospector and Desktop Underwriter decisions has indicated that loans are being approved outside of the scope of acceptable risk tolerance for Flexible Alternative loans that do not have mortgage insurance. Loan decisions particularly for borrowers meeting Fannie Mae and Freddie Mac’s affordable lending criteria are receiving much more lenient loan approvals. These improved recommendations are however being rendered based on the existence of mortgage insurance – which is not present on VHDA Flexible Alternative 100 loans.
In consideration of these enhanced approvals – VHDA will now impose a minimum credit score and maximum debt to income ratios for Flex loans in excess of 95% loan to value when LP or DU approvals are being used in lieu of standard program guidelines. LP and DU Approve Eligible decisions will be accepted with credit scores of 620 or above and debt to income ratios of 50% or less without the need for further review. If an approve eligible decision is rendered outside of these parameters, lenders may submit the loan to VHDA for approval consideration. Waiver request must be accompanied by the applicable findings, credit report and loan application (1003). Generally no less than two compensating factors should be present to support a waiver approval. Compensating factors include:
- Significant cash reserves (6 months or greater)
- Strong credit history (credit scores above 700)
- Minimal housing increase (25% increase or less)
- Completion of homeownership education
As a reminder, LP and DU approve eligible decisions are accepted on Flex loans up to 100% only (Flex Advantage is not allowed). LP and DU decision are also not accepted on VHDA lst Choice Interest Only loans.
This new qualifying requirement will apply to Flexible Alternative loan reservations made on or after October 31, 2006.
VHDA recommends all first time homebuyers to take advantage of VHDA’s free Homeownership Education classes prior to beginning the homebuyer process. Feedback from previous participants has shown that applicants participating in these classes are much more knowledgeable, enjoy a more satisfactory home buying experience in addition to contributing to improved loan performance. VHDA has expanded the availability of homeownership education classes and also offers the convenience of completion of the class on-line for those who cannot attend a classroom session. VHDA has identified certain high risk products where homeownership education is required. For these programs VHDA will require at least one borrower to complete a VHDA approved homeownership education course. The requirement for homeownership education for these programs will be waived on loans for previous homeowners and those with credit scores of 660 or greater ( the middle score of all borrowers). The following products will require completion of an approved VHDA homeownership education course prior to loan closing unless waived based on the criteria stated above:
- FHA Plus
- Rural Housing Guaranteed
- 1st Choice Interest Only
- All Flexible Alternative Products
VHDA will also consider the completion of Homeownership Education as a compensating factor for loans falling slightly outside of standard criteria that are submitted for special consideration and the completion of a VHDA approved class may assist borrowers in more easily obtaining homeowners insurance.