(A Mortgage Credit Certificate (MCC) Program)

WHEDA
Tax Advantage
(A Mortgage Credit Certificate (MCC)
Program)
Important: May be superseded by Lender Updates February 28, 2014 and after.
10/17/14
WHEDA Tax Advantage
MCC Program
Mortgage Credit Certificate (MCC) Program is a tax credit available to first-time home buyers in Wisconsin. The
credit is available through financing from the lender of their choice on eligible WHEDA and non-WHEDA first
mortgages. The program provides a special tax credit to qualified applicant’s which reduces their federal income tax
liability over the term of their mortgage.
GENERAL GUIDELINES
Tax Certificate Rate
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Tax Credit Amount
MCC Administration
$2,000.00 maximum per year
WHEDA is the authorized agent for administering the MCC Program
MCC Participation
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Purchase Price Limits
See wheda.com for current MCC purchase price limits
Income Limits
See wheda.com for current MCC income limits
Owner Occupancy
Required for the life of the first mortgage loan
Loan Terms
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Fixed Interest Rate for the term of the loan
15 year or 30 year mortgage
First Mortgage Financing
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Property Type
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WHEDA Advantage
Conventional, FHA, VA or USDA provided by an approved WHEDA lender
(NOTE: excludes loan products financed with a qualified mortgage bond or
qualified veterans’ mortgage bond.)
Existing Single Family
Condominiums
2-Unit greater than 5 yrs old
Acquisition Rehabilitation
First-Time Home Buyer
Required with the following exceptions:
 Applicant is purchasing a home located in a HUD designated target area
 Applicant is a military veteran with an honorable discharge or release
 Applicant is applying for an Acquisition Rehabilitation loan.
Home Buyer Education

Recapture Tax Provision
Required on all MCC related first mortgage transactions when the property is sold
within the first nine years of ownership.
Required on all MCC related first mortgage transactions when the property ceases to
be the applicant’s primary residence.
Revocation Provision
25% Statewide
40% Military Veterans
40% HUD Designated target areas
Lenders must be an approved WHEDA Lender
Lenders must execute a MCC Participation Agreement with WHEDA
HBE provided by a WHEDA approved counseling agency, an approved mortgage
insurance provider or eHomeAmerica.org
Assumable
Exclusions
Yes
 Manufactured Homes
 New Construction (incomplete)
 3 – 4 Unit Properties
 Home Improvement
Important: Refer to the WHEDA Tax Advantage (MCC Program) Guide – All requirements must be met. For
WHEDA first mortgage financing refer to the WHEDA Advantage Conventional and WHEDA FHA Advantage
Guides for eligibility and guidelines.
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WHEDA Tax Advantage Guide
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Introduction
The Wisconsin Housing and Economic Development Authority (WHEDA®) was created in 1972 by the
Wisconsin Legislature as an independent authority, not a state agency. WHEDA is self supporting. No
federal or state tax dollars are received by WHEDA for the funding of its lending programs.
The Mortgage Credit Certificate (MCC) Program was authorized by Congress in the 1984 Tax Reform
Act as a new concept for providing housing assistance.
WHEDA is the MCC program administrator and credit allocator for the State of Wisconsin. WHEDA will
announce the amount of Mortgage Credit Certificate dollars available annually and for each new issuance.
The amount of the annual mortgage tax credit will be 25% for non-target areas and 40% for both
federally designated target areas and qualified veterans.
WHEDA will reserve 20% of the Mortgage Credit Certificate authority for federally designated target areas
and for qualified veterans for a period of at least one year after the date the MCC is first made available.
Reservations for a MCC will be on a first-come, first serve basis.
This guide provides our lending partners with the information needed to carry out their responsibilities
as an approved WHEDA originating lender. Lenders agree to originate and/or sell loans to WHEDA in
accordance with the terms and conditions set forth in the Loan Origination Agreement, Lender
Participation Agreement and this Program Guide.
What is a Mortgage Credit Certificate (MCC)
An MCC permits a qualifying applicant purchasing a home to claim a tax credit that may reduce the
applicant’s federal income tax liability.
How does it work?
Assume an applicant has a $90,000 mortgage at 5% interest for a 30 year term. The interest on the
loan for the first 12-months would be $4,469.84. If the applicant has a MCC, the applicant could claim
a tax credit of 25% of the interest amount paid, or $1,117.46, in the first year. This credit would reduce
the amount of federal income tax they would otherwise owe (assuming the tax liability after certain
other credits is at least $1,117.46) when filing their federal tax return.
The applicant’s deduction for home mortgage interest on IRS Form 1040, Schedule A, would be
$3,352.38 ($4,469.84 of home mortgage interest credit paid, minus the $1,117.46 credit amount).
The credit taken cannot be greater than the home buyer’s annual federal income tax liability after
deductions, personal exemptions and certain other credits. Under no circumstance can the annual
mortgage tax credit taken be greater than $2,000.00. In any case, the amount of the mortgage credit
will reduce the homebuyer’s home mortgage interest deduction.
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Introduction
How Does it Work, continued
The Tax Credit Worksheet (Exhibit 1) is available to assist the lender in explaining the benefit of the tax
credit to the borrower.
An applicant must file IRS Form 1040 when filing their taxes in order to claim the credit.
GOOD TO KNOW:
An applicant cannot use IRS Form 1040A or 1040EZ to claim the credit.
Tax Credit versus Tax Deduction
A mortgage interest deduction differs from a mortgage tax credit in a number of ways. For
example, all homebuyers, regardless of income may take a mortgage interest deduction; whereas
tax credits are available only to holders of a MCC. The dollar value of a mortgage interest
deduction depends upon their tax bracket. If they are in a 15 % tax bracket, they will save 15 cents
in taxes for each dollar of mortgage interest paid. With a MCC, an applicant will save $1 for each
$1 of credit received. Using a MCC and itemizing the deductions on Form 1040, Schedule A, will
reduce the mortgage interest deduction by an amount equal to the mortgage tax credit claimed.
Revocation
Revocation of the Mortgage Credit Certificate will occur upon discovery of any misstatement due to
negligence or fraud or if an applicant ceases to occupy the subject property as their principal residence.
Revocation will occur under the following events:
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The property for which the MCC was issued ceases to be the applicant’s principal residence
Prior to loan closing it is discovered the applicant does not meet the requirements for a
qualified MCC
Discovery of any material misstatement whether negligent or fraudulent
Applicant fails to notify WHEDA within one year from the date they refinance
Misstatement Penalty
If any person makes a material misrepresentation on any affidavit or certification made in
connection with the application for the issuance of a MCC, and such misstatements are due to the
negligence of that person, that person shall pay a fine of $1,000 for each MCC with respect to
which a misstatement was made.
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Introduction
Federal Recapture Tax
MCC related first mortgage loans are subject to federal recapture tax. If an applicant’s income has
increased to more than an amount prescribed by the Tax Code then a portion of the federal interest
rate subsidy must be recaptured upon the sale of the property. The recapture tax is applicable when
a property is sold within nine years from the date the loan closed and is limited to no more than fifty
percent (50%) of the net gain recognized by the applicant. The recapture tax is implemented when
an applicant files their federal income tax return in the year that they sell their home.
Additional information regarding Recapture Tax can found in IRS Publication 523 “Selling Your
Home” or by calling the IRS at 1-800-829-1040 or by visiting their website www.irs.gov.
Federal Recapture Tax Guarantee
If the first mortgage loan is obtained using WHEDA Advantage financing and the applicant is
subject to federal recapture tax upon disposition (sale) of their home, WHEDA will reimburse the
applicant the amount equal to the recapture tax reported to the Internal Revenue Service.
GOOD TO KNOW:
The Federal Recapture Tax Guarantee is not available for non-WHEDA Advantage Loans.
Training
Lenders that would like to participate in the Mortgage Credit Certificate program must contact WHEDA
for training. All loan originators are required to complete MCC training prior to submitting an MCC
reservation request. Refer to the Lender Training Resource Center.
Participating lenders will be required to recertify annually.
Gramm-Leach Bliley Act
To respect the privacy of our respective customers and to protect the security and confidentiality of those
customers’ nonpublic personal information, WHEDA shall comply with the applicable requirements of the
Gramm-Leach Bliley Act (15 USC 6801-6809, Disclosure of Nonpublic Personal Information).
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Introduction
Program Information Directory
Questions Regarding
Underwriting
Telephone Number
800-334-6873
E-mail Address
[email protected]
Reservation Status
608 266-3528
[email protected]
MCC Issuance
800-562-5546
[email protected]
WHEDA’s web site
800-334-6873
[email protected]
Sales and Training
800-334-6873
[email protected]
Fax Numbers
Reservation Desk Only
608 819-4732
Underwriting Dept
608 819-4733
Servicing Dept
608-267-1462
(Loan Servicing Dept)
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Eligibility
Chapter 1
Applicant Requirements
Income Limits
The combined gross annual income of all persons intending to occupy the property cannot
exceed the income limit for the county in which the property is located.
GOOD TO KNOW:
Compliance income applies to all occupants. The number of
occupants may be different than the number of loan
applicants.
Purchase Price Limits
The accepted purchase price amount cannot exceed the purchase price for the county in which
the property is located.
The seller must certify that the purchase price does not exceed the limit met by completing and
signing the Seller Affidavit (MCC-007).
First-Time Home Buyer
An applicant must be a first-time home buyer with the following exceptions:
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An applicant is purchasing a home in a federally designated target area
An applicant is a military veteran with an honorable discharge or release
A DD Form 214 must be provided and indicate honorable discharge in the “Character of
Service” field
An applicant applying for an Acquisition Rehabilitation loan
GOOD TO KNOW:
The definition of a first-time homebuyer is an applicant who
has not had an ownership interest in a principal place of
residence in the last three years.
An applicant must provide a copy of their previous two years’ federal income tax returns including
all schedules to verify no previous home ownership.
GOOD TO KNOW:
An applicant whose first mortgage loan closes with a MCC between January 1st and
February 15th must execute the Income Tax Affidavit (MCC-004)
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Eligibility
Chapter 1
Citizenship
All applicants must have a valid Social Security Number and be one of the following:
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U.S. citizen
Permanent resident alien (I-551)
Temporary resident alien (I-766, I-94 or I-551 temporary stamp) with a card issued by
the Department of Homeland Security U.S. Citizenship and Immigration Services.
Include a copy of the card in the application package.
Occupancy
The applicants must occupy the property as their principal full-time residence within 60 days
after the loan closing. The property must be occupied by the applicant for the term of the loan.
GOOD TO KNOW:
Residency in the State of Wisconsin at the time of
application is not a requirement.
Child Support/Maintenance
Arrearages for child support, birthing expense, maintenance or other expense owed to the state
must be paid in full prior to closing.
Home Buyer Education
At least one applicant signing the first mortgage note must complete an acceptable home buyer
education program.
Home buyer education must be provided by a WHEDA approved counseling agency,
eHomeAmerica or an approved mortgage insurance provider.
Provide a copy of the Home Buyer Education completion certificate reflecting the applicant’s
name, the name of the entity and/or the name of person providing the education and date
completed. The education must have been completed within 12 months of the application date.
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Eligibility
Chapter 1
Compliance Income
Compliance income is the anticipated income, earned or unearned, of anyone age 18 or older and
any unearned income received on the behalf of a minor child who intends to occupy the residence,
regardless of their relationship to the applicant. This may include adult children, parents, aunts,
uncles, grandparents, partners, companions, etc.
Compliance income is generally calculated using the greater of:
 Current gross income projected 12 months forward, or
 Gross income from all sources earned in the last tax year
GOOD TO KNOW:
Compliance income is not the same as qualifying income.
Inclusions:
 Earned income of all occupants over the age of 18.
(NOTE: Earned income includes base wages, commission, overtime, shift differential,
bonus, tip and profit sharing income regardless of the length of time received)
 Social Security Income (SSI)
 Disability or Death benefits
 Education benefits used for subsistence
 Child support
 Alimony
 Pension/retirement
 Public Assistance
 Unemployment income
 Permanent seasonal, seasonal & temporary income
 Military income (excluding hazardous duty pay)
 Net Rental income from the subject 2 Unit property
 Second job income
 VA Compensation
 Workers Compensation
 Other real estate owned income
 Car Allowance
 Interest and dividend income on funds retained after closing
 Self employment, Partnership, S-Corporation, Corporation Income (adding back
depreciation, depletion, meals and entertainment, and business use of home).
Exclusions:
 Earned income for all occupants under the age of 18
 Foster care income
 Food stamps
 Non-recurring payments from:
 Inheritances
 Insurance settlements
 Lottery winnings
 Gambling winnings
 Capital gains
 Settlements for personal loss
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Eligibility
Chapter 1
Income Documentation Requirements
Paystub
The paystub must be dated no earlier than 30 days prior to the initial loan application date,
reflect a minimum of 30 days of income, the name of the employer, and include all year-to-date
earnings. The paystub must include sufficient information to appropriately calculate compliance
income. If not, additional documentation must be provided.
Request for Verification of Employment (VOE)
Provide a Verification of Employment from an employer or from a third-party employment
verification vendor if the applicant has been on their present job for less than 1 year. The VOE
must include wage rate, base wage rate hours and other income hours per week, year-to-date
earnings, date of employment, frequency of payment and previous year earnings.
W-2 Forms
IRS W-2 forms must cover the most recent two year period and clearly identify the applicant as
the employee. The sum of the W-2’s should match the wages earned on the applicant’s federal
income tax return.
Lenders must verify the status of employment of all W-2’s tied to the most recent federal tax
return. If an applicant is employed, the lender must provide a paystub reflecting year-to-date
earnings or VOE. If applicant is not actively employed, the lender must provide a verbal
verification of termination.
Tax Transcripts/Federal Income Tax Returns
Provide a copy of the applicant’s tax transcripts for the most recent two year period or a copy of
the applicant’s signed federal income tax returns for the most recent two year period.
Transcripts or signed tax returns will be reviewed for compliance income, self employment
activity, unreimbursed employee expenses and income from assets.
If the mortgage loan is closed during the period between January 1 and February 14, and the
applicant has not filed their federal income tax returns, submit the Income Tax Affidavit (MCC-004).
4506-T
The lender must execute IRS Form 4506-T reflecting WHEDA, 201 W. Washington Avenue,
Madison, WI 53703, 800-334-6873 on line item 5.
Other Income Documentation
 Social Security/Disability Awards letters
 Child Support history from Clerk of Courts
 Unemployment history from the Department of Workforce
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Eligibility
Chapter 1
Property Requirements
The lender is responsible for reviewing the property appraisal report to insure compliance.
Location
The property must be located in Wisconsin.
Eligible Property Types
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Existing single family dwelling
Condominium
2-unit property which is at least 5 years old
New Construction (property must be complete/permanent financing only)
Acquisition Rehabilitation
Ineligible Properties
The following types of properties are not acceptable:
 3 – 4 unit properties
 Manufactured Housing
 Commercially used properties
 Time share units
Acquisition Rehabilitation
Acquisition Rehabilitation is a loan used to finance the purchase and rehabilitation of an existing
property. The applicant does not have to be a first time homebuyer, but must occupy the
property as their principal residence once the rehabilitation work is completed. Additional
requirements for this type of loan are:
 Property must have been a principal residence for the last 20 years
 50% of the existing external walls must remain as external
 75% of the existing internal structural framework must be retained in place and
75% of the external walls must remain internal or external
 Cost of the rehabilitation must be at least 25% of the purchase price of the property
 Rehabilitation must be completed within 180 days of property purchase
Submit the following additional documentation with the Reservation Package Checklist:
 Copy of the construction contract
 Copy of contractor’s Scope of Work
 Floor Plans – prior to rehabilitation and post rehabilitation
 Completion Certificate when available, but no later than 180 days after the property has
been purchased.
Property Use
No more than 15% of the property can be used for trade or business purposes.
The property cannot be subdivided, farmed or used commercially.
Acreage/Land Value
The value of the home should be 60% of the total appraised value.
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Eligibility
Chapter 1
Financing Requirements
The applicant must obtain a qualifying first mortgage loan from an approved participating lender.
Prohibited Mortgage Loan Transactions, Terms, Types
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Assumption of an existing first mortgage loan
Refinance of an existing first mortgage loan
Home Improvement
High Priced Mortgage
Balloon Payment
Interest Only (IO)
Adjustable Rate Mortgage (ARM)
Negative Amortization (NegAM)
First mortgages financed with the proceeds of a qualified mortgage revenue bond or a
qualified veterans’ mortgage bond.
GOOD TO KNOW:
The applicant must provide an Affidavit stating the loan being acquired in
connection with the MCC will not be used to acquire (assume) an existing
mortgage or replace (refinance) their existing mortgage.
Refinance
The MCC is good for the life of the loan as long as the applicant occupies the property as their
principal residence or refinances and obtains a re-issued MCC.
Request for a re-issue of a MCC must occur within one-year from the date of the refinance.
While there is a MCC issued in conjunction with a property, the interest rate on the first
mortgage loan must remain fixed for the term of the loan.
Sub-Ordinate Financing
The MCC cannot be applied to subordinate financing.
No interest on a subordinate loan can be paid to a person who is related to the applicant.
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Procedures
Chapter 2
Prior to submitting a reservation request, a lender must either be an approved WHEDA lender or become
an approved WHEDA lender and enter into a Lender Participation Agreement (MCC-010). In addition, all
loan originators must receive mandatory MCC training.
WHEDA will maintain a list of MCC Participating lenders and their loan originators on its website.
Applicants can select a participating lender from the list or engage another lender of the applicant’s
choosing, provided that lender becomes an approved WHEDA lender and enters into a Lender
Participation Agreement.
Before Reservation
Prior to submitting a reservation request, the participating lender must have taken a mortgage loan
application from a potential eligible applicant. The lender is responsible for making a preliminary
determination to see if the potential applicant meets the applicant, property and financing requirements
of the MCC Program.
GOOD TO KNOW:
An applicant is not limited to obtaining a WHEDA Advantage first mortgage.
Reservations are on a first come first serve basis.
 Review the WHEDA Tax Advantage Fact Sheet
 Determine if the applicant qualifies for a first mortgage loan
Qualifying Income Adjustment
The MCC may have a positive effect when qualifying an applicant for a mortgage loan because the tax
credit recognized may result in an increase in the applicant’s cash flow. The annual tax credit is divided
by twelve (12) to obtain a monthly benefit for qualifying purposes. See the Tax Credit Worksheet
(MCC Exhibit 1) for an example of the calculation.
Preliminary Information to the MCC applicant
The lender must advise the applicant of the following:
 They are responsible for performing their own calculations of the estimated tax benefit of the MCC
 They should consult with a tax advisor to determine the estimated tax benefit of the Mortgage
Credit Certificate
 The mortgage interest deduction for federal income tax purposes may be reduced due to the
use of a MCC
 Details on how the MCC will reduce federal income tax liability are explained in the IRS
Publication 530 “Tax Information for First-Time Homeowners”. Lenders are encouraged to
provide the applicants with Publication 530
 They may choose to utilize the benefits of the MCC tax credit each month by adjusting their
W-4. It is recommended that the applicant consult with their tax preparer to properly adjust
their W-4 Employee Withholding Allowance. Applicants choosing to complete the W-4
Employee’s Withholding Allowance form themselves should refer to IRS Publication 919
“How Do I Adjust My Tax Withholding?”
 They may be subject to Federal Recapture Tax
Applicant must execute the following documents:
 Request for Conditional Commitment (MCC-002)
 Acknowledgment of Federal Recapture Tax (MCC-003)
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Procedures
Chapter 2
Reservation Process
A reservation may be submitted any time after the lender holds a completed loan application and a
copy of the accepted Offer to Purchase or a copy of the construction contract entered into by the
seller/builder of a residence and the applicant.
Reservation Submission
Submit a complete reservation package using the Reservation Checklist (MCC-001)
WHEDA will review the application for completeness and compliance eligibility. The reservation request
will be reviewed within 2 business days
Approval
The MCC Commitment is issued to the lender. The commitment is valid for 90 days.
Pend
The lender will be notified detailing the items necessary to decision the request.
Denial
If the request does not meet MCC requirements, the lender will be notified. The application will not
be returned to the lender.
If an unforeseen circumstance arises and the loan cannot close, notify WHEDA to cancel the
reservation request by making a written request to WHEDA.
Pre-Closing
Upon receiving a MCC reservation approval from WHEDA, the lender may complete the processing of
the first mortgage loan approval request.
If the applicant is applying for WHEDA financing, the lender should follow WHEDA Advantage procedures.
If the applicant is not applying for a WHEDA Advantage loan, the lender performs standard underwriting
and verification procedures for a fixed rate mortgage program that meets MCC financing requirements.
The lender must confirm that the MCC commitment has not expired before the loan closing and that
there has been no material change in circumstances that would affect MCC eligibility requirements.
Lender to execute the following documents:
 Closing Affidavit (MCC-008)
 Lender Affidavit (MCC-006)
Seller of the property to execute the following document:
 Seller Affidavit (MCC-007)
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Procedures
Chapter 2
Post-Closing
MCC Issuance Fee
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Non-WHEDA first mortgage – Submit a cashier’s check made payable to WHEDA for $600 and
include in the closing package.
WHEDA first mortgage – The $150 issuance fee will be debited from the designated lender
account via ACH after the loan is funded.
Closing Documents
Submit the documents indicated on the Closing Package Checklist (MCC-005) within 10 business
days of closing.
Compliance Review
WHEDA will review the closing documents for compliance.
Recapture Tax Booklet
WHEDA will mail the Recapture Tax Booklet to the applicant.
MCC Issuance
WHEDA issues the Mortgage Credit Certificate (MCC) and mails it directly to the applicant. A copy
of the certificate is sent to the participating lender.
Record Keeping and Federal Report Filing
The lender must file a one-time annual report to the IRS. WHEDA will provide each lender with a list of
the MCC’s issued in the calendar year along with reporting instructions. Review the report for accuracy.
Lender Responsibilities
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Completing IRS Form 8329
Submit Form 8329 to the IRS by January 31st
Provide WHEDA with a copy of the completed IRS Form 8329
Retain a copy of the IRS Form 8329 for six years
GOOD TO KNOW:
WHEDA will be responsible for completion and filing IRS Form 8329 for loans closed under the
WHEDA FHA Advantage Sponsored Originator Channel.
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Procedures
Chapter 2
Refinance and Reissuance
The IRS regulations require that the reissued MCC be, in effect, a continuation of the existing MCC.
WHEDA may reissue a MCC provided that specific requirements are met:
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Must be reissued to the holder of the original MCC and for the same property
The holder of the MCC still occupies the property as their primary residence
Replaces the original certificate
The reissued MCC will be the outstanding principal balance of the prior mortgage loan as of the
date of the refinance
Must be reissued within one year of the date of refinance
Tax certificate rate must remain the same
Cannot result in a larger credit amount than otherwise would have been allowed under the
existing certificate for any tax year
Expires on the final payment date of the original mortgage loan
The MCC holder must provide the Agency with the following documentation in order to begin the
reissue process:
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Copy of the payoff statement from the prior mortgagee confirming the outstanding principal
balance as of the date of the refinance
A copy of the new Note
A copy of the HUD-1 Settlement Statement for the refinance transaction
A copy of the applicants most recent Federal Income Tax Return including all schedules
Owner Occupancy Certification (MCC-009)
Reissuance fee of $300, cashier’s check or money order payable to WHEDA
Upon receipt and approval of the documentation, WHEDA will reissue the MCC Certificate in the
amount of the outstanding principal balance as of the date of the refinance, provide an amortization
schedule showing the monthly interest payments based on the Certified Indebtedness Amount and
provide Important Tax Information to the MCC holder (MCC-Exhibit 3).
Representations and Warranties Regarding Mortgage Loans
Lender acknowledges representations and warranties as identified in the Loan Origination Agreement,
the Tax Advantage Guide and the Lender’s Affidavit (MCC-006).
Quality Control Internal Audit
A random sampling of requests will be audited for compliance.
The originating lender will be notified if additional action is required.
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Procedures
Chapter 2
Timeline
Reservation to Closing
Closing Package
Closing to Occupancy
90 days
Submit within 10 business days from closing
60 days from closing
Resources
Many useful resources are available:
 Income and Purchase Price Limits
 WHEDA Tax Advantage Forms
 Department of Workforce Development (Child Support Verifications)
Phone:
414-615-2400
Fax:
414-615-2424
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Lender Approval/Responsibilities
Chapter 3
A lender (.i.e. bank, savings bank, savings and loan association, credit union or licensed mortgage
banker) must be approved to do business with WHEDA. A lender may participate directly with WHEDA
(a “Direct Lender”) or they may originate loans as a Third-Party Originator (TPO) or network of TPOs (a
“Wholesale Lender”). This section sets forth the requirements for participation in the WHEDA
Advantage program as a Direct Lender and as a Wholesale Lender.
Lender Eligibility
Lender Eligibility
WHEDA determines a lender’s qualifications and eligibility by reviewing the lender’s financial
condition, organization, staffing and other relevant factors.
To be approved, a lender must, at a minimum:
 Have a tangible net worth of $1,000,000
 Have as its principal business purpose, the origination and selling of single-family residential
mortgages.
 Have demonstrated the ability to originate and sell the types of single-family residential
mortgages for which approval is being requested.
 Have adequate facilities and staff experiences in originating and selling single-family
residential mortgages for which approval is being requested.
 Be duly organized, validly existing , properly licensed (in good standing) or otherwise
authorized to conduct business in the State of Wisconsin to originate and sell single-family
residential mortgages.
 Have internal audit and management control systems to evaluate and monitor the overall
quality of its loan production.
 Implement and maintain a comprehensive quality control plan that monitors mortgage loan
quality, verifies the existence and accuracy of legal documents, credit documentation and
property appraisals and a plan that monitors early payment defaults.
 Have written procedures for the approval and management of vendors and other third-party
service providers.
 Have written procedures to assure appraiser independence.
 Have a fidelity bond and an errors and omissions policy in effect and agree to modify them
as necessary to meet WHEDA’s requirements.
 Have the ability to repurchase any mortgage loan sold to WHEDA that fails to meet the
standards as defined in the Loan Origination Agreement (a/k/a Loan Purchase Agreement),
the WHEDA Advantage Origination Guide(aka the Origination Guide) or the Lenders
Warranty.
 Have a disaster recovery plan in effect.
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Chapter 3
Wholesale Lender
Eligibility
A lender that applies as a Wholesale Lender may contract with a TPO such as a mortgage
broker, a financial institution that does not meet participation requirements, or a qualified lender
who chooses not to be a Direct Lender with WHEDA. In addition to meeting the Lender
Eligibility requirements set forth above, the Wholesale Lender must also:
 Have a tangible net worth of $2,500,000
 Not have any regulatory orders, including cease and desist orders pending
New Lender Application Requirements
Lenders applying to do business with WHEDA must submit the following:
 A completed Lender Application
 The Loan Origination Agreement, executed by an authorized senior officer
 An ACH Agreement signed by two (2) authorized signatories of the lender
Lenders applying as a Wholesale Lender must submit the following:
 TPO Application Form
 TPO Authorization Form countersigned by the Wholesale Lender for each TPO
Lenders applying to participate in the WHEDA Tax Advantage Mortgage Credit Certificate
(MCC) Program must complete the following:
 Lender Participation Agreement
 Mortgage Loan Officer MCC Training
WHEDA reserves the right to request additional documentation as deemed necessary to
render a decision on an application. Failure to provide documentation requested by WHEDA
will result in denial of an application.
Approval or rejection of a lender’s application, and its TPOs if applicable, is at WHEDA’s
sole discretion and is based on WHEDA’s business judgment with respect to the totality of
the lender’s circumstances.
Contracts and Agreements
The Loan Origination Agreement and the MCC Lender Participation Agreement establishes
the basic legal relationship between a lender and WHEDA.
The Agreement:
 Establishes the lender as an approved originator and seller of mortgages to WHEDA.
 Provides the general terms and conditions of those sales, supplemented by the
WHEDA Advantage Origination Guides, WHEDA Tax Advantage Guide, Lender’s
Warranty, lender announcements, letters and Guide changes and any other
agreement entered into by WHEDA and the lender.
Lender Identification Number
WHEDA assigns a lender identification number to an approved lender. In addition,
Wholesale Lenders will receive an identification number for each TPO. The identification
number is necessary for submitting a rate lock request and a MCC reservation request.
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Chapter 3
Annual Recertification
All currently approved WHEDA lenders will be recertified annually to determine continued eligibility.
Each lender will receive a Lender Application that must be completed and returned to WHEDA within
the timeframe specified in the recertification letter.
Lenders pursuing re-certification as a WHEDA-approved lender must submit the following:
 A completed Lender Application
 Any required documentation, as specified on the Lender Application Checklist
 An ACH Agreement signed by two (2) authorized signatories of the lender
 Wholesale Lenders will reverify their TPOs for continued eligibility
WHEDA will review each lender’s financial condition, organization and staffing, origination
activity and volume, the performance and mix-of-business of its loans previously funded by
WHEDA, and any other factors WHEDA deems relevant.
Approval or rejection of a lender’s recertification is at WHEDA’s sole discretion and is based
on WHEDA’s business judgment with respect to the totality of the lender’s circumstances.
Loan originators will be required to complete annual MCC training.
Lender Responsibilities
Best Practices and Policies
The lender’s operating policies and procedures must reflect prudent, sound and responsible
business practices in its marketing and origination of residential mortgage loans.
Compliance
The lender must comply with:
 All federal, state and local laws and regulations that are applicable to fair housing,
fair lending, equal credit opportunity, truth-in-lending, wrongful discrimination,
appraisals, real estate settlement procedures, borrower privacy, data security,
escrow account administration, credit reporting, electronic signatures or transactions,
predatory lending or terrorist activity.
 Appraiser Independence Requirements
 All requirements of the Loan Origination Agreement (a/k/a the Loan Purchase
Agreement), the WHEDA Advantage Origination Guide, WHEDA Tax Advantage
Guide, and the Lender’s Warranty
 The Department of Treasury’s Office of Foreign Assets Control (OFAC) as it applies
to lender’s key principals.
 The Secure and Fair Enforcement (SAFE) Mortgage Licensing Act of 2008.
 All IRS and Regulatory requirements pertaining to certain real estate transactions
 Any company or individual involved in the origination, underwriting, or servicing of the
mortgage is not listed on the General Services Administration (GSA) Excluded Party
List or the HUD Limited Denial of Participation List (LDP List)
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Chapter 3
Compliance,
continued
In addition, a Wholesale Lender is responsible for:
 Ensuring that business is conducted in accordance with WHEDA’s requirements and
expectations
 Loans submitted are pursuant to the WHEDA Loan Origination Agreement
 Assuming all liability on TPO loans as if it originated those loans itself
 Ensuring TPOs have access to the WHEDA Origination Guide(s) and Updates
 Diligent monitoring to ensure the TPO does not use the HUD or FHA logo or HUD
seal in any promotion or advertisement
 Ensuring a TPO is not named on HUD’s Limited Denial of Participation List (LDP)
and the Federal General Services Administration (GSA) Excluded Parties List
System (EPLS)
 Notifying WHEDA immediately upon termination of a TPO or a change in their
eligibility to access WHEDA programs
Internal Audit and Management Control Systems
The lender must maintain adequate internal audit and management control systems to:




Ensure that mortgages that are originated and sold to WHEDA meet all
investor/guarantor/insurer requirements as they apply
Monitor the performance of staff and third party originators, if applicable
Guard against dishonest, fraudulent, or negligent acts
Guard against errors and omissions by officers, employees, or other authorized persons
Minimum Loan Volume Requirement
A lender must originate at least one loan in a 24-month period to maintain an active status.
A fee will be charged for reinstatement and recertification if the lender falls below the threshold.
Responsible Advertising
A lender may not engage in misrepresentative advertising of the WHEDA brand. If a lender
internally determines a branch or employee or TPO has engaged in misrepresentative
WHEDA advertising, immediate action must be taken to ensure this does not happen again.
If WHEDA discovers a lender has engaged in misrepresentative advertising of the WHEDA
brand, action will be taken up to and including termination of a lender’s WHEDA approval.
Examples of misrepresentative advertising may include:
 Improper use of the WHEDA logo or name to imply an advertisement is from or
endorsed by WHEDA
 Improper use of the WHEDA logo or name to imply content is from or endorsed by WHEDA
 Improper use of the official FHA logo or HUD seal in a promotion or advertisement
 Improper use of a government or state form to imply endorsement or representation
of such an agency
 Improper creation of a website with WHEDA listed in the URL
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Chapter 3
Changes in the Lender Organization
A lender must provide written notice of the following changes:
 Any mergers, consolidations, or reorganizations
 Any substantial change in ownership
 Any change in the corporate name
 A change in a depository institution’s charter from federal to state of vice versa, and
 A significant change in the lender’s financial position
 Contact information, Form 16
Lender Compensation
Lenders will be compensated by an origination fee Refer to the Schedule of Fees for detailed information.
Fidelity Bond and Errors and Omissions Coverage
Each lender must have a blanket fidelity bond and an errors and omissions insurance policy in effect at
all times. Obtain a direct surety bond to cover any officers, including its principal owner, if they cannot
be covered by the fidelity bond. WHEDA reserves the right to request a copy of this insurance policy.
A lender which is a subsidiary of another institution may use the parent company's fidelity bond and
errors and omissions insurance policy as long as it is named as a joint insured under the bond or policy.
If the parent organization's deductible amount exceeds the maximum deductible allowable for the
lender's total servicing portfolio, the lender must obtain a fidelity bond in its own name. The fidelity bond
must be for an amount that is at least equal to the amount of the parent's deductible, with a separate
deductible amount no higher than the maximum amount WHEDA allows for the lender's coverage.
For corporate lenders, coverage under the Mortgage Banker's Blanket Bond Policy, the Savings and
Loan Blanket Bond Policy or the Banker's Blanket Bond Policy is acceptable. Individual coverage is
required if the lender is owned as a sole proprietorship or as a partnership. Coverage underwritten by
an insurer affiliated with Lloyd's of London is acceptable.
The insurer must agree to notify WHEDA at least 30 days before it cancels, reduces, declines to renew,
or imposes restrictive modifications to the lender's coverage for any reason other than a partial or full
exhaustion of the insurer's limit of liability under the policy. The insurer must also agree to notify WHEDA
within 10 days after it receives a lender's request to cancel or reduce any coverage.
The lender is required to report certain events to WHEDA within 10 business days after they occur.
Specific events which must be reported include:
 The occurrence of a single fidelity bond or errors and omissions policy loss that exceeds
$100,000 - even when no claim will be filed or when WHEDA’s interest will not be affected.
 The receipt of a notice from the insurer regarding the intended cancellation, reduction, nonrenewal, or restrictive modification of the lender's fidelity bond or errors and omissions policy.
The lender must send WHEDA a copy of the insurer's notice, describe in detail the reason for the
insurer's action if it is not stated in the notice, and explain the efforts made to obtain replacement
coverage or to otherwise satisfy the insurance requirements.
In addition, even if WHEDA funds are not involved, the lender must promptly advise WHEDA of all cases
of embezzlement or fraud in its organization even if no loss has been incurred. The lender's report
should indicate the total amount of any loss regardless of whether a claim was filed with an insurer.
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Chapter 3
Fidelity Bond Coverage
The fidelity bond coverage must be equal to a percentage of the total servicing portfolio (all
residential and commercial mortgages). The minimum amount of coverage is as follows:
Coverage Required
Mortgages Serviced
$300,000
+.150% of the next
+.125% of the next
+.100% of any amount over
$ 100,000,000 or less
$ 400,000,000
$ 500,000,000
$1,000,000,000
The policy's deductible clause may be for any amount up to the greater of $100,000 or 5%
of the bonds face amount. Lenders must get WHEDA’s permission for higher deductible
amounts.
Errors and Omissions Coverage
The errors and omissions policy must protect the lender against negligence, errors and
omissions in:
 Maintaining required hazard and flood insurance coverage
 Maintaining conventional mortgage insurance
 Determining whether properties are located in special flood hazard areas
 Paying real estate taxes and any special assessments
 Complying with reporting requirements of the mortgage insurance companies
The errors and omissions coverage must equal the amount of the required fidelity bond coverage.
The policy's deductible clause may be for any amount up to the greater of $100,000 or 5% of
the policies face amount if the policy provides for coverage per aggregate loss. If the policy
provides for coverage per mortgage, the maximum deductible amount for each mortgage
cannot be more than 5% of the insurer's liability per mortgage. If a policy provided $100,000
liability per mortgage, the deductible amount for each mortgage would be $5,000 - regardless
of the actual principal balance of the mortgage.
A mortgage impairment policy is an acceptable substitute for an errors and omissions policy.
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