Avoiding Common Underwriting Errors

Transcription

1 September Genworth Financial, Inc. All rights reserved.

2 Agenda General Underwriting Tips Resources and tools Capacity Credit History Capital Common Sense Compliance 1

3 Resources Job Aides, Tools and Websites 2

4 Generic Fannie Mae Guidelines For Information: 3

5 Generic Freddie Mac Guidelines For Information: 4

6 Freddie Mac Documentation Matrix Documentation Matrix Assists in properly underwriting and documenting the loan file Note: Many changes for rentals are effective for settlements on or after October 25,

7 For Information: 6

8 7

9 Genworth Tools And Webinar Schedule 8

10 Genworth Tools And Webinar Schedule 9

11 General Underwriting Reminders Using Guidelines and AUS Reports, Documenting Files 10

12 Quality Origination Reminders Verify documentation prior to submission to an AUS Always follow prudent underwriting standards Information must be consistent. All applicable guidelines should be followed. Guidelines show minimum requirements. 11

13 Common Underwriting Errors Capacity, Credit History, Capital, Compliance, Common Sense 12

14 Five Cs Capacity Credit History Collateral Capital Compliance Common Sense 13

15 Capacity Errors Income Calculation and Documentation, Self Employed Borrowers 14

16 Capacity Incorrect Documentation Document income per Desktop Underwriter Findings Report or Loan Prospector Feedback Certificate Different products many have different requirements; Always double check product profiles If necessary, obtain additional documentation, explanations or support to clarify the income/employment 15

17 Capacity Steady, Stable, Likely to Continue and History of Receipt Two Year History typically required Guideline exceptions for some income types Examples: Alimony, Survivor Benefits, Retirement, New to Work Force Three Year Continuance Note income, Alimony and child support Supported by Documentation AUS offers minimum requirements Seek additional documentation if necessary to clarify inconsistencies 16

18 Fannie Mae Seller Guide Continuance of Income requirements for Fannie Mae 17

19 Capacity Evaluating Income Types Always Break Income out by Type Overtime/Bonus/Commission History Two Years on the same job Continuance Likely to continue? Declining overtime/bonus Can it be used? Has it Stabilized? Properly explained? Use most conservative amounts when in doubt 18

20 Capacity Show Your Work Agencies/Investors Require Calculations Self Employed Borrowers Complete One or Two Years Tax Returns, signed with all pages and schedules Written Analysis Genworth Income tool available at Rentals Self-employed borrowers Trend Form 1088 Solvency and Liquidity Calculator Notepad your files or letters of income calculations for underwriter to review 19

21 Fannie Mae Seller Guide See B , Commission Income Requirements (06/30/2015) 20

22 Capacity Unreimbursed Employee Business Expenses (UEBE) Fannie Mae Selling Guide Announcement (June 30, 2015) UEBE policy Borrowers qualified using base pay, bonus, overtime or commission <25% The following do not have to be analyzed or deducted or included as a liability. UEBE or 2106 expenses Union Dues Voluntary Deductions Even if identified on tax return or transcript. Still required for commission >25% and other borrowers for whom you must analyze tax returns. Freddie Mac Products UEBE expenses must be subtracted when detected for all borrowers If W-2 transcripts available for LP approvals no further investigation is required. 21

23 Capacity Fannie Mae Rental Income Guidelines Fannie Mae Forms 1037, 1038 and Located at Leases can be used only for purchases and recently acquired rental properties 22

24 Freddie Mac Seller/Servicer Guide Chapter Stable monthly Income and asset qualification sources 23

25 Freddie Mac Seller/Servicer Guide Chapter Stable monthly Income and asset qualification sources 24

26 Bulletin Provides Guidance to stable monthly Income qualification sources 25

27 Bulletin Updates to documentation for Retirement, long-term disability, survivor and dependent benefit income, social security supplemental income and public assistance income. 26

28 Bulletin Updates for Income Continuance Requirements 27

29 Freddie Mac Bonus & Commission Income 28

30 Freddie Mac Bonus & Commission Income 29

31 Capacity Freddie Mac Rental Income Guidelines Updated New Rental Income Matrix (Oct 2015) Increased the maximum number of financed properties from 4-6 *Removing the requirement for Rent Loss Insurance *Removing the requirement of the borrower having a 2-year history of Managing Investment Properties Effective for loan settlements on or after October 26, 2015 Always Check With Your Specific Investor For Overlays Or Variance To This Policy 30

32 Bulletin Effective Dates Staggered Removal of 5% contribution from borrower personal funds Seasoning requirements for Refinances Removal of manual overlay for LP loans with a short sale Removal of Primary Residence Conversion Requirements Updates requirements when credit cards, cash advances or unsecured lines of credit used as source of funds Updates to condominium project review LP Documentation Matrix Updated September 2015 and Rental Income Matrix Updated October

33 Capacity Examine Paystubs Carefully Clear Explanations for Withholding Items Possible Undisclosed Debt Consistent Information Address Social Security Number Last Four Digits Year to Date Consistent With Annual Annual Consistent with Prior Year Verification of Employment Written and Verbal Additional Support Clarify Information 32

34 Fannie Mae Seller Guide Other Income 33

35 Fannie Mae FAQs Answers Common Lender Income Questions dunderwriting 34

36 Credit History Errors Credit Scores, Credit Reports, Liabilities 35

37 Credit History Credit Scores What is the Minimum for the specific product AUS Approve/Accept Eligible, is there an Overlay? Is it a Usable Score: Some examples of overlays might be. Is it based on three or four trade lines? Does it require a 12 month history Does each borrower have to have one? Information Requested from Three One Reported Acceptable to GSEs utilizing AUS with Approve/Accept but as always. 36

38 Credit History Credit Concerns Not Recognized by AUS Documentation Missing such as Missing HUD-1/CD from sale of current property Missing support that current residence is owned free and clear Missing information about cosigned/endorsed credit obligation Examine documents carefully for undisclosed debt Original Loan Application Bank statements Pay stubs Credit Report 37

39 Credit History Minimum Payments Usually on Credit Report If Not on Credit Report or Unreliable Creditor Supplied Documentation Revolving 5% of Outstanding Balance Open Ended Accounts Sufficient Funds for Repayment Yes Inclusion Not Required No Inclusion of 5% Outstanding Balance for Freddie Mac Only Cannot Close Loan until funds to cover the amount for Fannie Mae Third Party Responsibility Example: Employer Reimbursement Document with Letter from Employer/Responsible Party 38

40 Credit History Deferred Installment Debts Must Include regardless of deferment period Monthly Payment from Payment Letter Forbearance Agreement Creditor Supplied Information Student Loans Standard Fannie Mae and Freddie Mac Guidelines: Use the greater of the verified proposed monthly payment amount, or use a minimum of 1% of the outstanding balance for qualifying purposes Review Product Profiles as Overlays May Apply 39

41 Credit History Co-Signed Loans Contingent Liability Examples Co-signed note Business debt guaranty Include if Borrower Qualifies Anyway Most Conservative Approach Situations Allowing Exclusion in Debt Ratio Primary Obligor Pays as Agreed Upon Twelve Months History Situations Requiring Inclusion in Debt Ratio Obligator s Payment Not Documented Sufficient History Not Established Delinquency 40

42 Credit History Recent Credit Inquiries Within 120 Days Freddie Mac requires all inquires to be investigated Fannie Mae no specific policy Confirm New Credit Obtained Inclusion in Credit Report Disclosed on Application Freddie Mac Documentation Examples Creditor Letter Signed Borrower Letter. Obtain Verification Include in Ratios Evaluate Risk Represents Higher Risk Highest Risk in Combination With: Recently Opened Accounts Delinquent Credit Report Reason Codes 41

43 Credit History Derogatory Information AUS Loans Considered in Risk Evaluation Verify the AUS saw the derogatory info Manual review of credit report and codes Is a manual underwrite required when AUS did not see the event? Consult Guidelines Waiting Periods Re-establishing Credit Proper documentation and explanations Extenuating Circumstances vs Financial Mismanagement Investors often apply the Financial Mismanagement waiting periods apply in all cases Review all trade lines on credit report, narratives and public record sections for possible significant derogatory information the AUS does not see 42

44 Capital Errors Seller Concessions, Assets to Close, Borrower s Own Funds, Gift Funds, Reserves and Large Deposits 43

45 Capital Excessive Seller Contributions Follow GSE Standard Guidelines, subject to these maximum contribution amounts: Loans with payment abatements are ineligible. Check for additional AUS or Product Program guideline overlays. 44

46 Capital Large Deposits Fannie Mae/Freddie Mac When Bank statements are used, the lender must evaluate large deposits, which are defined as a single deposit that exceeds 50% of the total monthly qualifying income for the loan if the deposit is needed to meet borrower funds and/or required reserves. When a deposit is not documented and is not needed for borrower funds/reserves, reduce the funds used for qualifying purposes by the amount of the unverified deposit. The reduced asset amount is what is used for LP/DU purposes Fannie Mae If funds verified are 20% or greater of the amount needed for down payment and closing costs, NO proof of liquidation is needed.but review product profiles as this policy may not apply to every product type Newly Opened Accounts Verify accounts opened within 90 days Lender Guidelines May be More Conservative 45

47 Capital Reserves Follow Applicable Guidelines Enter Reserve Funds into AUS System Document Reserves Approve or Accept/Eligible Agency Loans Typically follow AUS report Most investors want only verified assets/reserves entered into AUS Manual Overlays for Investment Properties & 2 nd Homes 46

48 Capital Reserves -Continued Reduction of Certain Types of Assets when used for reserves Retirement Accounts with Documentation of Access Fannie Mae 60% (unless applicant is 59 ½ or older) then 70% use Freddie Mac 70% 47

49 Capital Assets to Close Check Amount Needed Cash to Close Did it change from when loan was approved? Resubmit back to underwriter for review if yes Reserves LP DU *Follow LP Feedback *Follow DU Findings Report Best Practice: Only enter needed funds Other Funds Necessary for Transaction Debts Paid at Close 30-Day Accounts, if applicable *A manual overlay for reserve funds applies to DU & LP files when a borrower owns multiple rental properties and/or second homes and the subject transaction is a second home or investment 48

50 Capital Borrower s Own Funds Determine Required Amount Fannie Mae and Freddie Mac Vary LP Does Not Calculate May be Required if LTV > 80%. Second Homes Investment 2-4 unit Manufactured Home All funds must be the borrower s on an Investment Transaction Gift funds from an acceptable source may be allowed. Acceptable donor gift Agency/Charity grant Proper gift letter, proof of transfer and receipt 49

51 Common Sense Use proper judgment 50

52 Common Sense Occupancy Must Make Sense Review File Documentation for Consistency Types Primary Residence Second Home Investment Property Number of Days to Take Occupancy For Primary residences occupancy within 60 days of closing 51

53 Common Sense Primary Residence Conversion Follow specific program requirements Fannie Mae removed Primary Residence Conversion Overlays Freddie Mac removed Primary Residence Conversion Overlay No more 30% equity requirement No more two or six months reserves for both properties No more evidence of receipt of security deposit Genworth MI Aligns with Agency Updates 52

54 Compliance Completeness 53

55 Compliance Ensure Completeness Two Year History Employment Residence Proofread All Information Provided All Documents in File Program eligibility verified All inconsistencies addressed Complete Explanation to Investor 54

56 Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is not a substitute for advice of counsel. You should always check with your own legal advisors for interpretations of legal and compliance principles applicable to your business. GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS. 55

57 Thank you! Genworth Financial is the NAFCU Services Preferred Partner for Private Mortgage Insurance. More educational resources are available at Save the date! October 27 th, 2:00 pm 3:00 pm ET.Analyzing Appraisals: Focus on Sales Comparison That MI Guy! Genworth Financial, Inc. All rights reserved. 56