Summary of Agency Income Guideline Revisions

Transcription

1 Summary of Agency Guideline Revisions General Update Comments: All LP (i.e., Loan Prospector) references were changed to LPA (i.e., Loan Product Advisor) For purposes of the revised LP income requirements: Streamlined Accept and Standard Documentation Levels are now equivalent for all income types The majority of the LP income subtopics now reflect a simplified format to delineate the following: History of Receipt Continuance Calculation Requirements YTD paystubs references were revised: From: YTD paystub or salary voucher documenting at least 30 days of income To: YTD paystub(s) documenting all YTD earnings For employed income sources, Verbal VOE references were revised to 10-day pre-closing verification (10-day PCV) were made to incorporate additional cross-references to related guidance in other subtopics/topics and to reflect new SunTrust Mortgage subtopic naming conventions due to the relocation of certain guidance General Information Documentation requirements for the following were relocated from the General Information subtopic to the new General Documentation Requirements subtopic: paystubs, W-2s, tax returns, written VOE, third party employment verifications, age of income documents (including tax returns), IRS Form 4506-T, income validated by the DU Validation Service For non-aus and DU guidelines, all other updates were made to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. Provided more detail on Freddie Mac's expectation of the lender s income analysis Expanded guidance for the determination of income stability and history requirements Emphasized the analysis of the historical and future income characteristics, for example whether the amount of monthly income: Is a pre-determined fixed amount with guaranteed continued or probable continued receipt, and Whether and to what degree the income amount may fluctuate Added charts to categorize existing income continuance requirements as: and earnings types typically without documentable continuance (likely to continue) types with documentable continuance types that may or may not have documentable continuance, depending upon the source (e.g., government program, private insurer) of the specific income type (e.g., retirement, long-term disability) For primary and secondary employment, added updated guidance for making the determination to justify less than a 2-year employment and/or income history by adding examples of instances where a history of less than two years may be acceptable. Added a requirement that income history may not be less than 12 months for additional employed income Added requirements outlining base non-fluctuating and fluctuating hourly earnings to support analysis of income stability and accurate income calculation. Base non-fluctuating earnings For the purposes of determining stable monthly income, base non-fluctuating employment earnings are considered to be earnings with a pre-determined and agreed upon rate of pay and number of hours worked each pay period. Base non-fluctuating earnings may include both exempt (salaried) and non-exempt earnings; however, the pay rate and number of hours worked must not fluctuate between pay periods. Fluctuating hourly earnings For the purposes of determining stable monthly income, fluctuating hourly employment earnings are considered to be employment earnings with hours that may fluctuate each week or pay period. The hours are not pre-determined; however, the employer and the borrower may have a general expectation of weekly hours. The hourly pay rate is a pre-determined and agreed upon fixed amount. Introduced new requirements and guidance for employment type characteristics (i.e., union members, employment contracts, temporary help services employment, etc.), some of which may be more prevalent in today's labor force but were not specifically addressed previously. The focus is on employment characteristics rather than income type. Page 1 of 6

2 General Documentation Requirements Alimony, Child Support and/or Separate Maintenance Payments Automobile Allowances and Expense Account Payments Summary of Agency Guideline Revisions New subtopic added. Documentation requirements for the following were relocated from the General Information subtopic to this new General Documentation Requirements subtopic: paystubs, W-2s, tax returns, written VOE, third party employment verifications, age of income documents (including tax returns), IRS Form 4506-T, and income validated by the DU Validation Service. For DU loans, aligned with Fannie Mae s recently revised IRS Form 4506-T documentation requirements for loans using the Desktop Underwriter (DU ) validation service to indicate that when all of a borrower s income has been validated through the DU validation service, a borrower-signed Form 4506-T is not required. For non-aus and DU guidelines, all other updates were made to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. YTD Paystubs: Removed the requirement that hand-written paystubs are not permitted and added guidance for paystubs with less than the required information W-2 Forms: Added year-end paystubs and W-2 transcripts as alternative documentation for W-2 forms Written VOE: Added requirements regarding the information that must be included in a written verification of employment (VOE). If the employer provides additional information, such as the probability of continued employment and/or income and comments, the lender must consider the information with the income and employment analysis Third Party Verifications: Added requirements for determining the date used for compliance with age of documentation requirements Tax Return Requirements: Added alternatives for the borrower's signature on tax returns (e.g., signed IRS Form 8879 evidencing electronic filing) IRS Tax Transcripts: Added additional guidance for the use of IRS tax transcripts When Tax Returns are Required: Updated the existing list of income types that require tax returns For non-aus and DU guidelines, update made was to align with Fannie Mae s language/presentation of guidance. Guideline intent remained the same. For LP guidelines, revised guidelines to specify that a legally binding separation agreement and/or final divorce decree is acceptable documentation For non-aus and DU guidelines, all updates made were to align with Fannie Mae s language/presentation of guidance. Guideline intent remained the same. For LP guidelines,: Boarder All updates made were to align with Fannie Mae and/or Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Bonus and Overtime For non-aus and DU guidelines, all updates made were to align with Fannie Mae s language/presentation of guidance. Guideline intent remained the same. For LP guidelines,: Removed bonus income calculation examples Borrower Employed For non-aus and DU guidelines, all updates made were to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. by a Family Member or Interested Party to Revised guidelines to indicate that the lender must determine whether the employment represents primary or secondary employment and use the applicable requirements for history, continuance, earnings type, documentation and calculation. the Transaction Reduced the tax return documentation requirement from two years to one year since the purpose of this requirement is for validation of income based on the non-arm's-length nature of the employment, not the income type Borrowers Re-entering the Workforce For LP guidelines, the minimum six month with current employer requirement was removed. Documentation is required to support a stable employment history that directly preceded the extended absence. Capital Gains All updates made were to align with Fannie Mae and/or Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Commission For non-aus and DU guidelines, all updates made were to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. Requirements are now based on the percentage (of the income from the commissioned employment) that the commission income represents (i.e., less than 25% or 25% or greater) If the commission income represents less than 25% of the income from the commissioned employment, tax returns will not be required and unreimbursed employee business expenses will not have to be deducted from the income Commission calculation examples removed Page 2 of 6

3 Summary of Agency Guideline Revisions Employment Offers and Contracts Added guidance and requirements for employment contracts (educational and other industries) Added guidance to permit income from primary employment that begins no more than 60 days after the note date for borrowers with base non-fluctuating salaried earnings. A copy of the paystub for the new employment is not required to be obtained. Employment Related Assets as Qualifying Important Note: For this new allowance, Freddie Mac also permits an additional option to allow the lender to obtain the paystub for the new employment prior to the delivery date to SunTrust Mortgage). The paystub must validate the income used to qualify and the lender must document adequate income and/or liquid assets to pay the monthly housing expense and other monthly liabilities between the note date and the employment start date. SunTrust Mortgage will NOT be permitting this additional option to mitigate operational risks. For non-aus and DU guidelines: Added Fannie Mae s currently published example for the calculation of net documented assets Relocated IRA Distributions, Pensions and Annuities guidance from the Employment Related Assets as Qualifying subtopic to the Retirement, Government Annuity, and Pension All other updates made were to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. For LP guidelines: Mortgages secured by a 2-unit primary residence are now permitted The maximum LTV/TLTV/HTLTV ratio was increased from 70% to 80% Relocated Retirement Account Distributions as (e.g., 401(k), IRA) guidance from the Employment Related Assets as Qualifying subtopic to the Retirement, Government Annuity, and Pension Added a clarification note that if the mortgage loan does not meet the parameters outlined in this subtopic, assets as a basis for mortgage qualification may still be eligible under other standard income guidelines, such as Interest and Dividends or Retirement, Government Annuity, and Pension. Foreign For non-aus and DU guidelines, all updates made were to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. For LP guidelines, added specific requirements for employment, non-employment, and non-self-employment income received from foreign sources as follows: Complete U.S. federal individual income tax return for the most recent year The requirements for the specific income types (e.g., base non-fluctuating employed earning, bonus, etc.) continue to apply. Foster Care For non-aus and DU guidelines, update made to align with Fannie Mae s presentation of guidance. Guideline intent remained the same. For LP guidelines, all updates made were to align with Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Gaps in Employment For LP guidelines, revised guidelines to reflect that when a borrower has less than a two-year history of primary employment, the lender may be able to justify and determine that the employment is stable. An example that may support less than a two-year history of primary employment includes, but is not limited to, the following: For a borrower who experienced recent employment gaps (e.g., 30 days), documentation is obtained from the borrower explaining the circumstances surrounding the gap(s). Housing or Parsonage All updates made were to align with Fannie Mae and/or Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Interest and Dividend For LP guidelines, added a documentation alternative of year-end bank statements for the most recent two years in lieu of tax returns. Long-Term Disability All updates made were to align with Fannie Mae and/or Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Military Separated income requirements into the following three categories: Military base (basic) pay Military Entitlements (e.g., as flight or hazard duty, rations, clothing or quarters allowance) Military Reserve and National Guard income Military Reserve and National Guard Added reference to the National Guard Updated history of receipt requirement to one year (from none) to appropriately address fluctuating income calculation For all military income type categories Removed the standard documentation level requirement, which reduced the W-2 requirement from two years to one year Relocated reference to the option to use a Leave and Earnings Statement as the 10-day pre-closing verification (10-day PCV) from this subtopic to the Verbal Verification of Employment (VVOE) / 10-Day Pre-Closing Verification (PCV) subtopic (that combines all 10-day PCV related requirements). Mortgage Credit Certificates For LP guidelines, all updates made were to align with Freddie Mac s presentation of guidance. Guideline intent remained the same. Page 3 of 6

4 Summary of Agency Guideline Revisions Mortgage Differential For non-aus and DU guidelines, all updates made were to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. Payments For LP guidelines, revised guidelines to: Permit the housing payment differential payment from the employer to be considered as qualifying income. Previously, only the interest differential was permitted to be considered as qualifying income Specify that monthly differential payments may not be used to offset the monthly housing payment amount Non-Occupant Clarification and formatting updates only were made. Guideline intent remained the same. Borrower Notes Receivable For LP guidelines, specified that the full scheduled payment amount documented on the note may be used for qualification purposes. income Part-Time Added a new Part-Time subtopic to clarify (for all underwriting methods) that part-time employment may be either primary or secondary employment and that the applicable requirements for the earnings type (i.e., history, continuance, documentation, etc.) must be followed. Public Assistance For non-aus and DU guidelines, formatting updates only were made. Guideline intent remained the same. For LP guidelines, all updates made were to align with Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Rental For non-aus and DU guidelines: Added Fannie Mae s currently published steps (that is not new guidance; however, guidance not previously incorporated into SunTrust Mortgage guidelines) for offsetting the PITIA of a rental property (that the borrower is personally obligated on the mortgage debt) reported through a partnership or an S Corporation Incorporated clarification regarding how to calculate monthly qualifying rental income (or loss) when using market rents reported on Single Family Comparable Rent Schedule (Form 1007) or Small Residential Property Appraisal Report (Form 1025), as follows: Whether using lease agreements or Form 1007 or Form 1025, use 75% of the monthly lease or the market rent amount. Added clarification received from Fannie Mae regarding the calculation of rental income on properties owned jointly by two or more owners when our borrower claims income and expenses based upon his/her percentage of ownership DU guidelines ONLY: Added additional DU specific guidance for entering rental income into DU. Retirement, Government Annuity, For non-aus and DU guidelines, relocated IRA Distributions, Pensions and Annuities guidance from the Employment Related Assets as Qualifying subtopic to the Retirement, Government Annuity, and Pension. Guideline intent remained the same. and Pension For LP guidelines, relocated Retirement Account Distributions as (e.g., 401(k), IRA) guidance from the Employment Related Assets as Qualifying subtopic to the Retirement, Government Annuity, and Pension subtopic. Guideline intent remained the same. Royalty Payment For LP guidelines, revised requirements to be based on the length of history of receipt (i.e., less than a two year history and history of two years or more) Salaried or Hourly Wage Earner Documentation requirements are now presented based on earnings types (i.e., Primary Employment [base non-fluctuating and fluctuating hourly earnings] and Secondary Employment) Streamlined Accept and Standard Documentation requirements are now the same. Revised W-2 Requirements: For primary employment earnings, removed the standard documentation level requirement, which reduced the W-2 requirement from two years to one year Revised Written VOE Requirements: For primary employment earnings, removed the standard documentation level requirement, which reduced the written VOE requirement from covering two years to one year Schedule K-1 For LP guidelines, revised guidelines to state that standard LP income history, stability, and continuance requirements apply. (For borrowers with less than 25% Ownership in Business) Seasonal For non-aus and DU guidelines, clarified documentation requirements /Seasonal For LP guidelines Unemployment Seasonal : Revised documentation requirements; the lender must determine whether the employment represents primary or secondary employment and use the applicable requirements for history, continuance, earnings type, documentation and calculation. Seasonal Unemployment : Replaced two-year tax return requirement with the IRS Form 1099-G (or equivalent), to cover two years of receipt Page 4 of 6

5 Summary of Agency Guideline Revisions Second Job For non-aus and DU guidelines, clarified documentation requirements Note: Less than a 2-year (but at least 12-months) secondary employment and/or income history is now acceptable. Examples of instances where a history of less than two years may be acceptable was added to the General Information subtopic. Previously, second job income guidelines indicated that the borrower must have a two-year consecutive history of receiving second job income. Self-Employment For non-aus and DU guidelines, all updates were made to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. Added specificity for the documentation required (e.g., business returns, Schedule K-1, IRS Form 1125-E) to verify the ownership interest percentage for partnerships, S corporations and corporations Revised the requirement to identify self-employment in LP only when the self-employment income and/or loss is used to determine the borrower's stable monthly income. Previously this was required in all cases whether or not self-employment income was being used to qualify the borrower. Added guidance for analyzing history that does not meet the two-year requirement Expanded guidance on business and income analysis Revised to more comprehensively address factors such as business analysis based on gross receipts, cost of goods and expenses, liquidity, distributions, and additional documentation that may be obtained to support analysis (e.g., business bank statements and financial statements) Further clarified guidelines to state that an analysis of the business must support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the borrower Added specificity for the permissible use of business income as stable monthly income based on whether the business income is reported on the borrower's federal individual income tax returns Updated the requirements to define, by business structure, when verification of access to business income is required. For instance: For ordinary income, net rental real estate income, other net rental income and guaranteed payments from partnerships and S corporations, the access to business income requirement (through a corporate resolution or comparable document) was removed For business income not reported on federal individual income tax returns, the requirement was changed to confirm the corporate resolution or partnership agreement does not restrict access, rather than confirm access Added guidance for use of business financial statements as additional support for business and income analysis. Financial statements may not be used for the calculation of stable monthly income (unless audited); however, financial statements may be used to help support the analysis of subjects such as business liquidity, income stability when tax returns are on extension, evaluating a newer business, and the impact of business fund withdrawals For rental real estate income and expenses reported on IRS Form 8825, added content for rental real estate held in a partnership or S corporation to support the current treatment of this income as business income or loss in the income analysis section of Form 91 Revised guidance regarding self-employment income NOT used for qualification Updated requirements to state that if the borrower qualifies with a reported loss, then no further analysis is needed. Lenders no longer need to obtain additional documentation to more fully evaluate the impact of the business loss. Reduced complete federal individual income tax return requirement to pages one and two and the applicable IRS schedule(s); adding examples to support evaluation of loss impacts Added reference to IRS tax transcripts for alternative documentation possibilities Positive income from self-employment that is not used to qualify: Additional information will not be required when documents such as IRS transcripts or Schedule K-1s show positive self-employment income but that income is not used to qualify Revised business assets used for closing requirements by adding guidance for analysis when determining whether the use of business assets for closing will have a detrimental impact on the business (e.g., review of business financial statements and/or business bank statements to support business viability). This revised guidance is outlined in the Business Assets subtopic. Revised verification of current existence of business requirements Verification of current business existence is required only when positive self-employment income is used to qualify rather than for all self-employment income or loss Added guidance for alternative methods, such as a tax preparer (provided preparer has an arm s length relation with borrower) and business bank statements, to establish existence of the business when third-party sources are not available The date requirements for the verification to be completed were changed from no more than 30 calendar days prior to the note date to no more than 120 calendar days prior to the note date (Note: These revised requirements are outlined in the Verbal Verification of Employment / 10-Day Pre-Closing Verification (PCV) subtopic) Revised documentation requirements to base the number of years of tax returns required (business and personal) on the number of years the business has been in existence For businesses operating for five or more years, one year of business and personal returns are required For businesses operating for less than five years, two years of business and personal returns are required Social Security All updates made were to align with Fannie Mae and/or Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Tax Exempt All updates made were to align with Fannie Mae and/or Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Temporary Leave and Short-Term Disability For non-aus and DU guidelines, incorporated Fannie Mae s example for calculating the supplemental income and total qualifying income amount. This example is not new/updated guidance provided by Fannie Mae; however, guidance not previously incorporated into SunTrust Mortgage guidelines. Page 5 of 6

6 Summary of Agency Guideline Revisions Tip For non-aus and DU guidelines, aligned with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. Added requirements for cash and charge tip income not reported to the employer, but reported on IRS Form Trust For LP guidelines, revised requirements to be based on whether the trust income payments are fluctuating historical payments or pre-determined fixed payments. VA Benefits All updates made were to align with Fannie Mae and/or Freddie Mac s language and/or presentation of guidance. Guideline intent remained the same. Verbal Added a new Verbal Verification of Employment (VVOE) / 10-Day Pre-Closing Verification (PCV) subtopic and relocated guidance from the General Information subtopic to this new subtopic to assist with the location of these requirements. Verification of Employment For employed income sources: (VVOE) / 10-Day Changed references from Verbal VOE to 10-day pre-closing verification (10-day PCV) Pre-Closing Consolidated in table format, the listing of eligible 10-day PCV types (i.e., verbal VOE, written VOE, Military LES, and third-party employment verification provider) and their requirements Verification Updated verbal VOE requirements to remove verification of the borrower s position and length of employment (PCV) For electronically generated verifications from third-party employment verification service providers, updated requirements to state that the verification must evidence that the information in the database is no more than 35 days old Added reference to the SunTrust Mortgage VVOE forms (i.e., COR0050a; COR0050b) For self-employed income sources, updated requirements and provided more specificity as follows: Verification of the current business existence will be required only when positive self-employment income is used to qualify rather than for all self-employment income or loss Added guidance for alternative methods, such as business bank statements, to establish existence of the business when third-party sources are not available Changed the date requirements for the verification to be completed are from no more than 30 calendar days prior to the note date to no more than 120 calendar days prior to the note date DU Refi Plus Specific All updates made were to align with Fannie Mae s language and/or presentation of guidance. Guideline intent remained the same. Products Requirements Business Assets For LP guidelines, expanded guidance for analysis when determining whether the use of business assets for closing will have a detrimental impact on the business (e.g., review of business financial statements and/or business bank statements to support business viability) Job Related Expenses (Unreimbursed Employee Business Expenses) For LP guidelines, revised guidelines to indicate that business expenses are not required to be deducted from the borrower's income unless the expenses are associated with commissions that are greater than or equal to 25% of the income from the commissioned employment. Page 6 of 6