The CHFA Loan Process - Revised
CHFA loans are offered through the Connecticut Housing Finance Authority in the State of Connecticut for first-time home buyers, properties for sale in "targeted" census tracts and for other groups of qualified borrowers such as police, teachers and Section 8 recipients. Its loan origination is unique and the following is a step-by-step process of CHFA loans as well as the estimated times for each step. It includes the new steps as required by the MDIA (Mortgage Disclosure Information Act of 2009), 2010 changes to RESPA (Real Estate Settlement Procedures Act) and FHA's adoption of HVCC in 2010 (Home Valuation Code of Conduct.) The steps are written from the standpoint of a correspondent lender or broker. If you are dealing with a direct lender, the steps may vary slightly.
1. Application. This step is not unique and should be completed prior to a buyer begins to look at homes. There is also a CHFA-specific application and CHFA disclosures to review and sign. At this time, the Loan Originator usually collects all necessary paperwork from the buyer including income and asset statements and may run a credit report to check for credit-worthiness. It is also customary for the loan officer to submit the loan information to an online Automated Underwriting System to verify that the buyer qualifies for the loan for which he or she is applying. (Time involved: 1-3 hours)
2. Reserve Funds with CHFA. Once a home is located and the purchase and sale agreement is signed, an online registration form is completed by the broker that CHFA calls the "Reservation of Funds". It generates a loan number for CHFA and locks the interest rate for 120 days. It is important that the reservation of funds is completed PRIOR to the appraisal being done or it causes a problem later down the road which results in delays in processing. (Time: 5 minutes)
3. Generate a case number through FHA Connection. Brokers and lenders use a website called FHA Connection for FHA-related activities. On FHA Connection, the broker generates an FHA Case Number through an online application. The case number appears on a number of forms, including the appraisal, and it is how FHA tracks the loan. The case number should be generated prior to the appraisal being ordered or it can cause delays later in the process.
Also, the broker checks that the buyers, sellers, real estate agents, mortgage broker, loan officer and closing attorney are not on lists that preclude any of the above from using or facilitating the use of an FHA loan. If the property is a condo, the broker verifies whether or not it is part of a HUD-approved complex. (Time: 15-60 minutes)
4. Generate the Lender's TIL (Truth-in-Lending form) and GFE (Good Faith Estimate). The application, itemization of fees and a Mortgage Broker Fee Agreement is sent to the lender with a registration form. The lender generates a Truth-in-Lending form and a Good Faith Estimate based upon this paperwork. If the buyer chooses to receive this information by email, this step ends upon receipt of the email from the lender. If the buyer opts to receive this information by regular mail, the buyer is assumed to have received the forms after 3 days. Before receiving the TIL, the borrower is NOT ALLOWED to pay for anything aside from a credit report fee. (Time: 24-48 hours, then 3 days)
5. Order the appraisal and title work. The broker orders a title commitment from the buyer's closing attorney. The appraisal can be ordered once Step 4 is completed. Due to HVCC, the appraisal is ordered through the lender via an appraisal management company. Since the appraisal is now paid for at the time of the order, the most common way of paying for the appraisal is by the buyer using a credit card. The buyer can also forward the appraisal fee to the broker who can pay via credit card at the time the order is placed. The appraiser inspects the home and generates a report and a statement of estimated value. The report is sent to the lender via the appraisal management company and is available to the broker to download. (Time: 3-10 days)
6. The loan packages are compiled and one package is sent to the lender. Once the appraisal and title are received, two files are put together: one for the lender and one for CHFA. There is overlap between the two files because both are looking for some of the same information but these are two different files. In this step, one is submitted electronically, by overnight mailing or via fax to the lender. (Time: up to 2 days)
7. Lender Underwriting. When the file is received by the lender, it is time-stamped, reviewed for 
completeness and placed in a queue where it waits to be underwritten. Underwriting is a process by where a person called an underwriter reviews the documentation in the file and checks it against the information that was uploaded into the Automated Underwriting System. In some cases, the underwriter reviews the credit of the buyer and other facets of the loan including gift documentation. This is the step that usually takes the longest during the process. (Time: 3-15 business days depending on how busy the lender is.)
8. CHFA Underwriting. Once the loan has been underwritten by the lender, a Conditional Approval is issued by the lender. This approval, along with other paperwork, is added to the second file and it is sent to CHFA for underwriting. CHFA underwrites the file to verify that the buyer qualifies for the CHFA program and/or the DAP (Downpayment Assistance Program.) (Time: 2-7 business days depending on volume)
9. Clearing CHFA conditions. If the file submitted to CHFA is in need of further documentation as required by the CHFA underwriter, a "Missing Exhibits" letter is sent to the broker requesting this documentation. The broker submits the requested paperwork and CHFA issues its commitment to lend. (Time: 1-7 days)
10. Clearing lender conditions. Upon receipt of the CHFA commitment, it and other documentation necessary to satisfy the lender's conditions, if applicable, are sent to the lender for review to clear conditions. If the documentation provided to the lender is not enough to satisfy the underwriter, more paperwork may need to be provided to the lender, which could result in delays. (Time: 24-72 hours to review the conditions once submitted)
11. Clear to Close. If the documentation sent to the lender is sufficient to clear all of the lender's conditions, the file is "cleared to close" and the closing can be scheduled through the attorney's office. Typically, the closing would take place at least 48 hours AFTER the file is cleared to close but this can be delayed if the closing is to take place at the end of the month. (Time: 48-72 hours.)
12. Closing. This is the fun part. At the closing, the buyer signs the loan closing paperwork and receives the deed to the property and THE KEYS! (Time: 1-2 hours)
Now, you may have noticed that there are a few extra steps involved when using a CHFA loan. These should be anticipated when specifying a timeframe for mortgage commitment when completing a purchase and sale agreement. Although I have been able to help buyers purchase with a CHFA loan in 30 days, I am advising the Real Estate agents with whom I work to use a 6-8 week timeframe if the buyer is using a CHFA loan. These steps should NOT be looked at as a deterrent from using the CHFA loan program because the rewards are worth the wait, especially if you don't have sufficient funds to purchase a home but have the ability to afford the monthly payment.
If you are a Real Estate Professional working in Connecticut, you should be aware of these time frames as well. CHFA and the lenders can vary several days or even a week in the underwriting times that are mentioned above depending upon the volume of loans that they have been receiving.
When dealing with CHFA, you want to make sure that you are working with someone who understands the program and the time element involved. I have made it a point to be well-versed in this loan program as it is essential if I am to be an expert in no-money down and Government financing programs.
Please contact me with any questions regarding CHFA or other no-money down mortgage loan programs at eric@righttracfg.com or call me at our home office in Manchester, CT, at 860-647-7701 x13. I will be happy to answer any of your questions.
When it comes to No Money Down Financing, we are the Experts!
Eric Boucher
Government Loan Specialist
Right Trac Financial Group
860-647-7701 x13 Office
860-324-3324 Cell
eric@righttracfg.com
Right Trac is licensed in 8 states: CT, NH, RI, MA, ME, VT, NY and FL
It's been 60 days now since the release of the new Good Faith Estimate and as the loan applications come streaming in, I have heard that Loan Officers and Mortgage Brokers are still struggling with this new form. I heard from a lender's representative the other day that more than 75% of her time is spent helping LO's and Brokers complete this form correctly. To confuse things further, policies vary even between lenders on how to handle this form.
We all better get it right because the 120-day grace period is half-way done.
The most common misconception that I have seen and heard about is the misunderstanding of how YSP (Yield Spread Premium, commission paid to the broker from the lender) is handled. In the past, LO's had the option of collecting fees from the borrower (points), a commission from the lender (YSP) or a combination of the two. With the new form this still happens but it is notated differently on the GFE.
I heard it explained a very simple way and that probably led to my quick understanding of the concept so I will share it.
The YSP is still the YSP although now it is a credit to the borrower not to the broker. So in compiling the figures in the GFE, the broker's fees and lender's fees are lumped together in line 801. The YSP is a credit to the borrower in line 802 and the "Adjusted Origination Charges" is line 803. Line 803 is the portion of the total Origination fees in line 801 that the borrower contributes to the transaction.
According to the law, line 801 CANNOT INCREASE. Lines 802 and 803 can change in either direction with the market or with decisions made by the borrower at the time of rate lock.
What has been confusing for LO's is that in completing the GFE, there is no place for the YSP (paid to the broker) because it no longer goes to the broker in the strictest sense. Instead, the broker must mark his/her fees as either origination or broker fees even if most, if not all, will be paid by the YSP. I have seen LO's create their own line to read "YSP to broker from lender". This is really pointless because no matter what it is called, it's all the same thing: income to the broker. If you remove terminology from the process, it makes more sense.
Let's call the broker fee what it is: The Broker Fee. This is the money that the broker intends to earn for helping to arrange financing. This broker fee can be collected in the same three ways that it used to be: from the borrower, from the lender or a combination of the two. This fee can then be offset by the YSP either entirely or not at all. Regardless of how it is paid, this fee is collected and cannot increase from initial disclosure without a "changed circumstance".
In generating the GFE for my borrowers, I estimate what the YSP will be at the disclosed interest rate given the market at the time it is generated. When it comes time to lock the loan, I direct my borrowers to fetch their GFE and I go through their lock options with them. I describe the YSP as their credit because that it what it is. Then I tell them "if we lock at 5.0%, your credit will be $______ which increases line 803 to $_____. If we lock at 5.25%, your credit will be $_____ which makes line 803 $_________. Which one do you think would be best for you?" And I let them choose.
If the borrower opts for the 5.0% option which increases his Adjusted Origination Charges by the equivalent of one point, then this borrower just opted for a one point loan. If the borrower chooses 5.25%, then he/she opted for a no point loan. If the borrower chooses a higher rate still, the excess is used to pay for other closing costs associated with the loan. In any of these cases, the broker earns the same fee, which is what was disclosed in the first place.
The BEST part is that this way the borrower is the one choosing how much of the broker's fees will be paid by the lender. It gives the borrower the control to determine how much or how little of this fee he/she wants to pay.
It is also helpful to keep in mind that the broker fee is no longer a function of the loan amount as YSP was. Before the new form, brokers could determine that they were going to earn a percentage of a loan. Let's suppose a broker is looking to earn one percent (point) profit on a loan. This means that a $300,000 loan would pay the broker $3000 while a $150,000 loan would earn the broker $1500.
This is no longer the case. If the GFE is drawn up such that the broker is earning one point on a $200,000 loan ($2000) and the borrower takes out a $250,000 loan, the broker still earns what was disclosed: $2000. Conversely, if the broker discloses a fee of $3000 for a $300,000 loan (one point again) and the borrower takes out a $250,000 loan, the broker can still earn what was disclosed: $3000.
To simplify things, it would help to stop thinking of the broker fee as a percentage but, rather, it should be viewed as a flat fee.
Don't forget that we are experts in no-money down and low-money down Government mortgage loan programs. You can email me at eric@righttracfg.com or call me at 860-647-7701 x13. I will be happy to answer any of your questions.
When it comes to No Money Down Financing, we are the Experts!
Eric Boucher
Government Loan Specialist
Right Trac Financial Group
860-647-7701 x13 Office
860-324-3324 Cell
eric@righttracfg.com
Right Trac Financial Group is licensed in 8 states: CT, NH, MA, VT, ME, RI, NY and FL. Our Corporate Headquarters is located in Manchester, CT.
I have heard this several times in the past couple of weeks and will answer it here as it pertains primarily to my home state of Connecticut. Although, this information can be used in many other states as well.
The majority of the condominiums in my neck of the woods are in the $100,000 - $250,000 price range. The buyers in this price range are typically first-time buyers and retirement-age buyers. Let's take them individually.
First-time buyers have only a couple of loan options to chooose from that allow for low-money down and no-money down. In Connecticut, they are FHA (3.5% down), CHFA (0% down) and USDA RD (0% down). VA loans are also available but I wouldn't categorize them as being primarily for first-time buyers. What all three of these loan programs have in common is that they all on run on HUD's approved condominium list.
According to recent changes, these three loan programs cannot be used to finance any unit that is in a condo complex that is not HUD-approved. Until November 2009, FHA and CHFA allowed for "spot approvals". Spot approvals were used to allow FHA and CHFA financing in complexes that were not HUD-approved. The individual units could be approved for financing even if the complex was not.
Now that spot approvals are no longer allowed, complexes that are not HUD-approved rule out first-time buyers who are looking to use FHA, CHFA or USDA financing. This leaves only Conventional loan products and niche-lender financing products. Conventional loans (loans that are ultimately purchased by Fannie Mae or Freddie Mac) require a minimum of a 10% down payment. How many first-time buyers have $10,000 - $25,000 to put down on their first home? When you add in closing costs, we are talking about a minority of first-time buyers.
By not being HUD-approved, the complex is ruling out the majority of first-time buyers. So what, right? Wrong. This could lead to increased marketing times as buyers are tougher to come by. This could also lead to a decrease in the prices of the units in the complex because of the law of supply and demand.
Retirement-age buyers may not be affected in the same way as first-time buyers. Many of these buyers sell their homes to move into a condo for more carefree living, where they don't have to maintain the property's exterior and grounds. In selling their homes, they may have money to purchase in the complex with large down payments or without having to obtain financing at all.
Where it does affect them is if they eventually need to apply for a Reverse Mortgage. The only player for reverse mortgages is FHA. If the condo complex is not on HUD's list, an FHA reverse mortgage cannot be obtained in the complex.
Refinancing with FHA loans is also impossible if the complex is not HUD-approved aside from an FHA-to-FHA Streamline refinance. However, if the unit-owner does not have an FHA loan now or cannot qualify for a Streamline transaction, the loan cannot be done.
There are literally dozens of condo complexes in Enfield, Manchester, South Windsor and Vernon Connecticut that are not FHA-approved but can be. Because FHA allowed "spot approvals" there was no reason previously to become FHA-approved. Now it is imperative as FHA and CHFA loans are in such a high demand.
Many complexes in CT are already HUD-approved. However, if the complex was approved prior to October 1, 2008, they need to get recertified on or before December 7, 2010. As the year progresses, and more and more complexes become aware of the need to get recertified, the processing centers will get bogged down with requests and delays will result.
I offer a service to help complexes to become HUD-approved and to maintain their approvals. I coordinate with the management companies and/or the homeowner's associations to compile the paperwork that HUD needs and oversee the approval process. In addition, I maintain a database of approved complexes and monitor when their approvals expire. This way I can guarantee that their HUD-approvals do not lapse.
If you are a unit owner, seller or are looking to buy in a complex with an FHA, CHFA or USDA loan, please contact me to make sure that your complex is approved. If it is not, I can assist in your complex's approval and to maintain its approval.
Don't forget that we are experts in no-money down and low-money down Government mortgage loan programs. You can email me at eric@righttracfg.com or call me at 860-647-7701 x13. I will be happy to answer any of your questions.
When it comes to No Money Down Financing, we are the Experts!
Eric Boucher
Government Loan Specialist
Right Trac Financial Group
860-647-7701 x13 Office
860-324-3324 Cell
eric@righttracfg.com
This has quickly become a very hot topic as of late although the new condominium guidelines were created and adopted last November. The reason for the delay is that FHA allowed "spot approvals" in non-approved complexes until February 1, 2010. Now spot approvals are no longer allowed. Because of this, financing has become much more difficult to obtain
What has changed?
As mentioned above, FHA does not allow "spot approvals". A spot approval was available to allow FHA financing in a condominium complex that is not on the FHA-Approved list. This made it possible for buyers with low-downpayments to purchase in complexes that were not FHA approved. As of February 1, 2010, this is no longer possible and I have heard of three examples in just the last couple of days where buyers could not obtain financing to purchase a Realtor-friend's condo listing.
Another big change is that during the current year, FHA has created a temporary set of guidelines for condo complex approvals that will sunset on December 31, 2010. After this year, FHA's guidelines for complex approvals will become more difficult.
In addition, complexes will now be required to get re-certified every two years to ensure that the complex continues to meet FHA's guidelines, mainly for insurance and owner-occupancy rates.
As a result of these changes, the Veterans Administration (VA) also released a memo saying that it will no longer be using the FHA Approved Condominiums list. Prior to the FHA changes, the VA also used the approved condo list in determining eligibility for VA financing. CHFA (Connecticut Housing Finance Authority) has also said that they will now ONLY use the FHA list and will not allow for spot approvals either.
Why is this important?
FHA loans constitute nearly half of all mortgages that are being written today. It provides financing for buyers with low-downpayments. Because of the new changes, if the complex isn't approved, an FHA loan cannot be used to finance the units in the complex. If this isn't bad enough, it also rules out CHFA loans and USDA Rural Development loans because both of these loan programs also use the FHA Approved Condo list. This means that if you own a condo in a complex that is not approved, you will have to locate a buyer that is not buying with any of these types of financing. In the $100,000 - $250,000 price range, you could be missing out on as much as 75% of the buyers.
This doesn't only affect buyers, but also homeowners looking to refinance. FHA will allow a "Streamline" refinance without an appraisal on a condo in a complex that is not approved. But any other type of FHA financing, including Reverse Mortgages for seniors, will not be available in non-approved complexes.
What if my complex is approved?
That is great! But unless your complex was approved between October 1, 2008 and today, it will have to get recertified on or before December 7, 2010. As more and more complexes become aware of this, FHA's processing centers will most assuredly become bogged down with approval and re-certification applications as EVERY complex needs to do this.
What if my complex isn't approved?
If you are living in a complex that is not FHA-approved, then buyers who are approved for FHA, CHFA and USDA financing will not be able to purchase your unit. Since the VA also made changes, your complex may not be approved for VA financing either. You will not be able to refinance your unit with any of the loan types mentioned above and that includes not having the ability to obtain a Reverse Mortgage.
The only types of financing available for buyers looking to purchase your unit would be Conventional loans (Fannie Mae and Freddie Mac) which require a minimum of 10% down currently and lenders who offer "hard money" or niche financing. Even Fannie Mae and Freddie Mac have their own condo approval lists that isn't shared with the public.
What do I need to do?
The first step is to contact your condo's association leadership to make sure that they are aware of this. You can direct them to this blog or give them my contact information. In a 2-minute phone call, I can determine whether or not the complex is approvable. If it is, I have the list of paperwork and a questionnaire for the association to complete and I can aid in the approval process.
So, the bottom line is that if your complex is not approved with FHA, it needs to be. And with the lenient temporary guidelines for 2010, there is no better time to do it than the present. With more and more condominium complexes being made aware of the need to become approved or recertified, processing time will increase as the year progresses so it should be done now.
Please contact me with any questions regarding condominium approvals. Don't forget that we are experts in no-money down and low-money down mortgage loan programs. You can email me at eric@righttracfg.com or call me at 860-647-7701 x13. I will be happy to answer any of your questions.
When it comes to No Money Down Financing, we are the Experts!
Eric Boucher
Right Trac Financial Group
860-647-7701 x13 Office
860-324-3324 Cell
eric@righttracfg.com
Many people - from Realtors to consumers to other loan officers - have asked me questions about the new Good Faith Estimate. What does it mean? Do I have to bring this much money to closing? Why is this fee listed here? So, I decided to compile information about the new three-page form that should answer many of the questions that people, especially consumers, may have about the form.
As of January 1, 2010, there have been some major changes to RESPA. The most important of these changes are the new Good Faith Estimate (GFE) and the HUD-1 Settlement Statement (HUD1). The changes make it important for me to quote accurate fees because I will be bound to them. If the fees differ at the closing, I could have to pay the overages out of my own pocket.
There are now three pages to the GFE. Page 1 is a summary page and speaks about the loan, the rate, can the payments change during the life of the loan, etc. Page 2 is a "breakdown" of the fees, charges and credits associated with the loan. I placed breakdown in quotes because the new GFE doesn't detail the fees as much as the old GFE. Page 3 is a comparison page.
What You Need to Know About Page 1:
•- The rate and payment quoted on the GFE expires. The date and time of expiration should be clearly stated in #1 on Page 1. Since the interest rates offered by lenders are highly volatile and can change day-to-day (and also during the day depending on fluctuations in the market) the expiration could be midnight of the current day. This is because we cannot possibly know what interest rates could be tomorrow! If you are dealing with a government program, such as CHFA here in CT, rates are released every Thursday so it would be possible to quote a rate for longer than a day.
•- The other settlement charges are guaranteed for 10 days. This includes attorney fees, transfer fees, title insurance and appraiser fees, among others. There is a built-in tolerance to some of these fees and some do not have a set tolerance for increasing.
•- The Total Estimated Settlement Charges at the bottom could be much higher than you would be expected to pay or bring with you to your closing. This is because it includes fees that you may not be paying out of pocket or even at all. As an example from a loan that I am currently working on, Page 1 of the GFE says that the settlement charges are more than $12,000, however the buyer will bring an estimated $1000 to the closing. Page 2 explains where this number comes from.
What You Need to Know About Page 2:
•- Section A, #1 contains the "Origination Charges" which are the broker's and lender's fees all lumped together. The numbers in this section cannot change without a "changed circumstance". The list of changed circumstances is not very long and includes things like an "act of God" or an "act of terrorism". What this does is bind me and other loan officers to costs that are quoted including pass-through fees such as those paid to the lender. There is ZERO tolerance for increase of these fees.
•- Section A, #2 contains information about the Yield Spread Premium, which is the commission paid by the lender to the broker for originating the loan. This figure is now displayed as a credit to YOU, not to the broker. This makes explaining a "no closing cost" loan easier to do. It is shown in this section to reduce the amount of your origination/lender charges by providing the amount of the Yield Spread as a credit. If points are being paid to the lender for a reduced rate, the amount will show in this section.
•- Section B, #3-7 are subject to a 10% tolerance of the total if I (or the processor) choose the service provider or if you choose the service provider from a list that I give to you. If you choose someone not on the list, their fees are not subject to the tolerance threshold.
•- Section B, #3 will include any up-front mortgage insurance that will be collected for the loan. FHA, VA and USDA all charge up-front mortgage insurance. However, this fee is usually financed into the loan and typically you do not have to bring this amount to the closing. (An example of why the Total of the charges may not be the same as the money needed for closing.)
•- Section B, #8 is for Transfer Taxes and is subject to zero tolerance for increasing. In CT, transfer taxes are typically paid by the seller. However, if you are buying a bank-owned property, the addendum to the Purchase and Sale Agreement could state that you are to pay this fee. If this is not disclosed on the GFE, then I could end up paying for it!
•- Section B, #9-11 are fees that do not have set tolerances because I cannot be expected to maintain control of the costs of these items.
•- The total at the bottom are the total settlement charges and may NOT be the amount you need to bring to closing. Some of the fees in this total may be financed or the seller is paying for them.
What You Need to Know About Page 3:
•- The top section breaks down the tolerances for the fees/charges listed on Page 2. #1, #2 and #8 have a ZERO tolerance for increasing. #3-7 have a 10% tolerance for increasing if I select the service provider or you select the service provider from a list that I give to you. #9-11 do not have set tolerances and can change freely.
•- I think the middle section is a great tool for consumers. It shows the settlement charges of the loan as it is. It also shows what would happen if you selected a higher interest rate to offset some or all of the closing costs. And it illustrates what it would look like if you were to buy down your interest rate by paying points. These three examples are side-by-side for an easy comparison.
•- The bottom section provides an area where a borrower can compare different loan offers. However convenient this may appear, you must still be careful that the numbers that you are comparing - especially pertaining to the closing costs - are accurate.
Granted, some of the above can be confusing but for someone with a good grasp of how this new form works, I can easily explain through the confusion so you completely understand the form.
If you are confused about a Good Faith Estimate that you have received, please feel free to contact me at eric@righttracfg.com or call me at the office at 860-647-7701 x13. I would be happy to work with you so that you understand what the GFE says.
When it comes to No Money Down Financing, we are the Experts!
Eric Boucher
Right Trac Financial Group
860-647-7701 x13 Office
860-324-3324 Cell
eric@righttracfg.com
Formerly an FHA loan originator, I consult to condominium associations to aid them in obtaining and maintaining their HUD/FHA approvals.
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