affordable mortgage lending guide

AFFORDABLE MORTGAGE

LENDING GUIDE

A Resource for Community Bankers

Part I: Federal Agencies and Government Sponsored Enterprises

Revised July 2018; Freddie Mac revised November 2018

PUBLISHED BY:

Federal Deposit Insurance Corporation

550 17th Street, NW, Washington, DC 20429

877-ASK FDIC (877-275-3342)

The Federal Deposit Insurance Corporation (FDIC) does not endorse the programs described in this publication or

any particular approach to their use. The overviews and program information included in this Guide are designed

to illustrate the broad range of options available to nancial institutions. The FDIC has taken measures to ensure

that the information and data presented in this publication is accurate and current. However, the FDIC makes no

express or implied warranty regarding such information or data, and hereby expressly disclaims all legal liability and

responsibility to persons or entities who use or access this publication and its content, based on their reliance on

any information or data that is available through this website. Each institution is responsible for assessing whether

the resources presented here are appropriate for the bank to pursue given factors such as the institution’s existing

mortgage, Community Reinvestment Act, or community development strategies, as well as business focus, nancial

condition, and market.

When citing this publication, please use the following:

Affordable Mortgage Lending Guide, Part I: Federal Agencies and Government Sponsored Enterprises

(Washington, DC: Federal Deposit Insurance Corporation, 2016; revised 2018), https://www.fdic.gov/mortgagelending.

AFFORDABLE MORTGAGE

LENDING GUIDE

A Resource for Community Bankers

Part I: Federal Agencies and Government Sponsored Enterprises

Revised July 2018; Freddie Mac revised November 2018

TABLE OF CONTENTS

About This Publication.................................................................................................................1

Program Matrix.............................................................................................................................4

U.S. Department of Housing and Urban Development (HUD) and

Federal Housing Administration (FHA).....................................................................................5

Overview of the Federal Housing Administration .............................................................. 5

Doing Business with FHA ....................................................................................................... 7

Using FHA’s Section 203(b) Mortgage Insurance Program:

A community banker conversation .....................................................................................11

Title I Programs

Property Improvement Loan Insurance ..............................................................................13

Manufactured Home Loan Insurance .................................................................................17

Title II Programs

203(b) Mortgage Insurance Program .................................................................................21

Streamline Refinance ............................................................................................................27

203(k) Rehabilitation Mortgage Insurance ........................................................................31

Other HUD Programs

184 Indian Home Loan Guarantee Program......................................................................35

Good Neighbor Next Door..................................................................................................41

U.S Department of Agriculture (USDA)...................................................................................45

Overview ................................................................................................................................45

Doing Business with USDA ..................................................................................................46

Using USDA’s Single Family Housing Guaranteed Loan Program:

A community banker conversation .....................................................................................49

Single Family Housing Guaranteed Loan Program...........................................................51

Single Family Housing Direct Loans ...................................................................................55

Single Family Housing Repair Loans and Grants ..............................................................59

U.S. Department of Veterans Affairs (VA) ...............................................................................65

Overview ................................................................................................................................65

Doing Business with VA .......................................................................................................66

Using VA’s Home Purchase Loan Program:

A community banker conversation .....................................................................................69

Home Purchase Loan Program ............................................................................................71

Interest Rate Reduction Refinance Loan.............................................................................75

U.S. Department of the Treasury Community Development

Financial Institutions Fund (CDFI Fund) .............................................................................79

Overview ................................................................................................................................79

Bank Enterprise Awards .......................................................................................................83

CDFI Program ........................................................................................................................85

Capital Magnet Fund ............................................................................................................89

Fannie Mae..................................................................................................................................93

Overview ................................................................................................................................93

Doing Business with Fannie Mae ........................................................................................94

Duty to Serve..........................................................................................................................96

Using Fannie Mae’s HomeReady™ Mortgage Product:

A community banker conversation .................................................................................. 101

HomeReady™ Mortgage .................................................................................................. 103

Standard 97 Percent Loan-to-Value Mortgage............................................................... 107

HomeStyle® Renovation Mortgage ................................................................................. 111

Standard Manufactured Housing Mortgage .................................................................. 117

MH Advantage™................................................................................................................ 123

Refi Plus™/Home Affordable Refinance Program (HARP)............................................ 127

Freddie Mac ............................................................................................................................. 131

Overview ............................................................................................................................. 131

Doing Business with Freddie Mac.................................................................................... 132

Duty to Serve....................................................................................................................... 133

Using Freddie Mac’s Home Possible® Product:

A community banker conversation .................................................................................. 137

HomeOne

......................................................................................................................... 139

Home Possible®.................................................................................................................. 143

Construction Conversion and Renovation Mortgage.................................................... 147

Manufactured Home Mortgage ....................................................................................... 151

Relief Refinance

/Home Affordable Refinance Program (HARP)............................... 155

FDIC’s Community Affairs Program ...................................................................................... 159

Glossary & Terms ..................................................................................................................... 161

ABOUT THIS PUBLICATION

Economic Inclusion and Opportunity

Mortgage lending is an important element of many

community banks’ business strategies. Community

banks offer mortgage products and services designed

to meet the particular needs of their communities,

including rural areas and low- and moderate-income

(LMI) borrowers. Offering affordable mortgage loans

to a wide range of customers deepens bank-customer

relationships and provides an important pathway for

borrowers to own their own homes and build wealth.

At the Federal Deposit Insurance Corporation (FDIC),

we recognize that mortgage lending is also an impor-

tant way for insured institutions to promote access and

participation in the mainstream banking system. Broad

participation in the products and services offered by

insured institutions promotes stability and condence

in the nancial system, which is the core mission of

the FDIC.

Many banks, including community banks, take advan-

tage of the opportunities to serve the particular

mortgage credit needs of their communities. The

Affordable Mortgage Lending Guide (Guide) provides

information to help make community bankers aware

of the wide range of current affordable mortgage

products. These programs can be important resources

for community banks when properly managed. Bank

management should understand the terms of these

programs, the risks they pose, and the impact on

banks’ nancial condition to ensure that they are serv-

ing their communities with prudently underwritten

and affordable mortgage products.

Outreach and Communication

To determine how the FDIC could contribute to efforts

by banks to offer prudently underwritten, affordable,

and responsible mortgage credit for LMI households,

FDIC staff met with community banks individually

and in small roundtables. Bankers provided valuable

insights into the need for affordable mortgage credit

in the communities they serve. They also discussed the

opportunities and obstacles to using federal lend-

ing programs, as well as the pros and cons of holding

loans in portfolio versus selling loans on the second-

ary market.

Some bankers described how they have harnessed

federal programs, sometimes in combination with

other nancial mechanisms like Federal Home Loan

Bank and State Housing Finance Agency products, to

expand their capabilities and serve a broader customer

base. Many banks had relationships with neighbor-

hood housing counseling organizations, which helped

provide nancial education to potential customers.

Some bankers discussed that very small banks do

not have specialized stafng or departments to offer

complex mortgage products. They decided that the

risk and cost of origination were not worth assuming

without more resources or additional risk mitigation.

Some bankers said that while they want to be involved

in mortgage lending, it was difcult to nd the time to

research potential programs, and that it was challeng-

ing to nd and retain trained mortgage staff, especially

in rural areas.

From these meetings, we concluded that community

banks might benet from a practical reference tool

to compare federal programs so they could make an

informed decision about which programs might be

the right t for their business plans and strategies to

improve lending options available for their communi-

ties. In addition, the experience of other lenders that

have found ways to use limited resources to harness

federal and other resources could provide practical

examples that may be instructive to institutions consid-

ering these opportunities.

1 | FDIC | Affordable Mortgage Lending Guide

Scope and Coverage

To assist community banks, the FDIC developed

the Affordable Mortgage Lending Guide (Guide),

which describes programs from the U.S. Department

of Housing and Urban Development (HUD) and

its Federal Housing Administration (FHA), the

U.S. Department of Agriculture (USDA), the U.S.

Department of Veterans Affairs (VA), the U.S. Treasury

Department’s Community Development Financial

Institutions Fund (CDFI Fund), and Fannie Mae and

Freddie Mac, known as Government Sponsored

Enterprises (GSEs). The Guide focuses on guarantee,

loan purchase, and subsidy programs that can facilitate

mortgage lending by insured depository institutions.

It includes federal programs that support home pur-

chase, renance, manufactured housing, and some

home improvement lending by banks. It covers pro-

grams that are targeted to a variety of communities

and individuals including rural, Native American, LMI,

and veterans.

We discuss the requirements of each program, as well

as how to access these programs. Whether you choose

to become an agent, a correspondent selling to an

aggregator, use a broker, or become an approved

seller-servicer, the Guide explains how each of these

options work within the particular program. We also

discuss underwriting tools available and provide tech-

nical information about borrower and loan criteria. This

Guide can help you design a process to identify, assist,

and support your customers by successfully leveraging

these programs.

Suggestions for How to Use This Guide

Organized by each federal agency and GSE, the

overviews and individual program descriptions

include information about doing business with the

agency, its program requirements, and tips on get-

ting started with the program. Institutions can use this

Guide as a one-stop resource to gain an overview of

a wide variety of program resources, compare differ-

ent programs, and to help identify the next steps for

program participation.

Each program description includes insights into the

program’s purpose, technical assistance on how to

participate, and identies potential benets and chal-

lenges for community banks.

TIPS ON USING THE AFFORDABLE

MORTGAGE LENDING GUIDE

• Review the “Contents” page for a list of

all programs.

• Read the overview for the federal agency

or GSE of interest to determine loan

delivery options and other criteria.

• Read the selected program description

for specific borrower and loan standards.

• Review “Similar Programs” at the end

of each description to compare program

requirements with other products.

• Review “Resources” to make sure you

have the most up-to-date information on

program criteria.

• Select a program that best suits your

needs and use the agency/GSE contact

information to get started.

A quick review of borrower and loan criteria will help

you identify whether the program is suitable for a

particular client or a population that you are trying to

serve, such as low- and moderate-income borrowers

or other hard-to-reach populations. The descriptions

identify particular criteria that focus on target seg-

ments, underwriting exibilities, and other standards.

Each program description includes contact informa-

tion and web links for easy access to program staff

who can provide additional information about the

program, guide you through getting started, and

address other specic requirements for starting the

program at your bank.

In order to compare a range of programs to identify

what best meets your needs and the needs of your

customers, each program description concludes with

a list of similar programs for your reference.

Resources are also included in each program

description where you can nd web links to more

FDIC | Affordable Mortgage Lending Guide | 2

detailed information about the programs provided

by the GSE or agency. Where secondary programs

(e.g., Community Seconds®) are mentioned within the

main program description, a link to that program is

also included in the Resource section. Finally, links for

additional information that are referenced in the

program descriptions — such as area/county loan

limits, building codes, and lists of high-cost cities and

states — are also included in Resources.

Because borrower and loan criteria, such as income

limits, minimum credit scores, loan-to-value limits, and

debt-to-income ratios, are all subject to change (and

in many cases revised annually), the Guide provides

the most recent information available. Realizing the

need for accurate and timely information, each pro-

gram description includes a list of web links where

updates can be found.

What Bankers are Saying

In addition to the individual meetings with com-

munity banks and small roundtable discussions, the

FDIC also talked with community bankers about their

participation in specic programs. In each federal

agency and GSE “Overview,” you will nd comments

by community bankers who are incorporating federal

and GSE programs into their overall mortgage lend-

ing strategies. Bankers discuss how they have used

these programs to support their business objectives.

They also discuss using a variety of delivery options

including serving as an approved third-party origina-

tor and working with other lenders and investors to

underwrite, package and sell loans; acting as a corre-

spondent lender; and becoming an approved seller/

servicer of mortgage loans.

Supporting strong Community Reinvestment Act

(CRA) performance

Affordable mortgage lending, including to low-and

moderate-income borrowers; to low-and moder-

ate-income census tracts; and to serve people in

underserved rural communities, on tribal lands, and

in disaster areas can be responsive ways for nancial

institutions to meet the credit needs of their commu-

nities. The mortgage programs featured in this Guide,

whether they result in Home Mortgage Disclosure Act

(HMDA) reportable loans or originations reported by

another lender, can help lenders reach their business

objectives in their communities, as well as contribute

to its CRA performance.

Conclusion

The programs outlined in the Affordable Mortgage

Lending Guide can provide community bankers with

additional pathways to provide homeownership

opportunities for creditworthy borrowers in their

communities, particularly those with affordability

challenges. These programs may also represent busi-

ness opportunities for community banks looking for

prudent, sustainable nancial products to incorporate

into their mortgage business line.

While home ownership continues to be a goal for

most Americans, many people struggle to gain access

to affordable homeownership opportunities that will

enable them to build a stable future for their families.

Community banks can and do play a valuable role in

meeting the demand for affordable mortgage credit,

and we hope this Guide provides useful information

to assist bankers in considering all the options to

serve their communities with prudently underwritten

and affordable mortgage products.

3 | FDIC | Affordable Mortgage Lending Guide

AGENCY PROGRAM NAME

LOW- AND

MODERATE-INCOME

FIRST-TIME

HOMEBUYER

PURCHASE

REFINANCE

REHABILITATION/

REPAIRS

MANUFACTURED

HOMES

NATIVE AMERICANS

VETERANS

VICTIMS OF A

DISASTER

RURAL

SENIORS

PERSONS WITH

DISABILITIES

PUBLIC SERVANTS

HUD/

FHA

FHA Title I: Property Improvement

Loan Insurance

FHA Title I: Manufactured Home

Loan Insurance

FHA Title II: 203(b) Mortgage

Insurance Program

247 &

248

203(h)

FHA Title II: Streamline Renance

FHA Title II: 203(k) Rehabilitation Mortgage

Insurance

HUD 184 Indian Home Loan Guarantee

HUD Good Neighbor Next Door

USDA

Single Family Housing Guaranteed

Loan Program

Single Family Direct Loans

variation variation

Single Family Housing Repair Loans

and Grants

Home Purchase Loan Program

Tribal

land

Interest Rate Reduction Renance Loan

CDFI

FUND

Bank Enterprise Awards

CDFI Program

Capital Magnet Fund

FANNIE

MAE

HomeReady

Mortgage

Standard 97 Percent Loan-To-Value

Mortgage

HomeStyle® Renovation Mortgage

Standard Manufactured Housing Mortgage

MH Advantage

Re Plus

/ Home Affordable Renance

Program (HARP)

FREDDIE

MAC

HomeOne

Home Possible®

Construction Conversion and

Renovation Mortgage

Manufactured Home Mortgage

Relief Renance

/Home Affordable

Renance Program (HARP)

If a program provides special consideration to a group or provides a certain type of housing, this is indicated in the matrix. It does not mean, for example,

that a veteran could not use Fannie Mae’s Home Possible® program, but rather, the veteran does not receive a special benet under the program.

OVERVIEW

U.S. Department of Housing and Urban Development

and Federal Housing Administration

We have included the most recent information available at the date of publication. At the end of each section,

we include a list of resources with web links where you can nd updates, as well as information about additional

programs and other helpful information related to the subject.

President Lyndon B. Johnson established the

Department of Housing and Urban Development

(HUD) in 1965 to confront the nation’s housing and

urban challenges. While there were a number of fed-

eral housing programs before HUD’s establishment,

HUD consolidated its oversight into a cabinet-level

agency. The mission of HUD is “to create strong,

sustainable, inclusive communities and quality afford-

able homes for all.” HUD funds and oversees a wide

range of community development and housing-

related activities aimed at preventing homelessness,

providing rental housing, ghting housing dis-

crimination, enhancing community and economic

development activities, and increasing homeowner-

ship opportunities.

The Federal Housing Administration (FHA), the larg-

est mortgage insurer in the world, is part of HUD. FHA

increases homeownership opportunities in the United

States by expanding mortgage nancing opportunities

and has historically provided stability to the housing

market during times of economic crisis.

OVERVIEW OF THE FEDERAL HOUSING

ADMINISTRATION

The FHA provides mortgage insurance that protects

lenders in case of borrower default. It predates the

secondary mortgage market, having been created

in 1934 as a way to stimulate the housing industry

during the Great Depression. Because FHA lending

parameters allow for higher loan-to-value ratios and

somewhat lower borrower credit scores than are typi-

cal for prime conventional loans, FHA has been an

important source of mortgage credit for households

that might otherwise nd it difcult to obtain this credit,

such as low- and moderate-income households and

rst-time homebuyers. FHA’s volume generally varies

based on the credit standards of other sources of mort-

gage nancing and on the fees it charges. Lenders are

protected by FHA’s Mutual Mortgage Insurance Fund,

which is sustained by borrower premiums.

FHA business is primarily conducted by four regional

Homeownership Centers, or HOCs, in Atlanta,

Philadelphia, Denver, and Santa Ana. Although lend-

ers should send their questions to the FHA Resource

Center (not the HOC) for immediate acknowledgement

and tracking, certain case-specic issues are subse-

quently referred to the appropriate HOC.

GINNIE MAE

Ginnie Mae is short for Government National

Mortgage Association. Ginnie Mae does not origi-

nate or purchase mortgage loans and does not

issue mortgage-backed securities (MBS). Instead,

Ginnie Mae guarantees investors the timely pay-

ment of principal and interest on MBS issued

by private lenders and others that are backed

by pools of mortgage loans insured or guaran-

teed by the Federal Housing Administration, the

U.S. Department of Veterans Affairs, the U.S.

Department of Agriculture’s Rural Development,

and the U.S. Department of Housing and Urban

Development Office of Public and Indian Housing.

Ginnie Mae securities are the only MBS to carry

the full faith and credit guaranty of the United

States government.

5 | FDIC | Affordable Mortgage Lending Guide

This section describes the paths by which a bank may become an FHA

lender, provides information on resources for banks that participate or

are considering participation, and describes the secondary market for

FHA loans before turning to descriptions of FHA and HUD programs.

While most single-family homeownership programs are covered under

Title II of the National Housing Act of 1934; certain types of specialized

mortgage lending, like small-scale renovations and manufactured hous-

ing, are covered under Title I of the Act.

Title I programs covered in this section:

Property Improvement Loan Insurance: Affordable loan insurance for

light or moderate renovations to a variety of residential and nonresi-

dential properties.

Manufactured Home Loan Insurance: Insures mortgages for manu-

factured homes that are classied as personal property or chattel

(meaning moveable property). The mortgages may also nance a lot

on which to place a manufactured home.

Title II programs covered in this section:

203(b) Mortgage Insurance Program: The core FHA single-family

mortgage insurance program, which allows low down payments for

the purchase of a primary residence or its renance. In addition to a

discussion of the basic program, special features for certain popula-

tions and geographies that experience higher barriers to credit access

are covered.

Streamline Renance: Allows homeowners to renance an exist-

ing FHA-insured loan to a lower interest rate or to a different type of

mortgage with reduced documentation and underwriting standards,

saving on transaction costs.

203(k) Rehabilitation Mortgage Insurance: Mortgage insurance for

loans that nance both the purchase of a home (or renance of an

existing mortgage) and renovation costs in a single mortgage.

Other HUD programs covered in this section:

Section 184 Indian Home Loan Guarantee Program: This HUD pro-

gram operates separately from FHA and provides access to credit for

American Indian and Alaska Native families, Alaska Villages, Tribes, or

Tribally Designated Housing Entities.

Good Neighbor Next Door: This HUD program operates separately

from FHA and provides a discount on the purchase price for public

servants (teachers, police, reghters, military) to purchase HUD-

owned homes in certain distressed communities.

TITLE I PROGRAMS IN THIS SECTION:

Property Improvement Loan Insurance:

Affordable loan insurance for light or moder

ate renovations to a variety of properties.

Manufactured Home Loan Insurance: Insures

mortgages for manufactured homes that are

classified as personal property or chattel

(meaning moveable property). The mortgages

may also finance a lot on which to place a

manufactured home.

TITLE II PROGRAMS IN THIS SECTION:

203(b) Mortgage Insurance Program: Allows

low down payments for the purchase of a

primary residence or its refinance. In addition

to a discussion of the basic program, special

features for certain populations and geogra

phies are covered.

Streamline Refinance: Allows homeowners

to refinance an existing FHA-insured loan to

a lower interest rate or to a different type of

mortgage with reduced documentation and

underwriting

standards.

203(k) Rehabilitation Mortgage Insurance:

Mortgage insurance for loans that finance

both the purchase of a home (or refinance of

an existing mortgage) and renovation costs in

a single mortgage.

OTHER PROGRAMS IN THIS SECTION:

Section 184 Indian Home Loan Guarantee

Program:

HUD program operates separately

from FHA and provides access to credit for

American Indian and Alaska Native families,

Alaska Villages, Tribes, or Tribally Designated

Housing Entities.

Good Neighbor Next Door: Provides a discount

on the purchase price for public servants

(teachers, police, firefighters, military) to

purchase HUD-owned homes in certain

distressed

communities

FDIC | Affordable Mortgage Lending Guide | 6

DOING BUSINESS WITH THE FHA

Benets

FHA’s low down payment 203(b) agship program has

helped millions of borrowers purchase their rst homes

and is one of the most recognized mortgage loan

products available today. Developing the expertise

needed to understand FHA’s expectations for lender

operations and loan delivery can be complicated;

however, there are resources to help community banks.

The FHA also insures loans for manufactured hous-

ing, rehabilitation, and for improvements on existing

homes, so doing business with the FHA may offer a

signicant set of new opportunities to serve a wide

range of borrower needs.

Delivery Options

Community banks can participate in two ways in FHA

single-family programs. First, a bank may become

an approved supervised lender with direct endorse-

ment (DE) authority. Banks granted full FHA approval

authority can originate, underwrite, fund, and ser-

vice FHA-insured single-family loans. Or, a bank can

become an FHA third-party originator (TPO), which

allows origination only.

Smaller lenders often turn to investors or aggregators

to help them carry out underwriting, funding, and/

or secondary market sales functions. Correspondent

lenders typically fund loans in their own names and

then sell them to investors, who in turn sell the loans

into the secondary market. In some cases, the corre-

spondent lenders handle the underwriting in-house.

In others, the investor acts as the underwriter. Smaller

lenders that are interested in originating loans but do

not have the internal capacity to either underwrite or

fund the loans can also work with investors to carry out

the origination function while looking to the investor to

underwrite and fund the loans in the name of the inves-

tor. Many state and local housing nance agencies, as

well as certain Federal Home Loan Banks, also work

directly to provide mortgage-lending options.

Originating FHA loans as a third-party originator

sponsored by an approved lender

Non-FHA approved banks can originate FHA loans

without going through the formal FHA approval

process by working with an FHA-approved lender to

sponsor them. Becoming a TPO can be useful to banks

that are interested in offering FHA loans to their cus-

tomers, but may not meet minimum standards or have

the internal capacity needed for FHA lending, or that

wish to avoid the additional costs associated with FHA

approval and annual recertication.

TPOs originate FHA loans that are underwritten and

funded in the name of a sponsoring FHA-approved

lender. However, as a TPO, the bank is subject to both

FHA loan standards and those of the sponsoring

lender, sometimes referred to as overlays. In addition,

TPO banks are reliant on their sponsoring lenders for

underwriting approval and funding timelines. For these

reasons and others, banks may choose to become an

approved FHA supervised lender with direct endorse-

ment authority.

Originating FHA loans as an approved supervised

lender with direct endorsement authority

To originate, underwrite, and fund FHA loans, a lending

institution must be approved by HUD as an FHA lender.

Approval process: Banks must follow a two-step

approval process in order to gain this status.

1. Conditional authority (basic lender approval).

Conditional authority is the authority of a bank that

has applied for and received basic FHA mortgagee

approval. A bank applying for this status must meet

minimum nancial and operational standards pertain-

ing to net worth, liquidity, stafng, and quality control

that are laid out for FHA supervised lenders. Banks

applying for underwriting authority must have an

underwriter on permanent staff. In addition, the bank

must have ve years of experience in the origination

of single-family mortgages, or a principal ofcer with

a minimum of ve years managerial experience in the

origination of single-family mortgages. Banks that are

considered large entities as dened by the U.S. Small

Business Administration (SBA), (net worth greater than

$500 million) are required to submit audited nancial

Detailed information regarding State Housing Finance Agencies can be

found

in the

Affordable Mortgage Lending Guide, Part II: State Housing Finance

Agencies, https://www.fdic.gov/mortgagelending. Detailed information regard-ing

Federal Home Loan Banks can be found in Affordable Mortgage Lending Guide,

Part III: Federal Home Loan Banks, https://www.fdic.gov/mortgagelending.

7 | FDIC | Affordable Mortgage Lending Guide

statements, both at the time of application and as part

of an annual recertication process. Banks with a net

worth of less than $500 million are required to submit a

copy of their call reports each year.

A bank interested in becoming an FHA-approved

lender can submit an online application using the HUD

FHA application portal. The bank must receive separate

approval for making Title I loans and Title II loans but

can apply for both at the time of its initial application.

Should a bank apply initially only for Title I or Title II

approval status, it can apply for the other status later.

Although a bank can originate FHA loans once it has

been approved as an FHA supervised lender, it is not

eligible to underwrite FHA loans until it receives FHA

direct endorsement (DE) authority

2. Direct endorsement authority. Once a bank has

received conditional authority, it must obtain uncondi-

tional DE authority to underwrite, fund, and submit FHA

loans directly for endorsement.

In general, to receive unconditional DE authority, a

bank must submit a written application to the jurisdic-

tional HOC for the state where the bank’s home ofce

is located. If approved, the bank will receive a test case

phase approval letter, reference materials, and a list

of specic requirements that the bank must meet. The

bank will also be required to participate in an entrance

conference with the HOC before the bank is allowed to

submit test cases.

During the test case phase, the bank will submit its

FHA loan les for approval to the appropriate HOC.

The HOC will issue a rm commitment (approval) or

a rm reject (denial) for each case submitted. Cases

that receive a rm commitment are approved to close

and be submitted for insurance endorsement. Upon

receipt of 15 rm commitments within a period of 12

consecutive months following the date of the entrance

conference and a determination that the bank has

demonstrated an acceptable understanding of FHA

underwriting and other requirements, the bank is

granted full and unconditional DE approval.

One or more designated underwriters employed

by the bank serves as the bank’s FHA subject matter

expert(s) as designated DE underwriters. The

underwriter’s role and responsibilities are critical ele-

ments of the DE Program and include ensuring loans

comply with FHA policies and procedures from the

underwriting and verication process through loan

closing and certication. Generally, DE underwriters

must have a minimum of three years of recent full-time

underwriting experience.

DE lenders must complete an endorsement process

for each FHA loan after closing. Most DE lend-

ers submit the insurance application electronically

through the FHA Connection electronic system and

prepare an FHA case binder for review by the HOC,

which will determine whether the les meet the neces-

sary requirements.

Lender Insurance Program

The Lender Insurance (LI) Program enables high-

performing FHA-approved lenders to endorse FHA

mortgage loans without a pre-endorsement review. To

become an LI lender, lenders must have and maintain

at all times, unconditional DE authority and must have

a claim/default rate for the state(s) in which the uncon-

ditional DE lender has underwritten loans that is at,

or below, 150 percent for at least two years before its

application for participation in the LI Program.

Selling FHA Loans

Lenders do not typically keep FHA loans in their port-

folios. Instead, they are generally pooled and used as

collateral for mortgage-backed securities (MBS). FHA

does not purchase and securitize loans. Instead, FHA

loans are delivered to the secondary market through

Ginnie Mae’s guaranteed mortgage-backed securities.

Securities are issued by private nancial institutions

and the timely payment of principal and interest to

investors in these securities is guaranteed by Ginnie

Mae, a government ofce within HUD. FHA-approved

lenders can deliver FHA-endorsed loans as MBS by

becoming a Ginnie Mae approved issuer or by selling

FHA loans to third-party Ginnie Mae approved industry

conduits or aggregators. See Resources at the end of

this section for a list of Ginnie Mae approved issuers.

FDIC | Affordable Mortgage Lending Guide | 8

System Requirements and Quality Control

FHA loans can be manually or electronically under-

written. All FHA loans are required to go through the

FHA TOTAL (Technology Open to Approved Lenders)

Mortgage Scorecard system except Streamline

Renances and assumptions. The TOTAL Mortgage

Scorecard is based on credit and application variables

and, when combined with an approved automated

underwriting system’s functionalities, is used to provide

an underwriting recommendation that either deems

the borrower’s credit is acceptable or requires the loan

to be underwritten manually by an FHA DE underwriter.

All FHA-approved mortgagees must also implement

and continuously have in place a written quality control

plan for the origination and/or servicing of FHA-

insured mortgages to assure compliance with FHA’s

origination and servicing requirements and to protect

against unacceptable risk and fraud. The quality control

function must be independent of the origination and

servicing functions and can be fullled by using in-

house staff or an outside rm.

Neighborhood Watch Early Warning System

Neighborhood Watch is an electronic database and

monitoring system intended to help HUD/FHA staff,

FHA lenders, and the public analyze the Title II loan

performance of FHA lenders. Neighborhood Watch

data can be used to compare a specic lender’s FHA

loan performance against other lenders in a geo-

graphic area in order to help identify and address

potential problems related to early delinquency

patterns. Specically FHA uses a “compare ratio” to

compare a lender’s early default rate (typically the

percentage of loans that are 90 days or more delin-

quent within the rst two years of origination) against

those operating within the same region. Lenders with

a compare ratio at twice the average or higher are

subject to disciplinary action. More information about

Neighborhood Watch can be found at

https://entp.hud.gov/sfnw/public/.

9 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found on FDIC’s Affordable Mortgage Lending Center

at https://www.fdic.gov/mortgagelending.

FHA Handbook: Single Family Housing Policy Handbook 4000.1

https://www.hud.gov/program_ofces/housing/sfh/handbook_4000-1

FHA lender approval application

https://www5.hud.gov/FHALender/

FHA lender approval application instructions

http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_LEND_REQAPPROVAL-LEAP.PDF

Homeownership Centers and areas served

https://www.hud.gov/program_ofces/housing/sfh/sfhhocs

Neighborhood Watch

https://entp.hud.gov/sfnw/public/

Doing Business with Ginnie Mae

https://www.ginniemae.gov/doing_business_with_ginniemae/Pages/default.aspx

Ginnie Mae approved issuers

http://www.ginniemae.gov/issuers/third_party_providers/Pages/document_custodian.aspx

FHA Connection Electronic System

https://entp.hud.gov/clas/index.cfm

FHA Lender Insurance Program

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/lender/lendins

FHA TOTAL Mortgage Scorecard

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/total

FDIC | Affordable Mortgage Lending Guide | 10

A COMMUNITY BANKER CONVERSATION

Using FHA’s Section 203(b) Mortgage Insurance Program

The FDIC talked with community bankers about their participation in the Federal Housing Administration’s

Section 203(b) Mortgage Insurance Program. The following are excerpts from these discussions.

The Section 203(b) Mortgage Insurance Program is the

core FHA single-family mortgage insurance program,

which allows low down payments for the purchase of a

primary residence or for renancing a mortgage.

Working with the FHA

One small community bank recently decided to add

home mortgage loans to its line of products. The

bank representative explained that as the bank did its

product evaluation, management concluded that the

Federal Housing Administration’s (FHA) Section 203(b)

Mortgage Insurance Program would be of interest in

the local market.

The lender added that the bank wanted to offer a loan

that would help rst-time homebuyers who needed

a lower down payment option. Aligning that market

need with the bank’s policy of selling 100 percent

of the mortgage loans it originates into the second-

ary market led them to the Section 203(b) Mortgage

Insurance Program.

Becoming an FHA Lender

The banker said that one challenge to its plan to origi-

nate FHA loans was that the bank would be unable

to gain approval as an FHA direct endorsement (DE)

lender because it fell short of the requirements for

audited nancials and minimum asset levels set by

the FHA. The bank, therefore, chose to pursue table

funding. Under this arrangement, the bank acts as an

FHA-sponsored third-party originator (TPO) to origi-

nate the loan and then works with an FHA-approved

direct endorsement (DE) sponsoring lender or mort-

gagee to underwrite and fund the loan.

As a TPO, the bank meets with the borrowers and

originates and processes the initial loan application,

including collecting FHA-required documentation. The

bank then sends the loan le to the FHA DE mort-

gagee that underwrites the loan and communicates

any outstanding closing conditions that need to be

satised by the borrower back to the bank. Once fully

approved, the mortgagee initiates the closing and the

loan is funded and closed in the mortgagee’s name.

The representative said, “The rst table-funding FHA-

approved mortgagee that the bank worked with took

too long to get the approval in place due to a cum-

bersome process. However, once we identied more

effective DE partners, established clear and open

lines of communication, and initiated the process to

become approved to originate FHA loans as a TPO,

we were able to get up and running within a couple

of months.” She went on to say that “the quality of the

DE sponsoring lender can make a huge difference in

the efciency of the loan approval process. When you

have an outstanding issue on a loan during the under-

writing process, you want to know that you and your

sponsoring lender will be working as a team to resolve

the issue as effectively and efciently as possible.”

Challenges of Offering FHA Loans

When asked what the biggest challenge is with using

the FHA 203(b) product, one of the representatives

stated that it is forming an effective partnership with a

strong FHA approved DE underwriter. As the origina-

tor of the loan, the bank is responsible for meeting

with borrowers, taking loan applications, and col-

lecting FHA-required documentation. Even after

completing an origination package and sending it off

to the underwriter, back-and-forth communications

and competing business priorities of the underwriter

(including transactions with other TPOs) occasionally

extend wait times.

11 | FDIC | Affordable Mortgage Lending Guide

Another banker, who is also a TPO, pointed out that “the biggest challenge

my bank has is that since we are not the lender, we do not have as much

control over the approval as we do with loans that we underwrite our-

selves; however, in our experience, the FHA product is really not difcult [to

originate] once you gain some experience.” The representative went on to

say that his bank only does a few mortgages a year, but has been making

Section 203(b) loans for the past eight years so customers can benet from

the 15-year and 30-year terms. “If you are already originating mortgage

loans, the learning curve is fairly easy.”

Benets of Offering FHA Loans

One bank representative said that her bank combines the FHLBank

of Cincinnati’s Welcome Home program with its FHA loans. Welcome

Home provides up to $5,000 for down payments and closing costs to

eligible homebuyers with a minimum subsidy match of $500 provided by

the borrower.

Another banker added that his bank combines the FHA 203(b) product with

grants from the Federal Home Loan Bank of Topeka. He said that overall,

FHA loans are not a signicant portion of the bank’s mortgage lending busi-

ness, but having it available is very important because it gives customers

more options.

One banker estimated that 95 percent of her bank’s FHA loans are for

rst-time homebuyers, including many younger borrowers who have not

had the time or the nancial experience to build a high credit score. She

noted that FHA’s credit score thresholds can be lower than government-

sponsored enterprise (GSE) low down payment programs. Another helpful

feature for young borrowers is the ability to use gift funds from relatives

to cover a portion of the down payment and closing costs. Older, more

established family members helping younger relatives buy their rst home

is a common and long-standing tradition in many communities, which FHA

guidelines generally support. The representative also points out that many

renters can actually save money by becoming homeowners. “Rents are high

and it’s often cheaper to buy a home than to rent.”

FDIC | Affordable Mortgage Lending Guide | 12

FHA | TITLE I PROGRAMS

Property Improvement Loan Insurance

Insuring loans for borrowers to improve their property

BACKGROUND AND PURPOSE

The Title I Property Improvement Loan Insurance

program insures loans that lenders make to borrowers

to nance alterations and repairs of single-family,

multifamily, and nonresidential properties. Loans may

also nance site improvements, as well as construction

of nonresidential properties, as long as the nonresi-

dential uses are consistent with the property’s zoning.

The program is designed to help low- and moderate-

income (LMI) borrowers improve their homes and

is an alternative for homeowners with limited home

equity, who cannot use their home’s equity to nance

signicant home repairs. The improvements can be

conducted by the property owners themselves or

through a contractor. The improvements must

substantially protect or improve the basic livability

or utility of the property. In general, improvements

must be permanent, hardwired, or hard-plumbed to

the property. FHA insures lenders against the risk of

default for up to 90 percent of the loan.

This program differs from FHA’s Section 203(k)

Rehabilitation loan program in that a Title I Property

Improvement Loan only covers the amount of the

proposed repairs, not the purchase of the property.

The two programs can be used together on the same

home. Title I Property Improvement Loans are typically

second or subordinate liens but may also be unsecured

if the loan amount is less than $7,500. Only lenders

approved by HUD specically for this program can

make loans covered by Title I insurance.

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: There is no minimum credit score require-

ment for the program, but HUD expects that lenders

will undertake a thorough review of the borrower’s

credit history by pulling a credit report, verifying

PROGRAM NAME

Property Improvement Loan Insurance

AGENCY

Federal Housing Administration

EXPIRATION DATE

Not Applicable

APPLICATIONS

To participate, lenders must be FHA approved for the Title I loan program. Lenders may access

FHA’s Lender Requirements and the online lender application at:

https://www.hud.gov/program_ofces/housing/sfh/lender/lendappr

WEB LINK

https://www.hud.gov/program_ofces/housing/sfh/title/title-i

CONTACT

INFORMATION

Telephone: (800) CALL-FHA (225-5342) Email: [email protected]. Lenders that want to apply for

FHA approval should include the words “New Applicant” in the email subject line and include a

contact person and phone number in the email body so that a Lender Approval representative

may contact you.

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

13 | FDIC | Affordable Mortgage Lending Guide

employment, and checking that the borrower is not delinquent or in

default on a federally guaranteed loan obligation.

First-time homebuyers: First-time homebuyers can take advantage of

the program as long as they have or take title of the property at closing.

When improvements are for a residential property, the home must have

been occupied for at least 90 days.

Occupancy and ownership of other properties: Title I loans may be used

to nance permanent property improvements that protect or improve

the basic livability or utility of the property, including manufactured

homes, single-family and multifamily homes, nonresidential structures,

and the preservation of historic homes. The loans can also be used for

re safety equipment. Funds can be used to nance the construction of

a nonresidential structure on the property, as long as the nonresiden-

tial uses are subordinate to the residential uses and consistent with the

property’s zoning. To be eligible for a Title I loan, borrowers must be:

1. the owner of the property being improved;

2. the person leasing the property (if the lease extends at least six

months after the loan is scheduled to be fully repaid); or

3. someone purchasing the property under a land installment contract.

Special populations: There is no targeted population, but the program

is a tool for both homeowners and persons leasing the property to

make improvements.

Special assistance for persons with disabilities: Title I loans can be used

for improvements that make the home more accessible to a disabled

person. Improvements can include remodeling kitchens and baths for

wheelchair access, lowering kitchen cabinets, or installing wider doors

and exterior ramps.

Verication of property improvements: Loan proceeds must be used

only for purposes established in the loan application. If the borrower

uses a dealer to execute the improvement work, the lender must

receive a copy of the proposal or contract describing in detail the work

to be performed and cost estimates. If the borrower is completing the

improvements, they must provide the lender with a detailed written

description of the work, materials, and cost.

List of acceptable property improvements:

• Improvements for accessibility to a disabled person such as remod-

eling kitchens and baths for wheelchair access, lowering kitchen

cabinets, installing wider doors and exterior ramps, and the like.

• Improvements must protect or improve the livability or utility of

the property.

• Loans cannot be used to nance luxury-type items such as swimming

pools or outdoor replaces, or to pay for work completed before the

loan application.

POTENTIAL BENEFITS

HUD-approved Title I lenders

can offer improvement loans for

various property types including

manufactured home proper

ties. The manufactured home is

not required to be real property.

However, in order to use the loan

to finance site improvements, the

borrower must comply with the

criteria for owning, or otherwise

being authorized to execute liens

against the underlying land.

Title I property improvement

loans can be originated con

currently with the purchase or

refinance of an existing property.

The loans may also be originated

at any point after the prop

erty purchase.

POTENTIAL CHALLENGES

The lender must be approved by

HUD as a Title I lender.

Lenders that want to offer dealer

loans, where a contractor helps

the borrower with financing,

instead of directly lending to the

borrower, must approve the deal

ers through a separate process.

The lender must verify that the

property improvement dealer

has a net worth of $32,000 and

meets HUD guidelines. A jointly

signed HUD-approved form

documents the approval and

lenders must annually recertify

the dealers to whom they extend

dealer loans.

FDIC | Affordable Mortgage Lending Guide | 14

• Loan proceeds may be used for alterations and/or

repairs of single-family, multifamily, and nonresi-

dential property types and for site improvements.

LOAN CRITERIA

Loan limits: Title I approved lenders can offer eligible

borrowers improvement loans for up to 20 years on

either single-family or multifamily properties. The

maximum loan amount is $25,000 for a single-family

house, $25,090 for a manufactured house on a perma-

nent foundation, and $7,500 for a manufactured house

not on a permanent foundation (classied as personal

property). To improve a two- to four-unit structure, the

maximum loan amount is $60,000 or an average of

$12,000 per dwelling unit, whichever is less.

Loan-to-value limits: The program does not require

an appraisal, and borrowers are not required to have

equity in the property. A loan amount greater than

$7,500 must be secured by a recorded lien on the

improved property. The lien does not have to be a

rst lien on the property, but it must not be placed

in less than second position. A Title I loan may be

secured in third place by exception when the rst and

second loans were originated to nance the prop-

erty’s purchase.

Adjustable-rate mortgages: Lenders must offer xed-

rate loans (no adjustable-rate terms are permitted) and

charge market-rate interest.

Homeownership counseling: Housing counseling is

not required for participation in the program.

Mortgage insurance: FHA insures private lenders

against the risk of default for up to 90 percent of any

single loan. The annual premium for this insurance is

$1 per $100 of the amount advanced. The insurance

premium may be charged to the borrower separately,

but it is sometimes covered by a higher interest charge.

Debt-to-income ratio: The borrower must have a maxi-

mum DTI of 45 percent, meaning total xed expenses

(including payments on the property improvement

loan) may not exceed 45 percent of gross income. In

the event the borrower has student loan debt, regard-

less of the payment status, FHA’s policy is to include

either the actual documented payment, provided the

payment will fully amortize the loan over its term or the

greater of 1 percent of the total student loan balance

or the monthly payment reported on the borrower’s

credit report in the debt-to-income calculation.

Renance: Borrowers that meet certain requirements

may renance the loan with a Title I lender.

Potential Benets

• HUD-approved Title I lenders can offer improve-

ment loans for various property types including

manufactured home properties. The manufactured

home is not required to be real property. However,

in order to use the loan to nance site improve-

ments, the borrower must comply with the criteria

for owning, or otherwise being authorized to

execute liens against the underlying land.

• Title I property improvement loans can be origi-

nated concurrently with the purchase or renance of

an existing property. The loans may also be origi-

nated at any point after the property purchase.

• No security is needed for loan amounts

below $7,500.

• Loans originated through this program may receive

favorable consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

Potential Challenges

• The lender must be approved by HUD as a Title

I lender.

• Lenders that want to offer dealer loans, where a con-

tractor helps the borrower with nancing, instead of

directly lending to the borrower, must approve the

dealers through a separate process. The lender must

verify that the property improvement dealer has a

net worth of $32,000 and meets HUD guidelines. A

jointly signed HUD-approved form documents the

approval and lenders must annually recertify the

dealers to whom they extend dealer loans.

• The lender must be familiar with the unique forms

and requirements of this program.

SIMILAR PROGRAMS

• FHA 203(k) Rehabilitation Mortgage Insurance

• USDA Single Family Housing Repair Loans

and Grants

15 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

General information

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/title/title-i

HUD Handbook 1060.2 REV-6 for Title I Property Improvement and Manufactured Home Loans (issued in 1996

and includes program rules)

http://portal.hud.gov/hudportal/documents/huddoc?id=10602HSGH.pdf

HUD Handbook 4000.1

http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

Title I Letter TI-473, “Publication of Final Rule on November 7, 2001 Regarding: Strengthening the Title I Property

Improvement and Manufactured Home Loan Insurance Programs and Title I Lender/Title II Mortgagee Approval

Requirements” (includes insurance premium information)

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/administration/hudclips/letters/title1

Direct link: https://www.hud.gov/sites/documents/ti-473.doc

Title I Lender Letter TI-470, “Clarications to the Title I Property Improvement Program” (includes debt-to-income

information)

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/administration/hudclips/letters/title1

Direct link: https://www.hud.gov/sites/documents/ti-470.doc

HUD Guidelines for Dealers (see section 201.27 “Requirements for dealer loans” in HUD Handbook 1060.2 REV-6)

http://portal.hud.gov/hudportal/documents/huddoc?id=10602HSGH.pdf

Dealer/Contractor Application Form HUD-55013 (to be completed by lender)

http://portal.hud.gov/hudportal/documents/huddoc?id=55013.pdf

FDIC | Affordable Mortgage Lending Guide | 16

FHA | TITLE I PROGRAMS

Manufactured Home Loan Insurance

Providing affordable homeownership opportunities through manufactured

home loans, lot loans, and home/lot combination loans

BACKGROUND AND PURPOSE

Manufactured homes have traditionally been nanced

as personal property through higher interest, short-

term chattel loans. The Manufactured Home Loan

Insurance program increases the availability of afford-

able nancing for buyers of manufactured homes by

offering longer term and lower interest rate nancing

than with conventional loans. A manufactured home

need not be treated as real property under state law

to be eligible for this program. The U.S. Department of

Housing and Urban Development (HUD) has provided

this type of loan insurance since 1969.

The Manufactured Home Loan Insurance program

through the Federal Housing Administration (FHA)

insures mortgages made by private lenders that

nance the purchase or renance of a manufactured

home and/or the lot on which the home is located. The

program offers insurance for three types of loans:

(1) manufactured home loan, (2) manufactured home

lot loan, and (3) manufactured home land and lot

combination loan. FHA insures private lenders against

the risk of default for up to 90 percent of the loss of any

individual loan.

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: HUD has not established a minimum credit

score level for the program. The score will affect only

the amount of down payment required, not program

eligibility.

PROGRAM NAME

Manufactured Home Loan Insurance

AGENCY

Federal Housing Administration

EXPIRATION DATE

Not Applicable

APPLICATIONS

WEB LINK

https://www.hud.gov/program_ofces/housing/sfh/title/manuf14

CONTACT

INFORMATION

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

To participate, lenders must be FHA-approved for the Title I loan program. Lenders may access

FHA’s Lender Requirements and the online lender application at

https://www.hud.gov/program_ofces/housing/sfh/lender/lendappr

Telephone: (800) CALL-FHA (225-5342) Email: [email protected]. Lenders that want to apply for

FHA approval should include the words “New Applicant” in the email subject line and include a

contact person and phone number in the email body so that a Lender Approval representative

may contact you.

17 | FDIC | Affordable Mortgage Lending Guide

First-time homebuyers: The program is not limited to rst-time home-

buyers and can be used to renance the property.

Occupancy and ownership of other properties: Borrowers must occupy

the property as their primary residence. The program is limited to the

purchase or renance of a manufactured home with or without the lot

on which the home is placed. HUD denes a manufactured home as

a transportable structure comprised of one or more modules, each

built on a permanent chassis. The manufactured home must be the

primary residence for a single family. The manufacturer of the home

must comply with HUD safety and livability standards and certify it as

compliant by afxing the “HUD Seal” to each home. Eligible manufac-

tured homes must also meet the Model Manufactured Home Installation

Standards and carry a one-year manufacturer’s warranty if the unit is

new. The home must be installed on a home site that meets established

local standards for site suitability and has an adequate water supply and

sewage disposal facilities available.

The purchase loan may also be used to nance accessories offered by

the dealer including the cost for skirting, garage, carport, patio, or other

comparable appendage to the home. The combination home and lot

loan product provides insurance for purchase of a parcel of real estate

that is used for placement of the approved manufactured home unit.

Required documentation: The borrower must complete a credit applica-

tion form (HUD-56001-MH).

LOAN CRITERIA

Loan limits: Title I insurance may be used for loans of up to $92,904

for a manufactured home and lot and $23,226 for a lot only. A HUD-

approved appraiser must appraise the lot.

Loan-to-value limits: Borrowers with a credit score of 500 or lower are

required to make a minimum down payment of 10 percent for a maxi-

mum LTV of 90 percent. Borrowers with a credit score above 500 are

required to make a 5 percent minimum down payment for a maximum

LTV of 95 percent.

Adjustable-rate mortgages: Adjustable-rate products are not permitted.

Down payment sources: Borrowers are responsible for paying the down

payment. No part of the costs payable by the borrower may be loaned,

advanced, or paid to or for the benet of the borrower by the dealer, the

manufacturer, or any other party to the loan transaction. If the borrower

obtains all or any part of such costs through a gift or a loan from some

other source, the borrower must disclose the source of such gift or loan

on the credit application.

Homeownership counseling: Housing counseling is not required

for participation in the program, but it is recommended for all rst-

time homebuyers.

POTENTIAL BENEFITS

The insurance provided by FHA

under this program helps protect

Title I approved lenders from

credit risk, though the coverage

provided is 90 percent of the loss

as opposed to 100 percent for

other FHA Title II programs.

In many states, manufactured

homes are considered personal

property rather than real estate.

Title I insurance, backed by the

FHA, helps families finance

homes classified as personal

property and where conventional

financing may be limited.

The Manufactured Home Loan

Insurance program may allow

community banks to expand

their customer base in low- and

moderate-income communities.

POTENTIAL CHALLENGES

HUD must approve lenders to

participate in the Title I pro

gram before they can offer the

loan product.

A HUD-approved appraiser must

appraise the lot. In some areas

of the country, it can take 30-60

days to complete the appraisal.

The FHA-approved lender is

also responsible for approving

manufactured home dealers to

participate in the program.

FDIC | Affordable Mortgage Lending Guide | 18

Mortgage insurance: The program has different stan-

dards than other FHA-insured single-family programs.

The upfront mortgage insurance premium (UFMIP) is

the obligation of the lender, but may be passed on to

the borrower and must not exceed 2.25 percent. The

annually adjusted mortgage insurance premium (MIP)

is paid monthly and must not exceed 1.0 percent of the

remaining insured principal.

Debt-to-income ratio: Similar to other FHA-insured

single-family programs, HUD requires lenders to

calculate two ratios to determine if a borrower can

reasonably meet the expected expenses. First, the

Mortgage Payment Expense to Effective Income ratio

(or front-end DTI) should not exceed 31 percent.

Second, the Total Fixed Payment to Effective Income

ratio (or back-end DTI) should not exceed 43 percent.

Ratios that exceed 31 percent or 43 percent may be

acceptable if the lender documents qualied “signi-

cant compensating factors.” The ratios increase to 33

percent and 45 percent when the home being nanced

can be documented as Energy Star compliant. In the

event the borrower has student loan debt, regardless

of the payment status, FHA’s policy is to include either

the actual documented payment, provided the pay-

ment will fully amortize the loan over its term or the

greater of 1 percent of the total student loan balance

or the monthly payment reported on the borrower’s

credit report in the DTI calculation.

Renance: Allowed.

Loan Parameters

Financing fees: The interest rate is set by the lender.

Loan parameters: Loan limits and terms were updated

in 2008 because of the FHA Manufactured Housing

Loan Modernization Act of 2008. (See below.)

Dealers: Dealers are the persons or rms that make

manufactured home retail sales, and it is common for

dealers to establish a formal business relationship

with a lender to facilitate nancing for the purchaser.

Lenders must verify the dealer’s nancial statements

and submit a Dealer/Contractor Application form

(HUD-55013) to HUD before working with dealers to

provide Title I nancing to borrowers.

Trade equity from existing Manufactured Housing:

Many manufactured home dealers offer equity-like

contributions for home purchasers who trade in an

old model of home to buy a new one, similar to an

automobile trade-in program. The maximum equity

contribution from the traded manufactured home is the

lesser of the appraised value or sales price. Any costs

resulting from the removal of the manufactured home

or any outstanding indebtedness secured by liens

on the manufactured home must be deducted from

the maximum equity contribution. Trade-ins for cash

funds are considered a seller inducement and are not

permitted. Land equity is not addressed as a potential

equity contribution.

LOAN TYPE

PURPOSE LOAN LIMIT MAXIMUM LOAN TERM

Manufactured home loan

To purchase or renance a

manufactured home unit

$69,678 20 years

Lot loan

To purchase and develop a lot on

which to place a manufactured home

$23,226 15 years

Combination loan for lot

and home

To purchase or renance a

manufactured home and lot on which

to place the home

$92,904

20 years (25 years for

multi-unit homes)

19 | FDIC | Affordable Mortgage Lending Guide

Potential Benets

• The insurance provided by FHA under this program

helps protect Title I approved lenders from credit

risk, though the coverage provided is up to 90 per-

cent of the loss of any individual loan as opposed

to 100 percent for other FHA Title II programs.

• In many states, manufactured homes are consid-

ered personal property rather than real estate.

Title I insurance, backed by the FHA, helps families

nance homes classied as personal property and

where conventional nancing may be limited.

• The Manufactured Home Loan Insurance

program may allow community banks to expand

their customer base in low- and moderate-

income communities.

• The Manufactured Home Loan Insurance program

may help community banks access the secondary

market, providing greater liquidity to enhance their

lending volume.

• The Manufactured Home Loan Insurance program

offers competitive pricing and terms.

• Loans originated through the Manufactured Home

Loan Insurance program may receive favorable

consideration during the bank’s CRA evaluation,

depending on the geography and income of the

participating borrowers.

Potential Challenges

• HUD must approve lenders to participate in

the Title I program before they can offer the

loan product.

• A HUD-approved appraiser must appraise the lot.

In some areas of the country, it can take 30-60 days

to complete the appraisal.

• The FHA-approved lender is also responsible for

approving manufactured home dealers to partici-

pate in the program.

SIMILAR PROGRAMS

• Fannie Mae Standard Manufactured

Housing Mortgage

• Freddie Mac Manufactured Home Mortgage

RESOURCES

Direct access to the following web links can be found

at https://www.fdic.gov/mortgagelending.

General information

http://portal.hud.gov/hudportal/HUD?src=/

program_ofces/housing/sfh/title/manuf14

Applications

http://portal.hud.gov/hudportal/HUD?src=/

program_ofces/housing/sfh/lender/lendappr

HUD Handbook 4000.1

https://www.hud.gov/sites/documents/

40001HSGH.PDF

Title I Letter TI-481, “Changes to the Title I

Manufactured Home Loan Program” (details

major changes to the program made by The FHA

Manufactured Housing Loan Modernization Act of

2008 and includes updates to loan limits, LTV rates,

insurance premiums, and underwriting criteria)

https://www.hud.gov/sites/documents/ti-481.pdf

Borrower Credit Application Form HUD-56001-MH (to

be completed by borrower)

https://www.hud.gov/sites/documents/

56001MH.PDF

Dealer/Contractor Application Form HUD-55013 (to

be completed by lender)

https://www.hud.gov/sites/documents/55013.PDF

FDIC | Affordable Mortgage Lending Guide | 20

FHA | TITLE II PROGRAMS

203(b) Mortgage Insurance Program

Affordable low down payment lending traditionally for rst-time

homebuyers and underserved communities

BACKGROUND AND PURPOSE

The 203(b) mortgage insurance program, or the Basic

Home Mortgage Loan, is the centerpiece of all FHA

mortgage insurance programs for one- to four-unit

residential properties, including individual condo-

minium units or manufactured homes on real estate.

The purpose of the Section 203(b) program is to

provide approved lenders with mortgage insurance

to protect them against the risk of default on mort-

gages that are made to qualied buyers who may not

otherwise qualify for conventional loans or who live in

underserved areas. Insured mortgages can be used to

nance the purchase of new or existing one- to four-

unit structures and can be used to renance both FHA

and non-FHA mortgages.

Down payments may be lower than conventional mort-

gages because the federally backed insurance allows

lenders to nance up to 96.5 percent of the value of

the home. This results in down payments as low as 3.5

percent. Out-of-pocket costs to borrowers in some

cases can be lowered through a variety of sources

including loans, grants, and employer assistance.

FHA sets the limits on the maximum mortgage amount

that may be insured through the program and can vary

by geographic location.

BORROWER CRITERIA

Income limits: There is no income limit to participate

in the program. Lenders must analyze the income of

each borrower who is obligated for the mortgage debt

to determine whether the borrower’s income level can

be reasonably expected to continue through at least

the rst three years of the mortgage loan. This includes

salaries and wages, as well as income from other

non-employment sources, such as disability benets,

PROGRAM NAME

203(b) Mortgage Insurance Program including Special Feature Programs (251, 203(n), 203(h),

247, and 248)

AGENCY

Federal Housing Administration

EXPIRATION DATE

Not Applicable

APPLICATIONS

To participate, lenders must be FHA-approved for the Title II loan program. Lenders may access

FHA’s Lender Requirements and the online lender application at:

https://www.hud.gov/program_ofces/housing/sfh/lender/lendappr

WEB LINK

https://www.hud.gov/program_ofces/housing/sfh/ins/203b--df

CONTACT

INFORMATION

Lenders that want to apply for FHA approval may contact the FHA Resource Center at

[email protected] or (800) 225-5342. Include the words “New Applicant” in the subject line,

include a contact person, and phone number in the email body so that a Lender Approval

representative may contact you.

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

21 | FDIC | Affordable Mortgage Lending Guide

alimony, or pension benets, all of which may be considered if properly

veried and documented by the lender.

Credit: FHA uses a borrower’s credit score to help determine the maxi-

mum amount of nancing the borrower is eligible to receive. If the credit

score is less than 500, then the borrower is not eligible for FHA-insured

nancing. If the borrower’s credit score is at or above 580, then the

borrower is eligible for maximum nancing with a loan-to-value ratio

(LTV) of 96.5 percent. If the credit score is between 500 and 579, then

the borrower is limited to a maximum LTV of 90 percent.

First-time homebuyers: The program is often used to assist rst-time

homebuyers but is not restricted to this population; there are no addi-

tional or special terms for rst-time homebuyers.

Occupancy and ownership of other properties: The program is lim-

ited to owner-occupied primary residences. The program can be used

to nance the purchase of proposed, under construction, or existing

one- to four-unit family dwellings, manufactured homes, or to renance

indebtedness on existing housing. In general, the program does not

allow borrowers to have a secondary residence. If they do, the borrower

may have only one secondary residence at any time to be eligible for

the 203(b) program and it is only permitted in one circumstance.

A secondary residence is only permitted if the Homeownership Center

assisting the borrower determines that undue hardship exists, meaning

that there is no affordable rental housing for lease that meets the needs

of the family within a reasonable commuting distance of work; and if the

maximum loan amount is 85 percent of the lesser of the appraised value

or sales price.

Special populations: This program does not provide special benets for

members of certain populations.

Property criteria: The home must meet HUD’s minimum property stan-

dards, such as durability and safety and soundness, which are frequently

more stringent than local building codes because of the importance of

having standardized collateral backing the loan. Sellers are expected

to correct any safety and soundness deciencies as a condition of

accepting the loan. All repairs must be completed before closing. If the

seller refuses, the buyer may create an escrow account for repairs and

nance it into the loan through FHA’s Limited Section 203(k) program

(no minimum amount, non-structural repairs not exceeding $35,000) or

Standard Section 203(k) program (repairs of at least $5,000, which may

include structural repairs and additions).

POTENTIAL BENEFITS

The Section 203(b) Mortgage

Insurance Program may help

community banks access the sec

ondary market, providing greater

liquidity to enhance their lend

ing volume.

Special feature programs are

responsive to different mort

gage types (e.g., adjustable-rate

mortgages) and populations

(e.g., disaster victims, Native

Americans, Native Hawaiians).

The Section 203(b) Mortgage

Insurance Program may allow

community banks to expand their

customer base in

low- and moderate-income

communities and to a broader

range of borrowers.

Loans originated through the

Section 203(b) Mortgage Insurance

Program may receive favorable

consideration under the CRA,

depending on the geography

or income of the participat

ing borrowers.

POTENTIAL CHALLENGES

Lenders must have a way to

access the program, whether

through direct sales or a cor

respondent arrangement, as

discussed in the introduction to

this section. Depending on the

arrangement, community banks

may need to acquire or develop

new expertise and infrastructure

in order to participate.

FDIC | Affordable Mortgage Lending Guide | 22

LOAN CRITERIA

Loan limits: FHA mortgage limits vary by the number of

units and by the county or Metropolitan Statistical Area

in which the property resides. HUD issues a Mortgagee

Letter announcing the new mortgage limits every year.

Loan-to-value limits: For purchases of existing proper-

ties, the maximum LTV is 96.5 percent and for renance

transactions (no cash-out), the maximum LTV is 97.75

percent. There are special requirements for maximum

LTV for properties that do not yet exist or are under

construction. The maximum LTV ratio for a property

depends upon the stage of construction (proposed,

under construction, or existing), the appraised value

and sales price (for a purchase), and the borrower’s

credit score.

Adjustable-rate mortgages: Adjustable-rate mortgages

are allowed through the sub-program Section 251

Mortgage Insurance for Adjustable-Rate Mortgages,

described in more detail later in this summary. FHA

permits either one-year Treasury Constant Maturities

Index or one-year London Interbank Offered Rate

(LIBOR) to determine interest rate changes. The annual

and lifetime interest rate changes permitted vary based

upon the initial xed period of the mortgage.

In addi-

tion, borrowers must be informed at least 25 days in

advance of any adjustment to the monthly payment. In

most other respects, Section 251 loans are similar to

basic FHA-insured single-family loans.

Down payment sources: FHA allows for various

acceptable sources of funds to cover down payment

costs. The acceptable sources fall into six categories,

including cash and savings/checking account funds;

investment funds; gifts; funds resulting from the sale

of personal or real property; loans and grants; and

employer assistance.

Homeownership counseling: Counseling is not

required, but it is encouraged that borrowers contact

a HUD-approved housing counseling agency to learn

more about the program.

Mortgage insurance: Mortgage insurance premiums

(MIP) are used to protect lenders against loss in the

event of a foreclosure. Under Section 203(b), premiums

are paid up front and monthly. For all mortgages, the

upfront mortgage insurance premium (UFMIP) is 175

basis points (1.75 percent) of the base loan amount

and is due within 10 calendar days of the mortgage

closing or disbursement date, whichever is later.

Lenders also collect from the borrower and remit an

annual mortgage insurance premium monthly to HUD.

The MIP rates vary based on the LTV and mortgage

term and mortgage amount. For 30-year mortgages

greater than 95 percent LTV with a loan amount less

than or equal to $625,500, the annual premium is 85

basis points.

Debt-to-income ratio: HUD utilizes two ratios to deter-

mine if a borrower can reasonably meet the expected

expenses. First, the mortgage payment expense-to-

effective income ratio (or front-end DTI) should not

exceed 31 percent.

Second, the total xed payment-to-effective income

ratio (or back-end DTI) should not exceed 43 percent.

Manually underwritten loans with ratios that exceed

31 percent or 43 percent may be acceptable only if

the lender documents qualied signicant compen-

sating factors. Loans receiving an “accept” scoring

recommendation from the TOTAL Mortgage Scorecard

are not subject to these restrictions. In the event the

borrower has student loan debt, regardless of the pay-

ment status, FHA’s policy is to include either the actual

documented payment, provided the payment will fully

amortize the loan over its term or the greater of 1 per-

cent of the total student loan balance or the monthly

payment reported on the borrower’s credit report in

the debt-to-income calculation.

Temporary interest rate buy downs: A third party may

contribute up to 6 percent of either the lesser of the

property’s sales price or the appraised value toward

closing costs. Any payment for permanent or tempo-

rary interest rate buy downs must be included in the

6 percent. Any temporary interest rate buy down is

prohibited on all FHA-insured ARM products.

A 1- and 3-year ARM may increase by one percentage point annually after

the initial xed interest rate period, and ve percentage points over the life of

the mortgage. A 5-year ARM may either allow for increases of one percentage

point annually, and ve percentage points over the life of the mortgage; or

increases of two percentage points annually, and six points over the life of the

mortgage. A 7- and 10-year ARM may only increase by two percentage points

annually after the initial xed interest rate period, and six percentage points

over the life of the mortgage.

23 | FDIC | Affordable Mortgage Lending Guide

Renance: Renance is an allowed use of this product.

SPECIAL FEATURE PROGRAMS

FHA operates a number of programs that have the

same basic requirements as the 203(b) program, but

include certain special features.

251 Adjustable-Rate Mortgage (ARM): The program

provides lenders with insurance on ARMs that have

built-in safeguards for borrowers and lenders that mini-

mize the effect of a rapid rise in interest rates.

• Lenders must use either the one-year Treasury

Constant Maturities Index or the one-year London

Interbank Offered Rate (LIBOR) to calculate inter-

est rates and annual adjustments. The rate must be

constant for the initial period (1, 3, 5, 7, or 10 years)

and then can change annually. ARMs with initial

periods longer than one year are called “Hybrid

ARMs.” The annual and lifetime interest rate

changes permitted vary based upon the initial xed

period of the mortgage.

• The annual mortgage insurance premium is based

on the initial interest rate.

• The loan term must fully amortize over a period of

not more than 30 years.

• Owner-occupants may renance any loan to an

FHA ARM.

• Properties must be one- to four-unit dwellings or

condominium units.

FHA sets a cap on the total number of ARMs it will

insure each scal year and noties lenders when it is

close to reaching the cap. The cap is set at 30 percent

of the total number of mortgages insured in the prior

scal year.

203(h) Mortgage Insurance for Disaster Victims:

The program insures lenders for loans to nance

the purchase or reconstruction of a one-family, pri-

mary residence where the borrower is a victim of a

Presidentially Declared Major Disaster Area. The one

difference from the 203(b) program is that borrowers

are not required to make a down payment. Borrowers

must still have a minimum credit score of 500 to be

eligible and are responsible for closing costs and

prepaid expenses. The borrower’s previous residence

must have been located in the disaster area and either

destroyed or damaged in such a way that the borrower

requires a new property or total reconstruction.

247 Insured Mortgages on Hawaiian Home Lands:

The FHA provides lenders with insurance to make

mortgage loans to Native Hawaiians. Eligible borrow-

ers must purchase a one- to four-unit property located

on Hawaiian homeland and use it as their primary

residence. The lender must certify that the property is

located on eligible land through the Department of

Hawaiian Home Lands. The program operates with the

same parameters as the 203(b) program, except that

the typical minimum credit score requirement of 500

does not apply and only an upfront mortgage insur-

ance premium is required and not the annual premium.

Loans are eligible for renancing under the Section

247 program.

248 Insured Mortgages on Indian Land: The program

is very similar to the Section 247 special feature, except

insurable loans must be made to Native Americans to

buy, build, or rehabilitate a one- to four-unit property

on Indian land that they intend to use as a primary

residence. The minimum credit score requirement of

the 203(b) program does not apply to Section 248

loans, and instead of an upfront mortgage insur-

ance premium, the program only requires monthly

MIP payments.

FDIC | Affordable Mortgage Lending Guide | 24

Potential Benets

• The Section 203(b) Mortgage Insurance Program

may help community banks access the secondary

market, providing greater liquidity to enhance their

lending volume.

• Special feature programs are responsive to dif-

ferent mortgage types (e.g., adjustable-rate

mortgages) and populations (e.g., disaster victims,

Native Americans, Native Hawaiians).

• The Section 203(b) Mortgage Insurance Program

may allow community banks to expand their

customer base in low– and moderate-income

communities and to a broader range of borrowers.

• The Section 203(b) Mortgage Insurance Program

offers competitive pricing and terms.

• Loans originated through the Section 203(b)

Mortgage Insurance Program may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

Potential Challenges

• Lenders must have a way to access the program,

whether through direct sales or a correspondent

arrangement, as discussed in the introduction to

this section. Depending on the arrangement, com-

munity banks may need to acquire or develop new

expertise and infrastructure in order to participate.

SIMILAR PROGRAMS

• Fannie Mae HomeReady™

• Freddie Mac HomePossible®

• Freddie Mac HomeOne

• VA Home Purchase Loan Program

• USDA Single Family Housing Guaranteed

Loan Program

25 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

General information

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/ins/203b--df

Applications

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/lender/lendappr

FHA mortgage limits

https://entp.hud.gov/idapp/html/hicostlook.cfm

HUD Handbook 4000.1 (contains all 203(b) program requirements; sections of particular importance

are identied below)

https://www.hud.gov/sites/documents/40001HSGH.PDF

• See section I.A.3 for lender application and approval requirements

• See section II.A.5.c.viii. for Approvable Ratio Requirements for manual underwriting

• See section II.A.8.f. for Section 251 Adjustable-Rate Mortgage program requirements

• See section II.A.8.b. for Section 203(h) Mortgage Insurance for Disaster Victims program requirements

• See section II.A.8.h. for Section 247 Single Family Mortgage Insurance on Hawaiian Home Lands pro-

gram requirements

• See section II.A.8.g. for Section 248 Mortgages on Indian Land program requirements

• See Appendix 1.0 for Mortgage Insurance Premiums

Mortgage insurance premium rate calculation procedures

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/comp/premiums/sfpcalc

HUD-approved housing counseling agencies

http://www.hud.gov/ofces/hsg/sfh/hcc/hcs.cfm

HUD’s minimum property standards

https://www.hud.gov/program_ofces/administration/hudclips/handbooks/hsgh/4910.1

FDIC | Affordable Mortgage Lending Guide | 26

FHA | TITLE II PROGRAMS

Streamline Renance

Helps existing FHA borrowers renance to a more affordable mortgage

BACKGROUND AND PURPOSE

The Streamline Renance program allows FHA-

approved lenders to renance current FHA-insured

loans to a lower interest rate or to a different type of

mortgage (xed- or adjustable-rate mortgage).

Streamline Renance refers only to the amount of

documentation and underwriting that the lender must

perform; it does not mean that there are no costs

involved in the transaction. Borrowers may elect not to

provide income and credit documentation in exchange

for a smaller discount on their interest rate. The time

and cost savings mostly come from the fact that a

new appraisal is not required. No cash may be taken

out on mortgages renanced using the Streamline

Renance program. In order to offer the program, lend-

ers must be FHA-approved supervised lenders and be

approved by FHA as a direct endorsement (DE) lender.

The ability to renance existing FHA loans without

regard to the loan-to-value (LTV) ratio, credit score, or

other factors originally used to qualify the borrower

lowers FHA’s risk because borrowers are less likely to

default on their mortgages if their payments are more

affordable. Therefore, FHA’s requirements are very

minimal. While lenders may set their own qualifying

requirements, FHA has exempted these transactions

from inclusion in “compare ratios,” a measure of the

lender’s default rate compared to other FHA lenders in

the area, in an attempt to encourage lenders to per-

form these transactions for borrowers who might not

otherwise qualify based on their circumstances.

PROGRAM NAME

Streamline Renance

AGENCY

Federal Housing Administration

EXPIRATION DATE

Not Applicable

APPLICATIONS

Lenders may access FHA’s Lender Requirements and the online lender application at:

https://www.hud.gov/program_ofces/housing/sfh/lender/lendappr

WEB LINK

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/ins/streamline

CONTACT

INFORMATION

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

Telephone: (800) CALL-FHA (225-5342) Email: [email protected]. Lenders that want to apply for

FHA approval should include the words “New Applicant” in the email subject line and include a

contact person and phone number in the email body so that a Lender Approval representative

may contact you.

27 | FDIC | Affordable Mortgage Lending Guide

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: There are two types of Streamline Renances: credit qualifying,

where the borrower provides income and credit documentation and

the lender performs a credit check; and non-credit qualifying, where no

credit check is performed. Credit qualifying procedures must be fol-

lowed in cases where the renance removes a borrower. In both cases,

the lender must verify that the mortgage payment history meets FHA

guidelines. Lenders may also impose overlays and require some form of

credit and/or income review beyond those required by FHA.

Occupancy and ownership of other properties: Owners of one- to

four-unit primary residences, HUD-approved secondary residences, and

non-owner occupied properties (i.e., investment properties) with existing

FHA-insured mortgages can all use the program.

Payment history/mortgage seasoning requirement: Borrowers must

have made at least six payments on the FHA-insured mortgage that is

being renanced, at least six months must have passed since the rst

payment due date of the FHA-insured mortgage that is being re-

nanced, and at least 210 days must have passed from the closing date

of the FHA-insured mortgage that is being renanced. If the borrower

assumed the mortgage that is being renanced, they must have made

six payments since the time of assumption. The borrower must have

made all mortgage payments for all mortgages on the property within

the month due for the six months prior to case number assignment and

have no more than one 30-day late payment for the previous six months

for all mortgages on the property.

LOAN CRITERIA

Loan limits: Streamline renances are not subject to the FHA mortgage

limits but are subject to maximum mortgage amounts that are based

upon the outstanding balance of the existing mortgage.

Loan-to-value limits: Property appraisals are not required. There are

no LTV or combined LTV limits. The maximum allowable mortgage

amount is based on the principal balance of the FHA-insured loan

being renanced.

Adjustable-rate mortgages: An ARM may be renanced to another ARM

only if the property is a primary residence and the requirements of the

net tangible benet test have been met. A xed-rate mortgage may

be renanced to a one-year ARM as long as the new interest rate is at

least 2 percentage points below the current interest rate of the xed-

rate mortgage.

Homeownership counseling: Not required.

Mortgage insurance: The mortgage insurance premiums follow the

same requirements as Section 203(b) mortgages except Streamline

POTENTIAL BENEFITS

FHA Streamline Refinance trans

actions are exempt from a bank’s

compare ratios. This means that

a bank can make loans without

regard to typical risk factors

such as credit score because

the performance of the loans

will not influence the bank’s

performance record. Streamline

Refinance can also remove

at-risk loans from the bank’s

regular FHA performance record.

The reduced underwriting

requirements and waiver of

appraisal cuts down significantly

on the amount of time it takes to

refinance the loan.

POTENTIAL CHALLENGES

Lenders must be FHA-approved

and must be approved for

direct endorsement.

A limited pool of borrowers is

eligible for this program because

only existing FHA mortgage

holders who are current on their

mortgage are eligible, and those

who are not struggling to make

payments may have more com

petitive refinancing options.

Findings under FHA’s Technology

Open to Approved Lenders

(TOTAL) mortgage scoring

system are invalid. Any under

writing that may be necessary

under a credit-qualifying trans

action must be done manually.

FDIC | Affordable Mortgage Lending Guide | 28

Renance of mortgages that were endorsed on or

before May 31, 2009 where the UFMIP is 1 basis point

or 0.01 percent of the loan value, and the annual

mortgage insurance premium (MIP) is 55 bps or 0.55

percent of the loan value. Since Streamline Renances

do not obtain appraisals, they utilize the value of the

property from the previous FHA loan to determine the

LTV for purpose of applying MIPs.

Debt-to-income ratio: The program does not require

lenders to compute the DTI ratio for non-credit

qualifying Streamline Renances. For credit-qualifying

renances, the lender must calculate the borrower’s

DTI. However, there is no hard and fast DTI cutoff

because a borrower can always convert to a non-credit

qualifying transaction. In the event the borrower has

student loan debt, regardless of the payment status,

FHA’s policy is to include either the actual documented

payment, provided the payment will fully amortize the

loan over its term or the greater of 1 percent of the

total student loan balance or the monthly payment

reported on the borrower’s credit report in the debt-

to-income calculation.

Net tangible benets requirement: The transac-

tion must result in a tangible benet to the borrower

through either a rate and/or term reduction. The

level of rate reduction varies based upon the xed-

or adjustable-rate characteristics of both loans. See

Handbook 4000.1 II.A.8.d.vi for details of the Net

Tangible Benet requirements.

Potential Benets

• FHA Streamline Renance transactions are exempt

from a bank’s compare ratios. This means that a

bank can make loans without regard to typical risk

factors such as credit score because the perfor-

mance of the loans will not inuence the bank’s

performance record. Streamline Renance can also

remove at-risk loans from the bank’s regular FHA

performance record.

• The reduced underwriting requirements and

waiver of appraisal cuts down signicantly on the

amount of time it takes to renance the loan.

• The insurance provided through this program pro-

tects community banks from credit risk.

• This program allows community banks to offer a

product to existing FHA borrowers who would not

qualify for other mortgage renance products and

may reduce their monthly payments.

• Loans originated through this program may receive

favorable consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

Potential Challenges

• Lenders must be FHA-approved and must be

approved for direct endorsement.

• A limited pool of borrowers is eligible for this pro-

gram because only existing FHA mortgage holders

who are current on their mortgage are eligible, and

those who are not struggling to make payments

may have more competitive renancing options.

• Findings under FHA’s Technology Open to

Approved Lenders (TOTAL) mortgage scoring

system are invalid. Any underwriting that may be

necessary under a credit-qualifying transaction

must be done manually.

SIMILAR PROGRAMS

• Fannie Mae Re Plus™

• Freddie Mac Relief Renance

29 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

General information

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/ins/streamline

HUD Handbook 4000.1

http://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdf

• Refer to section II.A.5.a. for manual underwriting guidelines

• Refer to section II.A.5.d. for DTI requirements

• Refer to section II.A.8.d. for program requirements

• Refer to Appendix 1.0 for mortgage insurance premium requirements

Applications

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/lender/lendappr

FDIC | Affordable Mortgage Lending Guide | 30

FHA | TITLE II PROGRAMS

203(k) Rehabilitation Mortgage Insurance

Helps prospective and current borrowers improve their homes

BACKGROUND AND PURPOSE

The 203(k) Rehabilitation Mortgage Insurance pro-

gram is FHA’s primary tool to enable the rehabilitation

and repair of single-family properties and has been in

existence since 1978. The program enables lenders to

offer homebuyers, current homeowners, and nonprot

organizations a single, long-term, xed-, or adjustable-

rate loan that covers the acquisition, renance, and

rehabilitation of a property. Often when buying a house

that needs repairs, homebuyers have to nd multiple

sources of nancing, and improvement loans often

carry high interest rates and short repayment terms.

Section 203(k) insured loans help the borrower access

affordable nancing and protect lenders by allow-

ing them to have the loan insured before the nal

condition and value of the property may offer ade-

quate security.

There are two versions of the program, Standard and

Limited, which are used to nance different levels and

types of repairs. The Standard 203(k) program may be

used for remodeling and extensive, structural repairs.

There is a minimum repair cost of $5,000 and the

use of a 203(k) Consultant is required. 203(k) consul-

tants are professionals certied by HUD who ensure

that all FHA minimum standards are met during the

203(k) loan process and are listed in the HUD 203(k)

consultant roster. Their duties include visiting the

property, completing the work write-up/cost esti-

mate and architectural exhibits, and performing draw

request inspections. The Limited 203(k) program was

created in 2005 to nance minor remodeling and non-

structural repairs. Eligible projects must not exceed

$35,000 and there is no minimum repair amount. Any

PROGRAM NAME

203(k) Rehabilitation Mortgage Insurance

AGENCY

Federal Housing Administration

EXPIRATION DATE

Not Applicable

APPLICATIONS

To participate, lenders must be FHA-approved for the Title II loan program. Lenders may access

FHA’s Lender Requirements and the online lender application at:

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/lender/lendappr

WEB LINK

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/203k/203k--df

CONTACT

INFORMATION

Telephone: (800) CALL-FHA (225-5342) Email: [email protected]. Lenders that want to apply for

FHA approval should include the words “New Applicant” in the email subject line and include a

contact person and phone number in the email body so that a Lender Approval representative

may contact you.

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

31 | FDIC | Affordable Mortgage Lending Guide

FHA-approved lender may originate a Limited 203(k) loan, while the

Standard 203(k) loan requires special expertise. In both the Standard

and Limited versions of the program, a portion of the loan is used to

pay the seller or, if it is a renance, to pay off the existing mortgage. The

remaining funds are placed in an escrow account and released as the

repairs are completed.

Types of improvements that borrowers may make using Section 203(k)

nancing include:

• Structural alternations and reconstruction;

• Modernization and improvements to the home’s function;

• Elimination of health and safety hazards;

• Changes that improve appearance and eliminate obsolescence;

• Reconditioning or replacing plumbing; installing a well and/or

septic system;

• Adding or replacing roong, gutters, and downspouts;

• Adding or replacing oors and/or oor treatments;

• Major landscape work and site improvements;

• Enhancing accessibility for a disabled person; and

• Making energy conservation improvements.

BORROWER CRITERIA

Income limits: There is no income limit to participate in the program.

Credit: Credit scores above 580 are eligible for maximum nancing

of 96.5 percent. Credit scores between 500 and 579 are limited to a

maximum 90 percent loan to value. Credit scores of less than 500 are

not eligible for FHA insured nancing. Borrowers with non-traditional or

insufcient credit histories are eligible for maximum nancing, but must

be underwritten using the procedures in manual underwriting.

First-time homebuyers: The program is open to all interested borrow-

ers and can be used by rst-time homebuyers. The program can also be

used to renance a property.

Occupancy and ownership of other properties: Only owner-occupants,

not investors, may use the program. Local governments and nonprof-

its that obtain approval through FHA’s Homeownership Centers can

also use the program. The original construction of the property must

have been complete for at least a year. This is to ensure the 203(k) loan

insurance is not used to construct a new property, but only to repair

an existing one. The 203(k) program can also be used with the Section

203(h) Mortgage Insurance for Disaster Victims program.

Damaged residences are eligible for 203(k) mortgage insurance regard-

less of the age of the property and for properties that must be razed

POTENTIAL BENEFITS

To minimize the risk to the

lender, the mortgage loan is

eligible for endorsement by

HUD as soon as the mortgage

proceeds are disbursed and a

rehabilitation escrow account

is established. At this point,

the lender has a fully insured

mortgage loan even though

the improvements have not

been completed.

The 203(k) program allows

lenders to offer a product to a

market segment of new and

existing homeowners who wish

to improve their property.

POTENTIAL CHALLENGES

This program has many unique

requirements and forms with

which lenders must be familiar,

such as escrows and reserves,

administration of draws, and

pricing of rehabilitation work.

Lenders must partner with FHA-

approved 203(k) Consultants and

ensure they are in good standing.

Lenders must partner with

appraisers who are famil

iar with the unique appraisal

requirements of this program.

Appraisers must be certified

by the state in which they are

located or by a nationally recog

nized professional organization.

FDIC | Affordable Mortgage Lending Guide | 32

in order for the construction to proceed, but retain

the original complete foundation. Property types

that are eligible for Section 203(k) insurance include

one- to four-unit single-family structures; interior

repairs only on individual condominium units in an

FHA-approved condominium project; ground-only

or “site” condominium units; manufactured housing

where the rehabilitation does not affect the structural

components; a mixed-use property with one to four

units, provided that over half of the property’s square

footage is for residential use; or HUD real estate owned

(REO) property.

LOAN CRITERIA

Loan limits: FHA mortgage limits vary by the number of

units and by the county or Metropolitan Statistical Area

in which the property resides. HUD issues a Mortgagee

Letter announcing the new mortgage limits every year.

Loan-to-value limits: For purchase transactions, the

maximum mortgage amount that FHA will insure on a

203(k) loan is the lesser of:

1. The appropriate LTV ratio multiplied by the

lesser of:

a. the “As-Is Value,” plus:

• nanceable repair and improvement costs;

• nanceable mortgage fees;

• nanceable contingency reserves; and

• nanceable mortgage payment reserves,

(for Standard 203(k) only); or

b. 110 percent of the after improved value

(100 percent for condominiums); or

2. The nationwide mortgage limits.

Down payment sources: As with other FHA programs,

the minimum down payment for purchase loans is 3.5

percent of the loan amount. FHA allows for various

acceptable sources of funds to cover down payment

costs. The acceptable sources fall into six categories,

including cash and savings/checking account funds;

investment funds; gifts; funds resulting from the sale

of personal or real property; loans and grants; and

employer assistance.

Homeownership counseling: Not required.

Mortgage insurance: For all mortgages, the up-front

mortgage insurance premium is 175 basis points (1.75

percent) of the base loan amount. Lenders also pay

an annual mortgage insurance premium on a monthly

basis to HUD. These are typically passed on to the bor-

rower at the lender’s discretion. The rates are the same

as the Section 203(b) program and vary based on the

loan to value, mortgage terms, and mortgage amount.

FHA uses the “After Improved Value” to determine the

LTV for the purpose of calculating the MIP.

Debt-to-income ratio: HUD requires lenders to cal-

culate two ratios to determine if a borrower can

reasonably meet the expected expenses. First, the

Mortgage Payment Expense to Effective Income ratio

(or front-end DTI) should not exceed 31 percent.

Second, the Total Fixed Payment to Effective Income

ratio (or back-end DTI) should not exceed 43 percent.

Ratios that exceed 31 percent or 43 percent may be

acceptable if the lender documents qualied “signi-

cant compensating factors.” In the event the borrower

has student loan debt, regardless of the payment

status, FHA’s policy is to include either the actual

documented payment, provided the payment will fully

amortize the loan over its term or the greater of 1 per-

cent of the total student loan balance or the monthly

payment reported on the borrower’s credit report in

the debt-to-income calculation.

Renance: The program can be used to renance

and rehabilitate an existing property. A Section 203(k)

rehabilitation mortgage may be renanced into a

Section 203(b) mortgage once the rehabilitation work

is complete.

Origination fee: The lender may nance a portion of

the borrower-paid origination fee not to exceed the

greater of $350, or 1.5 percent of the total of the fees

described below, as well as a portion of the borrower-

paid discount points not to exceed an amount equal to

the discount point percentage multiplied by the total

of the fees described below:

• costs of construction, repairs and rehabilitation;

• architectural/engineering professional fees;

• the 203(k) Consultant fee subject to the limits in the

203(k) Consultant Fee Schedule section;

• inspection fees performed during the construc-

tion period, provided the fees are reasonable and

customary for the area;

33 | FDIC | Affordable Mortgage Lending Guide

FDIC | Affordable Mortgage Lending Guide | 34

• title update fees;

• permits; and

• a feasibility study, when necessary to determine if

the rehabilitation is reasonable.

Potential Benets

• To minimize the risk to the lender, the mortgage

loan is eligible for endorsement by HUD as soon

as the mortgage proceeds are disbursed and a

rehabilitation escrow account is established. At

this point, the lender has a fully insured mortgage

loan even though the improvements have not

been completed.

• The 203(k) program allows lenders to offer a

product to a market segment of new and existing

homeowners who wish to improve their property.

• The 203(k) program allows lenders to offer this

product at terms that are competitive compared to

the conventional market. Loans originated under

this program may receive favorable consideration

under the CRA, depending on the geography or

income of the participating borrowers.

Potential Challenges

• This program has many unique requirements and

forms with which lenders must be familiar, such as

escrows and reserves, administration of draws, and

pricing of rehabilitation work.

• Lenders must partner with FHA-approved 203(k)

Consultants and ensure they are in good standing.

• Lenders must partner with appraisers who are

familiar with the unique appraisal requirements of

this program. Appraisers must be certied by the

state in which they are located or by a nationally

recognized professional organization.

SIMILAR PROGRAMS

• Fannie Mae HomeStyle® Renovation Mortgage

• Freddie Mac Construction Conversion and

Renovation Mortgage

• USDA Single Family Housing Repair Loans

and Grants

RESOURCES

Direct access to the following web links can be

found at https://www.fdic.gov/mortgagelending.

203(k) Consultant Roster List Map

http://batchgeo.com/map/549720000a2265d825b

e379c0537302a

FHA mortgage limits

https://entp.hud.gov/idapp/html/hicostlook.cfm

HUD Handbook 4000.1

https://www.hud.gov/sites/

documents/40001HSGH.PDF

• Refer to section II.A.8.a. for program requirements

• Refer to Appendix 1.0 for mortgage insurance

premium requirements

HUD PROGRAMS

Section 184 Indian Home Loan Guarantee Program

Provides access to credit for American Indian and Alaska Native families,

Alaska Villages, Tribes, or Tribally Designated Housing Entities

BACKGROUND AND PURPOSE

The Section 184 Indian Home Loan Guarantee

Program was created by the Housing and Community

Development Act of 1992 to address the lack of

mortgage lending in Indian Country. Native American

homeownership has historically been an underserved

market. Land held in trust for a tribe cannot be mort-

gaged, and land held in trust for an individual must

receive approval from the Bureau of Indian Affairs

(BIA), before a lien is placed on the property. Without

the ability to mortgage and foreclose on a home or

place a lien on individual trust property, lenders have

found it difcult to make home loans to individual

Native Americans.

Working with an expanding network of private sector

and tribal partners, the Section 184 Indian Home Loan

Guarantee Program endeavors to increase access to

capital for Native Americans and provide private fund-

ing opportunities for tribal housing agencies with the

Section 184 Indian Home Loan Guarantee Program.

The program has grown to include eligible areas,

determined by participating tribes, across the country.

The Section 184 Indian Home Loan Guarantee Program

is a home mortgage specically designed for American

Indian and Alaska Native families, Alaska Villages,

Tribes, or Tribally Designated Housing Entities.

PROGRAM NAME

Section 184 Indian Home Loan Guarantee Program

AGENCY

U.S. Department of Housing and Urban Development

EXPIRATION DATE

Not Applicable

APPLICATIONS

https://www.hud.gov/program_ofces/public_indian_housing/ih

WEB LINK

https://www.hud.gov/program_ofces/public_indian_housing/ih/homeownership/184

CONTACT

INFORMATION

800-561-5913, ask for the Ofce of Loan Guarantee

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

The land located in an eligible Indian area or Alaska Native area (as determined by the

participating Tribes) may entail Tribal Trust, Allotted Trust, or fee simple.

• The section 184 loan is available in all counties in AK, AZ, CA, CO, FL, HI, ID, IN, KS, MA, ME,

MI, MN, MT, NC, ND, NM, NV, OK, OR, SC, SD, UT, WA, and WI.

• The section 184 loan is available in SELECT counties in AL, CT, IA, IL, LA, MO, MS, NE, NY, RI,

TX, and WY.

• The section 184 loan is NOT available in AR, DE, DC, GA, KY, MD, NH, NJ, OH, PA, TN, VT, VA,

and WV.

35 | FDIC | Affordable Mortgage Lending Guide

Section 184 Indian Home Loan Guarantee Program loans can be used,

both on and off native lands, for new construction, rehabilitation, purchase

of an existing home, or renance. To help increase access to nancing, the

Ofce of Loan Guarantee within HUD’s Ofce of Native American Programs

guarantees the Section 184 home mortgage loans made to Native bor-

rowers. By providing a 100 percent guarantee, the program encourages

lenders to serve Native Communities. This increases the marketability

and value of the Native assets and strengthens the nancial standing of

Native Communities.

This program is very similar to Section 248 Mortgage Insurance on Indian

Lands. However, Section 248 allows for renancing, while Section 184 does

not. Section 184 allows for mortgages on individual trust land as well as

tribal trust land, whereas Section 248 may only be used on tribal trust land.

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: Interest rates are based on market rates, not on an applicant’s credit

score. There is no minimum credit score required to qualify for the pro-

gram. However, in all cases the borrower must be creditworthy. Alternative

credit is allowed, but not as a substitute for traditional credit. When delin-

quent accounts are revealed on the borrower’s credit report, underwriters

must use their best judgment and experience to determine whether the

late payments were due to a disregard for nancial obligations, an inability

to manage these obligations, or factors beyond the control of the applicant.

First-time homebuyers: Allowed; confers no benet.

Occupancy and ownership of other properties: The guarantee funds are

reserved for primary residences only.

Special populations: Borrowers wishing to use a Section 184 Indian Home

Loan Guarantee Program loan must be a currently enrolled member of

a Federally Recognized Tribe or Alaska Native. For Native Hawaiians,

participation is through Section 184A: Native Hawaiian Housing Loan

Guarantee Program.

Special assistance for persons with disabilities: Outtting a home for use

by a person with a disability is an eligible use of program funds.

Property type: Single-family, one- to four-unit homes only. Homes must

be of standard quality and must meet applicable construction and safety

codes. In addition, homes must be modest in size and design. To meet this

requirement, no loan under the Section 184 Indian Home Loan Guarantee

Program may exceed 150 percent of the maximum FHA mortgage limit for

the area. Loans may be used to:

• purchase an existing home;

• construct a new home (site-built or manufactured homes on permanent

foundations);

POTENTIAL BENEFITS

The Section 184 Indian Home

Loan Guarantee Program may

allow community banks to

expand their customer base

in low- and moderate-income

communities, particularly near

Tribal Reservations and on Tribal

trust land.

The Section 184 Indian Home

Loan Guarantee Program offers

competitive pricing and terms.

The Section 184 Indian Home

Loan Guarantee Program may

help community banks access

the secondary market, providing

greater liquidity to enhance their

lending volume.

POTENTIAL CHALLENGES

Lenders must have a way to

access the program, whether

through direct sales or a cor

respondent arrangement, as

discussed in the introduction to

this section. Depending on the

arrangement, community banks

may need to acquire or develop

new expertise and infrastructure

in order to participate.

Manual underwriting is a

requirement of this program.

A limited pool of borrowers is

eligible for this program. The

borrower must be a currently

enrolled member of a Federally

Recognized Tribe.

FDIC | Affordable Mortgage Lending Guide | 36

• rehabilitate a home, including weatherization;

• purchase and rehabilitate a home; or

• renance a home (rate and term, streamline,

cash-out).

LOAN CRITERIA

Loan limits: The maximum mortgage amount may not

exceed 150 percent of current FHA mortgage limits.

FHA mortgage limits vary by the number of units and

by the county or Metropolitan Statistical Area in which

the property resides. HUD issues a Mortgagee Letter

announcing the new mortgage limits every year.

Loan-to-value limits: The LTV is 97.75 percent on

loans over $50,000 and 98.75 percent on loans under

$50,000.

Adjustable-rate mortgages: Not allowed.

Down payment sources: No requirement for personal

funds. Gifts and down payment assistance programs

from entities with a clearly dened and documented

interest in the applicant are allowed. Gifts from entities

with an interest in the sale of the property are consid-

ered inducements to purchase and must be subtracted

from the sales price. Subordinate nancing may be

used, but must be included in the calculation of the

applicant’s qualifying ratios. Anything that does not

need to be repaid while the borrower lives in the home

is considered a gift.

Homeownership counseling: Not required, but highly

recommended. Some lenders or Tribes offer nancial

assistance to borrowers who attend these classes.

Mortgage insurance: Loans with a LTV of 78 percent or

greater are subject to an annual 0.15 percent mortgage

insurance premium.

Debt-to-income ratio: No more than 41 percent, or

no more than 43 percent with two or more compen-

sating factors (minimal housing cost increase, strong

credit history, additional income not used as qualifying

income, substantial cash reserves, loan to value below

75 percent).

Temporary interest rate buy downs: Acceptable on

purchase transactions only. Loans must be underwrit-

ten at note rate.

Renance: Allowed.

Fees: The program monitors the fees approved lenders

can charge Native borrowers. A one-time 1.5 percent

up-front guarantee fee is paid at closing and can be

nanced into the loan.

Guarantee: The Ofce of Native American Programs

guarantees Section 184 Indian Home Loan Guarantee

Program loans at 100 percent repayment.

Maximum loan amount: In no case can the mortgage

amount exceed 150 percent of the FHA’s mortgage

limit for the area.

Underwriting: Manual underwriting only. The Section

184 guaranteed loan utilizes a hands-on approach to

underwriting and approval.

Appraisals: Home values can be based on cost or

market. On reservation

properties, land values are not

added into total appraisal values.

Special considerations: For a home loan on tribal trust

land, the eligible individual borrower leases the land

from the tribe for 50 years. It is the home and the lease-

hold interest that are mortgaged. The land remains in

trust for the tribe.

Secondary market: A Section 184 Indian Home Loan

Guarantee Program loan, including the security given

for the loan, may be sold or assigned by the lender

to any nancial institution. A strong secondary market

exists for Section 184 Indian Home Loan Guarantee

Program loans. A growing network of national lenders

as well as Fannie Mae, Freddie Mac, Ginnie Mae, some

state housing nancing agencies, and some Federal

Home Loan Banks purchase Section 184 Indian Home

Loan Guarantee Program loans.

According to the U.S. Department of the Interior Indian Affairs, a “federal

Indian reservation is an area of land reserved for a tribe or tribes under treaty

or other agreement with the United States, executive order, or federal statute

or administrative action as permanent tribal homelands, and where the federal

government holds title to the land in trust on behalf of the tribe.”

37 | FDIC | Affordable Mortgage Lending Guide

Potential Benets

• The Section 184 Indian Home Loan Guarantee Program may allow

community banks to expand their customer base in low- and mod-

erate-income communities, particularly near Tribal Reservations and

on Tribal trust land.

• The Section 184 Indian Home Loan Guarantee Program offers com-

petitive pricing and terms.

• The Section 184 Indian Home Loan Guarantee Program may help

community banks access the secondary market, providing greater

liquidity to enhance their lending volume.

• The insurance provided by FHA under this program may help

reduce exposure to credit risk.

• Loans originated through Section 184 Indian Home Loan

Guarantee Program may receive favorable consideration under the

CRA, depending on the geography or income of the participat-

ing borrowers.

Potential Challenges

• Lenders must have a way to access the program, whether through

direct sales or a correspondent arrangement, as discussed in the

introduction to this section. Depending on the arrangement, com-

munity banks may need to acquire or develop new expertise and

infrastructure in order to participate.

• Manual underwriting is a requirement of this program.

• A limited pool of borrowers is eligible for this program. The

borrower must be a currently enrolled member of a Federally

Recognized Tribe.

• A lender or mortgagee is removed from the lender approval list

if there has been no Section 184 Indian Home Loan Guarantee

Program activity for six consecutive months.

ADDITIONAL INFORMATION

Training is currently not being offered by HUD due to stafng con-

straints. Lenders may originate loans under the program without formal

training or HUD approval. The Ofce of Loan Guarantees will match

new lenders with experienced lenders. In addition, the Ofce will assign

a regional loan specialist who will help the lender generate complete

application packages.

Section 184A: Native Hawaiian

Housing Loan Guarantee Program

The Hawaiian Homes Commission Act

of 1920, as amended, set aside lands in

Hawaii known as Hawaiian homelands.

These lands are held in trust for the ben-

et of eligible Native Hawaiians.

Because of the unique status of Hawaiian

homelands, the Section 184A program

was created in 2000 to provide increased

access to sources of private nancing for

Native Hawaiians.

Requirements: The participation require-

ments are the same as for the Section

184 program.

Participation: Loans are originated and

serviced by lenders that have completed

Section 184A training, and participating

lenders are:

• approved by HUD’s Ofce of

Native American Programs (HUD/

ONAP) to originate Section 184A

Native Hawaiian Housing Loan

Guarantee loans;

• approved by HUD/FHA for participa-

tion in the single-family mortgage

insurance program;

• authorized by the U.S. Department

of Veterans Affairs (VA) to originate

automatically guaranteed hous-

ing loans;

• approved by the U.S. Department of

Agriculture to make loans for single-

family housing; or

• supervised, approved, regulated, or

insured by any agency of the federal

government.

Secondary Market: A Section 184A Native

Hawaiian Housing Loan Guarantee loan,

including the security given for the loan,

may be sold or assigned by the lender

to any nancial institution. However, it is

subject to examination and supervision

by an agency of the federal government

or of any state. Fannie Mae, Freddie Mac,

Ginnie Mae, and some Federal Home

Loan Banks purchase Section 184A Native

Hawaiian Housing Loan Guarantee loans.

For more information about Section 184A,

go to

https://www.hud.gov/program_

ofces/public_indian_housing/ih/

codetalk/onap/program184a

FDIC | Affordable Mortgage Lending Guide | 38

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

FHA mortgage limits

https://entp.hud.gov/idapp/html/hicostlook.cfm

Section 184 Underwriting Guide

https://www.hud.gov/sites/documents/PIH201422UNDRWRITGUIDELNS.PDF

Lenders Section 184 Resources

https://www.hud.gov/program_ofces/public_indian_housing/ih/homeownership/184/lenders

Participating Lenders

https://www.hud.gov/sites/dles/PIH/documents/SEC184LENDER.pdf

Participating Tribes

https://www.hud.gov/program_ofces/public_indian_housing/ih/homeownership/184/tribal_list

39 | FDIC | Affordable Mortgage Lending Guide

Visit FDIC’s Affordable Mortgage Lending Center

at https://www.fdic.gov/mortgagelending

HUD PROGRAMS

Good Neighbor Next Door

Gives public servants a path to homeownership

BACKGROUND AND PURPOSE

The Good Neighbor Next Door (GNND) strengthens

communities by making homeownership possible for

public servants. The program enables affordable home-

ownership opportunities in neighborhoods designated

as “revitalization areas” to full-time law enforcement

ofcers, pre-kindergarten through 12th-grade teachers,

reghters, and emergency medical technicians (EMTs)

via a 50 percent discount off the purchase price of the

property. HUD designates revitalization areas based

on neighborhood household income, homeownership

rate, and FHA-insured mortgage foreclosure activ-

ity. The program provides discounts on the purchase

of HUD-owned homes and qualied GNND buyers

seeking an FHA-insured mortgage are eligible for a

minimum down payment of $100 instead of the stan-

dard 3.5 percent of the adjusted value of the property,

and can include closing costs and prepaid expenses in

the FHA-insured mortgage.

To participate, borrowers must verify their employ-

ment status, nd a HUD-owned single-family property

through the HUD Homes database (listed by state), and

purchase it through the program within seven days.

Eligible properties are HUD real estate owned (REO)

single-family, one- to four-unit residential properties

acquired as a result of a foreclosure on the under-

lying FHA-insured mortgage for properties within

designated revitalization areas. A limited number of

properties are available under this program.

Purchasers are responsible for nding their own

nancing and paying closing costs and broker fees, if

applicable. Purchasers may be qualied for FHA or VA

insured loans or various federal programs based on

their special status and/or income level. The GNND

program can work in conjunction with other home

buying programs provided the purchaser meets all

PROGRAM NAME

Good Neighbor Next Door Program (GNND)

AGENCY

U.S. Department of Housing and Urban Development

EXPIRATION DATE

Not Applicable

APPLICATIONS

Not Applicable

WEB LINK

https://www.hud.gov/program_ofces/housing/sfh/reo/goodn/gnndabot

CONTACT

INFORMATION

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

HUD-owned properties in HUD designated “Revitalization Areas”

Lenders that have questions about the program can contact their local HUD Homeownership

Center (HOC) that has a GNND Coordinator. HOCs and their service areas are listed at

https://entp.hud.gov/clas/info2.cfm

41 | FDIC | Affordable Mortgage Lending Guide

GNND requirements. For example, the FHA Section 203(k) mortgage

program helps homebuyers buy a home and have enough money to

rehabilitate or repair it (repairs must cost more than $5,000). The cost

of the repairs and the mortgage are combined into a single monthly

payment. The FHA 203(b) mortgage program can be used to nance the

purchase and repairs under $5,000.

GNND borrowers are required to sign a second mortgage and note for

the discount (50 percent) on the purchase of the home. No interest or

payments are required as long as the borrower remains in the home

for a total of 36 months. After three years, HUD’s second mortgage is

released provided that the participant has completed and returned the

required annual certications, is not currently under investigation by the

Ofce of Inspector General, and complies with all GNND regulations.

The second mortgage will not show up on the title of the property after

it is released. Once this is released, the purchaser is free to sell the home

and keep the equity and/or appreciation generated by the sale.

BORROWER CRITERIA

Purchasers: The home must be located in a HUD-designated revital-

ization area and must be owned by HUD. Borrowers must t one of

three criteria:

1. Law enforcement ofcials can participate if they are employed

full-time by a law enforcement agency of the federal govern-

ment, a state, a unit of general local government, or an Indian

Tribal government.

2. Teachers may participate if they are employed as a full-time teacher

by a state-accredited public school or private school that provides

direct services to students in pre-kindergarten through grade 12

from the area where the teacher purchases the home.

3. Fireghters and emergency medical technicians may participate if

they are employed full-time as a reghter or EMT by a re depart-

ment or emergency medical services responder unit of the federal

government, a state, unit of general local government, or an Indian

tribal government serving the area where the home is located.

Income limits: This program has no income limits.

Credit: Borrowers applying for FHA-insured mortgages must meet FHA’s

minimum credit score requirements. If the borrower’s minimum decision

credit score is above 580, they are eligible for maximum nancing. If the

credit score is between 500 and 579, the borrower is limited to a maxi-

mum loan to value of 90 percent.

First-time homebuyers: The borrower does not have to be a rst-time

homebuyer to participate.

POTENTIAL BENEFITS

There are no income or credit

requirements as long as the pur

chaser meets the employment

qualifications, widening the pool

of potential applicants.

Since GNND is not a mortgage

program, non FHA-approved

lenders can finance the mort

gage for the GNND property if

the borrower meets conventional

loan requirements. Lenders are

making the equivalent of a 50

percent LTV loan.

GNND may allow community

banks to expand their customer

base in low- and moderate-

income communities.

GNND offers competitive pricing.

POTENTIAL CHALLENGES

The potential market for this

program is limited because of

the restrictions on both property

type and applicant employment.

Foreclosed homes may have

quality issues, in which case

lenders should be familiar with

renovation loan programs to cor

rect deficiencies.

FDIC | Affordable Mortgage Lending Guide | 42

Special populations: Full-time law enforcement of-

cers, reghters, teachers, and EMTs purchasing a

HUD-owned home in a designated revitalization area

for use as their sole residence.

Occupancy and ownership of other properties:

Borrowers must commit to live in the property for 36

months as their sole residence and may not own any

other residential property at the time they submit the

offer to purchase a home and for one year previous

to the date. The program can be used to purchase a

single-unit home, townhouse, or condominium.

LOAN CRITERIA

Loan limits: FHA mortgage limits vary by the number of

units and by the county or Metropolitan Statistical Area

in which the property resides. HUD issues a Mortgagee

Letter announcing the new mortgage limits every year.

Loan-to-value limits: If nancing the purchase with an

FHA-insured mortgage, maximum LTV is based on the

borrower’s credit score. If the borrower’s minimum

decision credit score is above 580, they are eligible for

maximum nancing. If the credit score is between 500

and 579, the borrower is limited to a maximum LTV of

90 percent.

Down payment sources: Borrowers must arrange the

nancing, closing costs, and fees on their own. If nanc-

ing the purchase with an FHA-insured mortgage, FHA

allows for various acceptable sources of funds to cover

down payment costs. The acceptable sources fall into

six categories, including cash and savings/checking

account funds; investment funds; gifts; funds resulting

from the sale of personal or real property; loans and

grants; and employer assistance.

Homeownership counseling: Counseling is not a

requirement of the program, but HUD Homeownership

Centers have GNND program coordinators who can

help purchasers with the process.

Mortgage insurance: If nancing the purchase with

an FHA-insured mortgage, the mandatory note and

second mortgage are not included in the upfront and

annual mortgage insurance premium (MIP) associated

with the purchase of a GNND property. The upfront

and annual MIP should be based on the average out-

standing principal obligation of the rst mortgage.

Debt-to-income ratio: If nancing the purchase with

an FHA-insured mortgage, HUD requires lenders to

calculate two ratios to determine if a borrower can

reasonably meet the expected expenses. First, the

mortgage payment expense-to-effective income ratio

(or front-end DTI) should not exceed 31 percent.

Second, the total xed payment-to-effective income

ratio (or back-end DTI) should not exceed 43 percent.

Ratios that exceed 31 percent or 43 percent may be

acceptable if the lender documents qualied “signi-

cant compensating factors.”

Temporary interest rate buy downs: If nancing the

purchase with an FHA-insured mortgage, temporary

interest buy downs are permitted.

Potential Benets

• There are no income or credit requirements as long

as the purchaser meets the employment qualica-

tions, widening the pool of potential applicants.

• Since GNND is not a mortgage program, non FHA-

approved lenders can nance the mortgage for

the GNND property if the borrower meets conven-

tional loan requirements. Lenders are making the

equivalent of a 50 percent LTV loan.

• GNND may allow community banks to expand

their customer base in low- and moderate-

income communities.

• GNND offers competitive pricing.

• Lenders are not responsible for monitoring or

servicing HUD’s second mortgage. The National

Servicing Center in Tulsa monitors the servicing

of the GNND second mortgage after closing and

les the release with the county recorder after

successful completion of the three-year resi-

dence requirement.

Potential Challenges

• The potential market for this program is limited

because of the restrictions on both property type

and applicant employment.

• Foreclosed homes may have quality issues, in

which case lenders should be familiar with renova-

tion loan programs to correct deciencies.

43 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

General information

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/reo/goodn/gnndabot

GNND-eligible participants

http://portal.hud.gov/hudportal/HUD?src=/program_ofces/housing/sfh/reo/goodn/particip

HUD Handbook 4000.1 See section II.A. for general FHA credit requirements.

https://www.hud.gov/sites/documents/40001HSGH.PDF

HUD Mortgagee Letter 2013-20 (includes sample note and second mortgage)

http://portal.hud.gov/hudportal/documents/huddoc?id=13-20ml.pdf

HUD Homeownership Center (HOC) contacts and service areas

https://entp.hud.gov/clas/info2.cfm

HUD homes database (updated daily)

https://www.hudhomestore.com/home/index.aspx

FDIC | Affordable Mortgage Lending Guide | 44

OVERVIEW

U.S. Department of Agriculture

We have included the most recent information available at the date of publication. At the end of each section,

we include a list of resources with web links where you can nd updates, as well as information about additional

programs and other helpful information related to the subject.

OVERVIEW

The U.S. Department of Agriculture (USDA) Rural

Development’s (RD) single-family lending programs

provide a path to homeownership for people living

in rural areas making between 50 and 115 percent

of area median income. This section focuses on the

elements of USDA’s housing programs that offer

opportunities for bank participation.

Rural Development (RD) oversees housing, community

facilities, water and waste disposal, utilities, broadband

access, and nancing for rural businesses. USDA main-

tains an extensive network of eld ofces in rural areas

across the country.

Although housing costs are generally lower in rural

communities, lower incomes make housing options

unaffordable for many rural residents. Rural communi-

ties are four times more likely than urban areas to have

at least 20 percent of their population living in poverty.

USDA provides specic denitions for very low-, low-,

and moderate-income borrowers that differ from the

Community Reinvestment Act regulatory denitions.

USDA Rural Housing programs assist rural borrow-

ers who have very-low incomes (below 50 percent of

area median income or AMI), low-incomes (below 80

percent of AMI), and moderate-incomes (the greater

of 115 percent of the AMI, 115 percent of the average

of the state and state non-metro area median incomes,

or 115/80 percent of the area low-income limits). The

denition of moderate income for rural areas is set

higher than the AMI because incomes overall tend

to be low compared to urban areas so that the area

median income is also signicantly lower. Therefore,

people above the area median income may still require

assistance to afford adequate housing.

Programs covered in this section:

Single Family Housing Guaranteed Loan: Helps rural

residents who have a steady income of not more than

115 percent of AMI (as dened by USDA), but are

unable to obtain conventional nancing by offering a

guarantee on loans originated by private lenders. This

guarantee substantially reduces the risk for lenders,

thus encouraging them to make loans to rural residents

who have only modest incomes and little collateral.

Single Family Housing Direct Loan: This program

assists applicants with incomes below 80 percent of

AMI (as dened by USDA) in obtaining decent, safe,

and sanitary housing. Direct loans are underwritten and

serviced by USDA at market interest rates, but payment

assistance is used to bring the interest rate down to as

low as 1 percent.

Single Family Housing Repair Loans and Grants: This

program helps homeowners with household income

less than 50 percent of AMI (as dened by USDA)

repair, improve, or modernize a home, with a special

focus on removing health and safety hazards. Grants

are available for applicants living in extreme poverty,

which is dened as household income less than 30 per-

cent of the adjusted median income limit or applicants

without repayment ability (total debt exceeding 46

percent). Applicants with a reliable source of income

and repayment ability based on a total debt ratio not

to exceed 46 percent can obtain a loan or combination

loan and grant. Loans and grants can be combined

providing up to $27,500 in assistance.

The Single Family Housing Guaranteed Loan

Program is funded through fees so it is not subject to

45 | FDIC | Affordable Mortgage Lending Guide

appropriations. Community banks can directly originate, underwrite, fund,

and/or service these loans.

Unlike the Guaranteed Loan Program, the Direct Loan Program and USDA

Housing Repair Loans and Grants are subject to appropriations. For these

programs, RD acts as the lender, but community banks can help custom-

ers access the program by acting as fee-based loan packagers. RD’s

liquidity for these programs is obtained through the recycling of loans

and through Ginnie Mae, with appropriated funds acting as either grants

or equity to write down the effective loan rate.

DOING BUSINESS WITH USDA

Benets

For community banks that operate in rural areas, nancing guaranteed by

USDA may be a good option for households with incomes less than 115

percent of area median income (as dened by USDA) who nd it difcult

to meet the down payment requirements of conventional loans. USDA

nancing carries a 90 percent guarantee. Lenders can also help meet

the special needs of rural customers as fee-based packagers for USDA’s

direct loan and grant programs to very-low and low-income households.

Delivery Options

Becoming a USDA lender

Lenders with a service area conned to a single state may apply through

their state USDA Rural Development ofce. However, to originate loans

in more than one state, lenders must apply with a consolidated applica-

tion through the national USDA Rural Development ofce. Application

requirements for single state and national lenders are the same.

Lenders are generally approved on the basis of expertise demonstrated

through participation in other single-family loan making programs. They

may demonstrate approval for single-family loan activities by a secondary

market entity such as Fannie Mae, Freddie Mac, or Ginnie Mae, and show

evidence of having originated, underwritten, and/or serviced

single-family residential mortgages in the past year.

Banks without other secondary market entity approval can apply by dem-

onstrating ability and expertise in mortgage lending activity. A lender that

does intend to service USDA loans must provide a written plan of policies

and procedures for servicing residential mortgage loans, evidence of a

written plan if the lender contracts for escrow services, and evidence that

the lender has serviced single-family residential mortgage loans in the

year before applying for USDA approval.

The originating lender may be required to indemnify Rural Development

should USDA determine that negligent underwriting attributed to a loss

claim payment.

PROGRAMS IN THIS SECTION:

Single Family Housing Guaranteed Loan:

Helps rural residents who have a steady

income of not more than 115 percent of AMI

(as defined by USDA), but are unable to obtain

conventional financing by offering a guarantee

on loans originated by private lenders. This

guarantee substantially reduces the risk for

lenders, thus encouraging them to make

loans to rural residents who have only modest

incomes and little

collateral.

Single Family Housing Direct Loan:

This pro

gram assists applicants with incomes below

80 percent of AMI (as defined by USDA) in

obtaining decent, safe, and sanitary housing.

Direct loans are underwritten and serviced by

USDA at market interest rates, but payment

assistance is used to bring the interest rate

down to as low as 1

percent.

Single Family Housing Repair Loans and

Grants:

This program helps homeowners with

household income less than 50 percent of

AMI (as defined by USDA) repair, improve, or

modernize a home, with a special focus on

removing health and safety hazards. Grants

are available for applicants living in extreme

poverty, which is defined as household

income less than 30 percent of the adjusted

median income limit or applicants without

repayment ability (total debt exceeding 46

percent). Applicants with a reliable source

of income and repayment ability based on a

total debt ratio not to exceed 46 percent can

obtain a loan or combination loan and grant.

Combination loan and grants can be combined

providing up to $27,500 in assistance.

FDIC | Affordable Mortgage Lending Guide | 46

USDA maintains an extensive network of state and

local ofces, so the rst step for lenders interested in

participating in the program is to contact the relevant

State Guaranteed Loan Coordinator. Approval as an

accredited lender is conditional on completion of man-

datory training.

The State Guaranteed Loan Coordinator is the best

source of information about training requirements and

availability. Forms, guidance, training, and marketing

materials can be accessed through the online portal

USDA LINC (Lender Interactive Network Connection).

Becoming a USDA Servicer

To service USDA loans, a lender must provide USDA

with written criteria concerning the policies and proce-

dures that they use for servicing residential mortgage

loans. If a lender intends to contract with other enti-

ties for tasks such as servicing or holding funds for

taxes and insurance in escrow, they must contract with

USDA-approved entities and provide a written con-

tracting plan.

Originating USDA loans as a correspondent lender or

approved investor

Smaller lenders often turn to investors or aggregators

to help them carry out underwriting, funding, and/or

secondary market sales functions. Correspondent lend-

ers typically fund loans in their own names, and then

sell them to investors, who in turn sell the loans into the

secondary market. In some cases, the correspondent

lenders handle the underwriting in-house. In others,

the investor acts as the underwriter. Smaller lenders

that are interested in originating loans but do not have

the internal capacity to either underwrite or fund the

loans can also work with investors with the lender car-

rying out the origination function while looking to the

investor to underwrite and fund the loans in the name

of the investor.

Banks can originate USDA loans by working with an

investor that will underwrite and close the loan in its

name or purchase the USDA loan after it closes. The

originating lender can close USDA loans in its name as

long as the loan was reviewed by the approved lender

investor and is transferred to the approved lender

investor immediately upon closing and before issu-

ance of a loan note guarantee. A USDA loan may be

sold only to an approved lender-servicer. The lender

investor is responsible for meeting USDA standards for

loan origination, underwriting, and closing activities.

Selling USDA Loans

USDA does not purchase and securitize loans. Instead,

USDA loans are delivered to the secondary market

through Ginnie Mae’s guaranteed mortgage-backed

securities. Securities are issued by private nancial

institutions and payments to investors in these securi-

ties are guaranteed by Ginnie Mae, a government

organization within the U.S. Department of Housing

and Urban Development (HUD). USDA lenders can sell

USDA loans by:

• becoming a Ginnie Mae approved issuer;

• selling USDA loans to Fannie Mae or Freddie

Mac (for Freddie Mac, sellers must obtain special

approval and loans have recourse to the lender); or

• selling USDA loans to third-party Ginnie Mae

approved industry conduits or aggregators, includ-

ing certain Federal Home Loan Banks and state

housing nance agencies.

System Requirements and Quality Control

Lenders are encouraged to originate guaranteed loans

entirely online using the Guaranteed Underwriting

System, or GUS, which is an automated system

designed to help authorized lenders process loan

applications. There is no fee to use it, and its use is

optional. GUS may be used for eligibility determina-

tion, prequalication, or nal submission to USDA’s

Rural Development. The USDA National Headquarters

staff of the Guaranteed Loan Division ensure that

state ofces create efcient systems for reviewing loan

applications, storing loan documentation, offering con-

ditional commitments, accounting for individual state

requirements and waivers, and working with lenders to

correct deciencies.

Lenders are required to have a written quality control

plan and a quality control team that operates indepen-

dently from the loan origination or servicing function.

Lenders may also contract with outside parties to carry

out quality control functions.

47 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

USDA Rural Development Guaranteed Loan Program Technical Handbook: Rules and regulations covering all

aspects of the Rural Development Guaranteed Loan Program.

https://www.rd.usda.gov/publications/regulations-guidelines/handbooks

USDA Rural Housing Single Family Housing Guaranteed loan contacts: Contact information for all state

guaranteed loan coordinators.

https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=GetRHContact&

NavKey=contact@12

USDA lender eligibility

https://www.law.cornell.edu/cfr/text/7/3555.51

USDA Lender Interactive Network Connection: Lender training and resource library.

https://www.rd.usda.gov/programs-services/lenders/usda-linc-training-resource-library

USDA income and property eligibility site: Allows lenders to enter a property address to determine eligibility for

USDA’s loan programs.

http://eligibility.sc.egov.usda.gov/

Fannie Mae’s guidance on delivery of USDA loans

https://www.fanniemae.com/content/fact_sheet/liquidity-for-government-guaranteed-rural-and-native-

american-loans-fact-sheet.pdf

Freddie Mac’s guidance on delivery of USDA loans

http://www.freddiemac.com/singlefamily/expmkts/guarrur.html

Doing business with Ginnie Mae

http://www.ginniemae.gov/pages/default.aspx

Approved Ginnie Mae issuers

http://www.ginniemae.gov/issuers/third_party_providers/Pages/document_custodian.aspx

FDIC | Affordable Mortgage Lending Guide | 48

A COMMUNITY BANKER CONVERSATION

Using USDA’s Single Family Housing Guaranteed Loan Program

The FDIC talked with community bankers about their participation in the U.S. Department of Agriculture’s Single

Family Housing Guaranteed Loan Program. The following are excerpts from these discussions.

The USDA Single Family Housing Guaranteed Loan

Program is a no down payment loan product geared

toward low- and moderate-income rural borrowers

who might lack the necessary resources to secure a

conventional loan.

Working with USDA

Banks have options about how they work with USDA

and can become an approved lender on a national

or state level. One bank, which covers a tristate area,

decided to become a USDA national lender. The

national approval allows the bank to originate USDA

loans in any state in the country. Another banker stated

that her bank has been making USDA loans for the

past eight years as a state-specic lender. Both bankers

said that once the banks were approved, USDA offered

training for both operations staff and loan ofcers.

The USDA national lender bank representative

described the 30- to 60-day lender approval process as

straightforward. “The approval process was fairly easy.

You complete your application, you get your approval,

and then you go through some training. It’s not an

overwhelming process.” In addition, there were not any

costs (upfront or annual renewal fees or system costs)

incurred by the institution to become a USDA lender.

One representative stated that his bank works with

an investor that underwrites its USDA loans and buys

them after closing. The bank originates the loan and

puts the USDA loan package together for the investor’s

and USDA’s approval. Once the investor and the USDA

approve the loan, the loan can close in the bank’s

name. “Regardless of whether you are underwriting

in-house or you are going to an investor to underwrite

it for you, USDA still has to sign off on the deal.” After

the loan closes, the bank sells the loan to the investor.

“Having the eventual investor underwrite the loans

provides a level of comfort for the bank since I know

[before it closes] that they are going to buy it,” said the

representative. This helps protect the bank from pos-

sible repurchase risk while its staff members continue

to build their expertise in the product.

Benets of Offering USDA Loans

For one small community bank, the USDA Single Family

Housing Guaranteed Loan Program offers another way

to help customers become homeowners, and also

enables the bank to deliver loans into the second-

ary market. The banker said that her bank decided to

start offering USDA loans because USDA allows higher

loan-to-value ratios and somewhat lower credit scores

than the bank can offer using its regular products.

She added that “USDA’s product has a xed rate and

you have the ability to roll repair costs into the nanc-

ing if needed.” Her bank originates, underwrites, and

closes its own USDA loans, and then sells the loans to

an investor.

Challenges of Offering USDA Loans

One of the biggest challenges with these loans is the

appraisal process and making sure the property meets

the HUD handbook guidelines, said one representa-

tive. (USDA uses the HUD guidelines for its programs.)

“There is usually much negotiating between the seller

and the buyer on what needs to be done to meet the

HUD handbook standards with regard to outlets, paint-

ing, roong, etc. It is a good program, but this leads

to delays and frustration with both the buyer and the

seller. It takes time to negotiate who will pay, getting

the work performed, and getting the nal inspection

from the appraiser.”

49 | FDIC | Affordable Mortgage Lending Guide

In addition, these lenders report that the program loans can help address

the needs of borrowers with more limited reserves, lower credit scores, or

somewhat higher debt-to-income ratios than conventional xed-rate loans.

However, they need added underwriting time to ensure that standards are

addressed. Another banker added that USDA loans do take more time to

process, but her bank continues to offer the loan product because the low

down payment benets the customer. She noted that the product helps

serve rst-time homebuyers, which make up about 75 percent of the bank’s

customers for these loans.

One banker explained that management is focused on making sure all the

loan ofcers are familiar with the basic components and characteristics

of all of the bank’s mortgage products, including the USDA programs. To

spread the word, the executives hold monthly meetings where they edu-

cate loan ofcers about the various products and how they might benet

potential customers. This way, if a customer who might be a good t for the

USDA product comes in and speaks with a loan ofcer who is less familiar

with originating the USDA product, the ofcer can still identify the customer

as a good match with the product and refer the opportunity to a loan ofcer

with more USDA experience. Another representative uses both USDA’s

materials on loan requirements and a bank-created promotional yer for

the program that includes the contact information for the individual lenders

to communicate the program opportunity.

Advice to Other Bankers Considering USDA

When asked what advice they would give to other bankers considering

offering the USDA’s Single Family Housing Guaranteed Loan Program, one

banker offered, “I think I would start out originating USDA loans with an

investor through a correspondent relationship to reduce the repurchase

risk until you are comfortable with the product. And make sure your staff is

trained well.” Another representative added that when looking for an inves-

tor, a bank should seek out a company that, among other things, is easy

to work with, has clear instructions on le content, and minimal overlays

beyond the USDA program guidelines.

FDIC | Affordable Mortgage Lending Guide | 50

USDA

Single Family Housing Guaranteed Loan Program

No down payment loans for rural borrowers with incomes below

115 percent of area median income as dened by USDA

BACKGROUND AND PURPOSE

The U.S. Department of Agriculture’s (USDA)

Single Family Housing Guaranteed Loan Program

(Guaranteed Loan Program) is designed to serve eli-

gible rural residents with incomes below 115 percent

of area median income or AMI (see USDA denition in

overview) who are unable to obtain adequate hous-

ing through conventional nancing. Guaranteed Loans

are originated, underwritten, and closed by a USDA

approved private sector or commercial lender. The

Rural Housing Service (RHS) guarantees the loan at

100 percent of the loss for the rst 35 percent of the

original loan and 85 percent of the loss on the remain-

ing 65 percent. The program is entirely supported by

the upfront and annual guarantee fees collected at the

time of loan origination.

BORROWER CRITERIA

Income limits: This program is limited to borrowers

with incomes up to 115 percent of AMI (as dened by

USDA). Approximately 30 percent of Guaranteed Loans

are made to families with incomes below 80 percent of

AMI. An applicant must have dependable income that

is adequate to support the mortgage.

Credit: Borrowers must have reasonable credit his-

tories and an income that is dependable enough to

support the loans but be unable to obtain reasonable

credit from another source.

First-time homebuyers: If funding levels are limited

near the end of a scal year, applications are prioritized

to accommodate rst-time homebuyers.

Occupancy and ownership of other properties: The

dwelling purchased with a Guaranteed Loan must be

PROGRAM NAME

Single Family Housing Guaranteed Loan Program

AGENCY

U.S. Department of Agriculture’s Rural Housing Service

EXPIRATION DATE

Not Applicable

APPLICATIONS

Contact your local Rural Housing Service ofce: http://www.rd.usda.gov/contact-us/state-ofces

WEB LINK

https://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program

CONTACT

INFORMATION

Contact your local Rural Housing Service ofce: http://www.rd.usda.gov/contact-us/state-ofces

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

Rural areas: To determine whether a property is in an eligible area, see

https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp

51 | FDIC | Affordable Mortgage Lending Guide

the borrower’s primary residence. A borrower may be eligible to retain a

current dwelling if it no longer meets the household’s needs. The dwell-

ing that the borrower is retaining, if applicable, may not be nanced

with a USDA Guaranteed or Direct loan.

Special populations: If funding levels are limited, applications are priori-

tized to accommodate rst-time homebuyers and veterans.

Special assistance for persons with disabilities: Special design features

or permanently installed equipment to accommodate a household

member who has a physical disability may be nanced into the loan.

Property types and allowable costs:

• Existing homes must meet minimum property standards as estab-

lished in the current U.S. Department of Housing and Urban

Development (HUD) Handbook.

• New dwellings must meet an acceptable building code.

• There are no restrictions on size or design.

• New manufactured homes are eligible. Existing manufactured

homes are not eligible unless the home is already secured with a

USDA Direct or Guaranteed mortgage. Manufactured homes have to

be considered real property under the applicable jurisdictional laws.

• Necessary interior and exterior repairs that together with the pur-

chase price do not exceed the appraised value of an existing home

may be included in the loan.

• Reasonable and customary lender fees, connection fees, assess-

ments, establishment of an escrow account for the payment of real

estate taxes and insurance, and other eligible costs may be nanced.

• Purchase and installation of energy efciency measures (e.g., insula-

tion, double-paned glass, and solar panels) is an allowable cost.

• Installation of xed broadband service to the household is an allow-

able cost as long as the equipment is conveyed with the dwelling.

• Site preparation costs, including grading, foundation, plantings,

seeding or sod installation, trees, walks, fences, and driveways are

allowable costs.

Other: Applicants must meet U.S. citizenship or eligible nonciti-

zen requirements.

LOAN CRITERIA

Loan limits: Loan limits do not apply.

Loan-to-value limits: The loan-to-value ratio may be up to 100 percent

of appraised value and upfront funding fee, as long as there is no cash

out to the borrower.

POTENTIAL BENEFITS

USDA Single Family Housing

Guaranteed Loans may allow

community banks to expand their

customer base among borrow

ers in rural communities with

incomes below 115 percent of

AMI (as defined by USDA).

USDA offers up to a 90 per

cent guarantee.

Single Family Housing

Guaranteed Loans offer competi

tive pricing and terms.

Loans originated through USDA

may receive favorable consider

ation under the CRA, depending

on the geography or income of

the participating borrowers.

POTENTIAL CHALLENGES

Community banks must be

approved by USDA to lend under

this program, and they may need

to acquire or develop new exper

tise and infrastructure in order

to participate.

Community banks must have

access to the secondary market

to use this program.

Eligibility for this program is

limited by geographic constraints

and income limits. Borrowers

must have reasonable credit

histories and an income that

is dependable enough to sup

port the loans, but be unable

to obtain affordable credit from

another source.

FDIC | Affordable Mortgage Lending Guide | 52

Down payment sources: No down payment is required.

Applicants may use down payment assistance

programs to assist with the down payment and/or pay-

ment of closing costs/fees.

Homeownership counseling: Counseling is not

required but encouraged. The individual lender can

require homeownership counseling.

Mortgage insurance: USDA charges guarantee fees

that act as mortgage insurance, similar to the Federal

Housing Administration (FHA). However, they are

called “Guarantee Fees” not mortgage insurance in

documentation. Where “insurance” appears in the Rural

Housing Service’s documentation, it refers to home-

owner’s insurance. The Rural Housing Service charges

the lender a one-time upfront guarantee fee of up to

3.5 percent of the total loan amount. An annual fee of

up to 0.5 percent also applies for the life of the loan.

The lender may pass these fees on to the borrower and

may nance them in the loan.

Debt-to-income ratio: Baseline ratios for the program

based on gross monthly income are 29 percent for the

principal, interest, real estate taxes, and insurance (PITI)

and 41 percent for the total debt, which is the PITI plus

additional recurring monthly debts. In the event the

borrower has student loan debt and is not yet in repay-

ment, as is the case for current students, USDA’s policy

is to include 1 percent of the total student loan balance

in the debt-to-income calculation, and to not lend to

current students unless there is a reasonable likelihood

that they will remain in the home after graduation.

Temporary interest rate buy downs: Borrowers must

qualify at the full note interest rate, but temporary inter-

est rate buy downs are allowed.

Renance: Renance is allowed for current Guaranteed

Loans or Direct Loans. Non-USDA loans are ineligible

to be renanced into the Guaranteed Loan program.

Interest rate: Fixed interest rates are negotiated

between the lender and applicant. The interest rate

may not exceed the Fannie Mae 30-year, 90-day rate

plus 1 percent and rounded up the nearest .25 per-

cent on the day locked. Adjustable-rate mortgages,

balloons, interest-only, and other loans are not eli-

gible options.

Term: Loans must have 30-year amortization terms.

Secondary market: Loans are acceptable to Fannie

Mae, Freddie Mac, and Ginnie Mae.

Guarantee: Rural Housing Service guarantees the

lesser of 90 percent of the original principal amount

actually advanced to the borrower; or 100 percent of

any loss equal to or less than 35 percent of the original

loan and 85 percent of any remaining loss up to 65

percent of the principal advanced.

Potential Benets

• USDA Single Family Housing Guaranteed Loans

may allow community banks to expand their cus-

tomer base among borrowers in rural communities

with incomes below 115 percent of AMI (as dened

by USDA).

• USDA offers up to a 90 percent guarantee.

• Single Family Housing Guaranteed Loans offer

competitive pricing and terms.

• Loans originated through USDA may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

Potential Challenges

• Community banks must be approved by USDA to

lend under this program, and they may need to

acquire or develop new expertise and infrastruc-

ture in order to participate.

• Community banks must have access to the second-

ary market to use this program.

• Eligibility for this program is limited by geographic

constraints and income limits. Borrowers must

have reasonable credit histories and an income

that is dependable enough to support the loans,

but be unable to obtain affordable credit from

another source.

• The servicer must have an escrow system for taxes

and insurance.

53 | FDIC | Affordable Mortgage Lending Guide

SIMILAR PROGRAMS

• USDA Single Family Housing Direct Loans

• VA Home Purchase Loan Program

• FHA 203(b) Mortgage Insurance Program

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Area and county loan limits

https://www.rd.usda.gov/les/RD-SFHAreaLoanLimitMap.pdf

Minimum property standards

https://www.hud.gov/program_ofces/housing/ramh/mps/mhsmpsp

International building code adopted throughout most of the United States

http://www.iccsafe.org/codes-tech-support/codes/2015-i-codes/ibc/

Property rural status and eligibility

http://eligibility.sc.egov.usda.gov/

FDIC | Affordable Mortgage Lending Guide | 54

USDA

Single Family Housing Direct Loans

Loans for rural borrowers made affordable with payment assistance

to reduce the interest rate

BACKGROUND AND PURPOSE

This program helps very low- and low-income

applicants obtain housing in eligible rural areas by

providing payment assistance, a type of subsidy that

reduces the mortgage payment to increase an appli-

cant’s repayment ability. At least 40 percent of the

funding appropriated to the program each year must

go to very low-income families.

The U.S. Department of Agriculture (USDA) provides an

eligibility map on its website to determine if a property

is in a qualied rural area (see Resources).

Single Family Housing Direct Loans (also known as

Direct Loans) are underwritten and serviced by the

USDA at market interest rates, but payment assis-

tance brings the interest rate down to as low as 1

percent. Funds can be used to build, repair, renovate,

or relocate a home, or to purchase and prepare sites,

including providing water and sewage facilities.

BORROWER CRITERIA

Income limits: Applicants must have very-low or low

incomes (as dened by USDA). Very-low income is

dened as below 50 percent of area median income

(AMI); low income is between 50 and 80 percent

of AMI.

Credit: Applicants must be unable to obtain a loan

from other sources on reasonable terms and condi-

tions. However, applicants must have reasonable

credit histories as determined by USDA’s loan ofcers.

Applicants with a reliable credit score of 640 typically

qualify for a streamlined credit review. For applicants

who do not use traditional credit or have a limited

credit history, the loan originator must develop a credit

history from at least two nontraditional credit sources

such as rent payments, utility payment records, auto-

mobile insurance payments, or other means of direct

access from the credit provider.

PROGRAM NAME

Single Family Housing Direct Loans

AGENCY

U.S. Department of Agriculture’s Rural Housing Service

EXPIRATION DATE

Not Applicable

APPLICATIONS

No specic application is required. Contact your local RD ofce:

http://www.rd.usda.gov/contact-us/state-ofces

WEB LINK

http://www.rd.usda.gov/programs-services/single-family-housing-direct-home-loans

CONTACT

INFORMATION

Contact your local RD ofce: http://www.rd.usda.gov/contact-us/state-ofces

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

Rural areas as determined by http://eligibility.sc.egov.usda.gov

55 | FDIC | Affordable Mortgage Lending Guide

First-time homebuyers: This program is exclusively for rst-time mort-

gage holders. Housing counseling is mandatory.

Occupancy and ownership of other properties: Prospective borrow-

ers must be without safe, decent, and sanitary housing. Only owner

occupancy is supported through this program, not income producing

activities. Properties must be 2,000 square feet or less and not have a

market value in excess of the applicable area loan limits.

Special populations: USDA offers variations on the Direct Loan for

mutual self-help housing, condominium housing, community land trusts,

manufactured housing, and the Rural Housing Disaster Loan Program.

Special assistance for persons with disabilities: Special design features

or permanently installed equipment to accommodate a household

member who has a physical disability may be nanced using this loan.

Other: Borrowers must meet citizenship or eligible nonciti-

zen requirements.

LOAN CRITERIA

Loan limits: USDA has its own area loan limits that vary by county.

Loan-to-value limits: The loan-to-value ratio may be 100 percent or

more to cover closing costs.

Adjustable-rate mortgages: Not allowed. A xed interest rate is based

on current market rates at loan approval or loan closing, whichever is

lower. Up to a 33-year payback period or a 38-year payback period for

very low-income applicants who cannot afford the 33-year loan term. For

manufactured homes, the term is 30 years.

Down payment sources: No down payment is typically required.

Applicants are required to use assets in excess of the asset limits of

$15,000 for non-elderly applicants and $20,000 for elderly applicants as

a down payment.

Homeownership counseling: Required for rst-time homebuyers. The

Rural Housing Service attempts to connect prospective buyers with free

or reasonably priced counseling in the appropriate geographic area,

and makes exceptions where counseling is not reasonably available.

Mortgage insurance: No mortgage insurance is required. “Insurance” in

documentation refers to homeowner’s insurance.

Debt-to-income ratio: The borrower’s payment for principal, interest,

taxes, and insurance (PITI) is the lower of 24 percent of the borrower’s

income or principal and interest calculated at a 1 percent interest rate

on the loan, plus taxes and insurance. Eligibility is also affected by

repayment feasibility, which is determined by using ratios of repayment

(gross) income to PITI and to total family debt.

POTENTIAL BENEFITS

Lenders can earn a fee by

helping borrowers package

their applications.

No preapproval or training is

required by USDA.

Loans originated through USDA

may receive favorable consider

ation under the CRA, depending

on the geography or income of

the participating borrowers.

POTENTIAL CHALLENGES

Community banks may only

package applications, not origi

nate loans.

It may be necessary to partner

with mission-oriented organi

zations to develop a pipeline of

prospective borrowers.

Depending on the needs in a

bank’s service area, funding may

not be adequate to the need.

Only available in rural areas,

which may not correspond to a

bank’s service area.

FDIC | Affordable Mortgage Lending Guide | 56

Temporary interest rate buy downs: Not applicable.

Renance: Not applicable.

Interest rate: Market rate. Payment assistance can

reduce the interest rate to as low as 1 percent.

Subsidy recapture: The payment assistance subsidy

that reduces the effective interest rate must be repaid

to USDA when the property is sold, transferred, or no

longer occupied by the customer. This works based

on the assumption that the home increases in value

and the borrower improves his or her circumstances

through access to stable, decent, and affordable

housing. If the loan is being paid off, but the customer

continues to live in the property, there are two payment

options: (1) the borrower pays the subsidy recapture

when the loan is paid off (the subsidy recapture is

discounted by 25 percent if this option is chosen); or

(2) defer the payment of the subsidy recapture until the

property is sold, transferred, or no longer occupied by

the customer. The subsidy recapture will not be dis-

counted when the loan is paid off, nor will the discount

apply in the future if this option is chosen.

Leverage: Applicants who demonstrate the ability to

obtain a portion of the needed funds from outside

sources should do so. Loans leveraged with other fund-

ing sources receive processing priority.

ADDITIONAL INFORMATION

Loan packager: Community banks may charge a fee to

act as a loan packager for interested customers, though

the service is optional for borrowers. USDA supports

partnerships with loan application packagers since

packagers can promote the program in underserved

areas, prescreen, and educate potential applicants

to save USDA staff time, counsel potential applicants

on how to improve their ability to qualify, and ensure

that applications are complete. Processing times

vary depending on funding availability and program

demand in the area in which an applicant is interested

in buying and the completeness of the application

package. Typically, applicant eligibility, loan approval,

and loan closing may be accomplished within approxi-

mately 90 days of ling of the written application.

However, depending on the availability of govern-

ment funding, this time frame may be extended. The

applicant is periodically advised regarding the status of

his or her application when there is a lack of funding.

Funding: The Direct Loan program is subject to

appropriations. Typically, about $900 million is avail-

able annually.

Potential Benets

• Lenders can earn a fee by helping borrowers pack-

age their applications.

• No preapproval or training is required by USDA.

• Loans originated through USDA may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

Potential Challenges

• Community banks may only package applications,

not originate loans.

• It may be necessary to partner with mission-

oriented organizations to develop a pipeline of

prospective borrowers.

• Depending on the needs in a bank’s service area,

funding may not be adequate to the need.

• Only available in rural areas, which may not corre-

spond to a bank’s service area.

57 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Property rural status and eligibility

https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Requirements for loan packagers (page 460)

https://www.rd.usda.gov/les/hb-1-3550.pdf

Area and county loan limits

https://www.rd.usda.gov/les/RD-SFHAreaLoanLimitMap.pdf

FDIC | Affordable Mortgage Lending Guide | 58

USDA

Single Family Housing Repair Loans and Grants

Single Family Housing Repair Loans and Grants help very low-income

homeowners to repair, improve, or modernize homes

BACKGROUND AND PURPOSE

The objective of the Single Family Housing Repair

Loans and Grants program, also known as the Home

Repair Program, is to help very low-income owner-

occupants of modest single-family homes in rural areas

repair those homes. Loan funds are available for repairs

to improve or modernize a home, make it safer or

more sanitary, or remove health and safety hazards. For

homeowners age 62 years and older who cannot repay

a loan, grant funds are available to remove health or

safety hazards or to remodel dwellings to make them

accessible to household members with disabilities.

Community banks may only package applications, not

originate loans, but they can earn a fee for doing this.

Any costs above xed limits will not be reimbursed

by USDA. Packaging fees that are not charged by a

nonprot or government entity cannot be folded into

the loan.

BORROWER CRITERIA

Income limits: The adjusted household income must

not exceed 50 percent of the area median income (as

dened by USDA).

Credit: Beneciaries must be unable to obtain afford-

able credit elsewhere.

First-time homebuyers: These are repair loans and

grants for existing homeowners only.

Occupancy and ownership of other properties:

Borrowers/grantees must own and occupy the property

and must be able to document ownership. Assistance

is available to owner-occupants only. For manufac-

tured homes, the home and site must be owned (or

in a long-term lease) and occupied, and it must be on

a permanent foundation. Home Repair funds may be

used to put the manufactured home on a permanent

foundation. A USDA Home Repair Loan or Grant may

PROGRAM NAME

Single Family Housing Repair Loans and Grants (Home Repair Program)

AGENCY

U.S. Department of Agriculture’s Rural Housing Service

EXPIRATION DATE

Not Applicable

APPLICATIONS

No specic application is required

WEB LINK

https://www.rd.usda.gov/programs-services/single-family-housing-repair-loans-grants

CONTACT

INFORMATION

Contact your local RD ofce: http://www.rd.usda.gov/contact-us/state-ofces

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

Rural areas as determined by http://eligibility.sc.egov.usda.gov

59 | FDIC | Affordable Mortgage Lending Guide

be made for a property that has income-producing land or structures, as

long as the loan or grant is used to improve only the residential portion

of the property.

Special populations: Borrowers age 62 years and older who are not able

to repay a repair loan are eligible for grant funding. Veterans receive a

processing preference.

Special assistance for persons with disabilities: Funds may be used to

remove health and safety hazards, including outtting the home for use

by a person with a disability.

Other: Borrowers must meet citizenship or eligible nonciti-

zen requirements.

LOAN CRITERIA

Loan limits: Borrowers may obtain multiple USDA Home Repair loans,

but the sum of the outstanding balance on all Home Repair loans cannot

exceed $20,000.

Loan-to-value limits: Up to 100 percent loan-to-value (LTV) ratio is

allowed. If the total Home Repair loan indebtedness is $7,500 or more, it

must be secured by a mortgage on the property. USDA’s Rural Housing

Service (RHS) does not require a rst-lien position, but the total of all

debt secured by the property must not exceed the property’s market

value, except by the amount of any required contributions to an escrow

account for taxes and insurance and the tax service fee. No security is

required for loans below $7,500 or grants.

Adjustable-rate mortgages: Only xed-rate loans are allowed.

Down payment sources: Down payments are not required. If bor-

rowers can repay part of the costs, they may be offered a loan and

grant combination.

Homeownership counseling: Homeownership counseling is

not required.

Mortgage insurance: Mortgage insurance is not required.

Debt-to-income ratio: The borrower’s total housing payment including

any existing mortgages must be no more than 41 percent of income.

Temporary interest rate buy downs: Temporary interest rate buy downs

are not applicable to this program.

Costs: The interest rate is xed at 1 percent for a 20-year maximum term.

Grants must be repaid if the property is sold in less than three years.

POTENTIAL BENEFITS

This program can be a way

to initiate banking relation

ships with borrowers for whom

other financial services are

not affordable.

Loans originated through USDA

may receive favorable consider

ation under the CRA, depending

on the geography or income of

the participating borrowers.

POTENTIAL CHALLENGES

USDA Home Repair Loans and

Grants are available in rural

areas, which may not corre

spond to a bank’s service area.

Decisions such as estimating

the value of home repairs may

be outside of the typical skill set

of the bank.

Community banks may only

package applications, not origi

nate loans.

FDIC | Affordable Mortgage Lending Guide | 60

Underwriting: Home Repair loan/grant applications

are underwritten by the RHS. Private lenders may

assist prospective borrowers in fullling the applica-

tion requirements. The following explains the program

expectations and process:

• The Rural Housing Service Loan Originator will visit

the property within 30 days of determination of

eligibility to identify which repairs are essential.

• The borrower is provided detailed specications

that are used to solicit at least three bids when

feasible. If there are not a sufcient number of con-

tractors in the area, the local RHS ofce will review

the bids that are obtained to ensure they meet the

established specications.

• The term of the loan is as short as possible based

on the borrower’s repayment ability. However, any

loan made in conjunction with a grant is made for

the full 20-year term to minimize the amount of

grant funds required. If the loan amount is less than

the maximum that the borrower could repay, the

loan term should be shortened so that the bor-

rower will pay the maximum amount he or she can

afford each month during the term of the loan.

• Loans less than $7,500 may be closed by the

loan originator or designee. Loans of $7,500 and

greater must be closed by a closing agent.

• In order to ensure that borrowers do not receive

more than the maximum allowable grant assistance

of $7,500, the loan originator will document the

amount of any grant provided to each grantee.

Grant limits: Recipients may receive multiple grants, up

to a lifetime maximum of $7,500.

Leverage opportunities: When funding is available

and a property’s health and safety needs outstrip the

borrower’s ability to repay a loan, RHS may leverage

Home Repair loan dollars with Home Repair grant dol-

lars. Borrowers who demonstrate the ability to obtain

a portion of the needed funds from outside sources

(i.e., conventional lenders, housing authorities, and so

on) should do so. Leveraged loans receive process-

ing priority.

ADDITIONAL INFORMATION

Lender participation: Community banks may charge

a fee to act as a loan packager for interested custom-

ers, though the service is optional for borrowers. USDA

supports partnerships with loan application packag-

ers since packagers can promote the program in

underserved areas, prescreen, and educate potential

applicants to save USDA staff time, counsel potential

applicants on how to improve their ability to qualify,

and ensure that applications are complete.

Processing times vary depending on funding avail-

ability and program demand in the area in which an

applicant is interested in buying and the complete-

ness of the application package. Typically, applicant

eligibility, loan approval, and loan closing may be

accomplished within approximately 90 days of ling

the written application. However, depending on the

availability of government funding, this time frame

may be extended. The applicant is periodically advised

regarding the status of his or her application when

there is a lack of funding.

Funding: The Home Repair program is subject to

congressional appropriations. Typically, just under

$50 million is available annually between the loan and

grant programs.

61 | FDIC | Affordable Mortgage Lending Guide

Potential Benets

• This program can be a way to initiate banking rela-

tionships with borrowers for whom other nancial

services are not affordable.

• Loans originated through USDA may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

• Lenders can earn a fee by helping borrowers pack-

age their applications.

• No preapproval or training is required from

the USDA.

Potential Challenges

• USDA Home Repair Loans and Grants are avail-

able in rural areas, which may not correspond to a

bank’s service area.

• Decisions such as estimating the value of home

repairs may be outside of the typical skill set of

the bank.

• Community banks may only package applications,

not originate loans.

• Depending on the needs in a bank’s service area,

funding may not be adequate to the need.

SIMILAR PROGRAMS

• Fannie Mae HomeStyle® Renovation Mortgage

• Freddie Mac Construction Conversion and

Renovation Mortgage

• FHA Property Improvement Loan Insurance

FDIC | Affordable Mortgage Lending Guide | 62

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Property rural status and eligibility

https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Requirements for loan packagers (page 460)

https://www.rd.usda.gov/les/hb-1-3550.pdf

USDA income and property eligibility site: Allows lenders to enter a property address to determine eligibility for

USDA’s loan programs.

https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

63 | FDIC | Affordable Mortgage Lending Guide

Visit FDIC’s Affordable Mortgage Lending Center

at https://www.fdic.gov/mortgagelending

OVERVIEW

U.S. Department of Veterans Affairs

We have included the most recent information available at the date of publication. At the end of each section,

we include a list of resources with web links where you can nd updates, as well as information about additional

programs and other helpful information related to the subject.

OVERVIEW

Part of the mission of the U.S. Department of Veterans

Affairs (VA) is to enable service members, veterans,

and eligible surviving spouses to become homeown-

ers. The VA provides a home loan guaranty benet and

other housing-related programs to help buy, build,

repair, retain, or adapt a home for owner occupancy.

VA home loans are provided by private lenders such as

banks and mortgage companies. By obtaining a

guaranty for a portion of the loan, private lenders are

able to provide borrowers with more favorable terms,

such as zero down payments.

The home loan guaranty program was origi-

nally enacted in 1944 as part of the Servicemen’s

Readjustment Act to put people returning from ghting

in the World Wars on a path to nancial stability, since

they may have missed the opportunity to build favor-

able credit while away serving their country. It was a

signicant driver of the postwar construction boom.

Legislation has been continually updated to reect

the changing needs of the nation’s service members

and veterans.

There are approximately 20 million veterans in the

United States. The National Center for Veterans

Analysis and Statistics (NCVAS), a division of the U.S.

Department of Veterans Affairs, offers data on the

distribution of the veteran population that may be of

interest to community banks looking to start a VA home

loan program. Unfortunately, public data about the

geographic distribution of homes guaranteed by VA

are limited because all loan guarantee expenditures

are recorded as coming from the processing facility in

Texas. VA reports that approximately 2.3 million service

members and veterans are actively participating in VA

home loan programs, which does not include veterans

who have paid off their VA-guaranteed mortgages.

According to a 2010 survey by NCVAS, 66 percent of

those surveyed who had ever had a home loan used

VA guaranteed nancing. Of those who had not used

VA home loan benets, 33 percent did not know about

the program.

IMPORTANT PROGRAM COMPONENTS

Eligibility for VA homeownership programs is mostly

determined by meeting minimum standards for length

and time of service, which is conrmed by VA with a

Certicate of Eligibility. Each veteran has a guaranty

entitlement, which is a minimum of $36,000 and a

maximum of 25 percent of the county loan limit. The

guaranty is the amount VA will pay the lender in the

event of a foreclosure. The guaranty effectively takes

the LTV ratio down to 75 percent, and negates the

need for a down payment.

VA loan limits are the same as the loan limits for Fannie

Mae and Freddie Mac single unit loans. Each veteran

has a guaranty entitlement, which is a minimum of

$36,000 and a maximum of 25 percent of the county

loan limit. VA does not set a maximum amount that an

eligible veteran may borrow; however, borrowers may

combine their entitlement with a down payment to pur-

chase a property that is over the county loan limit (see

Resources), though such loans are more limited in their

secondary market options.

The VA also offers grants for disabled service members

and veterans with certain permanent and total service-

connected disabilities to help purchase, construct an

adapted home, or modify an existing home to help

65 | FDIC | Affordable Mortgage Lending Guide

them live more independently. For example, the Specially Adapted

Housing grant is designed to facilitate independent, barrier-free living

for veterans with severely impaired mobility (note that these grants

are not included in this Guide, but more information can be found in

Resources at the end of this section).

Prospective borrowers with other-than-honorable discharges are ineli-

gible for VA home loan benets and a number of other VA services. The

Military Law Task Force of the National Lawyers Guild, a service provider

unafliated with the federal government, may be able to connect the

prospective borrower with community organizations that work on dis-

charge upgrades.

This Guide covers the following VA home loan programs:

Home Purchase Loan: This program helps service members, veterans,

and surviving spouses by providing a mortgage guarantee for loans that

can have a loan-to-value (LTV) ratio as high as 100 percent.

Interest Rate Reduction Renance Loan (IRRRL): The program offers

special exibilities for borrowers wishing to renance to reduce the

interest rate on their VA-guaranteed mortgage.

DOING BUSINESS WITH VA

Benets

The VA home loan program features exible yet prudent require-

ments. VA lending volume has increased considerably as lenders have

responded to mortgage market shifts to rely more on government risk-

reduction programs. VA can help community banks serve their veteran

customers with options designed especially for their needs. Moreover,

banks may begin participating in the program almost immediately and

can increase capacity over time through experience.

Delivery Options

Becoming a supervised VA lender with automatic authority

Automatic authority is the authority for a lender to close VA guaranteed

loans without the prior approval of VA. Supervised nancial institutions,

which includes banks insured by the FDIC (as well as credit unions)

are granted automatic underwriting authority from VA and may begin

making VA loans as soon as they become familiar with the laws, regula-

tions, and procedures pertaining to VA-guaranteed loans. Supervised

lenders may close loans in any state. While banks are automatically

granted authority to make VA loans, they must nevertheless apply to the

VA before they begin making VA-guaranteed loans.

PROGRAMS IN THIS SECTION:

Home Purchase Loan: This program helps

service members, veterans, and surviving

spouses by providing a mortgage guarantee

for loans that can have a loan-to-value (LTV)

ratio as high as 100

percent.

Interest Rate Reduction Refinance Loan

(IRRRL):

The program offers special

flexibilities for borrowers wishing to refi

nance to reduce the interest rate on their

VA-guaranteed mortgage.

FDIC | Affordable Mortgage Lending Guide | 66

Automatic authority does not cover several loan types

that must be submitted to VA before approval in all

instances. VA loan types that require prior approval

include joint loans,

loans to veterans in receipt of a

VA nonservice-connected pension, loans to veterans

rated as requiring a duciary by VA, IRRRLs made to

renance delinquent loans, manufactured homes not

permanently afxed to the lot, unsecured loans, and

supplemental loans.

Originating VA loans as a correspondent originator

through an approved lender sponsor

Smaller lenders can use an agent relationship, where

an existing VA approved lender “sponsors” an entity as

its agent and in doing so spells out what functions the

agent will perform on its behalf. A lender’s agent must

be approved by VA in advance. Depending on the

terms of the VA-required corporate resolution, which

spells out functions of the agent and sponsor, the

agent and/or lender may fund loans in its own name

and then sell the loans to investors, who in turn, sell the

loans into the secondary market. Loans may be closed

in the name of the sponsoring lender or in the name

of the entity acting as the agent. In such a case, loan

documents may read “ABC Mortgage as agent for XYZ

lender.” Both supervised and non-supervised lenders

with automatic authority may use agents, though in all

cases recurring use of agents must be recognized by

VA. The VA Lender’s Handbook contains more informa-

tion on agent issues.

Selling VA loans

Unlike Fannie Mae and Freddie Mac, VA does not

purchase and securitize loans. Instead, VA loans are

delivered to the secondary market, most often through

Ginnie Mae’s guaranteed mortgage-backed securities.

Securities are issued by private nancial institutions

and payments to investors in these securities are guar-

anteed by Ginnie Mae, a government ofce within the

U.S. Department of Housing and Urban Development

(HUD). VA lenders can sell VA loans by:

• becoming a Ginnie Mae approved issuer

(applicants must meet Ginnie Mae’s eligibil-

ity requirements, including capital and liquidity

requirements);

• selling VA loans to Fannie Mae or Freddie Mac;

• selling VA loans to third-party Ginnie Mae

approved industry conduits or aggregators, includ-

ing certain Federal Home Loan Banks and state

housing nance agencies.

APPROVAL PROCESS

All FDIC-insured lenders are automatically approved to

write VA loans. However, they must notify the VA ofce

in their jurisdiction, provide some basic information,

and comply with all VA requests for additional informa-

tion. VA will then provide training, a VA ID number, a

point of contact, and anything else deemed necessary.

Supervised lenders may close VA loans on an auto-

matic basis immediately.

SYSTEM REQUIREMENTS AND

QUALITY CONTROL

Initial program training is offered once the lender

applies to VA. Ongoing training may also be provided

by VA if audit ndings suggest the need.

VA does not have a proprietary automatic under-

writing system (AUS). Instead, lenders may use any

AUS approved by VA, such as Fannie Mae’s Desktop

Underwriter® or Freddie Mac’s Loan Product Advisor®.

VA extensively reviews the quality of the loans that bear

their guarantee and will contact lenders with specic

corrective actions if their loans fail to meet

VA standards.

Note that spouses can co-sign on the loan and be included on the deed. In

the event that a spouse does not want to co-sign on the loan, the veteran bor-

rower and the non-borrower spouse must sign either the mortgage note or the

mortgage deed. VA claried this in Circular 26-16-01,

https://www.benets.va.gov/HOMELOANS/documents/circulars/26_16_1.pdf.

67 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

VA Guaranteed Loan Processing Manual: Rules and regulations covering all aspects of the VA Single Family

Housing Guaranteed Loan program.

http://www.benets.va.gov/WARMS/M26_1.asp

VA Lender’s Handbook: VA’s guide for lenders that make VA guaranteed home loans.

http://www.benets.va.gov/WARMS/pam26_7.asp

VA list of regional ofces: Contact information for all VA regional ofces.

http://www.benets.va.gov/HOMELOANS/contact_rlc_info.asp

National Center on Veterans Analysis and Statistics: Information on the population distribution of veterans and

home loan benet usage.

http://www.va.gov/vetdata/Maps.asp

County-level loan limits

http://www.benets.va.gov/homeloans/purchaseco_loan_limits.asp

Specic eligibility for adapted housing grants

http://www.benets.va.gov/HOMELOANS/adaptedhousing.asp

FDIC | Affordable Mortgage Lending Guide | 68

A COMMUNITY BANKER CONVERSATION

Using VA’s Home Purchase Loan Program

FDIC staff talked with community bankers about their participation in the U.S. Department of Veterans Affairs’

Home Purchase Loan Program. The following are excerpts from these discussions.

The VA’s Home Purchase Loan Program helps service

members, veterans, and surviving spouses by provid-

ing a mortgage guarantee for loans that can have a

loan-to-value (LTV) ratio as high as 100 percent.

Working with VA

Some markets have a concentration of veterans,

making the VA program particularly attractive for

banks in those areas. According to one lender, “Due

to our institution’s footprint and the state within which

we operate, we have a large population of military

families that we serve.” He said that his bank offers

the Home Purchase Loan Program as well as VA’s

Interest Rate Reduction Renance Loan, which allows

veterans renancing to reduce the interest rate on

VA-guaranteed loans.

This banker pointed out that it takes approximately

six months to set up the programs due to the review

process (certication) required by VA and the educa-

tional and training requirements necessary for the sales

and operations staff. As with any program, training

and communication is occasionally a challenge, one

banker noted.

Selling loans to investor partners

One representative stated that he considers his bank

a mini-correspondent for VA loans. It originates and

processes the loans in its name, sends the loans to the

investor to underwrite, and then closes the loans in its

own name. The banker said that there are three ele-

ments to choosing a good investor partner: pricing,

service, and overlays. The service component, primarily

underwriting turnaround times, “is where we have to

struggle as a small player.”

Another banker said that his bank is a correspondent

originator for VA loans. He went on to say that as a

correspondent, often times, the borrowers who would

qualify for VA would also qualify for one of the bank’s

other programs. However, the exibility of the program

has, in certain instances, aided borrowers who other-

wise would not have qualied. He added that VA loans

do not make up a large portion of the bank’s origina-

tions. “Last year we originated about $2.5 million of

these loans; however, this year we are projected to

increase this amount, and in our experience about 80

percent of these loans go to rst-time homebuyers.”

Benets of Using VA with Other Veteran

Subsidy Programs

One bank representative said that his bank looks for

ways to provide the optimal amount of mortgage-

related assistance for the veterans they serve by taking

advantage of additional veteran housing loan subsidy

programs offered by the Federal Home Loan Bank

(FHLBank) of Atlanta. The Veterans and Returning

Veterans Purchase program offer veterans up to $7,500

toward down payment, closing costs, principal reduc-

tion, or rehabilitation assistance for the purchase or

purchase/ rehabilitation of an existing unit, typically

structured as a forgivable ve-year second mortgage

with no interest or payments.

The FHLBank veterans’ programs can be used with

the VA home loan guarantee program or other con-

ventional or portfolio products. “Programs like the

FHLBank of Atlanta’s Veterans and Returning Veterans

Purchase program are a perfect match for small com-

munity banks. The $1 million cap per bank may be too

small for larger banks, but works for us.”

69 | FDIC | Affordable Mortgage Lending Guide

Another banker said that his bank has been able to utilize the Texas

Veterans Land Board (VLB) to help veterans nance land, home loans, and

home improvement loans for eligible Texas veterans and active military

members. The VLB was established in 1946 to make land available to veter-

ans returning from World War II and has been active ever since.

Marketing the Home Loan Guarantee Program

To reach as many veterans as possible, one banker is planning a Veteran’s

Housing and Benets Expo. The bank will convene other businesses, gov-

ernment sponsors, and veterans in one venue so veterans can learn about

housing nance options available to them and about other government

benets and local business discounts for veterans. The banker explained

that the Expo is the bank’s way of promoting its business while also helping

veterans in the area. He said, “We’re a little bank with a little budget, but this

is what we can do to make a difference in the community that’s also going

to help us grow this department at a faster than normal pace.”

Another banker said that while his bank does not directly market VA loans

at this time, its real estate partners, website, and locations throughout the

state provide enough marketing to adequately spread the word about their

VA program offerings.

Advice for other banks considering the VA Home Purchase Loan Program

When asked about advice for other banks, one of the bankers said, “I would

recommend doing it. But be forewarned, there is a learning curve! (I can’t

lie about that.) Many of the documents and requirements are foreign at rst

and there are additional complexities and costs in nding the right staff to

properly originate these loans. Eventually, however, this becomes less and

less daunting. The key is training.”

FDIC | Affordable Mortgage Lending Guide | 70

Home Purchase Loan Program

Offers zero down payment guaranteed loans to service members, veterans,

and surviving spouses

BACKGROUND AND PURPOSE

The U.S. Department of Veterans Affairs (VA) helps ser-

vice members, veterans, and eligible surviving spouses

become homeowners by providing a home loan guar-

anty benet. VA loans are provided by private lenders,

such as banks and mortgage companies.

Borrower eligibility for VA homeownership programs is

determined by meeting minimum standards for length

of service, which is conrmed by VA with a Certicate

of Eligibility. Each veteran has a guaranty entitlement,

which is a minimum of $36,000 and a maximum of 25

percent of the county loan limit. The guaranty is the

amount VA will pay the lender in the event of a foreclo-

sure. The guaranty effectively takes the loan-to-value

(LTV) ratio down to 75 percent. The VA Home Purchase

Loan program has made mortgage credit available to

many veterans who otherwise would not be able to

obtain a loan.

BORROWER CRITERIA

Loan limits: VA loan limits vary by county and are cur-

rently the same as those set by the Federal Housing

Finance Agency (FHFA) for Fannie Mae and Freddie

Mac (conforming loan limits). Although VA does not set

a cap on how much a veteran can borrow to nance a

home purchase, the department will only guarantee

25 percent of the VA loan limit. Therefore, lenders may

require veterans to make a down payment on loan

amounts that exceed the limits.

Income limits: This program has no income limits.

Credit: VA does not require a minimum credit score for

a VA loan, but lenders may set their own requirements.

First-time homebuyers: First-time users of their VA

eligibility get a lower funding fee. Generally, all veter-

ans using the VA Home Purchase Loan guaranty pay

a funding fee. The funding fee is a percentage of the

PROGRAM NAME

Home Purchase Loan Program

AGENCY

U.S. Department of Veterans Affairs

EXPIRATION DATE

Not Applicable

APPLICATIONS

http://benets.va.gov/warms/pam26_7.asp

WEB LINK

http://www.benets.va.gov/homeloans/index.asp

CONTACT

INFORMATION

Lenders interested in participating should contact their local VA ofce, which can be found at

http://www.benets.va.gov/HOMELOANS/contact_rlc_email.asp

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

71 | FDIC | Affordable Mortgage Lending Guide

loan amount that varies based on the type of loan, military category,

rst-time loan user status, and existence of a down payment. Veterans

do not have to pay the fee if they are a:

• veteran receiving VA compensation for a service-connected disabil-

ity, or

• veteran who would be entitled to receive compensation for a

service-connected disability if the veteran did not receive retirement

or active duty pay, or

• Surviving spouse of a veteran who died in service or from a service-

connected disability.

Occupancy and ownership of other properties: A borrower

may only

use VA nancing for one property at a time, called “entitlement.” The

borrower must plan to occupy the property as a residence.

Special populations: To obtain a VA loan, the borrower must be a

service member or veteran with a Certicate of Eligibility signifying that

he or she meets the service requirements. During wartime, 90 days of

active service is the minimum amount of service to be eligible; during

peacetime, the requirement is 181 days. Military spouses are also

eligible under certain criteria when the service member is unable to be

the borrower. Ofcers of certain nonmilitary government agencies and

people who served in World War II in certain non-U.S. armed services

capacities may also be eligible.

Special assistance for persons with disabilities: The VA provides

Housing Grants for Disabled Veterans to service members and veter-

ans with certain permanent and total service-connected disabilities

to help purchase or construct an adapted home, or modify an exist-

ing home to allow them to live more independently. For example, the

Specially Adapted Housing Grant is designed to facilitate independent,

barrier-free living for veterans with severely impaired mobility. Another

example is the Specially Adapted Housing Assistive Technology Grant,

which is designed to adapt the home of a veteran with no mobility-

related disabilities.

Tribal Land Loans: Note that VA loans on tribal land are underwritten

directly by VA. By statute, before VA may make a loan to any Native

American veteran, the veteran’s tribal or other sovereign governing

body must enter into a Memorandum of Understanding (MOU) with VA.

Native American veterans who are eligible for VA home loan benets

and whose sovereign governments have signed an MOU, may then

apply directly to VA for a 30-year xed-rate loan to purchase, build, or

POTENTIAL BENEFITS

VA loans offer competitive pric

ing and terms.

Community banks, as supervised

institutions, receive automatic

authority to originate and close

loans with the VA guarantee,

making VA loans a relatively

easy type of mortgage to

begin offering.

The VA Home Purchase Loan

Program may allow community

banks to expand their cus

tomer base among veterans in

their communities.

Loans originated through VA may

receive favorable consideration

under the CRA, depending on

the geography or income of the

participating borrowers.

POTENTIAL CHALLENGES

Despite the ease of becoming a

VA-authorized lender, community

banks may need to acquire or

develop new expertise and infra

structure in order to participate.

Lenders retain some risk since

they are responsible for any loss

over 25 percent.

Note that spouses can co-sign on the loan and be included on the deed. In the event that a

spouse does not want to co-sign on the loan, the veteran borrower and the non-borrower spouse

must sign either the mortgage note or the mortgage deed. VA claried this in Circular 26-16-01,

https://www.benets.va.gov/HOMELOANS/documents/circulars/26_16_1.pdf

FDIC | Affordable Mortgage Lending Guide | 72

improve a home located on federal trust land. They

may also renance a direct loan already made under

this program to lower their interest rate.

Property type: The property type may be a house, a

condominium unit in a VA-approved project, or a man-

ufactured home and/or lot. If the manufactured home

is not placed on a permanent foundation, VA will guar-

antee 40 percent of the loan amount or the veteran’s

available entitlement, up to a maximum of $20,000. Up

to four residential units and one business unit (which

cannot be more than 25 percent of the square footage

of the home) is allowed. VA nancing may also function

as construction nancing to build a home, simultane-

ously purchase and improve a home, or make energy

efciency improvements of up to $6,000.

LOAN CRITERIA

Loan limits: Each veteran has a guaranty entitlement,

which is a minimum of $36,000 and a maximum of 25

percent of the county loan limit. The guaranty effec-

tively takes the LTV ratio down to 75 percent. VA has

set its loan limits to be the same as the loan limits

for Fannie Mae and Freddie Mac single-unit loans.

Borrowers may combine their entitlement with a down

payment to purchase a property that is over the county

loan limit, but such loans would be more limited in

their secondary market options.

Loan-to-value limits: A loan-to-value (LTV) ratio of up

to 100 percent is allowed. Closing costs may not be

nanced into the loan. However, it is possible to nance

the funding fee and up to $6,000 in energy-efciency

improvements into the loan, in which case the LTV may

go over 100 percent. From the lender’s perspective,

the veteran’s entitlement effectively reduces the LTV

ratio to 75 percent or less.

Adjustable-rate mortgages: Lenders may make

adjustable-rate mortgages with VA guarantees. For

traditional ARMs with annual interest rate adjustments

or hybrid ARMs with an initial xed-rate period of

under ve years, annual interest rate adjustments are

limited to plus or minus 1 percentage point, with a

maximum of 5 percentage points over the life of the

loan. These loans must be underwritten at 1 percent-

age point above the initial rate. If the initial contract

interest rate of a hybrid ARM remains xed for ve

years or more, the initial adjustment is limited to a

maximum increase or decrease of 2 percentage points,

and the interest rate increase over the life of the loan is

limited to 6 percentage points.

Down payment sources: Down payments are not

required. A discounted funding fee is provided with

down payments of 5 percent or more (discounted to

1.5 percent) and 10 percent or more (discounted to

1.25 percent). Lenders may require a down payment

if necessary to meet secondary market requirements

(such as those imposed by Ginnie Mae); generally, the

VA guarantee plus down payment must be at least 25

percent of the loan amount.

Homeownership counseling: Homeownership counsel-

ing is not required.

Mortgage insurance: Mortgage insurance is

not required.

Debt-to-income ratio: The maximum debt-to-income

ratio allowed is 41 percent. However, applicants whose

DTI exceed 41 percent can be granted an exception if

the borrower qualies based on residual income. If stu-

dent loan repayments are scheduled to begin within 12

months of the date of VA loan closing, lenders should

consider the anticipated monthly obligation in the loan

analysis. If the borrower is able to provide evidence

that the debt may be deferred for a period outside

that timeframe, the debt need not be considered in

the analysis.

Residual income: The VA wants to make sure that vet-

erans have enough money for regular household and

family needs after making their housing payment, so

they measure a prospective borrower’s residual income

as well as debt-to-income ratio. Residual income is the

amount of net income remaining (after deduction of

debts and obligations and monthly shelter expenses)

to cover family living expenses such as food, health

care, clothing, and gasoline. Residual income does

not automatically trigger acceptance or rejection of

a loan, but it is considered in conjunction with other

credit factors. If the borrower’s DTI is more than 41

percent, he or she must exceed the regional residual

income requirement by at least 20 percent. Lenders

may reduce the residual income requirement by 5

percent for active-duty service members. The residual

income threshold varies depending on family size and

geographic region. See the VA’s underwriting guide,

73 | FDIC | Affordable Mortgage Lending Guide

Chapter 4, “Credit Underwriting,” for the latest residual

income limits.

Temporary interest rate buy downs: Interest rate and

points are negotiated between the lender and bor-

rower; temporary interest rate buy downs are allowed.

Renance: Cash-out renance is allowed. No cash-

out renance is allowed through the VA’s Interest Rate

Reduction Renance Loan program.

Seller concessions: VA limits seller concessions to 4

percent of the loan. Examples are payment of prepaid

closing costs, VA funding fee, payoff of credit balances

or judgments for the veteran, and funds for temporary

buy downs. Payment of discount points is not subject

to the 4 percent limit.

Funding fee: Generally, all veterans using the VA

Home Loan Guaranty benet must pay a funding fee.

The funding fee is a percentage of the loan amount

that varies from 1.25 percent to 3.3 percent based on

the type of loan, military category, rst-time loan user

status, and existence of a down payment. VA fund-

ing fees may be nanced or paid in cash at closing.

Veterans with a service-connected disability are exempt

from the funding fee.

Lender fees: The VA limits the fees lenders can charge

borrowers. The veteran can pay a maximum of reason-

able and customary amounts for typical closing costs

designated by VA, plus a 1 percent at charge by the

lender, plus reasonable discount points. The seller,

lender, or any other party may pay any of these fees on

behalf of the borrower; however, the VA does not allow

excessive seller concessions that place veterans in

loans they would not otherwise qualify for because this

increases the risk of default.

Appraisals: Prospective borrowers must use an

appraiser assigned by VA.

Loss mitigation: VA has favorable terms for veterans

who lose their homes to foreclosure, short sale, or

deed-in-lieu of foreclosure. In the event of foreclosure,

some of the veteran’s entitlement will likely stay tied

to the foreclosed property. Under most circumstances,

borrowers may be able to use the remainder of their

entitlement to qualify for a new mortgage. Waiting

periods after foreclosure are shorter with VA than with

conventional nancing.

Potential Benets

• VA loans offer competitive pricing and terms.

• Community banks, as supervised institutions,

receive automatic authority to originate and close

loans with the VA guarantee, making VA loans a

relatively easy type of mortgage to begin offering.

• The VA Home Purchase Loan Program may allow

community banks to expand their customer base

among veterans in their communities.

• Loans originated through VA may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

Potential Challenges

• Despite the ease of becoming a VA-authorized

lender, community banks may need to acquire or

develop new expertise and infrastructure in order

to participate.

• Lenders retain some risk since they are responsible

for any loss over 25 percent.

RESOURCES

Direct access to the following web links can be found

at https://www.fdic.gov/mortgagelending.

Lender resources

https://www.benets.va.gov/homeloans/lenders.asp

Complete list of allowed fees and charges

https://benets.va.gov/WARMS/docs/admin26/

handbook/ChapterLendersHanbookChapter8.pdf

County-level loan limits

http://www.benets.va.gov/homeloans/purchaseco_

loan_limits.asp

FHFA loan limits

https://www.fhfa.gov/DataTools/Downloads/Pages/

Conforming-Loan-Limits.aspx

FDIC | Affordable Mortgage Lending Guide | 74

Interest Rate Reduction Renance Loan

Renancing to reduce the interest rate on VA-guaranteed loans

BACKGROUND AND PURPOSE

The U.S. Department of Veterans Affairs’ (VA) Interest

Rate Reduction Renance Loan (IRRRL) generally

lowers the interest rate by renancing an existing VA

home loan. By obtaining a lower interest rate, the

monthly mortgage payment should decrease. Eligible

borrowers can also renance an adjustable-rate mort-

gage (ARM) into a xed-rate mortgage. No additional

charge is made against the veteran’s entitlement

because of a loan for the purpose of an interest rate

reduction. The Veterans’ Disability Compensation and

Housing Benets Amendments of 1980 introduced

the IRRRL program to assist veterans who wished to

take advantage of low interest rates to reduce their

monthly payments.

BORROWER CRITERIA

Income limits: There are no income limits on

this program.

Credit: No credit review is performed.

First-time homebuyers: An IRRRL can only be made to

renance a property on which the borrower has already

used his or her VA loan eligibility so it is not of use to

rst-time homebuyers. It must be a VA-to-VA renance,

and it will reuse the original entitlement.

Occupancy and ownership of other properties: No

loan other than the existing VA loan may be paid from

the proceeds of an IRRRL. The occupancy requirement

for an IRRRL differs from other VA loans. For an IRRRL,

the borrower need only certify that he or she previously

occupied the home. Single-family homes, condomini-

ums, and manufactured homes are all eligible.

Special populations: This program may only be used

by veterans and, in some cases, their spouses. A new

Certicate of Eligibility is not required. Borrowers are

PROGRAM NAME

Interest Rate Reduction Renance Loan Program (IRRRL)

AGENCY

U.S. Department of Veterans Affairs

EXPIRATION DATE

Not Applicable

APPLICATIONS

http://www.benets.va.gov/homeloans/lenders.asp

WEB LINK

http://www.benets.va.gov/homeloans/irrrl.asp

CONTACT

INFORMATION

Lenders interested in participating should contact their local VA ofce, which can be found at

http://www.benets.va.gov/HOMELOANS/contact_rlc_email.asp

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

75 | FDIC | Affordable Mortgage Lending Guide

not required to show their Certicate of Eligibility to conrm the prior

use of entitlement; an email conrmation procedure is available to lend-

ers in lieu of a Certicate of Eligibility.

Special assistance for persons with disabilities: Veterans with service-

related disabilities are generally exempt from the funding fee (0.5

percent of the loan’s value, or 1 percent for an unafxed manufactured

home).

LOAN CRITERIA

Loan limits: The renanced loan cannot exceed the existing VA loan plus

any nanced funding fee.

Loan-to-value limits: There are no LTV limits set by VA. The new loan

amount may be more than the limits established by the secondary

market. It is the lender’s responsibility to ensure it has a marketable loan.

Adjustable-rate mortgages: Existing VA ARM loans may be renanced

into a xed rate, hybrid ARM, or traditional ARM, but it must bear a lower

interest rate than the loan it is renancing, unless the loan it is renanc-

ing is an ARM.

Down payment sources: No down payment is required; however, an

IRRRL may be done with “no money out of pocket” by including all costs

in the new loan.

Homeownership counseling: Homeownership counseling is

not required.

Mortgage insurance: Mortgage insurance is not required.

Debt-to-income ratio: No credit review is performed.

Temporary interest rate buy downs: Generally not allowed since the

purpose is to lower the interest rate.

Renance: The borrower may not receive any cash from the loan

proceeds for an IRRRL unless it is for the purpose of making energy

efciency improvements.

Interest rates and loan terms: Terms are set by the lender.

Funding fee: The funding fee for an IRRRL is 0.5 percent of the loan’s

value, or 1 percent for an unafxed manufactured home. Funding fees

may be nanced or paid in cash.

POTENTIAL BENEFITS

Lenders can offer existing cus

tomers a product to lower their

payments, which may generate

further business for the bank.

VA loans offer competitive pricing

and terms.

Loans originated through VA may

receive favorable consideration

under the CRA, depending on

the geography or income of the

participating borrowers.

Community banks, as supervised

institutions, receive automatic

authority to originate and close

loans with the VA guarantee,

making VA loans a relatively easy

type of mortgage business to

begin offering.

POTENTIAL CHALLENGES

Despite the ease of becoming a

VA-authorized lender, community

banks may need to acquire or

develop new expertise and infra

structure in order to participate.

A limited pool of borrowers is eli

gible for this program due to the

military service requirement.

Lenders retain risk since they

are responsible for any loss over

25 percent.

IRRRL applications where a bor

rower is more than 30 days late

on a mortgage payment must be

approved directly by VA.

FDIC | Affordable Mortgage Lending Guide | 76

Potential Benets

• Lenders can offer existing customers a product to

lower their payments, which may generate further

business for the bank.

• VA loans offer competitive pricing and terms.

• Loans originated with VA may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

• Community banks, as supervised institutions,

receive automatic authority to originate and close

loans with the VA guarantee, making VA loans

a relatively easy type of mortgage business to

begin offering.

Potential Challenges

• Despite the ease of becoming a VA-authorized

lender, community banks may need to acquire or

develop new expertise and infrastructure in order

to participate.

• A limited pool of borrowers is eligible for this pro-

gram due to the military service requirement.

• Lenders retain risk since they are responsible for

any loss over 25 percent.

• IRRRL applications where a borrower is more than

30 days late on a mortgage payment must be

approved directly by VA.

SIMILAR PROGRAMS

• FHA Streamline Renance

• Fannie Mae Re Plus™/Home Affordable Renance

Program (HARP)

• Freddie Mac Relief Renance

/Home Affordable

Renance Program (HARP)

77 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

General information

http://www.benets.va.gov/homeloans/irrrl.asp

General information on VA home lending programs

http://www.benets.va.gov/homeloans/lenders.asp

Interest Rate Reduction Renance Loan Worksheet (VA Form 26-8923)

http://www.vba.va.gov/pubs/forms/VBA-26-8923-ARE.pdf

Veteran/Service member’s supplemental application for assistance in acquiring specially adapted

housing (VA Form 26-4555c)

http://www.vba.va.gov/pubs/forms/VBA-26-4555c-ARE.pdf

Verication of VA benets form (VA Form 26-8937)

http://www.vba.va.gov/pubs/forms/VBA-26-8937-ARE.pdf

FDIC | Affordable Mortgage Lending Guide | 78

OVERVIEW

U.S. Department of the Treasury

Community Development Financial Institutions Fund

We have included the most recent information available at the date of publication. At the end of each section,

we include a list of resources with web links where you can nd updates, as well as information about additional

programs and other helpful information related to the subject.

OVERVIEW

The U.S. Department of the Treasury’s Community

Development Financial Institutions Fund (CDFI Fund)

helps promote access to capital and local economic

growth in urban and rural low-income communities

across the nation through monetary awards and the

allocation of tax credits. Financial institutions certied

by the CDFI Fund are eligible to apply for monetary

support and training to build organization capacity.

The CDFI Fund’s model is competitive and each of

its programs provides CDFIs with the exibility to

determine the best use of limited federal resources in

their community.

To take advantage of many CDFI Fund programs —

but not the Bank Enterprise Awards or the Capital

Magnet Fund — an entity must be certied as a

Community Development Financial Institution (CDFI).

CDFIs are specialized nancial institutions that pro-

vide nancial products and services to populations

and businesses located in underserved markets.

These institutions have community development

missions and a reputation for lending responsibly in

low-income communities. CDFIs include banks and

bank holding companies, as well as credit unions,

loan funds, and venture capital funds. The CDFI Fund

through its monetary awards provides funding and

technical assistance to CDFIs.

This Guide covers the following CDFI Fund programs:

Bank Enterprise Award Program: Provides monetary

awards to FDIC-insured banks for increasing their

investments in CDFIs and for expanding their lend-

ing, investment, and service activities in economically

distressed communities.

CDFI Program: Financial Assistance (FA) and Technical

Assistance (TA) awards for certied and emerging

CDFIs to support affordable nancial services and

products, including single-family mortgage lending, in

distressed communities.

Technical Assistance awards are for start-up or exist-

ing CDFIs and are used to build capacity to underwrite

loans and provide other services to its target market

through the acquisition of goods and services such as

consulting services, technology purchases, and staff or

board training.

Capital Magnet Fund: Competitive grant program to

CDFIs and nonprot housing developers to support

nancing tools, such as loan loss reserves or loan guar-

antees, to attract private capital for affordable housing,

and community and economic development associ-

ated with affordable housing.

79 | FDIC | Affordable Mortgage Lending Guide

BECOMING A CERTIFIED CDFI

PROGRAMS IN THIS SECTION:

CDFI banks are federally insured and regulated depository institutions

with a primary mission of community development. What distinguishes

CDFI banks from other nancial institutions is their community devel-

opment mission and the requirement that at least 60 percent of their

nancing activities be targeted to one or more low- and moderate-

income (LMI) populations or underserved communities. The requirement

of being accountable to their target market(s) is usually fullled by com-

munity representation on boards of directors or advisory boards.

Approximately 50 percent of CDFI banks are Minority Depository

Institutions (MDIs). The FDIC publishes quarterly a list of MDI banks at

www.fdic.gov/mdi. The list includes FDIC-supervised banks that meet

either of the following two denitions: (1) federally insured depository

institutions in which 51 percent or more of the voting stock is owned

by minority individuals; or (2) federally insured depository institutions

in which the majority of the board of directors is minority and the com-

munity the institution serves is predominantly minority. The FDIC’s list of

MDI banks also includes FDIC-insured minority depository institutions

that are supervised by the Ofce of the Comptroller of the Currency

(OCC) and the Federal Reserve Board. Each of those agencies has its

own denition of MDIs. FDIC publishes the names of MDIs supervised by

the OCC and Federal Reserve that are consistent with the MDI categories

dened by Section 308 of the Financial Institutions Reform, Recovery,

and Enforcement Act of 1989. Participating in the MDI program is volun-

tary, and some institutions meeting the above denitions choose not to

be included on the list.

CDFI certication is formal acknowledgement from the CDFI Fund that a

nancial institution meets certain community development nance mea-

sures. To become certied, a nancial institution must apply to the CDFI

Fund and meet the following criteria:

• be a legal entity at the time of certication application;

• have a primary mission of promoting community development;

• be a nancing entity;

• primarily serve one or more target markets by designating at least

60 percent of nancing activities to one or more low- and moderate-

income or underserved communities;

• provide development services in conjunction with its nanc-

ing activities;

• maintain accountability to its dened target market; and

• be a nongovernment entity and not be under control of any govern-

ment entity (Tribal governments excluded).

Bank Enterprise Award Program: Provides

monetary awards to FDIC-insured banks for

increasing their investments in CDFIs and

for expanding their lending, investment, and

service activities in economically dis

tressed

communities.

CDFI Program:

Financial Assistance (FA) and

Technical Assistance (TA) awards for certified

and emerging CDFIs to support affordable

financial services and products, including

single-family mortgage lending, in dis

tressed

communities.

Technical Assistance awards are for start-

up or existing CDFIs and are used to build

capacity to underwrite loans and provide

other services to its target market through

the acquisition of goods and services such as

consulting services, technology purchases,

and staff or board

training.

Capital Magnet Fund:

Competitive grant

program to CDFIs and nonprofit housing

developers to support financing tools, such

as loan loss reserves or loan guarantees, to

attract private capital for affordable housing,

and community and economic development

associated with affordable

housing.

FDIC | Affordable Mortgage Lending Guide | 80

CDFI PARTNERSHIPS

The Community Reinvestment Act (CRA) encourages

commercial banks and savings associations to help

meet the credit needs of their communities, including

LMI neighborhoods, in a manner consistent with safe

and sound banking practices. Three federal regula-

tory agencies — the FDIC, the OCC, and the Federal

Reserve Board — conduct regular CRA examinations

and develop performance evaluations based on

performance tests that vary by institution size and type.

However, regardless of the size or type of the deposi-

tory institution, loans to and investments in qualifying

CDFIs may be useful in helping community banks meet

their CRA obligations.

Because CDFIs certied by the CDFI Fund are required

primarily to serve a community development purpose,

the interagency questions and answers regarding

community reinvestment explicitly recognize loans to

and investments in CDFIs as examples of community

development loans and qualied investments.

• CDFI nancing support from banks can be clas-

sied in three forms: equity investments, which

represent capital invested in CDFIs; debt, which

represents funds loaned to CDFIs; and deposits,

which are funds placed in CDFI depository institu-

tions, typically earning interest and insured by a

federal governmental agency.

• For consideration under the CRA, a bank’s invest-

ment activities must serve community development

purposes and be consistent with safe and sound

banking requirements. Also, for most community

banks and large retail institutions, the CDFI’s pur-

pose and activities should be in their assessment

area or the statewide or regional area that includes

the assessment area.

TRAINING RESOURCES

The CDFI Fund launched the Capacity Building

Initiative (CBI) in 2014 to expand technical assistance

and training opportunities for CDFIs. Industry-wide

training targets key issues affecting CDFIs and the com-

munities they serve, including affordable housing and

business lending, portfolio management, risk assess-

ment, foreclosure prevention, training in CDFI business

processes, and assistance with liquidity and capital-

ization challenges. CBI also offers direct technical

assistance and individualized capacity-building plans

and focuses on extending CDFI coverage to under-

served communities, especially in rural areas.

As part of the CBI, the CDFI Fund provides Resource

Banks that contain the resources developed for all

past training series, including training materials, expert

documents, archived webinars, and links to relevant

outside information.

Ofce of the Comptroller of the Currency, Treasury; Federal Reserve System;

and Federal Deposit Insurance Corporation, “Community Reinvestment Act;

Interagency Questions and Answers Regarding Community Reinvestment,”

75 Federal Register 11648, 11652 (March 11, 2010). Available at

https://www.fec.gov/cra/pdf/2010-4903.pdf.

81 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

CDFI Fund general information

http://www.cdfund.gov/

FDIC’s Strategies for Community Banks to Develop Partnerships with Community Development

Financial Institutions

https://www.fdic.gov/consumers/community/cd/cds_entirereport.pdf

Bank Enterprise Award Program information

https://www.cdfund.gov/programs-training/Programs/bank_enterprise_award/Pages/default.aspx

CDFI Program information

https://www.cdfund.gov/programs-training/Programs/cd-program/Pages/default.aspx

CDFI certication

https://www.cdfund.gov/programs-training/certication/cd/Pages/default.aspx

Capital Magnet Fund

https://www.cdfund.gov/programs-training/Programs/cmf/Pages/default.aspx

Capacity Building Initiative

https://www.cdfund.gov/programs-training/training-ta/Pages/default.aspx

Minority Depository Institutions

https://www.fdic.gov/regulations/resources/minority/index.html

FDIC | Affordable Mortgage Lending Guide | 82

CDFI FUND

Bank Enterprise Awards

Financial incentives for banks to expand activities in economically

distressed areas

BACKGROUND AND PURPOSE

The Bank Enterprise Awards (BEA) Program was

created in 1994 to support FDIC-insured nancial

institutions across the country that are committed to

nancing community and economic development

activities, such as affordable home mortgages and

other affordable loans, deposits, and nancial services

including investments in community development

nancial institution (CDFI) partners.

The BEA Program encourages community develop-

ment activities of insured depository institutions by

providing nancial incentives to expand investments in

CDFIs and to increase their own lending, investment,

and service activities within economically distressed

communities. Providing monetary awards for increas-

ing community development activities leverages the

CDFI Fund’s dollars and puts more capital to work in

distressed communities.

ELIGIBILITY AND AWARD CALCULATION

The BEA Program provides formula-based grants to

applicants for increasing qualied activities between a

baseline period and an assessment period. The assess-

ment period is the calendar year immediately before

the current year, and the baseline period is the calen-

dar year before that. All depository institutions insured

by the FDIC are eligible to apply for a BEA Program

award. Banks that receive awards must then reinvest

those funds into distressed communities. The ultimate

consumers of the activities must be low to moder-

ate income.

Institutions that are certied CDFIs receive priority for

awards if there is insufcient funding. Institutions must

estimate the size of their own awards as part of the

application, but the CDFI Fund makes the nal determi-

nation of eligible activities.

PROGRAM NAME

Bank Enterprise Awards

AGENCY

U.S. Department of the Treasury CDFI Fund

EXPIRATION DATE

Dependent on congressional appropriations

APPLICATIONS

Available at http://www.cdfund.gov/bea

WEB LINK

http://www.cdfund.gov/bea

CONTACT

INFORMATION

cdhelp@cd.treas.gov

APPLICATION PERIOD

Applications are typically open for a 45-day period every spring

GEOGRAPHIC SCOPE

Economically distressed communities

83 | FDIC | Affordable Mortgage Lending Guide

Awards are based on activities within three categories, in descending

POTENTIAL BENEFITS

order of priority:

CDFI-related activities: Equity investments, equity-like loans,

grants, loans, deposits/shares, and technical assistance to qualied

CDFI partners.

Distressed community nancing activities: Affordable home mortgage

loans, affordable housing development loans, small business loans,

home improvement loans, education loans, commercial real estate

loans, and small-dollar consumer loans.

Service activities: Financial products and services, such as check-

ing accounts, savings accounts, check cashing, nancial counseling,

nancial education, individual development accounts, small-dollar

consumer loans, or youth savings accounts provided to residents of

distressed communities.

Potential Benets

• BEA awards may help banks offset some of the cost of BEA-qualied

activities and direct administrative expenses associated with them

by providing awards for activities already performed.

• For banks that provide equity investments to CDFIs, or are CDFIs

themselves, they are likely to receive the largest awards relative to

the size of their investments.

• BEA-qualied activities may receive favorable consideration under

the CRA, depending on the geography of the activities.

Potential Challenges

• Only increases in qualifying activities not directly funded by previous

BEA program awards or other federal funds count toward the BEA

award amount calculation.

• Only banks that are already participating in qualifying activities will

receive awards because awards are based on past performance.

RESOURCES

Direct access to the following web links can be found

at https://www.fdic.gov/mortgagelending.

Distressed Community Mapping System (CIMS 3)

https://www.cdfund.gov/Pages/mapping-system.aspx

Bank Enterprise Award Program information

https://www.cdfund.gov/programs-training/Programs/bank_

enterprise_award/Pages/default.aspx

BEA awards may help banks

offset some of the cost of

BEA-qualified activities and

direct administrative expenses

associated with them by pro

viding awards for activities

already performed.

For banks that provide equity

investments to CDFIs, or are

CDFIs themselves, they are

likely to receive the largest

awards relative to the size of

their investments.

BEA-qualified activities may

receive favorable consideration

under the CRA, depending on the

geography of the activities.

POTENTIAL CHALLENGES

Only increases in qualifying

activities not directly funded

by previous BEA program

awards or other federal funds

count toward the BEA award

amount calculation.

Only banks that are already

participating in qualifying

activities will receive awards

because awards are based on

past performance.

FDIC | Affordable Mortgage Lending Guide | 84

CDFI FUND

CDFI Program

Competitive monetary awards to support affordable nancial services

and products in distressed communities, and technical assistance for

CDFIs and emerging CDFIs

BACKGROUND AND PURPOSE

The U.S. Department of the Treasury’s Community

Development Financial Institutions Fund (CDFI Fund)

makes competitive awards of up to $2 million to certi-

ed community development nancial institutions

(CDFIs) under the Financial Assistance (FA) component

of the CDFI Program and up to $125,000 under the

Technical Assistance (TA) component.

Depending on the CDFI institution type, a CDFI may

use the award for nancing capital, loan loss reserves,

capital reserves, nancial services, or development

services. These awards can be used for a variety of

affordable housing options.

The form of the FA award is based on the form of

the matching funds that the applicant includes in its

application, unless Congress waives the matching

funds requirement. FA awards can be in the form of

loans, grants, equity investments, and deposits and

credit union shares.

TA awards are for start-up or existing CDFIs and are

used to build capacity to underwrite loans and provide

other services to the target market through the acquisi-

tion of goods and services such as consulting services,

technology purchases, and staff or board training.

ELIGIBILITY CRITERIA

To be eligible for an FA award, a CDFI must be certi-

ed by the CDFI Fund before it applies for the award.

Prospective applicants that are not yet certied must

PROGRAM NAME

CDFI Fund Program

AGENCY

U.S. Department of the Treasury CDFI Fund

EXPIRATION DATE

Dependent on congressional appropriations

APPLICATIONS

Information on applying is available at https://www.cdfund.gov/programs-training/Programs/

cd-program/Pages/apply-step.aspx#step22

WEB LINK

https://www.cdfund.gov/programs-training/Programs/cd-program/Pages/default.aspx

CONTACT

INFORMATION

cdhelp@cd.treas.gov

APPLICATION PERIOD

There is typically an annual 45-day application period in the fall, with awards announced in

summer of the following year.

GEOGRAPHIC SCOPE

National

85 | FDIC | Affordable Mortgage Lending Guide

submit a separate certication application to be considered for FA

during a funding round. By statute, awardees must match the monetary

award dollar for dollar. The form of the FA award is based on the form

of the matching funds, which must be from non-federal sources and not

used as matching funds for any other federal award.

Both certied and noncertied CDFIs are eligible to apply for technical

assistance awards. However, noncertied organizations must be able to

become certied within two years after receiving a TA award. There is no

matching requirement for a TA award.

Depending on the Notice of Funding Available (NOFA), the CDFI

Fund may have a special set-aside for applications from Small and/

or Emerging CDFIs. To be an eligible Small and/or Emerging CDFI

Assistance (SECA) applicant, an applicant must be a certied or certi-

able CDFI, request $700,000 or less in FA funds, and either not exceed

the applicable maximum asset threshold of $250 million (for insured

depository institutions) or have begun operations as of the date speci-

ed in the CDFI Fund’s NOFA published in the Federal Register.

COMMUNITY BANK CRITERIA

Depending on the NOFA, to be eligible for an award, an insured deposi-

tory institution applicant must have a CAMELS rating by its federal

regulator of at least 3. Organizations with CAMELS ratings of 4 and 5

will not be eligible for awards. The CDFI Fund will consider safety and

soundness information from the appropriate federal or state-bank-

ing agency.

AWARD USE

FA monetary awards can be expended for activities in the following ve

categories: nancial products, nancial services (insured depository

institutions only), loan loss reserves, development services, and capital

reserves (insured depository institutions only). Each allowable activity

category is eligible for indirect costs and an associated indirect cost rate.

Indirect cost rates are determined as part of the terms and conditions of

the award.

TA monetary awards can be expended for salaries and fringe benets of

the applicant’s personnel for work performed directly related to carrying

out the purpose of the TA grant; travel costs of related personnel; pro-

fessional service costs; training and education costs; and supplies and

equipment. Each allowable activity category is eligible for indirect costs

and an associated indirect cost rate. Indirect cost rates are determined

as part of the terms and conditions of the award.

POTENTIAL BENEFITS

The CDFI Fund is unique among

federal programs because it

takes an enterprise approach to

its programming by strength

ening institutions rather than

funding specific projects.

The TA award program helps

organizations develop the capac

ity to become CDFIs or expand

their affordable housing or

other lending.

POTENTIAL CHALLENGES

Both financial assistance and

technical assistance awards are

competitive. Not all completed,

qualified applications will receive

funding since a typical round

attracts many more requests

than funding available.

By statute, awardees must

match the monetary award (FA)

dollar for dollar.

FDIC | Affordable Mortgage Lending Guide | 86

FUNDING AVAILABLE

Funding availability is subject to federal appropriations.

A typical funding round is approximately $150 million.

Under no circumstances will an award be higher than

$2 million for any recipient or $5 million in total awards

over a three-year period.

Potential Benets

• The CDFI Fund is unique among federal programs

because it takes an enterprise approach to its pro-

gramming by strengthening institutions rather than

funding specic projects.

• The TA award program helps organizations

develop the capacity to become CDFIs or expand

their affordable housing or other lending.

Potential Challenges

• Both nancial assistance and technical assistance

awards are competitive. Not all completed, quali-

ed applications will receive funding since a typical

round attracts many more requests than fund-

ing available.

• By statute, awardees must match the monetary

award (FA) dollar for dollar.

87 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

CDFI Program information

https://www.cdfund.gov/programs-training/Programs/cd-program/Pages/default.aspx

Application Process

https://www.cdfund.gov/programs-training/Programs/cd-program/Pages/apply-step.aspx#step22

CDFI certication

https://www.cdfund.gov/programs-training/certication/cd/Pages/default.aspx

FDIC | Affordable Mortgage Lending Guide | 88

CDFI FUND

Capital Magnet Fund

Competitive monetary awards to CDFIs and nonprot housing developers

to attract private capital for affordable housing and community and

economic development associated with affordable housing

BACKGROUND AND PURPOSE

The Capital Magnet Fund (CMF) is a competitive grant

program designed to attract private capital to the

development, preservation, rehabilitation, or purchase

of affordable housing for low-income families. The CMF

is not a block grant to state or local governments or

housing authorities; the monetary awards are competi-

tively awarded as grants to Community Development

Financial Institutions (CDFIs) and nonprot housing

organizations to support nancing tools, such as loan

loss reserves or loan guarantees for affordable hous-

ing. Awards must be leveraged at least $10 to $1 with

funding from other sources.

The CMF was enacted as part of the Housing and

Economic Recovery Act (HERA) of 2008 to provide

exible public funds to attract private investment into

affordable housing projects through allocations from

Fannie Mae and Freddie Mac based on new business

purchases. This funding was suspended because of the

conservatorship of Fannie Mae and Freddie Mac until

the Federal Housing Finance Agency (Fannie Mae and

Freddie Mac’s regulator) lifted the suspension in late

2014, starting contributions on January 1, 2015.

While the allocations from Fannie Mae and Freddie

Mac vary annually, Capital Magnet Fund awards aver-

age slightly over $100 million per year.

PROGRAM NAME

Capital Magnet Fund

AGENCY

U.S. Department of the Treasury CDFI Fund

EXPIRATION DATE

Dependent on Fannie Mae and Freddie Mac contributions

APPLICATIONS

https://www.cdfund.gov/programs-training/Programs/cmf/Pages/default.aspx

WEB LINK

https://www.cdfund.gov/programs-training/Programs/cmf/Pages/default.aspx

CONTACT

INFORMATION

cdhelp@cd.treas.gov

APPLICATION PERIOD

Annually

GEOGRAPHIC SCOPE

National

89 | FDIC | Affordable Mortgage Lending Guide

ELIGIBILITY CRITERIA

POTENTIAL BENEFITS

Eligible recipients are U.S. Department of the Treasury certied CDFIs

or nonprot organizations, with a principal purpose of developing or

managing affordable housing solutions.

Applications for the competitive grants are required to include a

detailed description of the types of affordable housing and economic

and community revitalization projects for which the entity would use the

grant, as well as the anticipated timeframe in which the entity intends to

use it. CMF award dollars (and leveraged costs) must be used to nance

affordable housing units that are affordable to families making less than

120 percent of the area median income (AMI). Greater than 50 percent

of CMF award dollars (and leveraged costs) must be used to nance

affordable housing units that are affordable to families making less than

80 percent of AMI.

At least 20 percent of the units in each rental project nanced in whole

or in part by CMF award dollars must be affordable to families making

less than 50 percent of AMI and at least 20 percent of the units in each

multifamily homeownership project must be affordable to families

making less than 80 percent of AMI. No more than 5 percent of CMF

award dollars can be used for direct administrative costs.

No grantee (including subsidiaries or afliates) can be awarded more

than 15 percent of all funding available in a given year, and those receiv-

ing grants must spend the funds within two years of the date received.

A minimum of 70 percent of CMF money must be used for housing; the

remainder may be used for economic development activities or commu-

nity service facilities (such as day care centers, workforce development

centers, and health care clinics), which in conjunction with affordable

housing activities, implement a concerted strategy to revitalize low-

income or underserved rural areas.

CMF nanced housing must meet affordability requirements for at least

10 years.

Each grantee must track its funds by issuing periodic nancial and proj-

ect reports, and by fullling audit requirements.

CMF monetary awards must be leveraged at least $10 to $1 with fund-

ing from other sources. To leverage funds, CMF dollars may be used to

provide loan loss reserves, capitalize a revolving loan fund or an afford-

able housing fund, make risk-sharing loans, or nance community and

economic development activities mentioned previously.

The Capital Magnet Fund is

effective at using a small gov

ernment subsidy to attract

large amounts of private capital

to support affordable housing

and related community or eco

nomic development.

It may be used to meet capital

requirements and mitigate risk.

POTENTIAL CHALLENGES

Application requires staff time

and knowledge to complete.

Requires extensive knowledge of

potential business opportunities

and community partnerships in

order to use the funds in a short

time frame.

FDIC | Affordable Mortgage Lending Guide | 90

Potential Benets

• The Capital Magnet Fund is effective at using a

small government subsidy to attract large amounts

of private capital to support affordable housing

and related community or economic development.

• It may be used to meet capital requirements and

mitigate risk.

Potential Challenges

• Application requires staff time and knowledge

to complete.

• Requires extensive knowledge of potential busi-

ness opportunities and community partnerships in

order to use the funds in a short time frame.

91 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

CDFI certication

https://www.cdfund.gov/programs-training/certication/cd/Pages/default.aspx

Capital Magnet Fund

https://www.cdfund.gov/programs-training/Programs/cmf/Pages/default.aspx

Capital Magnet Fund fact sheet (available in English and Spanish)

https://www.cdfund.gov/Documents/CMF%20Fact%20Sheet%20Dec2017.pdf

Capital Magnet Fund reference documents

https://www.cdfund.gov/Documents/Forms/Reference%20Documents.

aspx?FilterField1=CDFI_x0020_Program&FilterValue1=Capital%20Magnet%20Fund

FDIC | Affordable Mortgage Lending Guide | 92

OVERVIEW

Fannie Mae

We have included the most recent information available at the date of publication. At the end of each section,

we include a list of resources with web links where you can nd updates, as well as information about additional

programs and other helpful information related to the subject.

OVERVIEW

Fannie Mae is a government-sponsored enterprise,

or GSE, created by the federal government to ensure

access to home mortgage credit. Fannie Mae’s

historical mission is to provide liquidity, stability, and

affordability to the U.S. housing nance system, in

all communities, under all economic conditions. It

provides liquidity to the mortgage market by buying

loans conforming to certain standards from banks

and other loan originators, thus enabling lenders

to make new loans with the proceeds from the sale.

Fannie Mae then issues securities backed by pools of

these mortgages that it sells to capital markets.

It guarantees that investors in these securities will

receive prompt payment of the principal and interest

due on the mortgages. Banks may sell loans to Fannie

Mae individually or pooled with other loans, directly

or through intermediaries.

Fannie Mae funds its operations and loan loss

reserves largely through fees, which banks may pass

through to borrowers. Fannie Mae charges both

annual guarantee fees and loan-level price adjust-

ments (LLPAs). LLPAs are upfront charges, which vary

based on credit score, loan-to-value ratio, type of

product, and various other factors.

Fannie Mae is charged with affordable housing

goals.

It operates special programs with underwrit-

ing standards that eliminate common barriers to

low-income homeownership, such as high down

payments, credit history issues, and the inability to

get affordable xed-rate nancing on unusual prop-

erty types that tend to be more affordable, such

as manufactured homes and properties with sig-

nicant deferred maintenance. The goals were rst

implemented in 1993 and provide clear guidelines for

low- and moderate-income (LMI) lending that the GSEs

are required to facilitate.

MORTGAGE INSURANCE AND LOAN LIMITS

Fannie Mae requires mortgage insurance (MI) on all

loan amounts that exceed 80 percent of the property

value. The amount of MI coverage required varies by

transaction type and loan-to-value range. Fannie Mae

offers standard and minimum mortgage insurance pric-

ing options for all loan products. Minimum MI coverage

options typically carry corresponding MI loan-level

price adjustments (MI LLPAs). Loan-level price adjust-

ments are risk-based pricing adjustments that apply at

the time of delivery only. MI LLPAs vary by credit score

and loan-to-value.

Fannie Mae’s regulator, the Federal Housing Finance

Agency (FHFA), publishes Fannie Mae’s conforming

loan limits annually. Loan limits vary by number of units

and by property location. Properties in areas dened as

“high cost” are associated with higher loan limits. For

current limits, see Resources.

This Guide covers the following Fannie Mae affordable

homeownership options:

HomeReady™ Mortgage: Low down payment

nancing with discounted fees for creditworthy

LMI borrowers.

The Housing and Economic Recovery Act (HERA) established a formula used

by the FHFA to establish annual loan limits.

93 | FDIC | Affordable Mortgage Lending Guide

Standard 97 Percent Loan-to-Value Mortgage: Low down payment

nancing with standard fees for creditworthy rst-time homeowners who

do not meet HomeReady™ Mortgage income limits.

HomeStyle® Renovation Mortgage: Financing that covers purchase and

renovation costs in a single loan.

Standard Manufactured Housing Mortgage: Financing for manufac-

tured homes that uses the credit standards of the home mortgage

market rather than the chattel (movable property) loan market.

MH Advantage

: Conventional nancing for manufactured hous-

ing with features similar to site-built homes. It has higher loan-to-value

ratios, up to 97 percent, waived 0.50 percent loan level price

adjustments, and standard mortgage insurance.

Re Plus™/Home Affordable Renance Program (HARP): Helps respon-

sible borrowers with little or no home equity to renance into more

affordable mortgages.

DOING BUSINESS WITH FANNIE MAE

Benets

Delivering mortgage loans to the secondary market through Fannie

Mae can help community banks provide access to sustainable afford-

able mortgage products and responsibly expand mortgage business

opportunities while limiting long-term credit, prepayment, and interest

rate risks.

Delivery Options

There are several ways for banks to deliver loans to Fannie Mae. They

can become direct Fannie Mae approved sellers or seller/servicers. They

can participate in the MPF Xtra,

a suite of Fannie Mae-eligible products

offered by nine Federal Home Loan Banks (FHLBanks) to their member

organizations under the umbrella of the Mortgage Partnership Finance

(MPF) program in which Fannie Mae is the end investor. Fannie Mae and

its lender partners also work directly with many state and local housing

nance agencies to provide mortgage-lending options.

Banks can act

as a correspondent lender by originating and funding loans, and then

selling them to investors or “aggregators” that sell to Fannie Mae, and/or

generate loans that are funded in the name of an investor and then sold

to Fannie Mae.

PROGRAMS IN THIS SECTION:

HomeReady™ Mortgage: Low down payment

financing with discounted fees for creditwor

thy LMI

borrowers.

Standard 97 Percent Loan-to-Value

Mortgage:

Low down payment financing with

standard fees for creditworthy first-time

homeowners who do not meet HomeReady™

Mortgage income

limits.

HomeStyle

Renovation Mortgage: Financing

that covers purchase and renovation costs in

a single

loan.

Standard Manufactured Housing Mortgage:

Financing for manufactured homes that uses

the credit standards of the home mortgage

market rather than the chattel (movable

property) loan

market.

MH Advantage

: Conventional financing for

manufactured housing with features similar to

site-built homes. It has higher loan-to-value

ratios, up to 97 percent, waived 0.50 percent

loan level price adjustments, and standard

mortgage

insurance.

Refi Plus™/Home Affordable Refinance

Program (HARP):

Helps responsible borrowers

with little or no home equity to refinance into

more affordable

mortgages.

Detailed information regarding the Federal Home Loan Banks is addressed in Affordable Mortgage

Lending Guide, Part III: Federal Home Loan Banks,

https://www.fdic.gov/mortgagelending.

Detailed information regarding State Housing Finance Agencies is addressed in the Affordable

Mortgage Lending Guide, Part II: State Housing Finance Agencies, https://www.fdic.gov/mortgagelending.

FDIC | Affordable Mortgage Lending Guide | 94

Delivering to Fannie Mae as a direct seller or

seller/servicer

In order for banks to deliver loans directly to Fannie

Mae, they must become approved sellers or seller/

servicers. Fannie Mae approved sellers and seller/ ser-

vicers are able to deliver a wide range of single-family

mortgage products, including purchases and re-

nances on one- to four-unit properties, and renances

through the Home Affordable Renance Program

(HARP). Both xed-rate and adjustable-rate products

are available. When delivering loans to Fannie Mae,

lenders must provide (directly or indirectly through a

service provider) certain representations and warran-

ties (reps and warrants).

Approved sellers or seller/servicers are also provided

with training, technical support, and business develop-

ment support. Once approved, lenders are assigned

a Fannie Mae Customer Account Manager (CAM) to

help them navigate Fannie Mae’s benets, systems,

and requirements.

Approval process to deliver as a Fannie Mae direct

seller or seller/servicer

Lenders can be approved through Fannie Mae as a

seller/servicer or as a direct seller only. Fannie Mae

seller/servicers either service loans directly or contract

with a Fannie Mae approved subservicer. If approved

as a seller only, servicing rights must be transferred to a

Fannie Mae approved servicer.

The seller/servicer approval process is estimated to

take between four and 14 months from the time of

application through nal approval. Banks interested

in becoming a Fannie Mae approved seller or seller/

servicer must meet minimum nancial standards

including a minimum net worth of $2.5 million plus

25 basis points of unpaid principal balance for total

one- to four-unit residential mortgage loans serviced.

Operational standards, related quality control, and

servicing requirements apply as well.

Delivering to Fannie Mae through FHLBank MPF Xtra

The FHLBanks are 11 government-sponsored regional

banks that offer a range of funding options for member

nancial institutions across the country.

The Federal Home Loan Bank of Chicago launched

the Mortgage Partnership Finance (MPF) Program in

1997 to provide another secondary market outlet for its

members to sell xed-rate mortgage loans. Today, nine

of the 11 FHLBanks purchase conventional and govern-

ment loans through the MPF program. The majority

of nancial institutions participating in this program

are small banks or thrifts with assets of less than $400

million. While the basic MPF product is a portfolio

product, certain FHLBanks offer access to Fannie Mae

through their MPF Xtra product.

MPF Xtra is offered to members of the Federal Home

Loan Banks of Atlanta, Boston, Chicago, Dallas, Des

Moines, New York, Pittsburgh, San Francisco, and

Topeka. Under MPF Xtra, the FHLBanks operate as a

pass-through for member institutions to sell loans to

Fannie Mae without retaining credit risk.

Members of the nine FHLBanks offering MPF Xtra can

pursue approval to sell mortgages through the MPF

program as a Participating Financial Institution (PFI).

Through MPF Xtra, FHLBank PFIs can take advantage

of the benets of secondary market liquidity while

avoiding the nancial and operational requirements

associated with becoming a direct Fannie Mae seller/

servicer.

PFIs also receive support and guidance from their

FHLBank MPF provider that helps ensure the loan

manufacturing and data quality necessary for second-

ary market mortgage sales. The administrator of the

MPF program and Fannie Mae’s seller/servicer, the

Federal Home Loan Bank of Chicago, assumes the reps

and warrants to Fannie Mae on loans sold through MPF

Xtra. However, PFIs are required to retain the custom-

ary reps and warrants required by the FHLBanks on

loans sold through MPF Xtra.

The MPF Xtra product has no minimum collateral or

risk-based capital requirements, and all PFIs receive

access to most standard Fannie Mae mortgage

products. PFIs are provided access to Fannie Mae’s

Desktop Underwriter® (DU) risk assessment platform

and can use either automated or manual underwrit-

ing processes. Second mortgages cannot be used in

conjunction with the MPF Xtra product.

95 | FDIC | Affordable Mortgage Lending Guide

Delivering to Fannie Mae through other third parties

Smaller lenders often turn to investors or aggregators

to help them carry out underwriting, funding, and/

or secondary market sales functions. Correspondent

lenders typically fund loans in their own names and

then sell them to investors, who in turn sell the loans

into the secondary market. In some cases, the corre-

spondent lenders handle the underwriting in-house.

In other cases, the investor acts as the underwriter.

Smaller lenders that are interested in originating loans

but do not have the internal capacity to either under-

write or fund the loans can also work with investors to

carry out the origination function while looking to the

investor to underwrite and fund the loans in the name

of the investor.

Thus, lenders can work with sponsoring Fannie Mae

approved seller/servicers to originate Fannie Mae loan

products. Originating loans for, or selling loans to, a

Fannie Mae approved lender or aggregator can be

useful to banks that do not meet minimum standards

and/or do not have the internal capacity to become

Fannie Mae approved.

Fannie Mae offers the Desktop Originator®, a portal

system that provides product guidelines and prelimi-

nary automated underwriting (Desktop Underwriter®),

to lenders working with investors. However, many

aggregators and/or investors administer their own

underwriting guidelines or overlays, which may be

more restrictive than standard Fannie Mae program

requirements. Final underwriting decisions, stan-

dards for delivery, and fees for participation are set by

each investor.

Duty to Serve

The Housing and Economic Reform Act of 2008

required the GSEs to serve sectors of the housing

market that lack adequate access to conventional

nancing by increasing market access to mortgages for

very low-, low-, and moderate-income families in three

specic underserved markets: manufactured housing,

affordable housing preservation, and rural housing.

In response to this legislation, the Federal Housing

Finance Agency (FHFA), the federal regulator responsi-

ble for overseeing Fannie Mae and Freddie Mac, issued

the Duty to Serve Underserved Markets rule, under

which the GSEs were required to develop a three-year

plan for each underserved area (Plans).

These Plans,

informed by public comment and feedback from the

FHFA, detail the specic outreach, product develop-

ment, and loan purchase activities designed to support

mortgage nancing in each of the underserved mar-

kets. The rst Plan is effective January 2018 through

December 2020. The statute requires FHFA to evalu-

ate and rate Fannie Mae’s compliance with its Duty to

Serve requirements annually and to report to Congress

on these evaluations.

2018-2020 Underserved Markets Plans

Each of Fannie Mae’s Plans describes the objectives

and time-bound actions that Fannie Mae will pursue

in an effort to help resolve underserved market chal-

lenges and meet the requirements of the Duty to Serve

regulations. The objectives and specic action plans

generated for each underserved market generally seek

to accomplish one or more of the following:

• conduct analysis and publish ndings that might

promote a greater understanding of the under-

served markets;

• conduct research and outreach in the underserved

markets;

• facilitate market collaboration and participation in

the underserved markets;

• develop policies and standards to expand market

access to an underserved market;

• increase the purchase of loans in a designated

underserved market; and

• develop new or expand current products to meet

an unmet market need.

Manufactured Housing

In the manufactured housing sector, Fannie Mae will

be eligible to receive Duty to Serve credit for activi-

ties related to increasing market access to loans on

The Duty to Serve regulation allows Fannie Mae and Freddie Mac to request

to modify their Plans at any time. The FHFA and the GSE may seek public input

on the proposed modications, and the FHFA must provide a “Non-Objection”

to a proposed modication for it to become part of a Plan. The FHFA publishes

modied Plans, as well as redlined versions of the portions modied on its

website at https://www.fhfa.gov/PolicyProgramsResearch/Programs/Pages/

Duty-to-Serve.aspx.

FDIC | Affordable Mortgage Lending Guide | 96

manufactured housing units, as well as blanket loans

on manufactured housing communities and by bring-

ing standards to the manufactured housing market.

Over the initial three-year period, Fannie Mae is

committed to purchasing over 29,000 manufactured

loans, which incrementally grows to a 27-33 percent

increase over the baseline by 2020. The GSE will also

develop an enhanced manufactured loan product.

Fannie Mae will conduct outreach and research that

supports the development of a chattel loan pilot and

market standardization of a product for chattel loans

and will purchase at least 2,000 chattel loans once it

secures approval to do so from FHFA. Additionally,

Fannie Mae will develop a pilot program for resident-

owned communities and create a loan enhancement

for manufactured housing communities with specied

minimum tenant pad lease protections.

Potential Benets for Community Bankers:

• Increased opportunities to deliver manufactured

home loans on real property to Fannie Mae.

• Enhanced manufactured housing loan product.

• Chattel loan pilot that supports market

standardization.

Affordable Housing Preservation

To preserve affordable housing, Fannie Mae plans to

purchase mortgage loans that nance the purchase

or rehabilitation of certain distressed properties. In

2019, Fannie Mae will establish partnerships with

state and other programs

that can combine sub-

sidies and assistance together with its HomeStyle®

Renovation product.

Fannie Mae also plans to purchase small multifamily

(50 units or less) loans from nancial entities with $10

billion or less in assets. Fannie will purchase 556 small

multifamily loans in 2019-2020, which is a 3 percent

increase over the baseline in 2019 and a 7 percent

increase in 2020. Fannie Mae will also work with

three delegated underwriting and servicing lenders

to build or enhance correspondent networks with

smaller nancial institutions.

Fannie Mae’s Underserved Markets Plan also sup-

ports energy and water efciency improvements for

both single-family and multifamily, shared equity

homeownership nancing, and the rehabilitation

and preservation of rental units originally developed

through the assistance of federal housing programs.

Potential Benets for Community Bankers:

• Increased opportunities to deliver loans for pur-

chase or rehabilitation on distressed properties to

Fannie Mae.

• Enhanced HomeStyle® Renovation loan product.

• Increased opportunities to deliver loans for small

multifamily properties from small nancial institu-

tions to Fannie Mae.

Rural Housing

The rural housing Duty to Serve regulations support the

nancing of both single-family and multifamily housing

in rural areas generally, as well as in certain high-needs

rural areas

and populations that have been particu-

larly underserved.

Fannie Mae’s Plan calls for increasing its purchase of

single-family loans in rural areas from small nancial

institutions. It will also purchase single-family rural

loans through bulk transactions from small nancial

institutions. Over three years, Fannie Mae will work

with single-family small nancial institution lenders to

identify opportunities. Fannie Mae intends to purchase

1,300-1,500 single-family rural loans through bulk

transactions, which has not been previously done by

the GSE.

Detailed information regarding State Housing Finance Agencies can be

found in the Affordable Mortgage Lending Guide, Part II: State Housing

Finance Agencies; information regarding Federal Home Loan Banks can be

found in the Affordable Mortgage Lending Guide, Part III: Federal Home Loan

Banks, fdic.gov/mortgagelending.

Fannie Mae will purchase loans from HUD Section 8 rental assistance pro-

gram; HUD Section 236 rental and cooperative housing program; HUD Section

221(d)(4) moderate-income and displaced families program; HUD Section 202

housing for the elderly program; HUD Section 811 housing for persons with

disabilities program; HUD Choice Neighborhoods Initiative; McKinney-Vento

permanent supportive housing projects for homeless individuals and families;

USDA Section 515 rural rentals program; federal low-income housing tax cred-

its; and other comparable state or local affordable housing programs.

The FHFA’s Duty to Serve regulations dene “rural area” as: “1) a census

tract outside of a metropolitan statistical area as designated by the Ofce of

Management and Budget; or 2) a census tract in a metropolitan statistical area

as designated by the Ofce of Management and Budget that is outside of

the metropolitan statistical area’s Urbanized Areas as designated by the U.S.

Department of Agriculture’s (USDA) Rural-Urban Commuting Area (RUCA)

Code #1, and outside of tracts with a housing density of over 64 housing units

per square mile for USDA’s RUCA Code #2.”

97 | FDIC | Affordable Mortgage Lending Guide

Over the three-year period, Fannie Mae will pur-

chase up to 36,000 additional single-family loans in

high-needs rural regions representing a 25 percent

to 30 percent increase over the baseline by 2020.

The GSE will also heavily market its Native American

Conventional Lending Initiative (NACLI) and purchase

single-family loans for Native Americans. In 2019-2020,

Fannie Mae has committed to purchasing 140-240

NACLI single-family loans or renance loans (Fannie

Mae only purchased one NACLI loan in the past three

years). Fannie Mae will research and issue guidance

related to appraisals of tribal trust land.

Potential Benets for Community Bankers:

• Increased opportunities for small nancial institu-

tions to deliver both single-family and multifamily

loans in high-needs rural areas to Fannie Mae.

• New opportunities for small nancial institutions

to deliver rural single-family loans to Fannie Mae

through bulk transactions.

• New loan product to increase single-family

loan purchases.

• Increased opportunities to deliver loans for

Native Americans.

Fannie Mae’s 2018-2020 Underserved Markets Plan

http://www.fanniemae.com/portal/about-fm/duty-to-

serve.html.

Manufactured Housing Duty to Serve Plan

http://www.fanniemae.com/resources/le/aboutus/

pdf/dts-manufactured-housing-nal.pdf

Affordable Housing Preservation Duty to Serve Plan

http://www.fanniemae.com/resources/le/aboutus/

pdf/dts-affordable-housing-preservation-nal.pdf

Rural Housing Duty to Serve Plan

http://www.fanniemae.com/resources/le/aboutus/

pdf/dts-rural-housing-nal.pdf

Questions about Duty to Serve

http://www.fanniemae.com/portal/jsp/contact-us-

form.html?emailID=forty-two

SYSTEM REQUIREMENTS AND

QUALITY CONTROL

Use of Desktop Underwriter® (DU), Fannie Mae’s auto-

mated credit risk assessment platform, is required for

all Fannie Mae sellers, including seller/servicers. DU

provides an assessment of a loan’s eligibility for sale

and delivery to Fannie Mae. Lenders can access DU

through an interface on FannieMae.com or through

an integrated third-party or proprietary loan origina-

tion system. Fannie Mae uses trended data in its credit

risk assessment for loans submitted through Desktop

Underwriter®. Trended credit data provides expanded

information on a borrower’s revolving account credit

history including whether the borrower pays off the

balance each month or makes the minimum payment

due, and whether the borrower exceeds the credit

limit. There is no charge for Desktop Underwriter®.

Fannie Mae sellers are also required to have a qual-

ity control program in place that includes pre-funding

and post-funding quality control reviews, covers the

full scope of the mortgage origination business of the

bank, and includes an active role by senior manage-

ment in the effective resolution of gaps discovered in

the origination process.

FDIC | Affordable Mortgage Lending Guide | 98

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Path to Approval Toolkit: Reference guide for prospective Fannie Mae seller/servicers.

https://www.fanniemae.com/content/tool/prospective-seller-servicer-reference-guide.pdf

Fannie Mae Prospective Seller/Servicer road map: One-page summary of approval process.

https://www.fanniemae.com/content/fact_sheet/prospective-seller-servicer-roadmap.pdf

Fannie Mae’s Housing Finance Institute: Training opportunities including virtual classrooms, webinars, on-demand

E-Learning courses, and job aids.

https://www.fanniemae.com/singlefamily/training

Fannie Mae Selling Guide: Rules and regulations covering all aspects of selling loans to Fannie Mae including

lender approval, loan origination, loan delivery, and quality control.

https://www.fanniemae.com/content/guide/selling/index.html

Fannie Mae Servicing Guide: Rules and regulations covering all aspects of servicing loans sold to Fannie Mae

including payment processing, escrow management, borrower repayment solutions, and bankruptcies and

foreclosures.

https://www.fanniemae.com/content/guide/servicing/index.html

Fannie Mae Desktop Underwriter® (trended data)

https://www.fanniemae.com/content/fact_sheet/desktop-underwriter-trended-data.pdf

Loan Limits for Conventional Mortgages

https://www.fanniemae.com/singlefamily/loan-limits

Mortgage Insurance Coverage Requirements

https://www.fanniemae.com/content/guide/selling/b7/1/02.html

List of approved lenders: List of Fannie Mae approved aggregators.

https://www.fanniemae.com/content/list/desktop-originator-sponsoring-lenders.html

Federal Housing Finance Agency Duty to Serve Program

https://www.fhfa.gov/PolicyProgramsResearch/Programs/Pages/Duty-To-Serve.aspx

Fannie Mae Duty to Serve Underserved Markets Plan 2018-2020

http://www.fanniemae.com/portal/about-fm/duty-to-serve.html

HUD Choice Neighborhoods Program

https://www.hud.gov/cn

HUD Rental Assistance Demonstration (RAD)

https://www.hud.gov/rad/

99 | FDIC | Affordable Mortgage Lending Guide

HUD Section 8 Housing Voucher Program

https://www.hud.gov/topics/housing_choice_voucher_program_section_8

HUD Section 236 Program

https://www.hudexchange.info/programs/section-236-preservation/

HUD Section 221(d)(4) Moderate-Income and Displaced Families Program

https://www.hud.gov/program_ofces/housing/mfh/progdesc/rentcoophsg221d3n4

HUD Section 202 Supportive Housing for the Elderly Program

https://www.hud.gov/program_ofces/housing/mfh/progdesc/eld202

HUD Section 811 Supportive Housing for Persons with Disabilities Program

https://www.hud.gov/program_ofces/housing/mfh/progdesc/disab811

HUD Homeless Assistance Programs Supportive Housing Program Desk Guide (McKinney-Vento funded)

https://www.hudexchange.info/resources/documents/SHPDeskguide.pdf

USDA Section 515 Rural Housing Programs

https://www.rd.usda.gov/programs-services/all-programs/multi-family-housing-programs

FDIC | Affordable Mortgage Lending Guide | 100

A COMMUNITY BANKER CONVERSATION

Using Fannie Mae’s HomeReady™ Mortgage Product

The FDIC talked with community bankers about using Fannie Mae’s HomeReady™ Mortgage and other mortgage

products. The following are excerpts from these discussions.

The HomeReady™ Mortgage (HomeReady) provides

low down payment nancing with discounted fees to

rst-time and other homebuyers who meet program

income limits. It requires borrowers to take an online

homeownership class.

Working with Fannie Mae

One bank representative said that her bank has been

using Fannie Mae products for over 20 years. The bank

takes advantage of all Fannie Mae products, which

she says helps the bank to meet market demands and

stay competitive. She said that her bank delivers loans

to Fannie Mae as an approved seller/servicer, as well

as through a correspondent lender. “The good thing

about using a correspondent,” she says, “is that the

investor does the underwriting and will purchase the

loan, but the cons include the longer processing time

and that servicing is not kept in-house.” The bank uses

both Fannie Mae’s Desktop Underwriter® and manual

underwriting if needed.

A signicant portion of another bank’s low- and

moderate-income (LMI) borrower loans are made using

Fannie Mae’s HomeReady® Mortgage products as an

approved seller/servicer.

Program benets

One representative said, “Credit score requirements

are more accommodating to borrowers’ needs with

Fannie Mae than with our portfolio guidelines. The

down payment is also more exible, as Fannie Mae will

allow a 3 percent down payment. The reduced reserves

needed for the loan is another exibility.”

Another banker from the Midwest points out that if

you are already a Fannie Mae approved seller/servicer

(or work with one), integrating HomeReady into your

mortgage line of business can be a natural strategy and

can be an easier route than getting into other govern-

ment lending programs. The banker says that she has

had success with HomeReady and other programs like

it. Because of this, she has not had to rely on a portfolio

product for CRA purposes to date.

Overcoming challenges

One banker noted that underwriting these products

can present internal challenges and suggests that the

loan origination system can be the key to successful

product delivery. “No doubt that there is more paper-

work and more required documents, at least with

the approach that we have taken to couple Fannie

Mae’s products with state down payment assistance

programs.”

She also believes that internal staff buy-in and support

is critical to success. She said that nding the right loan

ofcers is very important.

According to another banker, one of the biggest chal-

lenges in offering Fannie Mae products is keeping up

with the constant changes in products, guidelines, and

technology. Training for loan ofcers is done in-house

and through Fannie Mae webinars. In order to stay cur-

rent, training is an ongoing process.

101 | FDIC | Affordable Mortgage Lending Guide

Advice for other banks considering Fannie Mae products

“Adding affordable lending products to our bank’s product mix and cre-

ating an efcient underwriting and delivery system are key to the bank’s

success,” said one bank representative who pointed out that the products

should also t with a bank’s overall business strategy and CRA business

plan. The representative explained that her bank’s CRA business plan

revolves around “products, partners, and promotion.” She lists internal

staff training, development of key external partners, and commitment to

consistent community outreach and promotional efforts as critical driv-

ers of success. “It really is a combination of those things. We train our loan

ofcers, we do internal promotion, and we partner with real estate agents

who may have listings that would be eligible for the programs, as well as

several local HUD-approved nonprots.” Another banker agreed, noting

that her bank’s loan ofcers market the product through real estate agents

in the community.

One banker said that she and other bank staff have also participated in at

least 50 workshops so far this year, either on their own, or in partnership

with real estate agents, insurance agents, or attorneys. “Last night I was

at a library in one of the suburban communities and we talked to people

about credit, just basic information that they should know about their credit,

things they can do to improve their credit, and of course we always talk

about the down payment assistance programs and the low down payment

mortgages that are out there. You have to do outreach because you don’t

otherwise have bank customers knowing or asking about these products.”

FDIC | Affordable Mortgage Lending Guide | 102

FANNIE MAE

HomeReady™ Mortgage

Low down payment nancing for low- and moderate-income borrowers

BACKGROUND AND PURPOSE

The HomeReady™ Mortgage (HomeReady) program

helps lenders serve today’s market of creditworthy,

low- and moderate-income (LMI) borrowers, and

encourages the nancing of homes in designated

low-income, minority,

and disaster-impacted commu-

nities. HomeReady offers high loan-to-value (LTV) ratio

nancing to help homebuyers who would otherwise

qualify for a mortgage but may not have the resources

for a larger down payment. HomeReady mortgages

offer low rates, minimal risk-based price adjustments

compared to other programs, and reduced mortgage

insurance costs.

BORROWER CRITERIA

Income limits: Borrower income must be below

100 percent of the area median income (AMI), with

some exceptions based on the property’s location.

There is no income limit on properties in low-income

census tracts.

Credit: HomeReady allows for nontraditional credit.

Credit scores as low as 620 are permitted. This limit is

revised annually. For manual underwriting, there is a

minimum credit score of 660 for one-unit properties

and a credit score minimum of 680 for two- to four-

unit properties. Risk-based pricing is waived in some

instances based on credit score. Fannie Mae also uses

trended data in its credit risk assessment including

those loans submitted through Desktop Underwriter®.

Trended credit data provides expanded information on

a borrower’s revolving account credit history including

whether the borrower pays off the balance each month

or makes the minimum payment due, and whether the

borrower exceeds the credit limit.

PROGRAM NAME

HomeReady™ Mortgage

AGENCY

Fannie Mae

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Fannie Mae seller,

see https://www.fanniemae.com/singlefamily/become-seller-servicer

WEB LINK

https://www.fanniemae.com/singlefamily/homeready

CONTACT

INFORMATION

[email protected] (ask for a call-back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National; higher income limits for low-income, minority, and disaster area designated

census tracts.

103 | FDIC | Affordable Mortgage Lending Guide

First-time homebuyers: Allowed, but does not confer a special benet.

Occupancy and ownership of other properties: Only single-unit, owner-

occupied primary residences are allowed. Occupant and non-occupant

borrower(s) may have an ownership interest in other residential property

at the time of closing.

Special populations: Public servants (police, reghters, health care

workers, teachers, etc.) and military personnel may access special ex-

ibilities, such as use of overtime and part-time income to qualify. These

loans no longer require manual underwriting.

Special assistance for persons with disabilities: HomeReady incorpo-

rates many underwriting exibilities for persons with disabilities, such

as using a nonresident co-borrower, and offers them to any borrower as

part of automatic underwriting.

Property type: Single-family homes of one- to four-units, condominiums,

townhomes, and planned unit developments are allowed. Manufactured

housing mortgages are allowed with an LTV up to 95 percent.

HomeReady offers exibilities for extended family households, such as

permitting rental income from an ancillary dwelling unit or boarder.

LOAN CRITERIA

Loan limits: FHFA publishes Fannie Mae’s conforming loan limits annu-

ally. See Resources for a link to the current limits.

Loan-to-value limits: Up to 97 percent LTV allowed. Use of Desktop

Underwriter® is required for LTVs greater than 95 percent.

Adjustable-rate mortgages: The following ARMs are allowed: 5/1 with

2/2/5 caps only, and 7/1 and 10/1 with caps that vary according to

Fannie Mae’s standard ARM matrix.

Down payment sources: Allowable sources include gifts, grants,

Community Seconds®,

and cash on hand. There is no minimum

requirement from the borrower’s own funds.

Homeownership counseling: Comprehensive homeownership educa-

tion is required for all borrowers through an online course provided

by Framework®, a HUD-approved social enterprise run by the Housing

Partnership Network. Borrowers will invest four to six hours (average)

of their time and a fee of $75 (paid to Framework®) to learn the funda-

mentals of buying and owning a home, take an online test, and receive

According to 12 USC § 4502 (29), the term minority census tract means “a census tract that has a minority

population of at least 30 percent and a median family income of less than 100 percent of the area family

median income.”

A Community Seconds® mortgage is a subordinate mortgage that is used in connection with a rst

mortgage delivered to Fannie Mae. Fannie Mae does not purchase Community Seconds, but it does

provide eligibility requirements for the subordinate Community Seconds product. See fact sheet at

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf.

POTENTIAL BENEFITS

The HomeReady™ Mortgage

program may allow community

banks to expand their customer

base by serving more low- and

moderate-income borrowers,

low- and moderate-income

census tracts, high-minority

census tracts, and designated

disaster areas.

HomeReady may help commu

nity banks access the secondary

market, providing greater liquidity

to enhance their lending volume.

Loans originated through

HomeReady may receive favor

able consideration under the CRA

because the program is targeted

for use in LMI communities or by

LMI borrowers.

POTENTIAL CHALLENGES

Lenders must have a way to

access the program, whether

through direct sales or a cor

respondent arrangement, as

discussed in the introduction to

this section. Depending on the

arrangement, community banks

may need to acquire or develop

new expertise and infrastructure

in order to participate.

This program has maximum

income requirements and other

borrower and loan characteris

tics, which could limit the pool

of borrowers.

FDIC | Affordable Mortgage Lending Guide | 104

a certicate of completion. To promote further sustain-

ability, borrowers will have access to post-purchase

homeownership support for the life of the loan

through Framework’s® homeownership advisor service.

Alternatively, some borrowers can meet the educa-

tion requirement by attending customized one-on-one

counseling by a HUD-approved counseling agency.

Lenders can receive a $500 loan-level price adjustment

credit where HomeReady borrowers have attended

approved counseling services before entering into a

sales contract. See How to Fulll the Homeownership

Education Requirement for HomeReady® Mortgage in

Resources for more details.

Loan-level price adjustments: Loan-level price adjust-

ments are risk-based pricing adjustments that apply at

the time of delivery only. Standard risk-based pricing

is waived for HomeReady loans with LTVs less than 80

percent and a credit score of 680 or greater. A risk-

based, loan-level price adjustment cap of 150 basis

points applies for loans outside of these parameters.

Mortgage insurance: HomeReady features a reduced

mortgage insurance coverage requirement for

loans above 90 percent LTV. Mortgage insurance

is cancellable.

Debt-to-income ratio: Determined by Desktop

Underwriter®. Income from a non-borrower household

member may be considered as a compensating factor

in DU to allow for a debt-to-income (DTI) ratio up to 50

percent. HomeReady allows non-occupant borrowers,

such as a parent. In the event that the borrower has

student loan debt, if the payment amount is provided

on the credit report, that amount can be used for quali-

fying purposes. If the credit report does not identify a

payment amount, the lender can use either 1 percent

of the outstanding student loan balance, or a calcu-

lated payment that will fully amortize the loan based on

documented loan repayment terms.

Temporary interest rate buy downs: Temporary interest

rate buy downs are permitted.

Renance: Limited cash-out renance up to 95 percent

LTV is an eligible use of this product.

Potential Benets

• The HomeReady™ Mortgage program may allow

community banks to expand their customer base

by serving more low- and moderate-income bor-

rowers, low- and moderate-income census tracts,

high-minority census tracts, and designated disas-

ter areas.

• HomeReady may help community banks access the

secondary market, providing greater liquidity to

enhance their lending volume.

• The guarantee provided by Fannie Mae under this

program may help reduce exposure to credit risk.

• Loans originated through HomeReady may receive

favorable consideration under the CRA because

the program is targeted for use in LMI communities

or by LMI borrowers.

Potential Challenges

• Lenders must have a way to access the program,

whether through direct sales or a correspondent

arrangement, as discussed in the introduction to

this section. Depending on the arrangement, com-

munity banks may need to acquire or develop new

expertise and infrastructure in order to participate.

• This program has maximum income requirements

and other borrower and loan characteristics, which

could limit the pool of borrowers.

SIMILAR PROGRAMS

• FHA 203(b) Mortgage Insurance Program

• Freddie Mac Home Possible®

105 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

More information on the HomeReady® Mortgage program

https://www.fanniemae.com/singlefamily/homeready

Fannie Mae standard ARM matrix

https://www.fanniemae.com/content/eligibility_information/arm-matrix.pdf

HomeReady® Income Limits

https://homeready-eligibility.fanniemae.com/homeready/

FHFA Conforming Loan Limits

https://www.fanniemae.com/singlefamily/loan-limits

How to Fulll the Homeownership Education Requirement for HomeReady® Mortgage

https://www.fanniemae.com/content/fact_sheet/homeready-education-requirement.pdf

Community Seconds®

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf

Selling requirements

https://www.fanniemae.com/content/guide/selling/b5/6/03.html

HUD-approved counselors by state

(Click on state and scroll to the bottom of the page.)

https://www.fdic.gov/consumers/community/mortgagelending/map.html

FDIC | Affordable Mortgage Lending Guide | 106

FANNIE MAE

Standard 97 Percent Loan-to-Value Mortgage

Low down payment nancing for rst-time homebuyers

BACKGROUND AND PURPOSE

According to consumer research conducted by Fannie

Mae, the primary barrier to homeownership for rst-

time homebuyers is saving money for the down

payment and closing costs. In support of ongoing

efforts to expand access to credit and support sustain-

able homeownership, Fannie Mae offers 97 percent

loan-to-value (LTV) nancing to help homebuyers who

would otherwise qualify for a mortgage but may not

have the resources for a larger down payment. These

options are designed to help lenders serve creditwor-

thy borrowers and expand business opportunities.

The maximum LTV ratio for Fannie Mae’s standard

mortgage product is up to 97 percent for rst-time

homebuyers, allowing rst-time borrowers who exceed

the HomeReady™ Mortgage income limit to still buy a

home with as little as 3 percent down. One major dif-

ference is that the risk-based fee to Fannie Mae, known

as the loan-level price adjustment (LLPA), is based on

the borrower’s credit score and the amount of private

mortgage insurance the borrower elects to purchase.

Borrowers with certain risk factors must demonstrate

other compensating factors to be approved for a loan.

Fannie Mae eliminated risk factors that could affect

homeowners’ sustainability, including low-documenta-

tion loans, interest-only loans, 40-year terms, and credit

scores lower than 620.

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: This program uses standard risk-based loan-

level price adjustments that are based on credit. Fannie

Mae uses trended data in its credit risk assessment

including those loans submitted through Desktop

PROGRAM NAME

Standard 97 Percent Loan-to-Value Mortgage

AGENCY

Fannie Mae

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Fannie Mae seller,

see https://www.fanniemae.com/singlefamily/become-seller-servicer

WEB LINK

https://www.fanniemae.com/singlefamily/97-ltv-options

CONTACT

INFORMATION

[email protected] (ask for a call-back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

107 | FDIC | Affordable Mortgage Lending Guide

Underwriter®. Trended credit data provides expanded information on a

borrower’s revolving account credit history including whether the bor-

rower pays off the balance each month or makes the minimum payment

due, and whether the borrower exceeds the credit limit.

First-time homebuyers: For purchase transactions, at least one bor-

rower must be a rst-time homebuyer (no ownership interest in other

residential properties for the last three years). The rst-time homebuyer

requirement is waived for limited cash-out renances.

Occupancy and ownership of other properties: This program is

intended for rst-time homebuyers; however, a co-borrower could own

other property. The dwelling must be the borrower’s primary residence.

Special populations: This program does not provide special benets for

members of certain populations.

Special assistance for persons with disabilities: This program does not

provide special benets for people with disabilities.

Property type: Single-family homes of one- to four-units, condominiums,

and planned unit developments are eligible. Manufactured housing is

not eligible.

LOAN CRITERIA

Loan limits: FHFA publishes Fannie Mae’s conforming loan limits annu-

ally. See Resources for a link to the current limits.

Loan-to-value limits: The LTV limit is 97 percent, or up to 105 percent

with a Community Seconds®

subordinate lien. It may not be combined

with a HomeStyle® Renovation Loan or high-balance loans.

Adjustable-rate mortgages: Loans under this program may not

be ARMs.

Down payment sources: This program follows Fannie Mae’s standard for

borrower contribution, which for a one-unit purchase transaction is zero.

Gifts, grants, Community Seconds®, and other down payment assistance

programs, and the borrower’s own funds are all eligible sources.

Homeownership counseling: Homeownership counseling is not

required, but recommended.

Loan-level price adjustments: Loan-level price adjustments are risk-

based pricing adjustments that apply at the time of delivery only. This

program is subject to standard Fannie Mae risk-based LLPAs dependent

on credit scores.

POTENTIAL BENEFITS

The guarantee provided by

Fannie Mae under this program

may limit exposure to credit risk.

Loans originated through Fannie

Mae’s Standard 97 Percent Loan-

to-Value may receive favorable

consideration under the CRA,

depending on the geography

or income of the participat

ing borrowers.

POTENTIAL CHALLENGES

Lenders must have a way to

access the program, whether

through direct sales or a cor

respondent arrangement, as

discussed in the introduction to

this section. Depending on the

arrangement, community banks

may need to acquire or develop

new expertise and infrastructure

in order to participate.

The program may not be the best

fit for many low- and moderate-

income borrowers; there are

alternatives such as the more

targeted GSE programs. The

Federal Housing Administration

or the U.S. Department of

Agriculture may have more

appropriate programs, depend

ing on the incomes, available

down payment resources, and

credit histories of the applicants.

A Community Seconds® mortgage is a subordinate mortgage that is used in connection with a rst

mortgage delivered to Fannie Mae. Fannie Mae does not purchase Community Seconds, but it does provide

eligibility requirements for the subordinate Community Seconds product. See fact sheet at

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf.

FDIC | Affordable Mortgage Lending Guide | 108

Mortgage insurance: Unlike the HomeReady™

Mortgage program, borrowers have two insurance cov-

erage level options: standard coverage of 35 percent

and minimum coverage of 18 percent with correspond-

ing LLPAs. Lenders that choose less than standard

coverage (but no lower than minimum coverage) are

assessed an LLPA based on the LTV ratio (95.01 percent

to 97.00 percent) and representative credit score.

Debt-to-income ratio: Determined by Desktop

Underwriter®. In the event that the borrower has stu-

dent loan debt, if the payment amount is provided on

the credit report, that amount can be used for qualify-

ing purposes. If the credit report does not identify a

payment amount, the lender can use either 1 percent

of the outstanding student loan balance, or a calcu-

lated payment that will fully amortize the loan based on

documented loan repayment terms.

Temporary interest rate buy downs: Temporary inter-

est rate buy downs are allowed, provided that the rate

reduction does not exceed 3 percent, and the rate

increase will not exceed 1 percent per year. When the

source of the buy-down funds is an interested party to

the property sale or purchase transaction, Fannie Mae’s

interested-party contribution limits apply. When under-

writing mortgage loans that have a temporary interest

rate buy-down, the lender must qualify the borrower

based on the note rate without consideration of the

buy-down rate.

Renance: Limited cash-out renance is an eligible

use of this product. Fannie Mae’s standard policies

for limited cash-out renances apply. The rst-time

homebuyer requirement is waived. The lender must

document that the existing loan being renanced is

owned (or securitized) by Fannie Mae. Documentation

may come from the lender’s servicing system, the cur-

rent servicer, Fannie Mae’s Loan Lookup tool, or any

other source as conrmed by the lender.

Underwriting: Desktop Underwriter® only; manual

underwriting is not allowed.

Potential Benets

• The guarantee provided by Fannie Mae under this

program may limit exposure to credit risk.

• Loans originated through Fannie Mae’s Standard

97 Percent Loan-to-Value may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

• Fannie Mae’s Standard 97 Percent Loan-to-Value

Mortgage may allow community banks to expand

their customer base in low- and moderate-

income communities.

• Fannie Mae’s Standard 97 Percent Loan-to-Value

Mortgage may help community banks access the

secondary market, providing greater liquidity to

enhance their lending volume.

Potential Challenges

• Lenders must have a way to access the program,

whether through direct sales or a correspondent

arrangement, as discussed in the introduction to

this section. Depending on the arrangement, com-

munity banks may need to acquire or develop new

expertise and infrastructure in order to participate.

• The program may not be the best t for many

low- and moderate-income borrowers; there are

alternatives such as the more targeted GSE pro-

grams. The Federal Housing Administration or the

U.S. Department of Agriculture may have more

appropriate programs, depending on the incomes,

available down payment resources, and credit his-

tories of the applicants.

SIMILAR PROGRAMS

• Fannie Mae HomeReady

Mortgage

• FHA 203(b) Mortgage Insurance Program

109 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Fannie Mae’s interested-party contribution limits

https://www.fanniemae.com/content/guide/selling/b3/4.1/02.html

Loan-level price adjustment matrix

https://www.fanniemae.com/content/pricing/llpa-matrix.pdf

Fannie Mae’s Loan Lookup tool

https://knowyouroptions.com/loanlookup

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Community Seconds®

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf

FDIC | Affordable Mortgage Lending Guide | 110

FANNIE MAE

HomeStyle® Renovation Mortgage

Finances purchase and renovation in a single mortgage

BACKGROUND AND PURPOSE

A healthy housing market includes homes at vari-

ous levels of quality, including less expensive “starter

homes” that help low- and moderate-income house-

holds become homeowners and start building equity.

Frequently, starter homes are older and have deferred

maintenance that drives down the price. Access to

affordable credit that covers not just the purchase

price but also the cost of renovations is essential for

the continued viability of starter homes as a strategy to

promote homeownership.

The HomeStyle® Renovation (HSR) Mortgage permits

borrowers to include nancing for home improvements

in a purchase or renance transaction on existing

homes. The HSR Mortgage provides a convenient way

for borrowers to make renovations, repairs, or improve-

ments totaling up to 75 percent of the as-completed

appraised value of the property with a rst mortgage,

rather than a second mortgage, home equity line

of credit, or other more costly nancing method.

Eligible borrowers include individual homebuyers,

investors, nonprot organizations, and local govern-

ment agencies.

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: The borrower’s credit score inuences the loan

parameters. The minimum credit score is 620. Fannie

Mae uses trended data in its credit risk assessment

including those loans submitted through Desktop

Underwriter®. Trended credit data provides expanded

information on a borrower’s revolving account credit

history including whether the borrower pays off the

balance each month or makes the minimum pay-

ment due, and whether the borrower exceeds the

credit limit.

PROGRAM NAME

HomeStyle® Renovation Mortgage

AGENCY

Fannie Mae

EXPIRATION DATE

Not Applicable

APPLICATIONS

https://www.fanniemae.com/content/guide_form/1000a.pdf

WEB LINK

https://www.fanniemae.com/content/guide/selling/b5/3.2/02.html

CONTACT

INFORMATION

[email protected] (ask for a call-back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

111 | FDIC | Affordable Mortgage Lending Guide

First-time homebuyers: First-time homeowner status confers no benet.

Occupancy and ownership of other properties: A borrower may be

nancing no more than four properties, including a primary residence.

This program may be used for a primary residence, second home, or

investment property.

Special populations: Nonprots, for-prots, and government agencies

are eligible borrowers. Nonprots must provide information on their

track records with this type of work.

Special assistance for persons with disabilities: Funds may be used to

outt a home for use by a person with a disability.

Property type: The property may be a one- to four-unit primary resi-

dence, a one-unit second home, or a one-unit investment property with

each having separate loan-to-value (LTV) limits. Fee simple ownership,

co-ops, condominiums, and planned unit developments are allowed.

Manufactured housing is allowed, but the repairs, renovations, or

improvements are capped at 50 percent of the as-completed appraised

value. When the security property is a unit in a condominium or co-op

project, the project must be one for which the proposed renovation

work is permissible under the bylaws of the homeowners’ association

or co-op corporation or one for which the homeowners’ association or

co-op corporation has given written approval for the renovation work.

The renovation work for a condominium or co-op unit must be limited to

the interior of the unit.

Renovation or repair requirements: Any type of renovation or repair is

eligible, as long as it is permanently afxed to the property and adds

value. Renovations should be completed within 12 months from the

date that the mortgage loan is delivered.

LOAN CRITERIA

Loan limits: FHFA publishes Fannie Mae’s conforming loan limits annu-

ally. See Resources for a link to the current limits.

Loan-to-value limits: The maximum allowable LTV is 97 percent for a

one-unit primary residence unless combined with HomeReady. A com-

bined LTV of up to 105 percent is allowed with a Community Seconds®

mortgage for purchase transactions. For properties underwritten manu-

ally, the LTV is determined by credit score and other factors. Cost of

renovations is limited to 75 percent of the as-completed value of the

property; manufactured housing is limited to 50 percent of the as-

completed value. The borrower may not receive cash back at closing in

any amount.

A Community Seconds® mortgage is a subordinate mortgage that is used in connection with a rst

mortgage delivered to Fannie Mae. Fannie Mae does not purchase Community Seconds, but it does provide

eligibility requirements for the subordinate Community Seconds product. See fact sheet at

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf.

POTENTIAL BENEFITS

The HomeStyle

Renovation

Mortgage program attracts new

and existing homeowners who

want to invest in and improve

their property in a way that may

lead to an appreciation in value.

Improvements benefit com

munity banks because of the

associated economic stability or

growth in the areas they serve.

Compared to the HomeStyle

Renovation Mortgage program,

conventional improvement loans

may have higher interest rates

with shorter repayment terms.

The competitive terms of this

program help lenders do more

volume in improvement loans

and attract borrowers who are

interested in this product.

POTENTIAL CHALLENGES

Special approval is required to

deliver HomeStyle

Renovation

loans to Fannie Mae. Lenders

must have a way to access the

program, whether through

direct sales or a correspondent

arrangement, as discussed in

the introduction to this section.

Depending on the arrangement,

community banks may need to

acquire or develop new exper

tise and infrastructure in order

to participate.

Lenders may not sell or transfer

servicing until the renovation

work is complete.

FDIC | Affordable Mortgage Lending Guide | 112

ALLOWABLE RENOVATION/REPAIRS COSTS:

Renovations must be permanently affixed and add

value to the property. Sweat equity is not an allow-

able cost. Allowable costs include the following:

• Contract labor and materials.

• Property inspection, title update, and permit fees.

• Architectural, engineering, and other

consultant fees.

• Other documented charges, such as fees for

energy reports, appraisals, review of renovation

plans, and fees charged for processing renova-

tion draws.

LENDER RENOVATION OVERSIGHT:

• The lender may not sell or transfer servicing until

renovation work is complete.

• The lender must review the contractor hired by

the borrower to determine if he or she is ade-

quately qualified and experienced for the work

being performed. The Contractor Profile Report

(Form 1202) can be used to assist the lender in

making this determination.

Adjustable-rate mortgages: ARMs are allowed, but

they must conform to Fannie Mae’s ARM requirements

(see Resources).

Homeownership counseling: Homeownership counsel-

ing is not required.

Loan-level price adjustments: Loan-level price adjust-

ments (LLPAs) are risk-based pricing adjustments that

apply at the time of delivery only. The standard Fannie

Mae LLPAs apply. When the mortgage is used to

nance energy-related improvements, the lender may

be eligible for an LLPA credit of $250.

Mortgage insurance: The borrower must have hazard

insurance in place to cover the estimated as-completed

value of the home after renovation. Mortgage insur-

ance, if required based on LTV, must be in place before

• Borrowers must have a construction contract

with their contractor. Fannie Mae has a model

Construction Contract (Form 3734) that may

be used to document the construction contract

between the borrower and the contractor.

• Plans and specifications must be prepared by

a registered, licensed, or certified general con-

tractor, renovation consultant, or architect. The

plans and specifications should fully describe

all work to be done and provide an indication of

when various jobs or stages of completion will

be scheduled (including both the start and job

completion dates).

• For one-unit owner-occupied homes, borrowers

may perform repairs themselves, but financing

of these repairs may not exceed 10 percent of the

as-completed value.

• Inspections are required for all work items that

cost more than $5,000.

• The reimbursement is limited to the cost of

materials or the cost of properly documented

contract labor (sweat equity may not

be reimbursed).

closing, and coverage is based on the estimated value

of the home after renovation.

Debt-to-income ratio: The debt-to-income (DTI) ratio

cannot exceed 45 percent. In the event that the bor-

rower has student loan debt, if the payment amount is

provided on the credit report, that amount can be used

for qualifying purposes. If the credit report does not

identify a payment amount, the lender can use either

1 percent of the outstanding student loan balance, or

a calculated payment that will fully amortize the loan

based on documented loan repayment terms.

Renance: Limited cash-out renance is a valid use

of this product, but cash may only be used to per-

form renovations; no cash may be disbursed to the

borrower, unlike other Fannie Mae limited cash-out

113 | FDIC | Affordable Mortgage Lending Guide

renances. The lender must disburse all remaining

funds to the borrower through one of two methods:

1. reduce the principal balance, or

2. make additional permanent, value-adding changes

to the property.

Reserves: Up to 12 months of reserves are required

depending on transaction type, credit score, LTV, and

number of units in the property.

ADDITIONAL INFORMATION

Approval: Special approval is required to deliver

HomeStyle® Renovation Mortgage loans to Fannie Mae.

Lenders must already be approved by Fannie Mae.

The lender must have two years of direct experience

originating and servicing renovation mortgages within

the last ve years. The lender must also have strong

operational controls and sufcient nancial capacity to

cover the lender’s recourse obligations during renova-

tion. Fannie Mae provides a Contractor Prole Report

(see resources) to ensure that the lender has sufcient

information to determine that a contractor is qualied.

The lender must set up and hold an interest-bearing

custodial renovation fund account. An as-completed

appraisal must be obtained. Renovation work must be

completed no later than 12 months from the date the

mortgage loan is delivered. The lender is responsible

for monitoring the completion of the renovation work

and managing disbursement of the funds.

Training: Fannie Mae offers a 30-minute online course

on underwriting, servicing, and delivering HomeStyle®

Renovation Mortgages.

Workow: Lenders must review plans and manage

renovation work throughout the process. In the prepa-

ratory phase, the borrower works with the contractor

to submit work plans and specications to the lender.

The appraiser reviews the plans and specications,

and determines the as-completed value after improve-

ments. The lender then uses the Maximum Mortgage

Worksheet to determine the mortgage amount

(see Resources).

In the renovation phase, the loan is rst closed and

sold to Fannie Mae. Funds for renovation are placed in

a custodial account. The contractor begins work and

requests funding. The lender performs inspections to

conrm that the work is completed, and gets lien

waivers and title endorsements if required. The

lender funds draw requests with two-party checks or

direct funding.

Once construction is complete, the lender orders

a nal appraisal inspection, updates the title

policy, and obtains a signed completion certicate,

which the lender gives to Fannie Mae to have the

recourse removed.

Potential Benets

• The HomeStyle® Renovation Mortgage program

attracts new and existing homeowners who

want to invest in and improve their property in

a way that may lead to an appreciation in value.

Improvements benet community banks because

of the associated economic stability or growth in

the areas they serve.

• Compared to the HomeStyle® Renovation

Mortgage program, conventional improvement

loans may have higher interest rates with shorter

repayment terms. The competitive terms of

this program help lenders do more volume in

improvement loans and attract borrowers who

are interested in this product.

• A lender may deliver a HomeStyle® Renovation

Mortgage as soon as it is closed; the renova-

tion, repair, or rehabilitation does not need to

have been completed when the mortgage is

delivered. This eliminates the costs of holding

the mortgage in a portfolio until the renovation

is completed.

• A single closing mortgage (as opposed to one

mortgage for the home’s current value and one

for the renovation improvements) saves work

for lenders.

• The HomeStyle® Renovation program may allow

community banks to expand their customer base

in low- and moderate-income communities.

• Loans originated through the HomeStyle®

Renovation Mortgage program may receive

favorable consideration under the CRA,

depending on the geography or income of the

participating borrowers.

FDIC | Affordable Mortgage Lending Guide | 114

Potential Challenges

• Special approval is required to deliver HomeStyle®

Renovation loans to Fannie Mae. Lenders must

have a way to access the program, whether

through direct sales or a correspondent arrange-

ment, as discussed in the introduction to this

section. Depending on the arrangement, commu-

nity banks may need to acquire or develop new

expertise and infrastructure in order to participate.

• Lenders may not sell or transfer servicing until the

renovation work is complete.

• Fannie Mae has full recourse to the lender through-

out the renovation process. Fannie Mae may

require the lender to re-purchase the loan if the

borrower defaults before the work is completed,

or if the lender’s actions affect Fannie Mae’s abil-

ity to obtain clear title to the property. Therefore,

lenders retain substantial risk until the renovation

is complete.

• Lenders must monitor the renovation progress,

which requires expertise in areas such as construc-

tion draws and contractor management. The lender

must maintain a copy of all the documentation that

supports the renovation work, plans, and specica-

tions, as-completed appraisal, renovation contract,

renovation loan agreement, certicate of comple-

tion, title insurance endorsements or updates, and

so on, in the individual mortgage le.

Similar Programs

• FHA 203(k) Rehabilitation Mortgage Insurance

• Freddie Mac Construction Conversion and

Renovation Mortgage

115 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Loan-to-value ratios

https://www.fanniemae.com/content/guide/selling/b5/3.2/02.html#LTV.20Ratios

Loan-level price adjustment

https://www.fanniemae.com/content/pricing/llpa-matrix.pdf

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Mortgage insurance pricing

https://www.fanniemae.com/content/guide/selling/b7/1/02.html

HomeStyle® Renovation Mortgage: Lender Eligibility (Selling Guide B5-3.2-01)

https://www.fanniemae.com/content/guide/selling/b5/3.2/01.html

Model construction contract (Form 3734)

https://www.fanniemae.com/content/legal_form/3734w.doc

Maximum Mortgage Worksheet (Form 1035)

https://www.fanniemae.com/content/guide_form/1035.pdf

Eligibility Matrix

https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf

Appraisal update and/or Completion Report (Form 1004D)

https://www.fanniemae.com/content/guide_form/1004d.pdf

HomeStyle® Renovation Mortgages fact sheet

https://www.fanniemae.com/content/fact_sheet/homestyle-renovation-overview.pdf

Fannie Mae adjustable-rate mortgage requirements

https://www.fanniemae.com/content/guide/selling/b2/1.3/02.html

Community Seconds®

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf

FDIC | Affordable Mortgage Lending Guide | 116

FANNIE MAE

Standard Manufactured Housing Mortgage

Mitigates the risks of securing loans with manufactured homes

BACKGROUND AND PURPOSE

Fannie Mae invests in manufactured housing loans to

serve its mission of expanding affordable housing by

providing liquidity to a market segment that is crucial

to many Americans. Manufactured housing offers a

low-cost alternative to site-built homes for millions

of American households, especially in high-cost and

rural areas. A “manufactured home” for the purposes

of Fannie Mae’s program is a dwelling that is built on a

permanent chassis and installed on a permanent foun-

dation system.

Manufactured housing is the country’s largest source

of unsubsidized affordable housing. Lenders’ ability to

sell loans secured by manufactured housing to Fannie

Mae is an important contributor to extending access to

credit to low-income households. Fannie Mae pur-

chases mortgages secured by manufactured housing

titled as real estate through approved lender partners.

Participating lenders should be familiar with the U.S.

Department of Housing and Urban Development

(HUD) codes for Manufactured Housing Construction

and Safety and the laws pertaining to the treatment of

manufactured housing as real property in their states.

The borrower must have fee simple ownership of the

land on which the manufactured home will be located.

A mortgage secured by a manufactured home located

on a leasehold estate is not eligible for sale to Fannie

Mae. The home cannot have been previously perma-

nently installed at another site. Singlewide home loans

are only eligible for sale to Fannie Mae when located in

a planned unit development or condominium that has

been determined eligible.

PROGRAM NAME

Standard Manufactured Housing Mortgage

AGENCY

Fannie Mae

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Fannie Mae seller,

see https://www.fanniemae.com/singlefamily/become-seller-servicer

WEB LINK

https://www.fanniemae.com/content/eligibility_information/manufactured-housing-

guidelines.pdf

CONTACT

INFORMATION

[email protected] (ask for a call-back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

117 | FDIC | Affordable Mortgage Lending Guide

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: Fannie Mae’s standard credit requirements apply (mini-

mum credit score of 620). Fannie Mae uses trended data in its credit

risk assessment including those loans submitted through Desktop

Underwriter®. Trended credit data provides expanded information on a

borrower’s revolving account credit history including whether the bor-

rower pays off the balance each month or makes the minimum payment

due, and whether the borrower exceeds the credit limit.

First-time homebuyers: First-time homebuyer status confers no benet.

Occupancy and ownership of other properties: The home must be

owner occupied or a second home, not an investment property.

Special populations: There are no incentives for special populations.

Special assistance for persons with disabilities: There is no special assis-

tance for people with disabilities.

Manufactured home criteria: Fannie Mae follows HUD’s denition of

manufactured homes. The manufactured home must be at least 12

feet wide and have a minimum of 600 square feet of gross living area.

The dwelling must assume the characteristics of site-built housing,

including being attached to a permanent foundation and connected to

utilities. Single-wide manufactured homes, unless located in a Fannie

Mae-approved subdivision, co-op, condominium, or planned unit devel-

opment are not allowed. Homes located on leased land are not allowed.

The mortgage loan must be secured by both the manufactured home

and the land on which it is situated, and both the manufactured home

and the land must be legally classied as real property, and secured by

a single lien, under applicable state law. Fannie Mae treats modular, pre-

fabricated, panelized, or sectional housing homes the same as site-built

housing, not as manufactured housing.

LOAN CRITERIA

Loan limits: FHFA publishes Fannie Mae’s conforming loan limits annu-

ally. See Resources for a link to the current limits.

Loan-to-value limits: For an owner-occupied primary residence, the

maximum LTV is 95 percent for a xed-rate mortgage (FRM) and 90

percent LTV for an adjustable-rate mortgage (ARM). For a second home,

the maximum LTV is 90 percent for a FRM and 80 percent for an ARM.

For a cash-out renance, the LTV maximum is 65 percent for FRM and

60 percent for ARM, both with terms no longer than 20 years. Loans

POTENTIAL BENEFITS

The guarantee provided by

Fannie Mae under this program

may help mitigate credit risk.

Standard Manufactured Housing

Mortgage loans offer competitive

pricing and terms. Loans origi

nated through this program may

receive favorable consideration

under the CRA, depending on

the geography or income of the

participating borrowers.

POTENTIAL CHALLENGES

Fannie Mae will not purchase

mortgages for manufac

tured housing in community

land trusts.

Both the manufactured home

and the land must be legally

classified as real property under

applicable state law. Many states

still classify manufactured

homes as personal property.

FDIC | Affordable Mortgage Lending Guide | 118

with Community Seconds®

secured by manufactured

housing are limited to the LTV ratios above.

Adjustable-rate mortgages: 7/1 and 10/1 ARMs

are allowed.

Down payment sources: No contribution of borrower

personal funds is required.

Homeownership counseling: Homeownership counsel-

ing is not required.

Loan-level price adjustments: Loan-level price adjust-

ments are risk-based pricing adjustments that apply at

the time of delivery only. Standard Fannie Mae LLPAs

apply. In addition, a 0.5 percent LLPA applies for all

Standard Manufactured Housing loans.

Mortgage insurance: The Standard Manufactured

Housing Mortgage program follows Fannie Mae’s insur-

ance coverage requirements.

Debt-to-income ratio: Debt-to-income ratio is deter-

mined by Desktop Underwriter®. In the event that the

borrower has student loan debt, if the payment amount

is provided on the credit report, that amount can be

used for qualifying purposes. If the credit report does

not identify a payment amount, the lender can use

either 1 percent of the outstanding student loan bal-

ance, or a calculated payment that will fully amortize

the loan based on documented loan repayment terms.

Temporary interest rate buy downs: Temporary interest

rate buy downs are not allowed.

Renance: Cash-out renance is allowed for an owner-

occupied primary residence, up to 65 percent LTV

with a 20-year term. Limited cash-out renance is

also allowed.

Trade equity from existing manufactured housing:

Many manufactured home dealers offer equity-like

contributions for home purchasers who trade in an

old model of home to buy a new one, similar to an

automobile trade-in program. The maximum equity

contribution from the traded manufactured home is

determined as follows: if the borrower has owned the

traded manufactured home for 12 months or more

before the application date, 90 percent of the retail

value based on the NADA Manufactured Housing

Appraisal Guide®, or if the borrower has owned the

traded manufactured home for less than 12 months

before the application date, the maximum equity

contribution is the lesser of 90 percent of the retail

value or the lowest price at which the manufactured

home was sold during that 12-month period; and any

costs resulting from the removal of the manufactured

home or any outstanding indebtedness secured by

liens on the manufactured home must be deducted

from the maximum equity contribution.

Land equity: If the borrower owns the land on which

the manufactured home is being permanently

attached, the land may be used as an equity contribu-

tion. In such event, the borrower’s equity contribution is

equal to:

• the current appraised value of the land if the bor-

rower has owned the land for 12 months or more

before the application date; or

• the lower of the current appraised value of the land

or the purchase price of the land if the borrower

has owned the land for less than 12 months.

Underwriting: Manufactured housing loans may only

be underwritten using Desktop Underwriter®.

Appraisal: The appraisal must contain two similar man-

ufactured homes and one site-built/modular home.

A Community Seconds® mortgage is a subordinate mortgage that is used

in connection with a rst mortgage delivered to Fannie Mae. Fannie Mae does

not purchase Community Seconds, but it does provide eligibility requirements

for the subordinate Community Seconds product. See fact sheet at

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-

sheet.pdf.

119 | FDIC | Affordable Mortgage Lending Guide

Potential Benets

• The guarantee provided by Fannie Mae under this

program may help mitigate credit risk.

• Standard Manufactured Housing Mortgage loans

offer competitive pricing and terms. Loans origi-

nated through this program may receive favorable

consideration under the CRA, depending on

the geography or income of the participat-

ing borrowers.

• Standard Manufactured Housing Mortgage

loans may allow community banks to expand

their lending to low- and moderate-income

borrowers, rural areas, and low- and moderate-

income communities.

• Standard Manufactured Housing Mortgage loans

may help community banks access the secondary

market, providing greater liquidity to enhance their

lending volume.

Potential Challenges

• Fannie Mae will not purchase mortgages for manu-

factured housing in community land trusts.

• Both the manufactured home and the land must be

legally classied as real property under applicable

state law. Many states still classify manufactured

homes as personal property.

• Lenders must have a way to access the program,

whether through direct sales or a correspondent

arrangement, as discussed in the introduction to

this section. Depending on the arrangement, com-

munity banks may need to acquire or develop new

expertise and infrastructure in order to participate.

Similar Programs

• Freddie Mac Manufactured Home Mortgage

• FHA Manufactured Home Loan Insurance

FDIC | Affordable Mortgage Lending Guide | 120

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

NADA Manufactured Housing Appraisal Guide® (there is a cost associated with the guide).

http://www.nadaguides.com/Manufactured-Homes

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Loan-level price adjustment

https://www.fanniemae.com/content/pricing/llpa-matrix.pdf

Frequently Asked Questions about Manufactured Housing [Prosperity NOW]

https://prosperitynow.org/faqs

Titling Homes as Real Property Guide [Prosperity NOW]

https://prosperitynow.org/resources/titling-homes-real-property-resource-guide

Mortgage insurance pricing

https://www.fanniemae.com/content/guide/selling/b5/2/04.html

Community Seconds®

https://www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf

121 | FDIC | Affordable Mortgage Lending Guide

Visit FDIC’s Affordable Mortgage Lending Center

at https://www.fdic.gov/mortgagelending

FANNIE MAE

MH Advantage

Flexible guidelines for manufactured homes that feature

site-built characteristics

BACKGROUND AND PURPOSE

Fannie Mae invests in manufactured housing loans to

serve its mission of expanding affordable housing by

providing liquidity to a market segment that is crucial

to many Americans. Manufactured housing offers a

low-cost alternative to site-built homes for millions

of American households, especially in high-cost and

rural areas. A “manufactured home” for the purposes

of Fannie Mae’s program is a dwelling that is built on a

permanent chassis and installed on a permanent foun-

dation system.

MH Advantage™ is a manufactured housing loan

product that offers exible underwriting standards and

reduced pricing for manufactured homes that are built

to meet specic construction, architectural design, and

energy efciency standards. Properties that are eligible

for MH Advantage™ nancing are designated as such

by the manufacturer. MH Advantage™ offers higher

loan-to-value ratios (up to 97 percent), and reduced

pricing in the form of waived standard manufactured

housing loan level price adjustments (0.50 percent)

and reduced mortgage insurance coverage require-

ments for xed-rate terms.

Manufactured housing is the country’s largest source

of unsubsidized affordable housing. Lenders’ ability to

sell loans secured by manufactured housing to Fannie

Mae is an important contributor to extending access to

credit to low-income households. Fannie Mae pur-

chases mortgages secured by manufactured housing

titled as real estate through approved lender partners.

PROGRAM NAME

MH Advantage™

AGENCY

Fannie Mae

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Fannie Mae seller,

see https://www.fanniemae.com/singlefamily/become-seller-servicer

WEB LINK

https://www.fanniemae.com/singlefamily/manufactured-homes

CONTACT

INFORMATION

[email protected] (ask for a call-back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

123 | FDIC | Affordable Mortgage Lending Guide

BORROWER CRITERIA

Income limits: This program has no income limits.

Credit: Fannie Mae’s standard credit requirements apply (mini-

mum credit score of 620). Fannie Mae uses trended data in its credit

risk assessment including those loans submitted through Desktop

Underwriter®. Trended credit data provides expanded information on a

borrower’s revolving account credit history including whether the bor-

rower pays off the balance each month or makes the minimum payment

due, and whether the borrower exceeds the credit limit.

First-time homebuyers: First-time homebuyer status confers no benet.

Occupancy and ownership of other properties: The home must be

owner occupied or a second home, not an investment property.

Special populations: There are no incentives for special populations.

Special assistance for persons with disabilities: There is no special assis-

tance for people with disabilities.

Manufactured home criteria: Manufactured housing designated as MH

Advantage™ eligible must meet Fannie Mae’s denition of a “manu-

factured home” (dened below) and also offer certain construction,

architectural design, and energy efciency standards that are more

consistent with site-built homes. Manufactured homes that are eligible

for an MH Advantage™ loan must have an MH Advantage™ sticker

afxed to the property by the manufacturer. The property appraisal must

include photos of the MH Advantage™ Sticker, HUD Data Plate, HUD

Certications Labels, and the site showing all driveways, sidewalks, and

detached structures located on the site. Examples of MH Advantage

physical characteristics include but are not limited to distinctive roof

treatments, lower prole foundations, and construction durability fea-

tures such as durable siding.

Fannie Mae follows HUD’s denition of manufactured homes. The manu-

factured home must be at least 12 feet wide and have a minimum of 600

square feet of gross living area. The dwelling must assume the charac-

teristics of site-built housing, including being attached to a permanent

foundation and connected to utilities. Single-wide manufactured homes,

unless located in a Fannie Mae-approved subdivision, co-op, condo-

minium, or planned unit development are not allowed. Homes located

on leased land are not allowed. The mortgage loan must be secured by

both the manufactured home and the land on which it is situated, and

both the manufactured home and the land must be legally classied as

real property and secured by a single lien, under applicable state law.

Fannie Mae treats modular, prefabricated, panelized, or sectional hous-

ing homes the same as site-built housing, not as manufactured housing.

POTENTIAL BENEFITS

The guarantee provided by

Fannie Mae under this program

may help mitigate credit risk.

Higher loan-to-value ratios and

competitive pricing (compared

with the Standard Manufactured

Housing product) for manu

factured housing with certain

site-built characteristics.

MH Advantage™ loans may allow

community banks to expand

their lending to low- and mod

erate-income borrowers, rural

areas, and low- and moderate-

income communities.

POTENTIAL CHALLENGES

Not all manufactured housing is

eligible for the MH Advantage™

product. MH Advantage™ homes

must meet stricter property

eligibility requirements and be

designated as MH Advantage™

eligible by the manufacturer.

Fannie Mae will not purchase

mortgages for manufac

tured housing in community

land trusts.

Both the manufactured home

and the land must be legally

classified as real property under

applicable state law. Many states

still classify manufactured

homes as personal property.

FDIC | Affordable Mortgage Lending Guide | 124

LOAN CRITERIA

Loan limits: FHFA publishes Fannie Mae’s conforming

loan limits annually. See Resources for a link to the cur-

rent limits.

Loan-to-value limits: For an owner-occupied pri-

mary residence, the maximum LTV is 97 percent for

a xed-rate mortgage (FRM) and 95 percent LTV for

an adjustable-rate mortgage (ARM). For a second

home, the maximum LTV is 90 percent for a FRM and

80 percent for an ARM. For a cash-out renance, the

LTV maximum is 65 percent for FRM and 60 percent

for ARM, both with terms no longer than 20 years. For

loans with Community Seconds®

, the maximum com-

bined loan-to-value (CLTV) ratio is 105 percent.

Adjustable-rate mortgages: 7/1 and 10/1 ARMs

are allowed.

Down payment sources: No contribution of borrower

personal funds is required.

Homeownership counseling: Homeownership counsel-

ing is not required.

Loan-level price adjustments: Loan-level price adjust-

ments are risk-based pricing adjustments that apply at

the time of delivery only. The standard manufactured

housing LLPA (0.50 percent) is waived. Other standard

Fannie Mae LLPAs apply.

Mortgage insurance: The MH Advantage™ program

follows Fannie Mae’s insurance coverage requirements.

Debt-to-income ratio: Debt-to-income ratio is deter-

mined by Desktop Underwriter®. In the event that the

borrower has student loan debt, if the payment amount

is provided on the credit report, that amount can be

used for qualifying purposes. If the credit report does

not identify a payment amount, the lender can use

either 1 percent of the outstanding student loan bal-

ance, or a calculated payment that will fully amortize

the loan based on documented loan repayment terms.

Temporary interest rate buy downs: Temporary interest

rate buy downs are not allowed.

Renance: Cash-out renance is allowed for an owner-

occupied primary residence, up to 65 percent LTV

with a 20-year term. Limited cash-out renance is

also allowed.

Trade equity from existing manufactured housing:

Many manufactured home dealers offer equity-like

contributions for home purchasers who trade in an

old model of home to buy a new one, similar to an

automobile trade-in program. The maximum equity

contribution from the traded manufactured home is

determined as follows. If the borrower has owned the

traded manufactured home for 12 months or more

before the application date, the maximum equity con-

tribution is 90 percent of the retail value based on the

NADA Manufactured Housing Appraisal Guide®. If the

borrower has owned the traded manufactured home

for less than 12 months before the application date, the

maximum equity contribution is the lesser of 90 percent

of the retail value or the lowest price at which the manu-

factured home was sold during that 12-month period.

Any costs resulting from the removal of the manufac-

tured home or any outstanding indebtedness secured

by liens on the manufactured home must be deducted

from the maximum equity contribution.

Land equity: If the borrower owns the land on which

the manufactured home is being permanently attached,

the land may be used as an equity contribution. In such

event, the borrower’s equity contribution is equal to:

• the current appraised value of the land if the bor-

rower has owned the land for 12 months or more

before the application date; or

• the lower of the current appraised value of the land

or the purchase price of the land if the borrower has

owned the land for less than 12 months.

Underwriting: Manufactured housing loans may only be

underwritten using Desktop Underwriter®.

Appraisal: The appraisal must contain two similar manu-

factured homes and one site-built/modular home.

A Community Seconds® mortgage is a subordinate mortgage that is used

in connection with a rst mortgage delivered to Fannie Mae. Fannie Mae does

not purchase Community Seconds, but it does provide eligibility requirements

for the subordinate Community Seconds product. See fact sheet at https://

www.fanniemae.com/content/fact_sheet/community-seconds-fact-sheet.pdf.

125 | FDIC | Affordable Mortgage Lending Guide

Potential Benets

• The guarantee provided by Fannie Mae under this

program may help mitigate credit risk.

• Higher loan-to-value ratios and competitive pric-

ing (compared with the Standard Manufactured

Housing product) for manufactured housing with

certain site-built characteristics.

• MH Advantage™ loans may allow community

banks to expand their lending to low- and

moderate-income borrowers, rural areas, and low-

and moderate-income communities.

• MH Advantage™ loans offer competitive pricing

and terms. Loans originated through this program

may receive favorable consideration under the

CRA, depending on the geography or income of

the participating borrowers.

Potential Challenges

• Not all manufactured housing is eligible for the MH

Advantage™ product. MH Advantage™ homes

must meet stricter property eligibility requirements

and be designated as MH Advantage™ eligible by

the manufacturer.

• Fannie Mae will not purchase mortgages for manu-

factured housing in community land trusts.

• Both the manufactured home and the land must be

legally classied as real property under applicable

state law. Many states still classify manufactured

homes as personal property.

• Lenders must have a way to access the program,

whether through direct sales or a correspondent

arrangement. Depending on the arrange-

ment, community banks may need to acquire or

develop new expertise and infrastructure in order

to participate.

SIMILAR PROGRAMS

• Fannie Mae Standard Manufactured

Housing Mortgage

• Freddie Mac Manufactured Home Mortgage

• FHA Manufactured Home Loan Insurance

RESOURCES

Direct access to the following web links can be found

at https://www.fdic.gov/mortgagelending.

MH Advantage™ Appraisal Requirements

https://www.fanniemae.com/content/fact_sheet/

mh-advantage-appraisal-requirements.pdf

Manufactured Housing Product Matrix

https://www.fanniemae.com/content/fact_sheet/

manufactured-homes-advantage-product-matrix

Manufactured Housing Frequently Asked Questions

https://www.fanniemae.com/content/faq/

manufactured-housing-faqs

NADA Manufactured Housing Appraisal Guide® (there

is a cost associated with the guide).

http://www.nadaguides.com/Manufactured-Homes

FHFA Conforming loan limits

https://www.fhfa.gov/DataTools/Downloads/Pages/

Conforming-Loan-Limits.aspx

Loan-level price adjustment

https://www.fanniemae.com/content/pricing/llpa-

matrix.pdf

Frequently Asked Questions about Manufactured

Housing [Prosperity NOW]

https://prosperitynow.org/faqs

Mortgage insurance pricing

https://www.fanniemae.com/content/guide/selling/

b7/1/02.html

Community Seconds®

https://www.fanniemae.com/content/fact_sheet/

community-seconds-fact-sheet.pdf

FDIC | Affordable Mortgage Lending Guide | 126

FANNIE MAE

Re Plus™/Home Affordable Renance Program (HARP)

Helps responsible borrowers with little or no home equity renance into

more affordable mortgages

BACKGROUND AND PURPOSE

The Re Plus™/Home Affordable Renance Program

(HARP) helps borrowers with little or no equity in their

homes renance into more affordable mortgages.

HARP targets borrowers with high loan-to-value (LTV)

ratios and who have limited delinquencies over the 12

months before renancing. Changes possible through

HARP include lower interest rates, shorter loan terms,

or changing from an adjustable-rate to a xed-rate

mortgage. HARP guidelines have been simplied and

relaxed over the life of the program, meaning that even

people who were previously turned down may now be

eligible for HARP renancing. For example, in 2011,

the LTV ceiling was removed for xed-rate mortgages,

property appraisal requirements were waived in certain

circumstances, certain risk fees for borrowers selecting

shorter amortization terms were eliminated, and certain

representations and warranties were waived. In 2013,

the eligibility date was changed from the date the loan

was acquired by Fannie Mae to the date on the note,

increasing the pool of eligible borrowers.

HARP was introduced in March 2009 to address the

decline in home values that occurred over the pre-

vious few years. HARP must be renewed annually

by Congress.

BORROWER CRITERIA

Original loan requirements: The original loan owned

or guaranteed by Fannie Mae (e.g., no Freddie Mac,

VA, FHA, or USDA loans).

Age of loan: The original loan must have been origi-

nated on or before May 31, 2009.

PROGRAM NAME

Re Plus™/Home Affordable Renance Program (HARP)

AGENCY

Fannie Mae

EXPIRATION DATE

December 31, 2018. HARP must be renewed annually by Congress.

APPLICATIONS

No program-specic application is required. For information on becoming a Fannie Mae seller,

see https://www.fanniemae.com/singlefamily/become-seller-servicer

WEB LINK

http://www.harp.gov

CONTACT

INFORMATION

[email protected] (ask for a call-back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National. HARP tracks the number of eligible loans by state and MSA. Information is

available quarterly at http://www.harp.gov/Default.aspx?Page=363

127 | FDIC | Affordable Mortgage Lending Guide

Loan-to-value limits: The original loan must be above 80 percent LTV,

with no upper limit on LTV for xed-rate mortgages.

Delinquency: The borrower must not have made any late mortgage pay-

ments in the last six months and no more than one 30-day late payment

in the last 12 months.

Income limits: The program has no income limits.

Credit: There is no minimum credit score; Fannie Mae waives its normal

620 minimum credit score.

Occupancy and ownership of other properties: HARP renances may be

performed on primary residences, investment properties, and one-unit

second homes. Because the renance represents Fannie Mae’s existing

risk, there is no requirement that occupancy stay the same.

Special populations: No benet is conferred by being a member of a

special population.

Property type: Single-family homes of one- to four-units and condomini-

ums are eligible.

LOAN CRITERIA

Loan limits: FHFA publishes Fannie Mae’s conforming loan limits annu-

ally. See Resources for a link to the current loan limits.

Adjustable-rate mortgages: Only xed-rate mortgages are allowed.

Loan-level price adjustments: For primary residences with LTV ratios

greater than 80 percent, Fannie Mae charges zero percent in fees on

loans with terms less than 20 years, and 0.75 percent on loans with

terms of more than 20 years.

Mortgage insurance: Where the original LTV of the existing loan was

greater than 80 percent and mortgage insurance is still in force on the

existing loan, then the lender must obtain mortgage insurance (MI) on

the new mortgage. Lenders may obtain either the level of coverage

in force on the existing mortgage or the current standard coverage.

Lenders are encouraged to provide the lowest cost option for borrow-

ers. If the mortgage being renanced was less than 80 percent LTV or

the original mortgage insurance policy was terminated, then no mort-

gage insurance coverage is required.

Underwriting: Re-underwriting is necessary if payments are increas-

ing more than 20 percent. Fannie Mae recommends using Desktop

Underwriter® (DU) where possible; manual underwriting is an option if

circumstances warrant. Borrowers may use a new lender if DU is used.

Fees: For xed-rate loans on primary residences with LTV ratios greater

than 80 percent, Fannie Mae’s fee is capped at zero percent on loans

with terms less than 20 years and 0.75 percent on loans with terms of

more than 20 years.

POTENTIAL BENEFITS

Lenders do not need to perform

new underwriting or review new

appraisals in most cases.

Fannie Mae has reduced the fees

it charges lenders that help bor

rowers refinance into less risky,

shorter-term loans.

POTENTIAL CHALLENGES

This program has several bar

riers to being a source of new

business. Eligible properties

are concentrated in a few mar

kets. Also, if borrowers are

going through a new lender, the

lender will need to perform a

new appraisal and underwriting,

eliminating the processing effi

ciencies offered by the program.

If payments are going up by more

than 20 percent, requalification is

necessary, meaning more work

for lenders assisting borrow

ers who are making substantial

changes to their mortgages.

FDIC | Affordable Mortgage Lending Guide | 128

Appraisal: There are a number of exceptions to the

usual reps and warrants when using HARP. A “property

eldwork waiver” may be offered by DU for a fee of

$75 that would allow the lender or borrower to esti-

mate the home’s value rather than doing an appraisal.

DU uses the property address to standardize estimates

of home values. The lender, however, is responsible for

compliance with all federal, state, and local laws, rules,

and regulations, which may require appraisals.

Potential Benets

• Lenders do not need to perform new underwriting

or review new appraisals in most cases.

• Fannie Mae has reduced the fees it charges lend-

ers that help borrowers renance into less risky,

shorter-term loans.

• Lenders now need less paperwork for income

verication, and have the option of qualifying a

borrower by documenting that the borrower has at

least 12 months of mortgage payments in reserve.

• If a lender underwrites a HARP loan that it did not

initially underwrite, the reps and warrants on the

loan will sunset in 12 months rather than 36 months

for other GSE products.

Potential Challenges

• This program has several barriers to being a source

of new business. Eligible properties are concen-

trated in a few markets. Also, if borrowers are going

through a new lender, the lender will need to per-

form a new appraisal and underwriting, eliminating

the processing efciencies offered by the program.

• If payments are going up by more than 20 percent,

requalication is necessary, meaning more work

for lenders assisting borrowers who are making

substantial changes to their mortgages.

• The program must be extended annually by

Congress.

• A relatively limited pool of borrowers remains eligi-

ble for this program, as most borrowers who would

benet from a renance have already done so.

SIMILAR PROGRAMS

• Freddie Mac Relief Renance

• FHA Streamline Renance

129 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Fannie Mae’s loan-level price adjustment table

https://www.fanniemae.com/content/pricing/llpa-matrix-re-plus.pdf

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Frequently asked questions

https://www.fanniemae.com/content/faq/harp-du-re-plus-faqs.pdf

To nd whether the loan in question is eligible for HARP

https://www.knowyouroptions.com/loanlookup

FDIC | Affordable Mortgage Lending Guide | 130

OVERVIEW

Freddie Mac

We have included the most recent information available at the date of publication. At the end of each section,

we include a list of resources with web links where you can nd updates, as well as information about additional

programs and other helpful information related to the subject.

OVERVIEW

Freddie Mac is a government-sponsored enterprise

or GSE, created by the federal government to ensure

access to home mortgage credit. Freddie Mac has

a statutory mission to provide liquidity, stability, and

affordability to the U.S. housing market. Freddie Mac

does not make loans directly to homebuyers. The

primary business of Freddie Mac is to purchase loans

from lenders to replenish their supply of funds so

they can make more mortgage loans to other bor-

rowers. Freddie Mac then issues securities backed by

pools of these mortgages that it sells to the capital

markets. Freddie Mac guarantees to investors prompt

payment of interest and principal on the mortgages

backing the securities. Banks may sell loans to

Freddie Mac individually or pooled with other loans,

directly or through intermediaries.

Freddie Mac funds its operations and loan loss

reserves primarily through fees, which banks may

pass through to borrowers. Freddie Mac charges

both guarantee fees and loan-level price adjust-

ments (LLPAs). LLPAs vary based on credit score,

loan-to-value ratio, type of product used, and various

other factors.

Freddie Mac is charged with affordable housing

goals.

The goals were rst implemented in 1993

and provide clear guidelines for low- and moderate-

income (LMI) lending that the GSEs are required to

facilitate. Freddie Mac operates special programs

with underwriting standards that eliminate common

barriers to low-income homeownership, such as

high down payments, credit history issues, and the

inability to get affordable xed-rate nancing on

unusual property types that tend to be more afford-

able, such as manufactured homes and properties

with signicant deferred maintenance. Freddie Mac

also purchases loans secured by condominiums and

properties in rural areas. Freddie Mac provides training

to lender customers through its online Learning Center

and has pioneered a multilingual Credit Smart online

curriculum to help borrowers know their pre-purchase

counseling options.

MORTGAGE INSURANCE AND LOAN LIMITS

Freddie Mac requires mortgage insurance (MI) on all

loan amounts that exceed 80 percent of the property

value. The amount of MI coverage required varies by

transaction type and loan-to-value range. Freddie Mac

offers standard and/or exible MI pricing options for

all loan products. Flexible mortgage insurance options

include reduced MI and custom MI options.

Custom MI coverage options typically carry corre-

sponding post-settlement delivery fees. Post-settlement

delivery fees are risk-based pricing adjustments and

vary by product type and loan-to-value ratio. Custom

mortgage insurance delivery fees range from 0.375

percent to 0.75 percent. The Federal Housing Finance

Agency (FHFA) publishes Freddie Mac’s conforming

loan limits annually. Loan limits vary by number of units

and by property location. Properties in areas dened as

“high cost” are associated with higher loan limits. For

current limits, see link in Resources.

By statute, the Federal Housing Finance Agency is required to set annual

housing goals for mortgages bought by Fannie Mae and Freddie Mac. The

agency’s goals for single-family housing include categories for mortgages

for low-income families, very low-income families, and families that live in

low-income areas, and mortgage renancing. The multifamily goals include

separate categories for mortgages on properties with ve or more units afford-

able to low-income families and very low-income families.

131 | FDIC | Affordable Mortgage Lending Guide

This Guide covers the following Freddie Mac homeownership options:

HomeOne

: Low down payment nancing for rst-time homebuyers

with no geographic or income restrictions.

Home Possible®: Low down payment nancing with discounted fees for

creditworthy LMI borrowers and rst-time homebuyers.

Construction Conversion and Renovation Mortgage: Financing that

covers property purchase and renovation/construction costs in a

single mortgage.

Manufactured Home Mortgage: Financing for manufactured homes that

uses the credit standards of the home mortgage market.

Relief Renance

/Home Affordable Renance Program (HARP): Helps

borrowers with good payment records who have little or no home

equity renance into more affordable mortgages.

DOING BUSINESS WITH FREDDIE MAC

Benets

Delivering mortgage loans to the secondary market through Freddie

Mac can help community banks access sustainable affordable mortgage

products and responsibly expand mortgage business opportunities

while limiting long-term credit, prepayment, and interest rate risks.

Delivery Options

There are several ways for banks to deliver loans to Freddie Mac. They

can become direct Freddie Mac approved sellers or seller/ servicers.

They can act as a correspondent lender by originating and funding

loans and then selling them to investors or aggregators that sell to

Freddie Mac. Banks can also generate loans that are funded in the name

of an investor and then sold to Freddie Mac. Lenders selling to Freddie

Mac must make directly or indirectly through a service provider, certain

representations and warranties (reps and warrants).

Delivering to Freddie Mac as a direct seller or seller/servicer

In order for banks to deliver loans directly to Freddie Mac, they must

become approved sellers or seller/servicers. Freddie Mac approved sell-

ers and seller/servicers are able to deliver a wide range of single-family

mortgage products including purchases and renances on one- to four-

unit properties through Home Possible®, HomeOne

, and renances

through the Home Affordable Renance Program. Both xed-rate and

adjustable-rate products are available.

Approved sellers or seller/servicers are also provided with training,

technical support, and business development support. Once approved,

lenders are assigned a Freddie Mac representative to help them navi-

gate Freddie Mac’s benets, systems, and requirements.

PROGRAMS IN THIS SECTION:

HomeOne

: Low down payment financing for

first-time homebuyers with no geographic or

income

restrictions.

Home Possible

: Low down payment financ

ing with discounted fees for creditworthy LMI

borrowers and first-time

homebuyers.

Construction Conversion and Renovation

Mortgage:

Financing that covers property

purchase and renovation/construction costs in

a single

mortgage.

Manufactured Home Mortgage:

Financing

for manufactured homes that uses the credit

standards of the home mortgage

market.

Relief Refinance

/Home Affordable

Refinance Program (HARP):

Helps borrowers

with good payment records who have little or

no home equity refinance into more afford

able

mortgages.

FDIC | Affordable Mortgage Lending Guide | 132

Approval process to deliver as Freddie Mac direct

seller or seller/servicer

Lenders can be approved through Freddie Mac as a

seller/servicer or as a seller only. Freddie Mac seller/

servicers either service loans directly or contract with

a Freddie Mac approved subservicer. If approved as

a seller only, servicing rights must be transferred to a

Freddie Mac approved servicer.

The seller/servicer approval process is estimated to

take between four and six months from the time of

application through nal approval. Banks interested

in becoming a Freddie Mac approved seller or seller/

servicer must meet minimum nancial standards includ-

ing a minimum net worth of $2.5 million plus 25 basis

points of unpaid principal balance for total one- to four-

unit residential mortgage loans serviced. Operational

standards related to quality control and servicing apply

as well.

Delivering to Freddie Mac through other third parties

Smaller lenders often turn to investors or aggregators

to help them carry out underwriting, funding, and/or

secondary market sales functions. Correspondent lend-

ers typically fund loans in their own names and then

sell them to investors, who in turn sell the loans into the

secondary market. In some cases, the correspondent

lenders handle the underwriting in-house. In others, the

investor acts as the underwriter. Smaller lenders that

are interested in originating loans but do not have the

internal capacity to either underwrite or fund the loans

can also work with investors to carry out the origination

function while looking to the investor to underwrite and

fund the loans in the name of the investor.

Lenders can work with sponsoring Freddie Mac

approved seller/servicers to originate Freddie Mac

loan products. Originating loans for or selling loans to

a Freddie Mac approved aggregator can be useful to

banks that do not meet minimum standards and/or do

not have the internal capacity to become approved by

Freddie Mac. However, many aggregators and/or inves-

tors administer their own underwriting guidelines or

overlays, which may be more restrictive than standard

Freddie Mac program requirements. Final underwriting

decisions, standards for delivery, and fees for participa-

tion are set by each investor.

DUTY TO SERVE

The Housing and Economic Reform Act of 2008

required the GSEs to serve sectors of the housing

market that lack adequate access to conventional

nancing by increasing market access to mortgages

for very low-, low-, and moderate-income families

in three specic underserved markets: manufac-

tured housing, affordable housing preservation, and

rural housing.

In response to this legislation, the FHFA, the federal

regulator responsible for overseeing Fannie Mae and

Freddie Mac, issued the Duty to Serve Underserved

Markets rule, under which the GSEs were required

to develop a three-year plan for each underserved

area (Plans).

These Plans, informed by public com-

ment and feedback from the FHFA, detail the specic

outreach, product development, and loan purchase

activities designed to support mortgage nanc-

ing in each of the underserved markets. The rst

Plan is effective January 2018 through December

2020. The statute requires FHFA to evaluate and

rate Freddie Mac’s compliance with its Duty to Serve

requirements annually and to report to Congress on

these evaluations.

2018-2020 Underserved Markets Plans

Each of Freddie Mac’s Plans describe describes the

objectives and time-bound actions that Freddie Mac

will pursue in an effort to help resolve underserved

market challenges and meet the requirements of the

The Duty to Serve regulation allows Fannie Mae and Freddie Mac to request

to modify their Plans at any time. The FHFA and the GSE may seek public input

on the proposed modications, and the FHFA must provide a “Non-Objection”

to a proposed modication for it to become part of a Plan. The FHFA publishes

modied Plans, as well as redlined versions of the portions modied on its

website at https://www.fhfa.gov/PolicyProgramsResearch/Programs/Pages/

Duty-to-Serve.aspx.

133 | FDIC | Affordable Mortgage Lending Guide

Duty to Serve regulations. The objectives and spe-

cic action plans generated for each underserved

market generally seek to accomplish one or more of

the following:

• conduct analysis and publish ndings that might

promote a greater understanding of the under-

served markets;

• conduct research and outreach in the underserved

markets;

• facilitate market collaboration and participation in

the underserved markets;

• develop policies and standards to expand market

access to an underserved market;

• increase the purchase of loans in a designated

underserved market; and

• develop new or expand current products to meet

an unmet market need.

Manufactured Housing

In the manufactured housing sector, Freddie Mac will

be eligible to receive Duty to Serve credit for activities

related to increasing market access to loans on manu-

factured housing units, as well as blanket loans on

manufactured housing communities and by bringing

standards to the manufactured housing market.

Over the three-year period, Freddie Mac is committed

to purchasing over 9,775 manufactured loans, which

incrementally grows to a 34 percent increase over the

baseline by 2020. The GSE will also undertake a com-

prehensive review of its existing product offerings and

develop product features and policies that will expand

the reach of its manufactured housing products.

Freddie Mac will conduct outreach and research that

supports the development of a chattel loan pilot and

market standardization of a product for chattel loans

and will purchase at least 800 chattel loans once it

secures approval to do so from FHFA. Additionally,

Freddie Mac will expand its current pre-purchase

homebuyer education curriculum to examine the

unique characteristics of manufactured housing chat-

tel loans, as well as the benets of energy efcient

manufactured homes. Freddie Mac will also develop

a pilot program for resident-owned communities and

create a loan enhancement for manufactured housing

communities with specied minimum tenant pad

lease protections.

Potential Benets for Community Bankers:

• Increased opportunities to deliver manufactured

home loans on real property to Freddie Mac.

• Enhanced manufactured housing loan policies

and product.

• Chattel loan pilot that supports market

standardization.

Affordable Housing Preservation

To preserve affordable housing, Freddie Mac will

increase its support of the Low Income Housing Tax

Credit, Section 8 Voucher and USDA Section 515 pro-

grams. In addition, the GSE will increase its nancing of

small multifamily rental properties by developing new

offerings and mechanisms that support small nan-

cial institutions including enhanced pooling, credit

enhancement, and securitization. This effort will include

the purchase of up to six pools of seasoned small bal-

ance multifamily loans over the three-year period.

Freddie Mac’s Underserved Markets Plan also supports

energy and water efciency improvements for both

single-family and multifamily as well as shared equity

homeownership nancing.

Potential Benets for Community Bankers:

• Increased opportunities to deliver loans for small

multifamily properties to Freddie Mac.

• Enhanced credit pooling, credit enhancement, and

securitization for small multifamily loans.

FDIC | Affordable Mortgage Lending Guide | 134

Rural Housing

The rural housing Duty to Serve regulations support

the nancing of both single-family and multifamily

housing in certain high-needs rural areas

and popula-

tions that have been particularly underserved.

Freddie Mac will increase its purchase of single-family

loans in high-needs rural areas through various pur-

chase execution options including selling for cash, bulk

portfolio sales, and ow purchases. In 2018-2020, the

GSE will purchase up to 75,500 single-family loans,

resulting in an increase of 5.9 percent to 14.8 percent

over the baseline by 2020. Freddie Mac will also look

for ways to expand product exibilities in the areas

of borrower qualication, collateral valuation, down

payment and closing costs, and pricing criteria to

further meet the needs of the market. The GSE will also

provide both new and improved renovation mortgage

product features to support the nancing of renovation

costs for single-family homes in rural areas.

Freddie Mac will also provide over $460 million per

year in liquidity to small nancial institutions that serve

high-needs rural areas purchasing up to 15,600 new

loans, resulting in an increase of 16.8 percent to 54

percent over the baseline by 2020. Freddie Mac will

also support small multifamily rental properties in rural

areas by developing new offerings that support prop-

erties with USDA 515 debt and by developing a new

offering that supports the USDA 538 program.

Potential Benets for Community Bankers:

• New opportunities for small nancial institutions to

deliver rural single-family loans Freddie Mac.

• Expanded loan products and policies designed to

increase single-family and multifamily loan pur-

chases in high needs rural areas.

• Enhanced renovation loan products for

single-family homes in rural areas.

Freddie Mac’s 2018-2020 Underserved Markets Plan

General Information

http://www.freddiemac.com/about/duty-to-serve/

Freddie Mac Duty to Serve Underserved Markets Plan

Summary

http://www.freddiemac.com/about/duty-to-serve/

docs/Freddie-Mac-Underserved-Markets-Plan-

Highlights.pdf

Freddie Mac Duty to Serve Underserved Markets Plan

http://www.freddiemac.com/about/duty-to-serve/

docs/Freddie-Mac-Underserved-Markets-Plan.pdf

Questions about Duty to Serve

Call 1-800-FREDDIE, Option 2

SYSTEM REQUIREMENTS AND

QUALITY CONTROL

Freddie Mac offers the Loan Product Advisor®, which

is a portal system that provides product guidelines

and preliminary automated underwriting to lend-

ers working with investors. Lenders can underwrite

loans manually or electronically with the use of Loan

Product Advisor®. Loan Product Advisor® provides an

assessment of a loan’s eligibility for sale and delivery

to Freddie Mac. Lenders can access Loan Product

Advisor® through an interface on FreddieMac.com, a

third-party vendor, or direct integration with a lender’s

proprietary loan origination system. There is no charge

for Loan Product Advisor®.

Freddie Mac sellers are also required to have a qual-

ity control program in place that includes pre-funding

and post funding quality control reviews, covers the

full scope of the mortgage origination business of the

bank, and includes an active role by senior manage-

ment in the effective resolution of gaps discovered in

the origination process.

The FHFA’s Duty to Serve regulations dene “rural area” as: “1) a census

tract outside of a metropolitan statistical area as designated by the Ofce of

Management and Budget; or 2) a census tract in a metropolitan statistical area

as designated by the Ofce of Management and Budget that is outside of

the metropolitan statistical area’s Urbanized Areas as designated by the U.S.

Department of Agriculture’s (USDA) Rural-Urban Commuting Area (RUCA)

Code #1, and outside of tracts with a housing density of over 64 housing units

per square mile for USDA’s RUCA Code #2.”

135 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

FHFA Conforming loan limits

https://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Freddie Mac eligibility requirements

https://ww3.freddiemac.com/ds1/singlefamily/beourcustomer.nsf/frmEligReq?OpenForm

Freddie Mac application process

http://www.freddiemac.com/singlefamily/doingbusiness/

Freddie Mac sales and delivery information: Information about pricing, sales executions, and delivery and funding

requirements.

http://www.freddiemac.com/singlefamily/sell/

Freddie Mac’s Learning Center: Ongoing training opportunities.

http://www.freddiemac.com/learn/

Freddie Mac’s Single Family Seller/Servicer Guide: Rules and regulations covering all aspects of selling loans to

Freddie Mac including lender approval, loan origination, loan delivery, quality control, and servicing requirements.

http://www.freddiemac.com/singlefamily/guide/

Freddie Mac participating wholesale lenders list: List of Freddie Mac approved aggregators.

http://www.freddiemac.com/loanadvisorsuite/loanproductadvisor/wholesaler.html

Freddie Mac Community Lender Resource Center

http://www.freddiemac.com/singlefamily/community_lenders/

Federal Housing Finance Agency Duty to Serve Program

https://www.fhfa.gov/PolicyProgramsResearch/Programs/Pages/Duty-To-Serve.aspx

Freddie Mac Duty to Serve Underserved Markets Plan 2018-2020

https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/Freddie-Mac_Final-UMP.pdf

HUD Section 8 Housing Voucher Program

https://www.hud.gov/topics/housing_choice_voucher_program_section_8

USDA Section 515 Rural Housing Program

http://ruralhome.org/storage/documents/rd515rental.pdf

USDA Section 538 Rural Housing Program

https://www.rd.usda.gov/les/GRRHP_Application_FY2018.pdf

USDA Section 538 Rural Housing Program Lenders

https://www.rd.usda.gov/les/TX_Sec%20538%20GRRHP%20Approved%26EligLenders.pdf

FDIC | Affordable Mortgage Lending Guide | 136

A COMMUNITY BANKER CONVERSATION

Using Freddie Mac’s Home Possible® Product

The FDIC talked with community bankers about their participation in Freddie Mac’s Home Possible® and other

mortgage products. The following are excerpts from these discussions.

Freddie Mac Home Possible® mortgages include

features that are designed to serve low- and moderate-

income borrowers and rst-time homebuyers. Features

include down payments as low as 3 percent, xed rates,

and reduced mortgage insurance coverage levels.

Working with Freddie Mac

A banker from the west coast explained that his bank

has used Freddie Mac products since 1988. Another

banker from the east coast said that her bank has used

Freddie Mac products for over 20 years.

Both banks are using Freddie Mac’s Home Possible®

mortgages because the 15-year or 30-year

xed-rate conventional loan product is popular with

applicants. One banker said, “Using Freddie Mac prod-

ucts enable us to offer competitive rates and terms for

our borrowers. Our staff and underwriters have a good

understanding of the Freddie Mac’s guidelines, which

helps us to sell loans without any major issues during

the process.”

Both bankers stated that training is done on all prod-

ucts when new staff is hired. One bank representative

pointed out that the general product training takes

about two weeks, but developing a full understanding

of the product may take three or more months.

Both banks are approved seller/servicers with Freddie

Mac, delivering loans directly to the company. They

estimated that the seller/servicer approval process

takes between four and six months from the time of

application through nal approval.

Benets of Offering Home Possible® Mortgages

One banker said that Freddie Mac’s products offer

another way to help customers become homeown-

ers and enables the bank to deliver loans into the

secondary market. The Home Possible® maximum

loan-to-value ratio is 95 percent, and that assists bor-

rowers with good credit, but limited funds for a down

payment, to buy a home.

Another representative said that his bank takes advan-

tage of Freddie Mac’s program allowing up to 105

percent combined loan-to-value ratio by pairing it with

subordinate liens for down payment assistance, clos-

ing costs, or renovations. The banker noted that, “We

offer a down payment assistance program that allows

the use of non-traditional payment history, such as rent

or utility receipts to demonstrate good credit. There

are no rate lock-in fees and we even waive the monthly

maintenance charge if the borrower has a personal

checking account with the bank. Combining this

product with Home Possible® allows us to better serve

our customers with limited funds or a less established

credit history.”

137 | FDIC | Affordable Mortgage Lending Guide

Challenges of Offering Home Possible® Mortgages

One bank representative stated that the bank’s underwriting guidelines

are sometimes more exible than Freddie Mac’s guidelines, which means

that the bank keeps some mortgages in portfolio. Meeting the Freddie

Mac rate lock and other timelines can also be occasionally challenging,

said another bank representative. One bank representative said that loan

level price adjustments (LLPAs), which are risk-based pricing adjustments

that vary based on a number of factors and affect borrower costs, can also

be a challenge to administer.

Advice to Other Bankers Considering Freddie Mac

When asked what advice they would give to other bankers considering

offering Freddie Mac’s Home Possible® product, one banker stated, “It

is very important that bankers understand Freddie Mac’s underwriting

guidelines, rate-lock process, and selling system for post-closing les.”

The bankers also noted that because Freddie Mac offers long-term

xed-rate mortgages, Home Possible® is a tool they use for low- and

moderate-income borrowers who need lower down payments and

smaller monthly payments.

FDIC | Affordable Mortgage Lending Guide | 138

FREDDIE MAC

HomeOne

Three percent down payment nancing for rst-time homebuyers with no

geographic or income restrictions

BACKGROUND AND PURPOSE

Freddie Mac HomeOne

mortgages provide lend-

ers with a way to reach rapidly growing rst-time

homebuyer markets. Features of HomeOne

include

low down payments, xed-rate mortgages, reduced

mortgage insurance coverage levels, and no cash-

out renancing. HomeOne

mortgages are eligible

to rst-time homebuyers with no geographic or

income restrictions.

Despite offering low down payments, HomeOne

mortgages include risk management features to pro-

mote responsible lending.

BORROWER CRITERIA

Income limits: No income or geographic restric-

tions apply.

Credit: HomeOne

mortgages must be underwrit-

ten through Loan Product Advisor® and must receive

a risk class of “Accept.” At least one borrower on the

transaction must have a usable credit score. Manually

underwritten mortgages are not permitted.

First-time homebuyers: At least one borrower must

be a rst-time homebuyer when the mortgage is a

purchase transaction. A borrower with no ownership

interest in a residential property in the last three years

is considered a rst-time homebuyer. A displaced

homemaker or single parent whose only ownership

interest in the last three years has been a joint own-

ership in the marital residence is also considered a

rst-time homebuyer.

PROGRAM NAME

HomeOne

AGENCY

Freddie Mac

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Freddie Mac seller,

see http://www.freddiemac.com/singlefamily/doingbusiness/

WEB LINK

http://www.freddiemac.com/singlefamily/factsheets/sell/pdf/homeone.pdf

CONTACT

INFORMATION

[email protected] (ask for a call back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

139 | FDIC | Affordable Mortgage Lending Guide

Occupancy and ownership of other properties: The property must be

all borrowers’ primary residence, but ownership of other properties is

permitted. For example, if there is only one borrower, that borrower

cannot have an ownership interest in another property during the three-

year period preceding the date of purchase. However, if there is more

than one borrower, ownership of another property may be permitted

under certain conditions, but it cannot be the borrower claiming to be a

rst-time homebuyer.

Special populations: Special population status does not confer

an advantage.

Property type: One-unit properties, including fee simple homes, con-

dominiums and planned unit developments are eligible property types.

Manufactured housing units are not eligible.

LOAN CRITERIA

Loan limits: FHFA publishes Freddie Mac’s conforming loan limits annu-

ally. See Resources for a link to the current limits.

Loan-to-value limits: The HomeOne

maximum LTV is 97 percent, or

up to 105 percent total LTV with Affordable Seconds®, which are sub-

ordinate liens used for down payment assistance and to pay for closing

costs. Affordable Seconds® must be provided by a duly authorized

authority or agency of the federal, state, local, or municipal government,

a housing nance agency, a nonprot organization, a regional Federal

Home Loan Bank under one of its affordable housing programs, or the

borrower’s employer.

Adjustable-rate mortgages: ARMs are not allowed.

Down payment sources: No minimum contribution from the borrower’s

personal funds is required.

Homeownership counseling: When all borrowers are rst-time home-

buyers, at least one borrower must participate in homeownership

education. Homeownership education programs developed by mort-

gage insurance companies are allowed, as well as internet-based

programs such as Freddie Mac’s free nancial literacy curriculum,

CreditSmart®.

Mortgage insurance: Standard mortgage insurance of 35 percent is

required when over 95 percent LTV. Custom MI rates may apply.

Debt-to-income ratio: Qualifying debt-to-income ratios are determined

by Loan Product Advisor®, Freddie Mac’s automated underwriting tool.

In the event that the borrower has student loan debt and the pay-

mentamount is provided on the credit report, that amount can be used

for qualifying purposes. If the monthly payment amount reported on

the credit report is zero, use 0.5 percent of the outstanding balance, as

reported on the credit report.

POTENTIAL BENEFITS

HomeOne

may allow com

munity banks to expand their

first-time homebuyer cus

tomer base.

With no geographic or income

limits, HomeOne

offers first-

time homebuyers broad access

to low-down payment financing.

HomeOne

may help com

munity banks access the

secondary market, providing

greater liquidity to enhance their

lending volume.

POTENTIAL CHALLENGES

Lenders must have a way to

access the program, whether

through direct sales or a cor

respondent arrangement, as

discussed in the introduction to

this section. Depending on the

arrangement, community banks

may need to acquire or develop

new expertise and infrastructure

in order to participate.

FDIC | Affordable Mortgage Lending Guide | 140

Temporary interest rate buy downs: Temporary interest

rate buy downs are permitted in accordance with the

requirements of the Freddie Mac Guide. The borrower

must be qualied using monthly payments calculated

at the note rate.

Renance: No cash-out renance is allowed. For a no

cash-out renance mortgage, the mortgage being

renanced must be owned or securitized by Freddie

Mac unless it has secondary nancing that is an

Affordable Second.

Delivery fee: Standard delivery fees apply.

Reserve requirements: Reserve requirements are

determined by Loan Product Advisor®.

Potential Benets

• HomeOne

may allow community banks to

expand their rst-time homebuyer customer base.

• With no geographic or income limits,

HomeOne

offers rst-time homebuyers broad

access to low-down payment nancing.

• HomeOne

may help community banks access the

secondary market, providing greater liquidity to

enhance their lending volume.

• The guarantee provided by Freddie Mac under this

program may help reduce exposure to credit risk.

• HomeOne

offers competitive pricing and terms.

• Loans originated through the HomeOne

may

receive favorable consideration under the CRA,

depending on the geography or income of the par-

ticipating borrowers.

Potential Challenges

• Lenders must have a way to access the program,

whether through direct sales or a correspondent

arrangement, as discussed in the introduction to

this section. Depending on the arrangement, com-

munity banks may need to acquire or develop new

expertise and infrastructure in order to participate.

SIMILAR PROGRAMS

• Fannie Mae HomeReady™

• FHA 203(b) Mortgage Insurance Program

• Freddie Mac Home Possible

141 | FDIC | Affordable Mortgage Lending Guide

FDIC | Affordable Mortgage Lending Guide | 142

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

HomeOne

fact sheet

http://www.freddiemac.com/singlefamily/factsheets/sell/pdf/homeone.pdf

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Affordable Seconds® Program

http://www.freddiemac.com/singlefamily/expmkts/affsec.html

CreditSmart® Program

http://www.freddiemac.com/creditsmart/

Delivery fees

http://www.freddiemac.com/singlefamily/pdf/ex19.pdf

FREDDIE MAC

Home Possible®

Low down payment nancing with discounted fees for creditworthy low-

and moderate-income borrowers

BACKGROUND AND PURPOSE

Freddie Mac Home Possible® mortgages provide

lenders with a way to reach rapidly growing markets of

rst-time homebuyers and low- and moderate-income

(LMI) borrowers. Features of Home Possible® include

low down payments, xed-rate mortgages, reduced

mortgage insurance coverage levels, exible closing

cost funding options, and no cash-out renancing.

Despite offering low down payments, Home Possible®

mortgages include risk management features to pro-

mote responsible lending.

BORROWER CRITERIA

Income limits: The borrowers’ annual income cannot

exceed 100 percent of the area median income (AMI)

or a higher percentage in designated high-cost areas.

The income used to qualify the borrower must be used

by the lender to establish that the income limits are

not exceeded. No income limits apply if the home is

located in an underserved area.

Credit: Credit scores as low as 660 for purchase

transactions and 680 for no cash-out renances

are considered. Loans where none of the borrow-

ers has a usable credit score may be considered.

See Resources for link to “Mortgages for Borrowers

Without Credit Scores” for detailed guidelines.

First-time homebuyers: A borrower with no own-

ership interest in a residential property in the last

three years is considered a rst-time homebuyer. A

displaced homemaker or single parent whose only

ownership interest in the last three years was a joint

ownership in the marital residence is also considered

a rst-time homebuyer.

PROGRAM NAME

Home Possible®

AGENCY

Freddie Mac

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Freddie Mac seller,

see http://www.freddiemac.com/singlefamily/doingbusiness/

WEB LINK

http://www.freddiemac.com/homepossible/

CONTACT

INFORMATION

[email protected] (ask for a call back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

143 | FDIC | Affordable Mortgage Lending Guide

Occupancy and ownership of other properties: Ownership of other

property is allowed without any restrictions. Non-occupant borrowers on

mortgages secured by one-unit properties are allowed when the:

• The loan-to-value (LTV) ratio is less than or equal to 95 percent for

loans underwritten through Loan Product Advisor® (105 percent

combined loan-to-value (CLTV) for mortgages with Affordable

Seconds®.).

• The LTV ratio is less than or equal to 90 percent for manually under-

written mortgages (105 percent CLTV for mortgages with Affordable

Seconds®.).

• The debt-to-income (DTI) ratio is less than or equal to 43 percent

based on the occupying borrower’s income for manually underwrit-

ten mortgages.

Special populations: Special population status does not confer

an advantage.

Property type: Manufactured housing (with certain restrictions), one- to

four-unit properties, fee simple homes, condominiums, co-ops, and

planned unit developments are eligible property types.

LOAN CRITERIA

Loan limits: Conforming and super-conforming mortgages are eligible.

FHFA publishes Freddie Mac’s conforming loan limits annually. See

Resources for a link to the current limits.

Loan-to-value limits: The Home Possible® maximum LTV is 97 percent,

or up to 105 percent CLTV with Affordable Seconds®, which are subor-

dinate liens for down payment assistance, closing costs, or renovations.

Affordable Seconds® funds must be provided by a unit of state or local

government, housing nance agency, nonprot organization, regional

Federal Home Loan Bank under one of its affordable housing programs,

or by the borrower’s employer.

Secondary nancing, including home equity lines of credit (HELOCs),

is permitted for mortgages with a CLTV ratio of less than or equal to 97

percent or 105 percent with Affordable Seconds®. Note that Affordable

Seconds® with deferred payments for ve years are considered gifts in

the automated underwriting system.

Adjustable-rate mortgages: 5/1, 5/5, 7/1, or 10/1 ARMs with an original

maturity not greater than 30 years are allowed on a one- to two-unit

property; 5/1, 5/5, 7/1, or 10/1 ARMs are allowed on three- or four-unit

properties with an LTV less than or equal to 75 percent; and 7/1 and

10/1 ARMs are allowed on manufactured homes.

POTENTIAL BENEFITS

Home Possible

may allow

community banks to expand

their customer base in low- and

moderate-income communities.

Home Possible

may help

community banks access the

secondary market, providing

greater liquidity to enhance their

lending volume.

POTENTIAL CHALLENGES

Lenders must have a way to

access the program, whether

through direct sales or a cor

respondent arrangement, as

discussed in the introduction to

this section. Depending on the

arrangement, community banks

may need to acquire or develop

new expertise and infrastructure

in order to participate.

A limited pool of borrowers is

eligible for this program due

to specific income limits and

limited flexibilities for borrowers

with nontraditional credit.

FDIC | Affordable Mortgage Lending Guide | 144

Down payment sources: No minimum contribution

from personal funds is required for one-unit properties;

3 percent is required for two- to four-unit properties,

and 5 percent is required for manufactured homes.

Homeownership counseling: Homeownership edu-

cation is required for at least one borrower if all

borrowers are rst-time homebuyers. Internet-based

homeownership education programs developed by

mortgage insurance companies are allowed, such as

Freddie Mac’s Credit Smart® program. Lenders must

provide (at no cost to the borrower) early delinquency

counseling to all borrowers who experience problems

meeting their mortgage obligations. For two- to four-

unit transactions, at least one borrower must complete

a landlord education program.

Mortgage insurance: The minimum required amount is

16 percent coverage for 90 percent to 95 percent LTV;

12 percent coverage for 85 percent to 90 percent LTV;

6 percent for 80 percent to 85 percent LTV; and zero

percent for below 80 percent LTV.

Debt-to-income ratio: Qualifying debt-to-income ratios

are determined by Loan Product Advisor®, Freddie

Mac’s automated underwriting tool. This ratio can

be as high as 45 percent for manually underwritten

mortgages. In the event that the borrower has student

loan debt and the payment amount is provided on the

credit report, that amount can be used for qualifying

purposes. If the monthly payment amount reported on

the credit report is zero, use 0.5 percent of the out-

standing balance, as reported on the credit report.

Temporary interest rate buy downs: Temporary inter-

est rate buy downs are permitted for one- to two-unit

properties other than manufactured homes. For xed-

rate mortgages, the borrower must be qualied using

monthly payments calculated at the higher of the note

rate or the fully-indexed rate. For ARMs, the borrower

must be qualied using monthly payments calculated

in accordance with Freddie Mac’s underwriting guid-

ance (Guide Section 30.16 and A34.5).

Renance: No cash-out renance is allowed for bor-

rowers who occupy the property.

Delivery fee: All applicable credit fees apply and

are capped at 1.50 percent on mortgages with LTVs

80 percent or greater; or LTVs less than 80 percent

with a credit score less than 680. No credit fees apply

(fees are capped at 0.00 percent) to mortgages with

LTVs under 80 percent and credit scores of 680 or

greater. All Home Possible® Mortgages are subject to

the Custom Mortgage Insurance Credit Fee, which is

added to the applicable fee cap.

Reserve requirements: No reserves are required for

one-unit properties; two months are required for two-

to four-unit properties.

Potential Benets

• Home Possible® may allow community banks to

expand their customer base in low- and moderate-

income communities.

• Home Possible® may help community banks access

the secondary market, providing greater liquidity

to enhance their lending volume.

• The guarantee provided by Freddie Mac under this

program may help reduce exposure to credit risk.

• Home Possible® offers competitive pricing

and terms.

• Loans originated through the Home Possible® pro-

gram may receive favorable consideration under

the CRA, depending on the geography or income

of the participating borrowers.

Potential Challenges

• Lenders must have a way to access the program,

whether through direct sales or a correspondent

arrangement, as discussed in the introduction to

this section. Depending on the arrangement, com-

munity banks may need to acquire or develop new

expertise and infrastructure in order to participate.

• A limited pool of borrowers is eligible for this

program due to specic income limits and limited

exibilities for borrowers with nontraditional credit.

SIMILAR PROGRAMS

• Fannie Mae HomeReady™

• FHA 203(b) Mortgage Insurance Program

145 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

General Information

http://www.freddiemac.com/homepossible/

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Super conforming loan limits

http://www.freddiemac.com/singlefamily/mortgages/super_conforming.html

Low-income and disaster area denitions and data

http://www.fhfa.gov/DataTools/Downloads/Pages/Underserved-Areas-Data.aspx

Mortgages for borrowers without credit scores

http://www.freddiemac.com/learn/pdfs/uw/mtges4borr_nocreditscores.pdf

Affordable Seconds® Program

http://www.freddiemac.com/singlefamily/expmkts/affsec.html

CreditSmart® Program

http://www.freddiemac.com/creditSMart/tutorial.html

Delivery fees

http://www.freddiemac.com/singlefamily/pdf/ex19.pdf

FDIC | Affordable Mortgage Lending Guide | 146

FREDDIE MAC

Construction Conversion and Renovation Mortgage

Financing that covers purchase and renovation/construction costs in a

single loan closing

BACKGROUND AND PURPOSE

A Construction Conversion Mortgage provides perma-

nent nancing that replaces the interim construction

nancing on a new site-built home or a new manu-

factured home that will be permanently afxed to the

property. A Renovation Mortgage is used to purchase

or renance land with an existing site-built home

and repair, restore, rehabilitate, or renovate the site-

built home.

Freddie Mac allows any of its other mortgage prod-

ucts to be originated for renovation and construction

purposes. Construction Conversion and Renovation

Mortgages must conform to the requirements of one

of Freddie Mac’s other mortgage programs: Home

Possible®; regular 15-, 20-, or 30-year xed mort-

gage; most adjustable-rate mortgages (ARMs); super

conforming mortgage (mortgages originated using

higher-maximum loan limits permitted in designated

high-cost areas); and manufactured housing (construc-

tion conversion only).

BORROWER CRITERIA

Income limits: Income limits apply if the mortgage uses

Home Possible® or HomeOne

Credit: Any of Freddie Mac’s mortgage products may

be delivered as a renovation mortgage and the appli-

cable credit limits apply (credit scores as low as 660).

First-time homebuyers: For Home Possible® and

HomeOne

, when all the borrowers are rst-time

homebuyers, at least one qualifying borrower must

participate in a homeownership education program

before the note sale or effective date of perma-

nent nancing for Construction Conversion and

Renovation Mortgages.

PROGRAM NAME

Construction Conversion and Renovation Mortgage

AGENCY

Freddie Mac

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Freddie Mac seller,

see http://www.freddiemac.com/singlefamily/doingbusiness/

WEB LINK

Single-Family Seller/Servicer Guide Chapter K33

http://www.freddiemac.com/singlefamily/factsheets/sell/renovation.html

CONTACT

INFORMATION

[email protected] (ask for a call back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

147 | FDIC | Affordable Mortgage Lending Guide

Occupancy and ownership of other properties: Generally, ownership of

other properties is allowed with certain exceptions depending on the

loan product, and primary residences, second homes, and investment

properties are all allowed.

Special populations: Special population status confers no benet.

Special assistance for persons with disabilities: Retrotting a home for

use by a person with a disability is an eligible use of this program.

Property type: One- to four-unit site-built homes are allowed. If secured

by a manufactured home, only a construction conversion loan to cover

the costs associated with permanent installation is allowed. This pro-

gram may not be used to make a single payment to a builder or assume

an existing mortgage, for instance if a builder has built on speculation.

LOAN CRITERIA

Loan limits: FHFA publishes Freddie Mac’s conforming loan limits annu-

ally. See Resources for a link to the current limits. Certain high-cost areas

are also taken into consideration.

Loan-to-value limits: The value is the lesser of the purchase price plus

construction/renovation costs or the appraised value as completed. The

LTV limits for the underlying mortgage program are applicable.

Adjustable-rate mortgages: All standard ARM products are allowed

except that HomeOne

may only be a xed-rate mortgage. For Home

Possible®: 5/1, 5/5, 7/1, or 10/1 ARMs with an original maturity not

greater than 30 years are allowed on a one- to two-unit property. For

manufactured homes, 7/1 and 10/1 ARMs are allowed.

Underwriting: The loan may be underwritten manually or in Loan

Product Advisor®, Freddie Mac’s automated underwriting system.

Documentation may be integrated with interim nancing documenta-

tion (one closing), separate (two closings), or modied (two closings

with a modication agreement).

The mortgage le must contain the following:

• evidence to support that the mortgage is a Construction Conversion

or Renovation Mortgage;

• sufcient documentation to validate the actual cost to construct or

renovate (e.g., purchase contracts, plans and specications, receipts,

invoices, lien waivers, etc.);

• document showing lender’s calculation of the purchase price and/or

cost to construct;

• all settlement/closing disclosure statement forms or other mortgage

closing statements for interim construction nancing and perma-

nent nancing;

POTENTIAL BENEFITS

Freddie Mac does not require

special approval to originate

renovation mortgages or addi

tional experience with reviewing

contractor work plans, construc

tion draws, or appraisals. This

product requires less contractor

oversight. Freddie Mac does not

have put-back provisions.

Cash-out refinance is permitted,

which increases the borrower’s

flexibility to cover repairs outside

of the scope of the interim con

struction financing.

POTENTIAL CHALLENGES

The loan to be sold to Freddie

Mac cannot be closed until

construction is finished, so there

is the potential for risk in the

transaction related to the interim

construction financing.

To effectively market and use this

product, lenders must partner

with an entity that offers interim

construction financing. In order

to become an interim construc

tion financing lender, additional

expertise is needed.

FDIC | Affordable Mortgage Lending Guide | 148

• for a mortgage secured by a manufactured home,

the manufacturer’s invoice and the manufactured

home purchase agreement; and

• appropriate documentation to verify the acquisition

and transfer of ownership of the land if the bor-

rower acquired the land as a gift or by inheritance.

The loan may need to be re-underwritten if property

value, construction scope of work, schedule, or other

substantive changes occurs during the term of interim

construction nancing and renovation work.

Delivery fee: The applicable delivery fee(s) is assessed

based on the characteristics of the mortgage. There is

no additional delivery fee for Construction Conversion

and Renovation Mortgages.

Renance: Renancing is an allowable use of this

product. If the borrower is the owner of record of the

land (or is the lessee of the leasehold estate or if a

site-built home is on a leasehold estate) before the

closing of the interim construction nancing, then the

loan is a renance transaction. Special purpose cash-

out renances (proceeds used to buy out the equity of

a co-owner) are not eligible. Cash-out renances are

not eligible for manufactured homes. An amount used

to pay off an unsecured lien or reimburse the borrower

for construction costs paid outside of the secured

interim construction nancing is considered cash out if

it is more than $2,000 or 2 percent of the loan amount,

whichever is less.

Completion status before delivery: All improvements

must be fully completed before the sale of the mort-

gage to Freddie Mac unless a completion escrow

account has been established. The installation of a

manufactured home must be fully completed. The

lender must provide Freddie Mac with evidence that

the construction is complete.

Potential Benets

• Freddie Mac does not require special approval

to originate renovation mortgages or additional

experience with reviewing contractor work plans,

construction draws, or appraisals. This product

requires less contractor oversight. Freddie Mac

does not have put-back provisions.

• Cash-out renance is permitted, which increases

the borrower’s exibility to cover repairs outside of

the scope of the interim construction nancing.

• Community banks can market this product to exist-

ing customers who are homeowners.

• This product can be used for site-built homes on

leasehold estates, making this product useable by

community land trusts.

Potential Challenges

• The loan to be sold to Freddie Mac cannot be

closed until construction is nished, so there is the

potential for risk in the transaction related to the

interim construction nancing.

• To effectively market and use this product, lenders

must partner with an entity that offers interim con-

struction nancing. In order to become an interim

construction nancing lender, additional expertise

is needed.

• Renovation loans are likely to be more time inten-

sive than purchase-only transactions because of the

risk of changes to the scope of work or property

value requiring re-underwriting.

SIMILAR PROGRAMS

• Fannie Mae HomeStyle® Renovation Loan

• FHA 203(k) Rehabilitation Mortgage Insurance

• FHA Property Improvement Loan Insurance (Title I)

149 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Construction Conversion and Renovation Mortgage summary

http://www.freddiemac.com/learn/pdfs/uw/construction.pdf

How to Enter Data for Construction Conversion and Renovation Mortgages

http://www.freddiemac.com/learn/pdfs/uw/LP_MNCH_fun_guide.pdf

Training Course for Construction Conversion and Renovation Mortgages

http://www.freddiemac.com/ontrack/html/LearningCenter/ClassDescription.jsp?crsNum=CC_RM

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Delivery fees

http://www.freddiemac.com/singlefamily/pdf/ex19.pdf

FDIC | Affordable Mortgage Lending Guide | 150

FREDDIE MAC

Manufactured Home Mortgage

Financing for manufactured homes that uses the credit standards of the

home mortgage market rather than the movable property loan market

BACKGROUND AND PURPOSE

Today’s manufactured housing market serves over 17

million Americans and provides affordable homeown-

ership for many. Freddie Mac’s manufactured home

mortgages help qualied borrowers buy homes they

can both afford and maintain.

Lenders should be familiar with the U.S. Department

of Housing and Urban Development (HUD) codes for

Manufactured Housing Construction and Safety and

the laws pertaining to the treatment of manufactured

housing as real property in their states. Land must be

owned by the borrower in fee simple. A mortgage

secured by a manufactured home located on a lease-

hold estate is not eligible for sale to Freddie Mac.

The home cannot have been previously permanently

installed at another site. Singlewide homes are only

eligible for sale to Freddie Mac when located in a

planned unit development or condominium that has

been determined eligible.

BORROWER CRITERIA

Income limits: Income limits follow the requirements

of the mortgage program used. For example, for

HomePossible®, the borrowers’ annual income cannot

exceed 100 percent of the area median income (AMI)

or a higher percentage in designated high-cost areas;

no income limits apply if the mortgaged premises are

located in an underserved area.

Credit: Freddie Mac does not have hard and fast credit

score limitations specic to this program. Loan Product

Advisor® incorporates the additional collateral risk into

its assessment of the loan.

PROGRAM NAME

Manufactured Home Mortgage

AGENCY

Freddie Mac

EXPIRATION DATE

Not Applicable

APPLICATIONS

No program-specic application is required. For information on becoming a Freddie Mac seller,

see http://www.freddiemac.com/singlefamily/doingbusiness/

WEB LINK

http://www.freddiemac.com/singlefamily/expmkts/mhle.html

CONTACT

INFORMATION

[email protected] (ask for a call back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

No restriction by state. Sellers must represent and warrant that the manufactured home is

legally classied as real property under applicable state laws.

151 | FDIC | Affordable Mortgage Lending Guide

First-time homebuyers: The program is not restricted to rst-

time homebuyers.

Occupancy and ownership of other properties: The property may be a

primary residence or second home, if allowed by the mortgage product

used, but not an investment property.

Special assistance for persons with disabilities: Retrotting a home for

use by a person with a disability is not an eligible use of this program,

but purchasing an appropriate home is.

Property type: Properties may only be single units. The manufactured

home must have been built on or after June 15, 1976, and be perma-

nently afxed to a foundation and utilities. The home must be at least 12

feet wide and have a minimum 600 square feet of gross living area.

Real property requirements: Manufactured homes must be legally

classied as real property in the state where the borrower proposes to

locate the subject property. The manufactured home must be afxed to

a permanent foundation in a way that makes it part of the real property.

LOAN CRITERIA

Loan limits: FHFA publishes Freddie Mac’s conforming loan limits annu-

ally. See Resources for a link to the current limits. Certain high-cost areas

are also taken into consideration.

Loan-to-value limits: The maximum LTV is generally 95 percent; how-

ever, refer to the Seller/Servicer Guide Section H33.3(e) for the latest

details as certain exceptions apply; for example, 5 percent is subtracted

from LTV limit if using secondary nancing.

Adjustable-rate mortgages: 7/1 and 10/1 ARMs are allowed.

Down payment sources: A minimum of 5 percent of the down payment

must come from borrower’s personal funds.

Homeownership counseling: Homeownership counseling is not

required unless required by the underlying loan product.

Mortgage insurance: A mortgage secured by a manufactured home has

special mortgage insurance coverage requirements found in the Seller/

Servicer Guide Section 5703.3(f).

Debt-to-income ratio: Debt-to-income ratio is determined by Loan

Product Advisor® in accordance with the limits of the program used

(e.g., HomePossible®). In the event that the borrower has student loan

debt and the paymentamount is provided on the credit report, that

amount can be used for qualifying purposes. If the monthly payment

amount reported on the credit report is zero, use 0.5 percent of the out-

standing balance, as reported on the credit report.

POTENTIAL BENEFITS

The Manufactured Home

Mortgage program may allow

a community bank to expand

its customer base in low- and

moderate-income communi

ties. Manufactured housing is

the country’s largest source of

unsubsidized affordable home

ownership and an opportunity

for lenders to expand into new

market segments.

Manufactured homes have

improved significantly in qual

ity, energy efficiency, and safety

while remaining much more

affordable than site-built hous

ing if borrowers have access

to mortgage credit. Lenders

can therefore make long-term

real estate mortgages secured

by manufactured homes with

less risk.

POTENTIAL CHALLENGES

Freddie Mac will not purchase

mortgages secured by manufac

tured homes on leased land. This

is a common form of land tenure

for manufactured homes.

Depending on state law,

manufactured homes may be

considered personal property.

The home must not have

been previously installed on

another site.

FDIC | Affordable Mortgage Lending Guide | 152

Temporary interest rate buy downs: Temporary interest

rate buy downs are not allowed.

Renance: Cash-out and no cash-out renances

are allowed.

Trade equity from existing Manufactured Housing:

Many manufactured home dealers offer equity-like

contributions for home purchasers who trade in an

old model of home to buy a new one, similar to an

automobile trade-in program. The maximum equity

contribution from the traded manufactured home is

determined as follows:

• if the borrower has owned the traded manufac-

tured home for 12 months or more before the

application date, 90 percent of the retail value

based on the NADA Manufactured Housing

Appraisal Guide®, or if the borrower has owned

the traded manufactured home for less than 12

months before the application date, the maximum

equity contribution is the lesser of 90 percent of

the retail value or the lowest price at which the

manufactured home was sold during that 12-month

period; and

• any costs resulting from the removal of the

manufactured home or any outstanding indebt-

edness secured by liens on the manufactured

home must be deducted from the maximum

equity contribution.

Land equity: If the borrower owns the land on which

the manufactured home is being permanently

attached, the land may be used as an equity contribu-

tion. In such event, the borrower’s equity contribution is

equal to:

• the current appraised value of the land if the bor-

rower has owned the land for 12 months or more

before the application date; or

• the lower of the current appraised value of the land

or the purchase price of the land if the borrower

has owned the land for less than 12 months.

Underwriting: Loans secured by manufactured housing

must be submitted to Loan Product Advisor®.

Delivery fee: Manufactured Home Mortgage loans

have a fee of 1 percent in addition to the standard fees.

Potential Benets

• The Manufactured Home Mortgage program may

allow a community bank to expand its customer

base in low- and moderate-income communities.

Manufactured housing is the country’s largest

source of unsubsidized affordable homeownership

and an opportunity for lenders to expand into new

market segments.

• Manufactured homes have improved signicantly

in quality, energy efciency, and safety while

remaining much more affordable than site-built

housing if borrowers have access to mortgage

credit. Lenders can therefore make long-term real

estate mortgages secured by manufactured homes

with less risk.

• Loans originated through the Manufactured

Home Mortgage program may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

Potential Challenges

• Freddie Mac will not purchase mortgages secured

by manufactured homes on leased land. This

is a common form of land tenure for manufac-

tured homes.

• Depending on state law, manufactured homes may

be considered personal property.

• The home must not have been previously installed

on another site.

• Freddie Mac charges a 1 percent additional deliv-

ery fee for loans secured by manufactured housing.

• Lenders must have a way to access Freddie Mac

programs, whether through direct sales or a cor-

respondent arrangement, as discussed in the

introduction to this section. Depending on the

arrangement, community banks may need to

acquire or develop new expertise and infrastruc-

ture in order to participate.

153 | FDIC | Affordable Mortgage Lending Guide

SIMILAR PROGRAMS

• Fannie Mae Standard Manufactured Housing Loan

• FHA Manufactured Home Loan Insurance

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Frequently Asked Questions about Manufactured Housing [Prosperity NOW]

https://prosperitynow.org/faqs

Titling Homes as Real Property Guide [Prosperity NOW]

https://prosperitynow.org/resources/titling-homes-real-property-resource-guide

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

Delivery fees including Manufactured Housing

http://www.freddiemac.com/singlefamily/pdf/ex19.pdf

FDIC | Affordable Mortgage Lending Guide | 154

FREDDIE MAC

Relief Renance

/Home Affordable Renance Program (HARP)

Helps responsible borrowers with little or no home equity renance into

more affordable mortgages

BACKGROUND AND PURPOSE

The purpose of the Relief Renance

/Home

Affordable Renance Program (HARP) is to help bor-

rowers with little or no equity in their homes renance

into more affordable mortgages. HARP is for borrow-

ers whose loans are owned by Freddie Mac or Fannie

Mae. HARP targets borrowers with high loan-to-value

(LTV) ratios and who have limited delinquencies over

the 12 months before renancing. Changes possible

through HARP include lower interest rates, shorter loan

terms, or changing from an adjustable to a xed-rate

mortgage. HARP guidelines have been simplied and

relaxed over the life of the program, meaning that even

people who were previously turned down may now be

eligible for HARP renancing. For example, in 2011,

the LTV ceiling was removed for xed-rate mortgages,

property appraisal requirements were waived in certain

circumstances, certain risk fees for borrowers selecting

shorter amortization terms were eliminated, and cer-

tain representations and warranties were waived. In

2013, the eligibility date was changed from the date

the loan was acquired by Freddie Mac or Fannie Mae

to the date on the note, increasing the pool of eligi-

ble borrowers.

HARP was introduced in March 2009 to address the

decline in home values that occurred over the pre-

vious few years. HARP must be renewed annually

by Congress.

BORROWER CRITERIA

Original loan requirements: The loan must be owned

or guaranteed by Freddie Mac (e.g., no Fannie Mae,

VA, FHA, or USDA loans).

PROGRAM NAME

Relief Renance

/Home Affordable Renance Program

AGENCY

Freddie Mac

EXPIRATION DATE

December 31, 2018. Congress must renew annually.

APPLICATIONS

No program-specic application is required. For information on becoming a Freddie Mac seller,

see http://www.freddiemac.com/singlefamily/doingbusiness/

WEB LINK

http://www.harp.gov

CONTACT

INFORMATION

[email protected] (ask for a call back in your email)

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National. HARP tracks the number of eligible loans by state and MSA. Information is

available quarterly at http://www.harp.gov/Default.aspx?Page=363

155 | FDIC | Affordable Mortgage Lending Guide

Age of loan: The original loan must have been originated on or before

May 31, 2009.

Loan-to-value limits: The original loan must be above 80 percent LTV,

with no upper limit on LTV for xed-rate mortgages.

Delinquency: No late mortgage payments in the last six months, no

more than one 30-day late payment in the last 12 months.

Income limits: This program has no income limits.

Credit: The minimum credit score for a one- to four-unit primary resi-

dence is 660.

Occupancy and ownership of other properties and property type:

HARP renances may be performed on primary residences, investment

properties, and second homes (single units only).

Special populations: No benet is conferred by being a member of a

special population.

Property type: Single-family homes of one- to four-units, manufactured

homes, planned unit developments, and condominiums are allowed.

Units in cooperatives are permitted if allowed by the cooperative’s

sales documents.

LOAN CRITERIA

Loan limits: FHFA publishes Freddie Mac’s conforming loan limits annu-

ally. See Resources for a link to the current limits. Certain high-cost areas

are also taken into consideration.

Original loan requirements: The loan must be owned or guaranteed by

Freddie Mac.

Adjustable-rate mortgages: 5/1, 7/1 and 10/1 ARMs are allowed but

must result in a principal and interest reduction if renancing from a

xed-rate mortgage. LTV is capped at 105 percent.

Post-settlement delivery fee: For primary residences with LTV ratios

greater than 80 percent, Freddie Mac caps the delivery fee at zero per-

cent for loans with terms less than 20 years, and 0.75 percent for loans

with terms of more than 20 years.

Mortgage insurance: For an LTV ratio greater than 80 percent:

• If the mortgage being renanced has mortgage insurance coverage,

then the same mortgage insurance coverage percentage must be

maintained or the standard coverage applies.

• If the mortgage being renanced does not have mortgage insur-

ance, then no mortgage insurance coverage is required.

POTENTIAL BENEFITS

Lenders do not need to perform

new underwriting or review new

appraisals in most cases.

Freddie Mac has reduced the

fees it charges lenders that help

borrowers refinance into less

risky, shorter-term loans.

POTENTIAL CHALLENGES

This program has several bar

riers to being a source of new

business. Eligible properties

are concentrated in a few mar

kets. Also, if borrowers are

going through a new lender, the

lender will need to perform a

new appraisal and underwriting,

eliminating the processing effi

ciencies offered by the program.

If payments are going up by more

than 20 percent, requalification is

necessary, meaning more work

for lenders assisting borrow

ers who are making substantial

changes to their mortgages.

FDIC | Affordable Mortgage Lending Guide | 156

Fees: For xed-rate loans with LTV ratios greater than

80 percent, Freddie Mac’s fee is zero percent on loans

with terms less than 20 years, with a 0.75 percent cap

on loans with terms of more than 20 years.

Underwriting: Loans must be fully underwritten using

Loan Product Advisor® or manual underwriting.

Appraisal: Either Home Value Explorer® (HVE) or a

full new appraisal can be used to determine collateral

value. See Guide Section B24.3(g) for detailed require-

ments on the use of HVE.

Potential Benets

• Lenders do not need to perform new underwriting

or review new appraisals in most cases.

• Freddie Mac has reduced the fees it charges lend-

ers that help borrowers renance into less risky,

shorter-term loans.

• Lenders now need less paperwork for income

verication, and have the option of qualifying a

borrower by documenting that the borrower has at

least 12 months of mortgage payments in reserve.

• If lenders underwrite a HARP loan they did not ini-

tially underwrite, the reps and warrants on the loan

will sunset in 12 months rather than 36 for other

Freddie Mac products.

Potential Challenges

• This program has several barriers to being a source

of new business. Eligible properties are concen-

trated in a few markets. Also, if borrowers are going

through a new lender, the lender will need to per-

form a new appraisal and underwriting, eliminating

the processing efciencies offered by the program.

• If payments are going up by more than 20 percent,

requalication is necessary, meaning more work

for lenders assisting borrowers who are making

substantial changes to their mortgages.

• Congress must annually extend the program.

SIMILAR PROGRAMS

• Fannie Mae Re Plus™/Home Affordable Renance

Program (HARP)

• FHA Streamline Renance

157 | FDIC | Affordable Mortgage Lending Guide

RESOURCES

Direct access to the following web links can be found at https://www.fdic.gov/mortgagelending.

Delivery fees

http://www.freddiemac.com/singlefamily/pdf/ex19.pdf

Find out if Freddie owns the loan

https://ww3.freddiemac.com/loanlookup/

Program guidelines: See Chapter 24.3 of Freddie Mac’s Seller/Servicer Guide FAQs.

http://www.freddiemac.com/singlefamily/factsheets/sell/relief_re_faqs.html

About Loan Product Advisor®

http://www.freddiemac.com/loanadvisorsuite/loanproductadvisor/

About Home Value Explorer®

http://www.freddiemac.com/hve/hve.html

FHFA Conforming loan limits

http://www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx

FDIC | Affordable Mortgage Lending Guide | 158

FDIC’s Community Affairs Program

The FDIC’s Community Affairs Program supports the

FDIC’s mission to promote stability and public con-

dence in the nation’s nancial system by encouraging

economic inclusion and community development

initiatives that broaden access to safe and affordable

credit and deposit services from insured depository

institutions, particularly for low- and moderate-

income (LMI) consumers and small businesses.

To accomplish this work, the FDIC:

• provides information and technical assistance

to banks to assist them in responding to the

credit and banking needs of the communities

they serve, including low- and moderate-

income people;

• convenes banks, state and local governments,

and community-based organizations to explore

resources and promising practices on a variety

of topics;

• develops and disseminates nancial education

tools for all ages to banks, teachers, parents,

emerging small businesses, and nonprot train-

ing organizations; and

• supports pilot programs and alliances to expand

nancial capability and economic inclusion.

For low- and moderate-income consumers and small

business owners, access to the mainstream banking

system provides an important pathway to economic

opportunity. Over time, the establishment of a suc-

cessful relationship with a depository institution can

help manage day-to-day needs and build wealth to

achieve future goals.

Broad participation in the mainstream nancial system

is an essential element in promoting stability and con-

dence in that system. Banks build trust and condence

through their ongoing work to serve their communi-

ties and by offering fair, safe, and affordable services,

including for low- and moderate-income people. The

FDIC’s Community Affairs staff is available to assist

nancial institutions in developing strategies that are

responsive to the credit, service, and investment needs

of their communities.

159 | FDIC | Affordable Mortgage Lending Guide

FDIC REGIONAL AND AREA OFFICES

Atlanta Regional Ofce

10 Tenth Street, NW, Suite 800

Atlanta, GA 30309-3906

Phone: (678)916-2200 (main switchboard)

Phone: (800) 765-3342 (toll-free)

Email: ATLCommunityAf[email protected]

States Served: Alabama, Florida, Georgia, North

Carolina, South Carolina, Virginia, West Virginia

Chicago Regional Ofce

300 South Riverside Plaza, Suite 1700

Chicago, IL 60606-3447

Phone: (312) 382-6000 (main switchboard)

Phone: (800) 944-5343 (toll-free)

Email: CHICommunityAf[email protected]

States Served: Illinois, Indiana, Kentucky, Michigan,

Ohio, Wisconsin

Dallas Regional Ofce

1601 Bryan Street, 35th Floor Dallas, TX 75201-4586

Phone: (214) 754-0098 (main switchboard)

Phone: (800) 568-9161 (toll-free)

Email: DAL[email protected]

States Served: Colorado, New Mexico, Oklahoma,

Texas, Arkansas, Louisiana, Mississippi, Tennessee

Dallas Region – Memphis Area Ofce

6060 Primacy Parkway, Suite 300

Memphis, TN 38119-5770

Phone: (2901) 685-1603 (main switchboard)

Phone: (800) 210-6354 (toll-free)

Email: MEMCommunityAf[email protected]

States Served: Arkansas, Louisiana,

Mississippi, Tennessee

Kansas City Regional Ofce

1100 Walnut St, Suite 2100 Kansas City, MO 64106

Phone: (816) 234-8000 (main switchboard)

Phone: (800) 209-7459 (toll-free)

Email: KSCommunityAf[email protected]

States Served: Iowa, Kansas, Minnesota, Missouri,

Nebraska, North Dakota, South Dakota

New York Regional Ofce

350 Fifth Avenue, Suite 1200 New York, NY 10118

Phone: (917) 320-2500 (main switchboard)

Phone: (800) 334-9593 (toll-free)

Email: NYCommunityAf[email protected]

States and Territories Served: Delaware, District

of Columbia, Maryland, New Jersey, New York,

Pennsylvania, Puerto Rico, Virgin Islands, Connecticut,

Maine, Massachusetts, New Hampshire, Rhode

Island, Vermont

New York Region – Boston Area Ofce

15 Braintree Hill Ofce Park Braintree, MA

02184-8701

Phone: (781) 794-5500 (main switchboard)

Phone: (866) 728-9953 (toll-free)

Email: BOSCommunityAf[email protected]

States Served: Connecticut, Maine, Massachusetts,

New Hampshire, Rhode Island, Vermont

San Francisco Regional Ofce

25 Jessie Street at Ecker Square, Suite 1800 San

Francisco, CA 94105-2780

Phone: (415) 546-0160 (main switchboard)

Phone: (800) 756-3558 (toll-free)

Email: SFCommunityAf[email protected]

States and Territories Served: Alaska, Arizona,

California, Guam, Hawaii, Idaho, Montana, Nevada,

Oregon, Utah, Washington, Wyoming

FDIC | Affordable Mortgage Lending Guide | 160

Glossary & Terms

ACRONYMS

AMI: Area median income

ARM: Adjustable-rate mortgage

AUS: Automated underwriting system

BEA: Bank Enterprise Awards (U.S. Department of

the Treasury)

BIA: Bureau of Indian Affairs

CAM: Customer Account Manager (Fannie Mae)

CDFI: Community Development Financial Institution

CDFI Fund: Community Development Financial

Institutions Fund (U.S. Department of the Treasury)

CMF: Capital Magnet Fund (U.S. Department of

the Treasury)

CRA: Community Reinvestment Act

DTI: Debt-to-income ratio

DU: Desktop Underwriter® (Fannie Mae)

FDIC: Federal Deposit Insurance Corporation

FHA: Federal Housing Administration

FHFA: Federal Housing Finance Agency

FHLBanks: Federal Home Loan Banks

GSEs: Government-sponsored enterprises (refers to

Fannie Mae and Freddie Mac)

HARP: Home Affordable Renance Program

HUD: U.S. Department of Housing and

Urban Development

LLPA: Loan-level price adjustment

LTV: Loan to value

MBS: Mortgage-backed security

MOU: Memorandum of understanding

OCC: Ofce of the Comptroller of the Currency (U.S.

Department of the Treasury)

PFIs: Participating Financial Institutions (FHLBanks)

PMI: Private mortgage insurance

REO: Real estate owned

UFMIP: Upfront mortgage insurance premium

USDA: U.S. Department of Agriculture

VA: U.S. Department of Veterans Affairs

TERMS

Adjustable-rate mortgage (ARM): A mortgage loan

with an interest rate on the note that is periodically

adjusted based on an index that reects the cost to the

lender of borrowing on the credit markets. Most ARMs

permitted in programs covered in this Guide are hybrid

ARMs that have an initial xed-rate period; the periodic

adjustments begin at the end of the xed period. ARMs

may have restrictions, or cap rates, on the amount of

the rst, periodic, and lifetime total changes in the

interest rate.

Aggregator: An entity that purchases mortgages from

loan originators and typically securitizes them into

mortgage-backed securities that are then sold to the

secondary mortgage market.

Appraisal: A valuation of real estate by an authorized

person who observes, analyzes, and reports the physi-

cal and economic characteristics of the property. The

estimate is limited to readily observable conditions; the

observations on which it is based are not as compre-

hensive as a licensed home inspection.

161 | FDIC | Affordable Mortgage Lending Guide

Approved lender: Lenders that apply for and meet

requirements established by the entity (i.e., the Federal

Housing Administration, U.S. Department of Housing

and Urban Development, the U.S. Department of

Veterans Affairs, the U.S. Department of Agriculture,

and the government-sponsored enterprises) are

granted permission to participate in the entity’s pro-

grams. Approved activities may include origination,

underwriting, purchasing, holding, servicing, or selling

mortgages. Common eligibility requirements include a

net worth threshold, a checklist of nancial statements,

and a quality control program.

Approved seller/servicer: An institution approved

to sell mortgages to, and to service mortgages pur-

chased by the entity (i.e., Fannie Mae or Freddie Mac).

Common eligibility requirements include a net worth

threshold, a checklist of nancial statements, and a

quality control program.

Area loan limits: Entities establish the maximum loan

that can be insured, purchased, or guaranteed by the

entity or program. Limits are based on median home

values at the county level and entities typically update

limits annually. For example, the Federal Housing

Finance Agency (FHFA) sets “conforming loan limits”

for the government-sponsored enterprises, the Federal

Housing Administration sets “statutory loan limits” for

approved lenders, the U.S. Department of Agriculture

has “area loan limits,” and the U.S. Department of

Veterans Affairs follows FHFA guidelines.

Automated underwriting system (AUS): A computer

generates a loan underwriting decision based on

borrower data and algorithms. Compared to manual

underwriting, which can take as long as 60 days, the

automated process provides a quick decision and

avoids human bias. Entities create systems tailored to

their programs; for example, Fannie Mae developed

Desktop Underwriter®, and Freddie Mac uses Loan

Product Advisor®.

Base loan-to-value ratio: The loan-to-value (LTV) ratio

calculated using the mortgage amount excluding

the nanced mortgage insurance premium. (This is

in contrast to the gross LTV ratio, which includes the

mortgage amount and nanced mortgage insurance

premium.) Fannie Mae and Freddie Mac use the base

LTV ratio to determine the mortgage insurance cover-

age amount.

Basis points: A basis point is one hundredth of 1 per-

cent. That is, one basis point equals 0.01 percent or

there are 100 basis points in 1 percent. It is a common

unit of measure for interest rates.

Buy-down funds: Funds offered by the seller of the

property, typically a builder or developer, to the buyer

to lower the interest rate in the early years of the loan.

Cash-out renance: A renance transaction in which

the new mortgage amount is greater than the existing

mortgage plus loan settlement costs. The borrower

receives a cash payment for the difference between

the two mortgage amounts minus any settlement costs

not paid out of pocket. (See also Limited cash-out

renance.)

CDFI Fund distressed community: The CDFI Fund

denes distressed communities based on geographic

and economic criteria. At least 30 percent of the eligi-

ble residents must have incomes less than the national

poverty level, and the unemployment rate must be

at least 1.5 times greater than the national average.

The area must have a population of at least 4,000 if

within a Metropolitan Statistical Area (MSA). If not in

an MSA, it must have a population of at least 1,000.

Alternatively, the area must be located entirely within

an Indian Reservation.

Certicate of Eligibility (COE): Veterans must meet

eligibility requirements and obtain a Certicate of

Eligibility from the U.S. Department of Veterans Affairs

(VA) to be eligible for a VA Home Loan. The certicate

veries to the lender that the borrower is eligible for a

VA-backed loan.

Chattel loan: Chattel refers to moveable property.

Manufactured homes titled as personal property are

nanced through loans on personal property known as

chattel loans. The lender holds a lien against the manu-

factured home only, the land is not encumbered.

Closing costs: Fees incurred by the borrower and/

or seller for costs associated with the closing transac-

tion. Common fees include appraisal fees, tax service

provider fees, title insurance, government taxes, and

prepaid expenses such as property taxes and home-

owner’s insurance. Fees are generally paid up front at

closing or the lender may roll them into the mortgage,

resulting in higher monthly payments.

FDIC | Affordable Mortgage Lending Guide | 162

Combined loan to value ratio (CLTV): A ratio calculated

by dividing the sum of (1) the loan amount of the rst

mortgage, (2) the outstanding principal balance of any

home equity loan, and (3) the unpaid principal bal-

ance of all other subordinate nancing, by the lesser

of the sales price or the appraised value of the prop-

erty. The CLTV ratio is used for a mortgage loan where

the borrower has taken out more than one loan for

the property.

Community land trust (CLT): A nonprot housing

development organization that acquires parcels of

land (with or without housing on the parcel) and holds

them in perpetuity primarily under long-term ground

leases to provide permanently affordable housing

opportunities for low- and moderate-income fami-

lies and communities. At the time of purchase, the

owner of a CLT property agrees to sell the home at a

resale-restricted and affordable price to another lower-

income homebuyer in the future. The nonprot board

is governed by CLT residents, community residents,

and public representatives.

Conforming loan: A conventional mortgage loan

that has an original loan amount not exceeding the

government-sponsored enterprise (GSE) conforming

loan limit at the time a GSE purchased or securitized

the mortgage. The GSEs are restricted by law to pur-

chasing mortgages with origination balances below a

specic amount, known as the conforming loan limit. In

addition to size limits, the conforming loan must meet

the GSE’s underwriting and documentation standards.

Conventional loan: A mortgage that is not insured or

guaranteed by a federal government agency, i.e., the

Federal Housing Administration, U.S. Department of

Housing and Urban Development, the U.S. Department

of Veterans Affairs, the U.S. Department of Agriculture,

and the Bureau of Indian Affairs. Conventional loans

include both loans that conform to government-

sponsored enterprise (GSE) guidelines and those that

do not conform. Conventional mortgages delivered to

the GSEs are also known as conforming mortgages.

Correspondent lender: A lending institution that

originates and funds loans in its own name and then

sells them to another lender or investor. The under-

writing function in a correspondence relationship can

be carried out by the correspondent or the investor.

As a correspondent lender, the originating lender is

acting as an extension of the investor. For example,

correspondent lenders work with approved seller/ser-

vicers to originate government-sponsored enterprise

loan products.

Cost basis: For real estate, the cost basis includes the

original purchase price and certain other expenses like

real estate taxes owed by the seller, settlement fees,

and closing costs plus any improvements to the prop-

erty (but not maintenance costs).

Direct endorsement authority: Authority granted to

Federal Housing Administration (FHA) approved lend-

ers that allow them to underwrite loans and determine

their eligibility for FHA mortgage insurance without the

prior approval of HUD.

Discount points: Prepaid interest that borrowers can

pay at loan origination to lower the amount of inter-

est they have to pay in the future. Each discount point

costs 1 percent of total loan amount and lowers the

interest rate by 1/8 to 1/4 percentage point. Lenders

benet by receiving cash up front instead of waiting for

it in future interest payments.

Down payment: A payment made in cash at the onset

of the purchase of an asset; the balance of the asset is

nanced. Homebuyers typically make down payments

that equal 5–25 percent of the total value of a home

although some federal and GSE programs allow lower

down payments.

Equity investment: Investment capital is used to buy

or hold shares of a company. In the case of a nonprot

entity, “unrestricted net assets” on the balance sheet

are the equivalent of equity. The major feature of

equity — in contrast to debt — is that there is no obliga-

tion on the part of the rm to repay the investment or

use it for specic purposes or, usually, to pay interest

on it.

Escrow: In general, escrow is money held by an impar-

tial third party that disburses the funds after specied

conditions are met. The lender establishes the account

to pay for property-related expenses like property

taxes and homeowner’s insurance on behalf of the bor-

rower; the borrower pays into the escrow in monthly

installments. Certain federal programs require lenders

to maintain escrow accounts.

163 | FDIC | Affordable Mortgage Lending Guide

Extended buy down: The lender offers the borrower

an initial interest rate that is lower than the note rate

by up to 3 percentage points. The interest rate is then

increased by no more than 1 percentage point annu-

ally for more than two but no more than three years.

This gives the borrower lower initial payments and the

stability of predictable payment increases.

FHA loan correspondent: A nancial institution

approved by the Federal Housing Administration (FHA)

to originate and submit applications for guaranteed

mortgages; the institution may not hold, purchase, or

service guaranteed mortgages. A loan correspondent

may be either a supervised or a non-supervised institu-

tion. A loan correspondent that is also a supervised

institution may service guaranteed mortgages in its

own portfolio. Non-supervised loan correspondents, or

mortgage brokers, are non-depository nancial enti-

ties that have as their principal activity the origination

of FHA-insured mortgages for sale or transfer to one or

more sponsors that underwrite the mortgages.

FICO score: A type of credit score that lenders use to

assess a borrower’s credit risk. FICO stands for Fair

Isaac Corporation, the company that created the FICO

score. Scores are calculated using borrower credit

reports and range from 300 to 850. A lower score

indicates the borrower has poorer credit, and a higher

score indicates the borrower has stronger credit.

First mortgage: A mortgage in the rst-lien position

that has priority over all other liens or claims in the

event of default.

Fixed-rate mortgage: The interest rate is dened when

the borrower takes out the mortgage and does not

change over the loan term.

Funding fee: Generally, veterans using a U.S.

Department of Veterans Affairs (VA) guaranty loan

must pay a funding fee. It is a percentage of the loan

amount that varies based on the type of loan, military

category, rst-time loan user status, and existence of a

down payment. VA funding fees may be nanced with

the mortgage or paid in cash at closing. Veterans with a

service-connected disability are exempt from the fund-

ing fee.

Ginnie Mae: Short for the Government National

Mortgage Association. Ginnie Mae guarantees timely

payments on mortgage-backed securities (MBS)

backed by federally-insured loans including those

insured by the U.S. Department of Veterans Affairs,

Federal Housing Administration, U.S. Department

of Agriculture’s Rural Development, and the U.S.

Department of Housing and Urban Development

Ofce of Public and Indian Housing.

Guarantee fee: Fee charged to compensate second-

ary market purchasers for providing a guarantee on a

mortgage-backed security. Guarantee fees are struc-

tured as a percentage of the total loan amount.

Guaranteed Underwriting System (GUS): The

automated underwriting system used by the U.S.

Department of Agriculture (USDA). It is optional at

the time of this writing, but USDA expects to con-

tinue development and eventually make it required.

Otherwise, loans for USDA programs are underwrit-

ten manually.

Homeownership Center (HOC): The U.S. Department

of Housing and Urban Development (HUD) central-

izes many of the mortgage-insuring processes into

four HOCs that each supports a specic geographic

area. Each HOC insures single-family Federal Housing

Administration (FHA) mortgages, assures FHA mort-

gage quality, and oversees the selling of HUD homes

for the states in its jurisdiction. The four HOCs are in

Atlanta, Philadelphia, Denver, and Santa Ana.

Housing authorities: A legal entity authorized by a

state to provide housing strategies for its communities,

including management of public housing. Housing

authorities are required to follow federal regulations

and receive subsidies from the U.S. Department of

Housing and Urban Development. There are over

3,200 housing authorities across the country.

Hybrid adjustable-rate mortgages: A mortgage that

blends characteristics of xed- and adjustable-rate

mortgages. The mortgage has an initial xed inter-

est rate. At the end of the xed-rate period (the “reset

date”), the interest rate adjusts based on an index

plus a margin. These mortgages are often advertised

as 3/1 or 5/1 ARMs: the rst number indicates how

long the xed-rate period is and the second number

indicates the frequency with which the rate may sub-

sequently be adjusted. For example, a 3/1 ARM has a

three-year, xed-rate period after which its rate may be

adjusted annually.

FDIC | Affordable Mortgage Lending Guide | 164

Interest Rate Reduction Renancing Loan (IRRRL): A

loan made to renance an existing U.S. Department of

Veterans Affairs (VA) loan. Renancing to a lower inter-

est rate means the borrower’s monthly payment will

decrease. The borrower can also choose to renance

an adjustable-rate mortgage to a xed-rate loan.

Investing lender: A nancial institution, including a

charitable or nonprot organization or pension fund,

that is approved by the Federal Housing Administration

(FHA) to purchase, hold, or sell FHA-insured mort-

gages. This mortgagee type may only service

FHA-insured mortgages if it receives prior approval to

do so on a case-by-case basis, and cannot originate or

fund FHA loans.

Land-lease community: Residential land-lease permits

a tenant to use a piece of land owned by the landlord

in exchange for rent. Land leases are almost exclusively

used for manufactured home communities,” with the

exception of land leases known as ground rents that

are used for site-built properties in certain states.

Lien: A claim or charge against property or funds for

payment of a debt, or an amount owed for services

rendered. In real estate, a mortgage is regarded as a

lien. If not repaid, the debt can be recovered by fore-

closure and sale of the real estate.

LIBOR: Short for London Interbank Offered Rate. A

benchmark interest rate that banks use to charge each

other for short-term loans. Based on ve currencies —

the U.S. dollar, Euro, pound sterling, Japanese yen, and

Swiss franc — it serves seven different maturities: over-

night, one week, and 1, 2, 3, 6, and 12 months. LIBOR is

scheduled to be phased out by 2021.

Limited buy down: The lender offers the borrower an

initial interest rate that is no more than 2 percentage

points below the note rate and is increased by no more

than 1 percentage point annually for no more than two

years. This option is a good t for borrowers who have

the capacity for higher earnings within a few years of

obtaining a mortgage. It gives the borrower lower ini-

tial payments and the stability of predictable payment

increases. Fannie Mae and Freddie Mac specify when

this practice is acceptable, and it varies by program.

(See also Extended buy-down.)

Limited cash-out renance: A renance transaction

in which the mortgage amount generally is limited to

the sum of the unpaid principal balance of the exist-

ing rst mortgage, closing costs (including prepaid

items), points, and the amount required to satisfy any

mortgage liens if the documented proceeds of the

subordinate nancing were solely used to acquire

the property if the borrower chooses to satisfy them,

and other funds for the borrower’s use as long as the

amount does not exceed the lesser of $2,000 or 2 per-

cent of the principal amount of the new mortgage. This

denition applies to Fannie Mae mortgage programs.

(See also Cash-out renance.)

Loan-level price adjustment (LLPA): Risk-based pricing

adjustments that vary based on credit score, loan-to-

value ratio, type of product, and various other factors,

charged at the time of origination. Fannie Mae and

Freddie Mac charge both annual guarantee fees and

upfront LLPAs. Most lenders convert LLPAs into the

interest rate on the mortgage, which the borrower pays

over time. (See also Guarantee fee.)

Loan limit: The maximum allowable mortgage amount

under a particular program established by the federal

agency or government-sponsored enterprise (GSE),

generally according to statutory parameters. For

example, the Federal Housing Finance Agency (FHFA)

sets “conforming loan limits” for the GSEs, the Federal

Housing Administration sets “statutory loan limits” for

approved lenders, the U.S. Department of Agriculture

has “area loan limits,” and the U.S. Department of

Veterans Affairs (VA) follows FHFA guidelines.

Loan-to-value (LTV) ratio: A ratio that compares the

amount of the rst mortgage with the appraised value

of the property. It is calculated by dividing the loan

amount by the value of the property. The higher the

down payment, the lower the LTV.

Low- and moderate-income (LMI) communities: Low-

income geographies have a median family income less

than 50 percent of the area median income. Moderate-

income geographies are those whose median family

income is at least 50 percent but less than 80 percent

of the area median income. Banks regulated under the

Community Reinvestment Act are evaluated on how

well they meet the credit needs of low- and moderate-

income communities.

165 | FDIC | Affordable Mortgage Lending Guide

Manual underwriting: Instead of using an automated

system, a loan ofcer evaluates a borrower’s risk by

calculating the various ratios and analyzing other

factors. It generally takes longer to process a loan

application using manual underwriting, but there is the

opportunity for greater exibility in evaluating the bor-

rower’s creditworthiness.

Manufactured home: A structure that is transport-

able in one or more sections. In traveling mode, it

must be 8 feet or more wide, or 40 feet or more long.

When the structure is erected on site it must be 320 or

more square feet, built on a permanent chassis, and

designed to be used as a dwelling (with or without a

permanent foundation) when the required utilities are

connected. Required utilities include plumbing, heat-

ing, air conditioning, and electrical systems contained

in the structure. Structures cannot be self-propelled

recreational vehicles. The manufactured home must

be built in compliance with Federal Manufactured

Home Construction and Safety Standards per U.S.

Department of Housing and Urban Development

(HUD) regulations. Proof of compliance is evidenced

by a HUD Data Plate afxed visibly and permanently to

the home.

Mortgage broker: A company that matches borrowers

and lenders and charges a commission for the ser-

vice. A mortgage broker typically takes the borrower’s

application and sometimes processes the loan. Unlike

a mortgage lender, a mortgage broker does not use its

own funds to close the loan.

Mortgage insurance: An insurance policy paid for by

the borrower to cover the government insurer’s (FHA,

VA or USDA) cost of insuring the loan against losses. In

the event of foreclosure, the insurer pays a set amount

to the lender to cover some or all of the outstanding

loan balance. Mortgage insurance should be distin-

guished from hazard insurance, which a homeowner

purchases to cover losses from, for example, re

or theft.

Mortgage insurance premium (MIP): The term used for

mortgage insurance payments on a Federal Housing

Administration loan. On an FHA 203(b) loan, borrowers

are assessed an upfront mortgage insurance premium

(UFMIP) that is typically included in the loan amount as

well as an annual MIP that is paid out in monthly install-

ments throughout the life of the loan.

Mutual Mortgage Insurance Fund (MMIF): Federal

Housing Administration (FHA) approved lenders are

protected by the Mutual Mortgage Insurance Fund in

the event a borrower defaults. The MMIF is nanced

through the premiums paid by mortgage borrowers for

FHA mortgage insurance.

Non-supervised lender: This term is used in the context

of the FHA program to refer to a lending institution —

but not an insured depository — that has as its principal

activity the lending or investing of funds in mortgages,

consumer installment notes, or similar advances of

credit, or the purchasing of consumer installment

contracts. Such lenders can be approved as Federal

Housing Administration (FHA) lenders to originate,

underwrite, close, endorse, service, purchase, hold, or

sell FHA-insured mortgages.

Principal, interest, taxes, and insurance (PITI): The four

components of monthly housing expenses. Principal is

the part of the mortgage payment that goes to paying

down the balance of the loan, interest is charged by

the lender for the privilege of borrowing the money,

taxes are to pay property taxes, and insurance includes

property insurance and private mortgage insurance.

Private mortgage insurance (PMI): An insurance

policy that protects lenders against loss if a borrower

defaults on a conventional loan. PMI is required for

government-sponsored enterprise loans with loan-to-

value ratios over 80 percent. Purchasing PMI allows the

borrower to make a smaller down payment.

Reps and warrants: Assertions that the seller makes

in a purchase and sales agreement about the nature

of the loan and which in turn form the basis for due

diligence. If lenders are found to violate reps and war-

rants, secondary market entities may force the lender

to repurchase the loan or may refuse insurance or guar-

antee claims. This is a tool for ensuring loan originators

comply with the credit terms required by the secondary

market entities.

Secondary mortgage market: Market in which pre-

viously issued mortgages and mortgage-backed

securities are traded among lenders and investors.

FDIC | Affordable Mortgage Lending Guide | 166

Sponsor: For the Federal Housing Administration, a

sponsor or sponsored third-party originator relation-

ship is one in which a lender (acting as the sponsor)

permits another entity to originate mortgages on the

lender’s behalf. The sponsor may then buy the loan

upon closing. Sponsors must have direct endorse-

ment authority.

Subordinate lien: A lien other than the rst mortgage

that is satised in the event of default only after liens

that are more senior are paid off. The most common

type of subordinate lien is a second mortgage.

Supervised lender: For the Federal Housing

Administration (FHA), a nancial institution that

is a member of the Federal Reserve System or

whose accounts are insured by the Federal Deposit

Insurance Corporation or the National Credit Union

Administration. A supervised lender may originate,

underwrite, close, endorse, service, purchase, hold, or

sell FHA-insured mortgages.

Temporary interest rate buy down: A mortgage option

to lower the interest rate of the loan from the note rate

by a decreasing amount for a dened period. A typical

buy down, written as a 3-2-1, would reduce the inter-

est rate by 3 percent in the rst year, 2 percent in the

second year, and 1 percent in the third year. (See also

Extended buy down.)

Underserved areas: Federal agencies designate

dened geographic regions (often specic census

tracts) as “underserved” based on median income

and minority population levels for purposes of direct-

ing federal funds to improve the community or for

other purposes, including the assessment of how well

Community Reinvestment Act (CRA) regulated lenders

are meeting their CRA obligations.

167 | FDIC | Affordable Mortgage Lending Guide

Visit FDIC’s Affordable Mortgage Lending Center

at https://www.fdic.gov/mortgagelending

ACKNOWLEDGMENTS

The Federal Deposit Insurance Corporation’s (FDIC’s) Division of Depositor and Consumer Protection (DCP)

created the Affordable Mortgage Lending Guide through its Community Affairs Branch under the guidance of

Elizabeth Ortiz, Deputy Director, Janet Gordon, Associate Director, and Lessie Evans, Section Chief. Sandra Kerr

coordinated the publication with contributions from Surya Sen, Patience Singleton, Cassandra Duhaney, Harriet

Newburger, and Ryan Goodstein, Policy and Research Branch; Valerie Williams, Teresa Perez, and Ron Jauregui,

Community Affairs Branch.

The Urban Institute’s Housing Finance Policy Center served as the contractor for this publication. Laurie Goodman

directed the Housing Finance Policy Center’s research. Other contributors were Karan Kaul, Sonia Garrison, Ellen

Seidman, Taz George, Sheryl Pardo, Bing Bai, Wei Li, Jun Zhu, and Alison Rincon. Design by Christina Friehauf.

171 | Federal Deposit Insurance Corporation

WWW.FDIC.GOV | TOLL FREE: 877-ASK FDIC (877-275-3342) | TDD: 800-925-4618

FDIC-028-2016