Mortgage Rehabilitation Program

Program Summary

The “Mortgage Rehab Program” is designed to assist low to moderate income homebuyers with the purchase of a foreclosed residential property with a permanent, 30-year fixed-rate mortgage loan at a below-market interest rate. In addition, the Mortgage Rehab Program may also provide a “Soft Second” mortgage loan for the purpose of rehabilitating the property to Neighborhood Stabilization Program guidelines. Mortgage Rehab Program funding is provided through the Neighborhood Stabilization Program, which will be made available to Participating Lenders to fund Mortgage Rehab Program loans and Soft Second mortgage loans originated to specifications and/or guidelines outlined in this Program Policy and the Mortgage Rehab Notice of Funds Availability (NOFA), as approved by the MFA Board of Directors. In addition, properties that are purchased using Mortgage Rehab Program funds must meet all guidelines and requirements of the Neighborhood Stabilization Program (NSP), the Community Development Block Grant (CDBG) Program, MFA mandated Energy Efficiency guidelines, as well as applicable HOME Program guidelines.

Program Applications

The Mortgage Rehab Program is used to provide a purchase money first mortgage loan for a foreclosed residential property as well as funds for the required down payment, closing costs, temporary interest rate buy downs, pre-paid items and all fees associated with the origination of the Mortgage Rehab Program loan. Pre-paid items include property taxes, home owners insurance, mortgage insurance premiums, and/or any deposits needed to establish an escrow account for the mortgage. The Soft Second mortgage loan may be used to rehabilitate foreclosed residential properties to the extent necessary to comply with applicable laws, codes and other requirements relating to housing safety, quality and habitability. In addition, Soft Second mortgage loan funds may be used to provide Energy Efficiency and/or conservation improvements.

Program Terms, Conditions and Descriptions

Interest Rate and Terms: The Mortgage Rehab Program loan is a fully amortizing, 30-year, fixed-rate mortgage loan with a 3.0% interest rate. Mortgage Rehab Program loans are secured with a note and mortgage.

Soft Second mortgage loans are a zero percent interest rate, non-amortizing, “soft second” mortgage, due within the prescribed affordability period if the borrower sells, refinances, or transfers the property to an ineligible households. The Principal balance due on the Note shall be reduced on an annual basis on the anniversary of the date of loan closing as follows:

If the original Principal amount of the loan is under $25,000 the Principal Balance shall be reduced at a rate of Twenty Percent (20%) per year for five (5) years beginning on the sixth (6th) anniversary of the date of the Note.

If the original Principal amount of the loan is $25,000 to $50,000 the Principal Balance shall be reduced at a rate of Twenty Percent (20%) per year for five (5) years beginning on the eleventh (11th) anniversary of the date of the Note.

Eligible Borrowers: The Mortgage Rehab Program is open to all borrowers, with no restrictions regarding prior home ownership. The program is targeted toward households earning up to 120% of the Area Median Income, depending on the county in which the borrower wishes to purchase a home (as described in Exhibit A {1}).

Housing Counseling: All borrower(s) must complete at least 8 hours of pre-purchase counseling with a HUD-approved, MFA-certified agency partner prior to the Participating Lender submitting a Compliance Package to the MFA. A certificate of completion for the HUD approved counseling agency, referencing the effective date and length of counseling session(s), must be included in the MFA Compliance Package as proof of attendance.

Eligible Property Types: Properties financed with Mortgage Rehab Program funds must have been foreclosed and must meet all applicable NSP and/or CDBG guidelines. Exhibit A (2) identifies the maximum allowable Acquisition Cost under the Mortgage Rehab Program. Properties must be owner-occupied single family residences (including manufactured homes built after 1976) which meet all secondary market guidelines for insurability. Properties located on Native American Trust Land that are in areas of greatest need (as defined in Exhibit {B}) may also be eligible for funding under the Mortgage Rehab Program.

Eligible Participating Lenders/Non-Profit Partners: Each institution must be approved by MFA as a Participating Lender and/or Non-Profit Partner, which includes a fully executed Homeownership Program Master Agreement.

Maximum Loan Amount and LTV: The Mortgage Rehab Program loan have a maximum loan-to-value (LTV) and combined loan-to-value (CLTV) of 100%.

Soft Second mortgage loans have a maximum loan amount of $50,000. “Soft costs” and fees may be paid in addition to the maximum loan amount.

Fees–Participating Lenders: Participating Lenders may collect a fee associated with the origination of Mortgage Rehab Program loan of up to three percent (3.0%) of the first loan amount. In addition, the Participating Lender will be paid by MFA for customary fees associated with loan closing ( i.e . , title fees, appraisal fees, escrow for taxes and insurance, doc prep, underwriting, etc .). No other fees may be charged in conjunction with the Mortgage Rehab Program.

Fees - Non-Profit Partners: Non-profit Partners will be paid an administrative fee of $500 to provide HUD-approved pre-purchase housing counseling to the prospective homebuyer. The administrative fee and the allowable additional fees will be paid to the Non-Profit Partner in the manner and time frame described in the Mortgage Rehab Program Procedure Manual.

Loan Reservation: Participating Lenders may reserve program funds via MFA's on-line reservation system or via fax registration, as determined by MFA. Funds will be available on a first-come, first-served basis.

Loan Underwriting: Mortgage Rehab Program loans must be underwritten to FHA Mortgage Loan Credit standards, with the following exceptions:

A maximum single, qualifying debt-to-income (DTI) ratio of 41%
No mortgage insurance premium required
A minimum $500 out of pocket borrower expense (Earnest Money)

Closing/Funding/Delivery: Participating Lenders will originate , underwrite, process, close and ship Mortgage Rehab Program loans as described in the Homeownership Master Agreement and pursuant to Compliance and Purchase delivery instructions provided by MFA in the Mortgage Rehab Program Procedure Manual. Mortgage Rehab Program loans must be closed in MFA's name. MFA shall provide a Compliance Review of the Mortgage Rehab Program loan/Soft Second mortgage loan prior to closing and provide Compliance Approval, after all Compliance Review conditions are satisfied. MFA will directly wire funds to closing as described in the Mortgage Rehab Program Procedure Manual.

Loan Servicing: MFA will service all Mortgage Rehab Program loans and Soft Second mortgage loans. Repurchase requirements associated with first payment default shall be as noted in MFA's Mortgage Purchase Agreement.

Geographic Requirements: Properties located within the designated areas of greatest need are eligible to be financed with the Mortgage Rehab Program. In some instances, Mortgage Rehab Program loans may be made in areas outside of the areas of greatest need, but only after the required 80% set aside for the areas of greatest need have been satisfied. MFA will approve requests to provide Mortgage rehab Program loans outside of the areas of greatest need on a case-by-case basis.

Property Requirements: Properties financed with Mortgage Rehab Program funds are required to comply with the same regulatory requirements that apply to CDBG programs relating to the Lead Disclosure Rule (24 CFR part 35, subpart A), and the Lead Safe Housing Rule's provisions for rehabilitation (subpart J), and for acquisition, leasing, support services, or operation (subpart K), and the accompanying procedural requirements in subparts B and R. All homes financed with Mortgage Rehab Program must receive a Housing Energy Rating System (HERS) assessment. Homes must achieve a 25% reduction on the final HERS Index from the initial rating, and are not required to increase efficiency beyond the target HERS Index of 85. The process will include an initial assessment, energy improvement specifications, and then a final audit to confirm the house meets the threshold. In addition, the purchase price of the home, if not rehabilitated with other sources of NSP funds, must be purchased at a discount of at least 15% of the appraised value at the time of purchase.

Program Funding: MFA will fund the Mortgage Rehab Program loans/Soft Second mortgage loans at time of loan closing. Soft Second mortgage loans will be disbursed by MFA for the required repairs after the closing of the Mortgage Rehab Program loan. MFA will disburse the funds according to a draw schedule outlined in the scope of work and/or the Mortgage Rehab Program Procedure Manual. Participating Lenders will be reimbursed all applicable fees and/or costs associated with the transaction in a manner and time frame specified in the Mortgage Rehab Program Procedure Manual.