Avoiding Common Underwriting Errors

Transcription

1 November Genworth Financial, Inc. All rights reserved.

2 Agenda Introduction General Underwriting Tips Resources Examining and Documenting Files Specific Errors and Recommendations Capacity, Credit History, Capital, Compliance Questions and Answers 1

3 Resources Job Aides, Tools, Websites 2

4 For Information: 3

5 For Information: 4

6 Documentation And Rental Matrix Assists with processing and documenting loan files Does not include investor overlays 5

7 For Information: 6

8 Genworth MI Decision Tips Updated Every Quarter 7

9 Genworth MI Decision Tips Updated Every Quarter 8

10 Genworth MI Decision Tips Updated Every Quarter 9

11 Common Underwriting Errors Capacity, Credit History, Collateral, Capital, Compliance 10

12 Underwriting Reminders Every loan is unique Always follow prudent underwriting standards Information must be consistent All applicable guidelines should be followed Guidelines show minimum requirements 11

13 Capacity Errors Income Calculation and Documentation, Self-Employed Borrowers 12

14 Capacity Incorrect Documentation Document per guidelines, Findings and/or Feedback Evaluate minimum documentation If necessary, obtain additional documentation Two Year History Guideline exceptions for some income types Examples: Alimony, Survivor Benefits, Retirement Three Year Continuance 13

15 Capacity, Steady Stable, Likely to Continue Two Year History Guideline exceptions for some income types Examples: Alimony, Survivor Benefits, Retirement Three Year Continuance from application date Documentation Check guidelines for minimum documentation requirement Seek additional documentation if: Inconsistent Discrepancies Possible misrepresentation 14

16 Capacity Fannie Mae Single Family Selling Guide B , Employment and Other Sources of Income 15

17 Capacity Examine Paystubs Carefully Clear explanations for withholding items Possible undisclosed debt Consistent information Address Social Security number Last four digits Year to date income Showing on paystub Consistent with income Verification of Employment Additional support Clarify information OT Bonus Commission 16

18 Capacity Commission - Fannie Mae 17

19 Capacity Commission Freddie Mac 18

20 Capacity Evaluating Income Types Predictable vs. Less Predictable Overtime/Bonus History Document the minimum history required Two years is the standard Fannie Mae allows one year, with other positive loan factors If less than two years, see guidelines Proof of Receipt Continuance Likelihood documented Annualize Declining overtime/bonus Can it be used? Has it stabilized? Lower Amount Net Rental Income from subject purchase Follow investor guidelines Fannie Mae allows use of market rent, if needed, to qualify Freddie Mac requires executed lease and market rent from appraisal 19

21 Capacity Show Your Income Calculation Work Agencies/Investors require calculations Self-Employed Borrowers Written analysis Available worksheets Fannie Mae Cash Flow Analysis (Form 1084) Freddie Mac Income Analysis (Form 91) Schedule Analysis Method Specific Lender/Investor Forms Genworth calculators can be found at 20

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23 Quick Reference Guide and Webinars 22

24 Capacity: Fannie Mae SEL Business Income Since the last Announcement SEL questions remained Clarification in determining adequate business liquidity when required Eliminated the requirement to document the borrower s access to income Extended the VVOE on Self-Employed from 30 days prior to the note to 120 days 23

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26 Capacity: Self-Employed Borrower Income Note on Fannie Mae s Cash Flow Analysis Selling Guide Announcement Eliminated the requirement for the lender to confirm the borrower s access to income Provided guidance regarding methods a lender may use to determine adequate business liquidity Quick Ratio Current Ratio For either ratio, a result of one or greater is generally sufficient to confirm adequate business liquidity to support the withdrawal of earnings Selling Guide Announcement New Cash Flow Analysis Form (Fannie Mae Form 1084) Partnership or S-Corp funds can only be used as qualifying income if: Ordinary Income on Lines 1, 2 or 3 is distributed or The borrower has access to the income and the business has adequate liquidity to support the withdrawal March 24, 2015 Letter Reiterated business losses do not need to be considered when a borrower owns less than 25% of a Partnership or S-Corp 25

27 Capacity Additional Fannie Mae SEB Updates Corporate tax returns Needed to analyze the trend of the business Income only considered if: Borrower owns 100% Access can be documented Losses need not be attributed Losses that do not have to be considered Schedule D Capital Gain/Loss Form 4797 Net Operating Loss Carry-Over/Carry Forward 26

28 Capacity Income Trend/Declining Income Can the income be used to qualify? If so, use only the lower of the two years Fannie Mae Comparative Income Form (Form 1088) For Self-Employed Borrowers Reference Guide on the Genworth website 27

29 Capacity: Freddie Mac 28

30 Capacity Fannie Mae Rental Income Guidelines Updated New forms Fannie Mae Forms 1037, 1038 and 1039 Genworth has calculators on website Genworth Rental Income Calculator is an option Overview Leases may be used if property recently acquired or acquired subsequent to the filing of tax returns Additional investor guidelines may apply Clarification on calculating when a Partnership or S-Corp owns the property Form 1039 can be used to determine if PITIA can be excluded from the borrower s debt ratio The 1039 does not allow use of net positive cash flow as qualifying income Rental Income webinar has been updated Include Taxes, Insurance And/Or HOA Dues In The Monthly Payment, Even If The Investment Property Is Owned Free And Clear. 29

31 Capacity Unreimbursed Employee Business Expenses (UEBE) Fannie Mae Selling Guide Announcement (June 30, 2015) 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 Union dues Voluntary deductions Even if identified on tax return or transcript Borrowers with commission >25%, UEBE must be considered Freddie Mac Requires UEBE to be accounted for in all cases when using any percentage of commission income (See LPA Documentation Matrix) 30

32 Capacity: Freddie Mac s Form 91 31

33 Capacity Retirement Income: 401(k), IRA, SEP or Keogh Accounts Now eligible even if there is a penalty for early withdrawal When penalty applies: Borrower must still have unrestricted access Asset amount, if used, must not include amount of penalty Three year income stream needed See Ann. SEL

34 Credit History Errors Credit Scores, Credit Reports, Liabilities 33

35 Credit History Credit Concerns Not Always Recognized by AUS Obtain documentation Examples Evidence why you are omitting a debt Taxes and insurance for properties owned free and clear Co-maker notes Debts evidenced on paystub or disclosed during initial application Paid mortgage tradeline with paid P&L noted in the comments section Significant derogatory events Financial mismanagement Extenuating circumstances? Does my investor allow? Re-established credit requirements met? 34

36 Credit History Credit Scores Minimum score requirement? Non-traditional credit borrowers (without a credit score) will be eligible for AUS submission with Fannie Mae s Desktop Underwriter 10.0 Two non-traditional credit references must be reviewed and one must be housing related See Selling Guide B : Verification and Documentation of Alternative Credit Within definition Genworth Simply Underwrite SM 620 minimum credit score No additional requirements with valid AUS Approve/Accept Eligible recommendation Genworth Standard Guidelines (Non-AUS) Minimum of three (3) tradelines / credit references Open or closed That have been evaluated at least 12 months Lender, Investor, GSE requirement met? 35

37 Authorized User Accounts - Fannie Mae 36

38 Authorized User Accounts - Freddie Mac 37

39 Credit History Credit History Trended Credit Data Additional information can be found in Fannie Mae s DU Version 10.0 Frequently Asked Questions Credit reports used with Version 10.0 must include trended credit data For now, lenders do not need to analyze trended data Borrowers making minimum monthly revolving account payments will still be able to receive an Approve recommendation from DU 38

40 Credit History Disputed Information AUS Loans DU will provide message if impactful and further action necessary LPA will provide Invalid recommendation if impactful Manually underwritten typically significant items must be resolved prior to approval Inaccurate Information Determine impact (Was AUS credit score impacted?) Obtain Written explanation from Borrower Credit report supplement New credit report Creditor documentation Manually underwritten loans Reporting company confirms inaccuracy Credit report unreliable Traditional credit evaluation without regard to inaccurate information Investors often require the inaccuracy be cleared and resolved before loan approval 39

41 Credit History Minimum Payments Usually on credit report If not on credit report Creditor supplied documentation Revolving, DU and LPA allow using the greater of: 5% of outstanding balance $10 Open Ended Accounts Sufficient funds for repayment plus funds to close and reserves Yes Inclusion not required No Inclusion of 5% outstanding balance required for Freddie Mac Cannot close loan for Fannie Mae Third party responsibility Example: employer reimbursement Document with letter from employer/responsible party 40

42 Credit History Credit Card Financing for Application Costs Fannie Mae and Freddie Mac No more than 2% of loan amount Sufficient liquid funds, or Recalculated credit card payment Update credit card balance See Fannie Mae Guide B , Credit Card Financing See Freddie Mac Guide : Assets eligibility and documentation requirements 41

43 Credit History Installment Debts Evidence of payment amount required No estimating Deferred Installment Debts Must include Monthly payment Payment letter Forbearance agreement Creditor supplied information 42

44 Credit History Student Loans Freddie Mac The actual payment, if known, or 1% of the outstanding balance otherwise Fannie Mae - whether deferred, in forbearance, or in repayment (not deferred) lender must Use the greater of the actual payment documented (from credit report or verified from student loan lender or documentation supplied by the borrower) or 1% of the outstanding Balance Lenders may use the lower fully amortizing payment if: The known payment is <1% of the outstanding balance and The payment will not adjust, and The loan will fully amortize 43

45 Credit History Co-Signed Loans Contingent liability Examples Co-signed note Business debt guaranty Include if borrower qualifies with it Most conservative approach Situations allowing exclusion in debt ratio Primary obligator pays as agreed upon Twelve months history Situations requiring inclusion in debt ratio Obligator s payment not documented Sufficient history not established Delinquency Business debt not paid from separate business account Cannot be borrower s personal account Cannot be business account from which personal debts are paid 44

46 Credit History Recent Credit Inquiries Definition Freddie Mac: within past 120 days Fannie Mae: not specific Confirm if new credit obtained Do you see the new account on credit report? Was it disclosed on application? Obtain verification Freddie Mac documentation examples Creditor letter Signed borrower letter Include in ratios Evaluate risk Represents higher risk Highest risk in combination with: Recently opened accounts Delinquent Credit report reason codes 45

47 Collateral Errors Occupancy 46

48 Collateral Occupancy Must make sense Review file documentation for consistency Types Primary residence Second home Investment property Number of days to take occupancy 47

49 Collateral Use AUS Reports for additional information Fannie Mae s Collateral Underwriter rolled out in January 2015 Heed all Red Flag messages Visit Fannie Mae s Website for additional information Freddie Mac Home Value Explorer (HVE ) Loan Collateral Advisor SM 48

50 Capital Errors Assets to Close, Borrower s Own Funds, Gift Funds, Reserves and Large Deposits 49

51 Capital Excessive Seller Contributions Follow GSE, Investor and MI Guidelines Loans with payment abatements are ineligible Exception condo/hoa dues up to 12 months but amounts must included as IPC Check for guideline overlays See guidelines on next slides 50

52 Fannie Mae 51

53 Freddie Mac 52

54 Capital Large Deposits A large deposit is any deposit that is 50% or more of the total qualifying income being used to qualify Source any account opened in most recent 90 days if using VODs Asset statements look for one or two month seasoning depending on recommendation Investors often are more conservative so check guidelines Fannie Mae Single Family Selling Guide B , Depository Accounts (05/27/2014) Deposits Which May Indicate Borrowed Funds Must Be Investigated. 53

55 Capital Reserves Follow applicable guidelines Enter assets into AUS system Document reserves Including all manual overlays that apply Genworth guidelines: Simply Underwrite loans: reserves are determined by the AUS All other loans: consult Genworth guidelines 54

56 Capital FUNDS AVAILABLE TO CLOSE FUNDS REQUIRED TO CLOSE Amount verified in Bank Accounts + Equity from Real Property + Gifts + Sale of Stocks and Bonds + Closing Costs Paid by Seller + Other Assets = Total Funds Available to Close Purchase Price (or refinance debt to be paid off) - Earnest Money Deposit - Other Financing - Loan Amount Applied for + Closing Costs + Judgments, collections and debt to be paid prior to or at closing. + Required Reserves = Total Required Funds 55

57 Capital Assets to Close Cash to close Reserves LPA/DU Verify funds required Best practice: only enter needed funds Manual calculation Additional reserves need to be calculated when: Subject is a second home/investment And borrower owns other second home or investment properties Changing for Fannie Mae with DU 10.0 Other funds necessary for transaction Debts paid at close 30-day accounts, if applicable Credit card financing, if applicable Collections and charge-off Multi family owner occupied, second homes and investment transactions - see guidelines Judgements or garnishments 56

58 Capital: Freddie Mac s New Guidance 57

59 Capital Earnest Money Documentation From eligible source Correct documentation per guidelines Make sure funds are not counted twice Back out of bank account balance if necessary, or do NOT give credit for deposit check 58

60 Capital Borrower s Own Funds Fannie Mae follows for High-Balance 1-unit O/O loans 59

61 Capital Borrower s Own Funds Freddie Mac No requirement for >80% LTV loans where: Primary residence and Gift or gift of equity received from eligible donor used as source of funds or Employer Assisted Homeownership (EAH) Benefit is used as source of funds Some >80% LTV loans secured by manufactured loans no longer require borrower s own funds in transaction Genworth follows the GSE guidelines on borrower s own funds 60

62 Gift Funds: Fannie Mae 61

63 Gift Funds: Documentation Requirement Gifts must be evidenced by a letter signed by the donor, called a gift letter which: Specifies the dollar amount of the gift; Specifies the date the funds were transferred; Includes the donor s statement that no repayment is expected; and Indicates the donor s name, address, telephone number, and relationship to the borrower When a gift from a relative or domestic partner is being pooled with the borrower s funds to make up the required minimum cash down payment, the following items must also be included: A certification from the donor stating that he or she has lived with the borrower for the past 12 months and will continue to do so in the new residence Documents that demonstrate a history of borrower and donor shared residency The donor s address must be the same as the borrower s address Examples include, but are not limited to, a copy of a driver s license, a bill, or a bank statement 62

64 Gift Funds: Acceptable Donor A gift can be provided by: A relative, defined as the borrower s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or A fiancé, fiancée, or domestic partner The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction. 63

65 Gift Funds Gift Funds Enter into AUS correctly Must come from acceptable source Document correctly Verify Donor availability Funds transfer Other restrictions Investment properties, gifts are not allowed 64

66 Gift Funds: Availability and Transfer of Funds The lender must verify that sufficient funds to cover the gift are either: In the donor s account, or Have been transferred to the borrower s account Acceptable documentation includes the following: A copy of the donor s check and the borrower s deposit slip A copy of the donor s withdrawal slip and the borrower s deposit slip A copy of the donor s check to the closing agent, or A settlement statement showing receipt of the donor s check When the funds are not transferred prior to settlement: The lender must document that the donor gave the closing agent the gift funds in the form of a certified check, a cashier s check, or other official check 65

67 Capital Reserves Fannie Mae DU/DO Version 10.0 Reserve Updates 66

68 Capital: Fannie Mae Borrowers with Multiple Financed Properties Reserve Requirements DU will determine the reserves required for the other residential financed properties (excluding the borrower s principal residence and the subject property) The reserve amount will be determined by applying a specific percentage to the aggregate of the outstanding unpaid principal balance (UPB) for all *mortgages and HELOC s disclosed on the application The percentage is based on the number of financed properties *If marked paid by close, omit or if associated with subject property, not included. 67

69 Capital: Fannie Mae Borrowers with Multiple Financed Properties 68

70 Capital: Freddie Mac Multiple Financed Properties 69

71 Compliance Completeness 70

72 Compliance Ensure Completeness Two year history Employment Residence Occupancy Make sense Consistent throughout loan file All 1003 copies Signed original/scratch Final AUS updated with final data Within tolerances, if permitted Proofread All information provided All documents in file 71

73 Additional Resources GENWORTH RESOURCES Genworth ActionCenter : Your Local Genworth Underwriting Manager Your Genworth Account Executive or Manager 72

74 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. Your legal counsel should be consulted regarding the requirements and applicability of Dodd-Frank and the CFPB Rules. 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. 73

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