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HomeMy WebLinkAboutR22-Economic Development Agency ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO FROM: Maggie Pacheco, Director Housing and Community Development SUBJECT: REVIEW LETTER FROM SCOTT MAUNEY, UNDERWRITER, FOR MORTGAGE ASSISTANCE PROGRAM (MAP) DATE: July 30, 2001 o h : ". .. "I~ L SvnoDsis of Previous Commission/Council/Committee Actionls): On July 26,2001, the Redevelopmenl Committee recommended that this item be sent to the Community Development Commission for acceptance and filing. Recommended Motionls): lCommnnitv DeveloDment Commission) MOTION: That the Community Development Commission receive and file the attached staff report and Mortgage Assistance Program (MAP) Review Letter from Mr. Scott Mauney. Contact Person( s): Gary Yan Osdel/Maggie Pacheco Project Area(s) N/A Phone: 663-1044 All Ward(s): Supporting Data Attached: 0 Staff Report 0 Resolution(s) 0 Agreement(s)/Contract(s) 0 Map(s) 0 Letter/Memo FUNDING REQUIREMENTS Amount: $ N/A Source: N/A SIGNATURE: f t:. N/A ~YL(. (]J~~ Maggie Pacheco, Director Housing and Community Development Commission/Council Notes: GYO:MP:lag:08-06-01 Underwriler COMMISSION MEETING AGENDA Meeting Date: 08/06/2001 Agenda Item Nnmber: ~ ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Review Letter From Scott Maunev. Underwriter. For Mortl!al!e Assistance Prol!ram (MAP) BACKGROUND At the advice of the City Attorney, in May 2001, the Community Development Commission authorized and directed the Agency Executive Director to engage the services of an independent mortgage underwriter (the 'Underwriter") to examine all and any Mortgage Assistance Program (MAP) loans processed and made by the Agency from the period of May to June 30, 2000. The Underwriter selected by the City Attorney and retained by an Agency Professional Services Agreement was Mr. Scott Mauney. Mr. Mauney has been compensated at the rate of $200 per MAP Loan application of which the Agency has deducted this fee from the Buyer's approved MAP Loan amount. CURRENT ISSUE Now that the services of the Underwriter have been completed, Staff thought it would be important for the members of the Community Development Commission to receive a report on Mr. Mauney's fmdings during his review period. However, before the specific report is discussed, Staff would like to outline the process and procedures, the Underwriter and Staff initiated to review the MAP loans and to make a recommendation on loan approval or denial. The Process is: The Underwriter reviewed each file at Step II. Staff reviewed each file at Step I, to determine whether the Buyer meets the basic MAP Program qualifying criteria such as income and residency requirements, prior to final loan commitment. The Step II process is where the Underwriter is required to perform an in-depth analysis and to determine the credit worthiness of the buyers and make a recommendation to Staff on loan approval or denial. The Underwriter working in concert with Staff, Mortgage Loan Officers and Underwriters required each lender to provide an Estimated HUD-l statement. This document discloses all costs associated with the purchase and real estate involved such as: escrow fees, origination fees, discount points, down payment, and other closing charges. The estimated HUD-I statement is also used to determine the actual down payment, or MAP assistance, needed by the buyer for the purchase of the subject property and to ascertain the amount the lenders are charging for making the first mortgage loan. In addition, the Underwriter examined the reliability and authenticity of the MAP Loan Application and he verified the employment of each applicant, credit history, verified through the multiple listing services (MLS) the validity of the appraisal amount to justify the sales price of the subject property. In all cases, the Underwriter contacted the Employer to confirm length of employment and compensation. He examined income to debt expenses, loan to value ratios, reviewed the credit report, borrowers credit and payment habits, and residence history. GVO:MP:lag:08-06-01 Underwriter COMMISSION MEETING AGENDA Meeting Date: 08/06/2001 Agenda Item Number: Ii ~" Economic Development Agency Staff Report MAP Review Letter July 26,2001 Page Number -2- Mr. Mauney reviewed 44 MAP Loans and out of the 44, 31 were typical FHA first time homebuyer loans with minimal credit problems. 13 of the MAP Loans were considered high risk for a number of reasons, and in those instances, various conditions where placed on the buyer prior to any loan commitment by the Agency. Generally speaking, Mr. Mauney did not find anything that is unusual or uncommon in the lending and mortgage business. Mr. Mauney did recommend, absent not having an independent underwriter on board, that the Agency adopt procedures to verify the lenders submittal package and documentation. This verification would include: verifying employment, reviewing the credit report for payment history and credit worthiness. Essentially, Staff has already initiated some of these recommendations and anticipates that from time to time, the services of Mr. Mauney will be utilized particularly where a loan may appear to be risky and staff may need to seek a second opinion and confirmation of staff s finding. Please refer to Mr. Mauney's Report and Recommendations for further details. ENVIRONMENTAL Not Applicable FISCAL IMP ACT None RECOMMENDATION That the Community Development Commission receive and file the attached Staff Report and Mortgage Assistance Program (MAP) Review Letter from Mr. Scott Mauney. 0l/. (j)~ Maggie Pacheco, Director Housing and Community Development GVO:MP:lag:08-06-01 Underwriter COMMISSION MEETING AGENDA Meeting Date: 08/06/2001 Agenda Item Number: Il AA. teod 'I:U.C.L II. L . M.AGGIE PACHECO DIRECTOR OF HOUSING EDA FINDINGS OF MAP LOAN REVIEW Over the last 3 months I have reviewed a total of 44 loans for the City of San Bernardino MAP loan program. Of tho.., 44 loans, 3 I were typical FHA I" time homebuyer loans with no problems at all. The remaining 13 I found to be high risk for" number of different reasonS. Some had occupancy issues to try and Get around the Income limit., some did not have; enoush disposable income remaining to pay for Iivillil expenses after making the mongage payment and a couple really did not qualitY as I" tim.., homebuycrs. I of the loans was submitted with false taX returns, which I don't believe was the lenders fault and they later tried to correct them. Many of the loans had excess fees being charged to the buyer and most had exccss MAP funds that went to the 1" lien lend"r. which is a waste of the funds. Overall, there was not anything out of the ordinary that does not happen in the mortgage industry everyday. I have provided a list of procedures that would help to cut down on some of the issues I mentioned above. If there is anything else I can h.,tp you with, please let me know and I would be more than happy to. lJJojJ<4~ G Wm Scott Mauney Underwriting Consultant . ~'" " .' ,',1 ;, RECOMMENDED LOAN REVIEW PROCEDURE:. EMPLOYMENT Verify with 411 directory assistance that the employer on the application is listed and verify the local address. Call the company and talk to the H.R. department or payroll department to verify the borrower is employed. Calculate the borrowers income to verify that they qualify debt ratio wise and meet the cities guidelines for income. Review the paystubs and w-2s to make sure the social security number is correct, the amount of wilhholdings are correct and no discrepancies are there. CREDIT/ASSETS Review the credit report for the borrowers credit deplh, pay habits, social security varialions, and employment and residence history. Review the bank statements for deposits to see if they match up with payroll earnings, or for other unusual deposits, for bad check charges, and if the borrower will have any reserves after close of escrow. APPRAISAL Review appraisal to verify the comps used were in the subject property's defined neighborhood. Verify that the comps are close in size, age, room count, and amenities. Check the adjustments to see if the appraiser has supported the adjustmenls made. Check the MLS to verify the comps used are actual closed sales. HUD lICLOSING STATEMENT Review the HUD I to see the amount of fees charged, which includes origination points, discount points and all other misc. fees. Verify how much of the city funds are used for actual down payment assistance and how much is for lender fees. Verify Ihe borrower has the required minimum down payment in the purchase. Determine the amount and request the MAP funds after reviewing the loan package and the HUD 1. This will help to more closely determine the actual amount of the city loan. By doing this, the city will retain more funds 10 lend oul under the program. Currently, all the overage funds are being applied to the I Sl mortgage balance, which does not help anyone except the I st mortgage lender. FINAL REVIEW Review the lenders approval to make sure the appropriate conditions were requested to support approving a loan. Make sure after the review of the above items, that the loan meets FHA and city guidelines. Call the borrowers and verify they understand all the terms of the purchase. Ask them if they have been by the property recently and if it is completed to their satisfaction. Have the borrowers come in to the city to sign the MAP loan documents. This would enable the city 10 do a face to face interview with the borrowers and ask any questions you might have after reviewing the loan package. It will also allow the borrowers to ask any other questions they might have. Finally, in. addilion 10 the above procedures, you might want to send whoever is going to do the reView, to some real estate classes, such as real estate principles and real estate finance. This will help them understand the mortgage business better and help learn what to look for in the loan package. I would also be willing to come in and sit with that person and go over a few of the files with them and show them a few things to look for, at no charge to the city. lJJl'1 M Wm Scott Mauney Underwritinl! Consultant