TOPICS IMPACTED IN THIS BULLETIN FNMA and FHLMC Products FHA/VA Mortgage Insurance USDA Other Underwriting Guidelines FHA: FHA Annual Premium Reduction, Mortgagee Letter 2017-07 (Reminder) On 1/20/17, FHA announced the indefinite suspense of Mortgagee Letter 2017-01 which reduced the FHA Annual Mortgage Insurance Premium Rates. FHA will issue a subsequent Mortgagee Letter at a later date in the event this policy is changed. The MIP Charts that are currently in effect and were published as of 9/14/15 must continue to be utilized for all FHA transactions and can be viewed by utilizing the link above. FHA Large Deposits and Gift Funds Large Deposits/Gift Funds: These sections of the Retail Lending Guide have been updated to include the FHA individual (versus cumulative) acknowledgement. Relative to Individual as opposed to cumulative validation, this change impacts the Retail Lending Guide Section 601.4: FHA: Provide an explanation and documentation for recent large deposits in excess of 1% of the property sales price for a purchase, or appraised value for a refinance. Deposits are reviewed on an individual basis. Please note: In the event of a pattern of deposits without evidence of origin within a short period of time, the Underwriter may validate deposits even if less than 1%. FHA HUD REO Properties with Repair Escrow FNMA/FHLMC: UHM has updated guidelines to align with FHA s current 4000.1 policy as announced in FHA INFO#16-64. The total amount of required repairs may not exceed $10,000.00 for HUD REO properties insurable with a repair escrow. Fannie Mae Desktop Underwriter Release Notes for DU Version 10.0 (February Update) During the weekend of 2/25/17, Fannie Mae will update Desktop Underwriter Version 10.0 with the changes described below. The enhancements will apply to DU Version 10.0 loan casefiles submitted or resubmitted after the weekend of 2/25/17. DU Validation Service Updates: Updates will be made to the messages returned by the DU validation service. Income and Employment Message Updates: An update will be made to the reference 1
numbers that are displayed in the two messages specifying that a verification of income (VOI) and a verification of employment (VOE) were received for the Borrower. This will ensure that when both a VOI and a VOE are received for the same Borrower, the appropriate reference number is being displayed for the specific report. The message issued when employment has not been validated listing the reason(s) it was not validated will also be updated to include two new reasons: Self-employed; and Income type other than Base, Bonus, Overtime, Commission. An update will also be made to the message issued when VOE and/or VOI information was obtained but income could not be validated. The updated message will remind the Lender that the report date cannot be more than 30 days before the date the casefile was created in order for the report to be used to validate income. Asset Message Updates: The message issued when account information was not received will be updated to display the information as a list. The list will include the Borrower, Vendor, and report ID provided on the DU loan application when the loan casefile was submitted. Fannie Mae EarlyCheck Version 5.1.1, Freddie Mac Loan Quality Advisor During the weekend of 3/11/17, Fannie Mae will implement Version 5.1.1 which will introduce updated edits. The updates in this release will apply to loans submitted to EarlyCheck via the User Interface and Direct Integration and may require changes to systems or processes. UHM Requirement Reminder: Fannie Mae loans delivered to UHM must be able to pass Fannie Mae s EarlyCheck Freddie Mac loans delivered to UHM must be able to pass Freddie Mac s Loan Quality Advisor (LQA). Freddie Mac Guide Bulletin 2016-19 (Revisions to Income Qualification Requirements) Bulletin 2016-19 announces revisions to Freddie Mac's income qualification requirements and guidance, effective for Mortgages with Settlement Dates on and after 3/16/17. The revisions provide more comprehensive requirements and guidance with a focus on matters that impact the analysis of stable monthly income such as: Industry employment trends (e.g., employment characteristics) Determination of stability and calculation of fluctuating earnings Self-employment 2 The following information includes highlights of the changes in each chapter. Additional details are
available in Attachment A of this Bulletin, Detailed Summary of Income Qualification Requirements Updates. General Requirements for Documentation Used to Verify Employment and Income The revisions to the requirements and guidance include: Signed Tax Returns: Adding alternatives for the Borrower s signature on tax returns IRS Transcripts: Adding guidance for the use of IRS transcripts Unreimbursed Employee Expenses: Adding flexibility by specifying that business expenses must be deducted from the income only when the expenses are associated with commissions greater than or equal to 25% of the income from the commissioned employment. Verbal Verification of Employment (VOE): Updating verbal VOE requirements to remove verification of the Borrower s position and length of employment. 1. Employed Income (Income commencing after the Note Date): Freddie Mac is are introducing requirements in Section 5303.2(e) that permit income from primary employment that commences no more than 60 days after the Note Date for Borrowers with base nonfluctuating salaried earnings. 2. Employment characteristics: To support the income analysis, new content in Section 5303.2(d) focuses on requirements and/or guidance for certain employment characteristics. Examples of the employment characteristics include: Full-time and part-time employment : Union members Educational employment contracts Temporary help services employment Income reported on IRS Form 1099 Employed income from a foreign source 3. Earnings types requirements: Freddie Mac is adding requirements delineating base non-fluctuating and fluctuating hourly earnings to support the analysis of income stability and calculation. 4. Additional employed income: Freddie Mac is specifying requirements for commission income that represents less than 25% of the income from the commissioned employment (e.g., tax returns are not required and unreimbursed employee business expenses do not have to be deducted from the income). 3 5. Income calculation: To support accurate analysis and calculations, we are updating our employed income calculation guidance and requirements for base non-fluctuating and fluctuating employment earnings.
6. Streamlined Accept and Standard Documentation Levels: For purposes of the revised income requirements, Streamlined Accept and Standard Documentation Levels will be equivalent for all income types. 7. Self-Employed Income: Freddie Mac is revising and reformatting the requirements and guidance in Chapter 5304 to support the analysis and determination of self-employed income. Key changes include: Loan Product Advisor: Revising the requirement regarding when to identify that a Borrower is self-employed Business financial statements : Adding guidance for use of business financial statements as additional support for business and income analysis Rental real estate held in a Partnership and S corporation: Updating Section 5304.1(d) to align with Form 91; specifying that the rental real estate income and expenses reported on IRS Form 8825 may be treated as business income (or loss). Verification of current existence of the business: When third-party sources are not available, Freddie Mac is adding alternative methods to establish existence of the business. Documentation requirements: The number of years of required tax returns will be based on the number of years the business has been in existence. o For businesses operating for five or more years, one year of business and personal returns will be required o For businesses operating for less than five years, two years of business and personal returns will be required. 8. Other Income: The specific requirements for other income types are being reformatted for ease of use. Updates are being made to certain income types to provide more specific guidance, additional documentation alternatives and broader subject coverage. 9. Asset Qualification Sources: Freddie Mac is updating requirements for assets as a basis for Mortgage qualification as follows: Increasing the maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratio from 70% to 80% Permitting Mortgages secured by 2-unit Primary Residences 4
10. System Updates and Important Dates: The existing feedback messages for Loan Product Advisor will be updated by February 6, 2017 to support the revisions being made with this Bulletin. Upon release only products registered in the system for Freddie Mac delivery will be able to utilize and apply these qualifying characteristics. Freddie Mac Guide Bulletin 2016-20 (Multiple Updates) VA: This Single-Family Seller/Servicer Guide Bulletin 2016-20 announces: Properties with solar panels: Requirements for properties with solar panels - March 1, 2017 (New). Trended credit data: Trended credit data must be excluded by Sellers during the credit assessment for Manually Underwritten Mortgages and will not be used by Freddie Mac during post-funding quality control reviews. Living Trust Borrowers: Reorganizing and reformatting of Freddie Mac's requirements for Living Trust Borrowers for ease of reference. Monthly debt payment-to-income ratio: Updates to Freddie Mac's monthly debt paymentto-income ratio requirements 3/1/17. Additional Guide updates: Further updates and revisions as described in the "Additional Guide Updates" section of this Bulletin. VA UHM Cash-Out Overlays Effective 1/18/17, UHM has lowered the minimum credit score requirement for VA Cash-Out Refinances from 700 to 680 for Retail and Wholesale channels. VA Announces New Electronic Upload Requirements for Prior Approval Submissions VA released Circular 26-17-01 announcing that effective 1/13/17 Lenders will be required to upload prior approval loan submissions electronically through the WebLGY system. VA Student Loan Qualifying Effective 1/23/17, VA has announced Circular 26-17-02 to including modifications of student loan qualifying requirements as follows: If the Veteran or other Borrower provides evidence the student loan debt will be deferred at least 12 months from the closing date, the monthly payment does not need to be considered. For student loans that require the monthly payment to be included in the debt ratio, the Lender must use the higher of the actual payment or 5% of the balance divided by 12 monthly 5
payments. USDA: Other: The UHM Student Loan Matrix has been updated and released effective 1/25/17 to accommodate this change. At this time, no USDA bulleting impacting UHM requirements and guides were noted for January and February 2017. 2016 W-2 and Tax Return Requirements 2016 W-2 Requirements Effective Wednesday, 2/1/17 W-2 s will be required with all applicable file submissions. 2016 Tax Return Requirements For Self Employed Borrowers that require the consideration of 2016 earnings, income must be supported by 2016 transcripts, IRS stamped transcripts, or as a very last option the 2016 IRS stamped tax returns if not e-filed (stamped as filed is acceptable, stamped as delivered or received is not acceptable) and a 2016 Tax Transcript showing No Record Found. **Any due taxes must have evidence of being paid (cancelled check) and funds sourced. UHM will allow a waiver of this requirement if the amount is $2000.00 or less and the Borrower has verified sufficient funds to cover the amount after required funds to close and any reserve requirements are met. We are reminded that beginning with Loans closed on or after June 15, 2017; UHM must provide 2016 Tax Return Transcripts to be eligible for purchase. If a Borrower has filed an extension, we require: 1. Evidence in the file that the extension was filed, and A 2016 Tax Transcript showing No record of return filed, and; 2. For salaried borrowers: A 2015 transcript, a current paystub, and 2016 W-2. 3. For self-employed borrowers: A 2015 transcript and an audited profit & loss statement for 2016. 4. For retired borrowers: In cases where the borrower is not required to file, transcripts are still required. If No Results feedback is received, provide a copy of the feedback Note: The qualifying basis for those with extensions remains based on 2015 income and may include 2016 with an audited P & L. In the event income from 2016 appears to have been reduced from the previous year, 2016 income will be used in qualifying and current tax returns will be required regardless of the extension time-frame. Flood Policy Transferability The Homeowner Flood Insurance Affordability Act of 2014 repeals and modifies certain provisions of 6
the Biggert-Waters Flood Insurance Reform Act of 2012 as well as makes additional program changes to other aspects of the program not covered by the Biggert-Waters Flood Insurance Reform Act. In order to enable new purchasers of property to retain Pre-Flood Insurance Rate Map Pre-FIRM rates while FEMA is developing its guidelines, a new purchaser will be allowed to assume the prior owner s flood insurance policy and retain the same rates until the guidance is finalized. Effective immediately, a Buyer will be permitted to assume the Seller s flood insurance policy and retain the same rates provided the loan is not a construction loan and the policy states it is transferable. UHM Mortgagee Clause Change Effective for all new files created on or after 2/1/17, the UHM Mortgagee Clause for Hazard and Flood Insurance has been modified as follows: Union Home Mortgage Corp. c/o Central Loan Administration & Reporting I.S.A.O.A./A.T.I.M.A. P.O. Box 202028 Florence, SC 29502-2028 Encompass Loan Origination System, 4506-T Document Effective 2/8/17 the 4506-T has been programmed to include 2016, 2015 and 2014 listed on line 7 for the year or prior requested field. For loan files created before 2/8/17, Loan Officers will need to update the dates manually on the Copy of Tax Return field. Mortgage Insurance: National MI Advanced Self-Employed Borrower Webinars National MI is providing Self-Employed Borrower Webinars to include a review of the following: Conduct a line-by-line review of Form 1084, Cash Flow Analysis Address the handling of Schedule C income Determine the income and distributions from a partnership or S-Corporation for the K-1 7
Document access to income (including stream-by-stream income), and business liquidity Analyze employee business expenses on the 2106 to help properly qualify a Borrower Registration information will be provided through the LOS intra-network. Essent Guaranty Modifies System to Accommodate FHFA Conforming Loan Limit Increases and Webinars Essent Guaranty has announced completion of the support of the Federal Housing Finance Agency s (FHFA) recent increases to the maximum conforming loan limits and to some higher-cost areas for loans acquired by Fannie Mae and Freddie Mac in 2017. Underwriting Guideline Manual and Guideline Summaries have been updated to reflect these changes effective immediately. The loan size adjustment on our Borrower-Paid Single and Split Premium Rate Cards has also been updated to reflect FHFA s new conforming loan limits. Rate changes will be effective for commitments issued on or after January 23, 2017, subject to regulatory approval. Essent Guaranty has also announced a series of training courses prepared to assist with: Selling Skills, Analyzing Income, Condominium Appraisals, Credit Report Reviews, Technical Origination Tips, Time Management and Loan Product Advisor Interpretation Recent Releases: Forthcoming Releases: Reminder: Communications Policy Group Updates: Manufactured Home credit score overlays aligned for retail and wholesale >=660, 1/18/17 Conventional Cash-Out Refinance credit score overlays aligned for retail and wholesale >=620, 1/18/17 FHA MIP Reduction Suspense Notification, 1/23/17 Student Loan Matrix Update for VA Loans, 1/25/17 Gift Funds and Large Deposit Requirements, 1/26/17 1. Updated Fair Housing Policies and Procedures 2. Updated ECOA Policies and Procedures All scenarios cannot be addressed, please continually review any and all internal and external updates. 8