Hello Lee’s Summit and Kansas City metro Agents!
FHA loan limits are going to affect commission checks for both MLOs and agents; also its going to lengthen the loan process for a few buyers.
This just one more reason you should INSIST your lender get a full a DU” loan approval before you begin showing homes and making offers!!!
“DU” Loan Approvals! Never Lose a Buyer Again
In the event the buyer is declined – the application can be reviewed for a “manual underwrite”. The manual underwrite process is only available for government loans – VA and FHA – not Fannie or Freddie.
FHA Limits Lending to these “High Risk” Loans!
Last month FHA took steps to mitigate their lending risks by announcing updates to its automated DU loan approvals.
For its part, the FHA said it is taking necessary steps to address some of the risk trends apparent in its single-family /condo portfolio and flagged as concerning in its 2018 Report to Congress.
Here’s the profile of FHA loans that are affected:
- Cash out refinances (max LTV is 85%)
- Lower credit scores (below 620)
- High debt-to-income ratios (higher than 49%).
Bad News and Good News
1) Bad News – FHA is limiting its automated “DU” loan approvals to 3 cases
2) Good News – A DU decline can be “overridden” by an underwriter who has “direct endorsement authority” to “manually underwrite” the loan.
A “direct endorsement authority” is an additional level of approval that allows lenders to underwrite a loan, close it without prior review by HUD and still have a “sellable loan” in the “secondary market (Wall Street)..
In many years, I’ve yet to come across an institutional lender (banks or credit unions) that offer manual underwriting. Your client usually just get declined nowadays. For these institutions, it’s a closing numbers game unfortunately.
Direct lenders use to offer it “in-house” a lot before the crash – manual underwriting – its rare! So know your lenders and ask who still provides manual underwriting.
Simply most, lenders don’t want to incur the expense of having a HUD “Direct Endorsement” underwriter on their staff.
But their lack of service may cost you your livelihood, and your buyer their dream of homeownership.
If your buyer receives a “DU” decline, they must move their loan application to a mortgage broker; who has a many more lending sources! Do you have a list of Mortgage Brokers that provide manual underwrite? As a formal mortgage loan processor, loan officer, and now Realtor, I do – and you should too.
Changing FHA / VA Lenders Quickly
A “manual underwrite” takes into account 4 “compensating” factors.
1) Down Payment – If your borrower has a 10% down payment (vs. 3.5%) FHA can approve a buyer with credit scores as low as 550 (vs. 580 or 620).
2) High Credit Scores: If your borrowers have 800 credit scores but high debt ratios – you’re probably taking a commission check to the bank.
3) Low “Debt to Income Ratios” – If your buyer has a higher than acceptable monthly house payment (PITI) but no credit card debt – that’s a positive in the eyes of an underwriter.
Conversely if a buyer has a low house payment – but high consumer debt – their loan is often approved.
4) There are also human factors – With manual underwriting, comes human factor. Some underwriters (not all) will find a way to viably make the loan work, if it touches their heart.
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