Hosted by: Learning and Development Presented by: Cathy Bell & Deb Baider Date: Jan 4 th, 2017
Freedom from reps & warrants plus greater speed and simplicity for Fannie Mae s lender partners DU Validation Service on Income Assets and Employment Freedom from paper-based processes with validation of income, assets, and employment. Rep & warrant relief on validated components Enhanced Property Inspection Waiver Freedom from appraisal requirements on eligible refi transactions. Rep & warrant relief on property value, condition, and marketability Certainty on Appraised Value Freedom from reps & warrants on appraised value with the power of Collateral Underwriter when CU risk score is 2.5 or lower NOTE: ONLY AVAILABLE ON FANNIE MAE CONVENTIONAL LOANS Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 2
DU Validation Service The DU validation service is available on only FANNIE MAE Conventional loans. The DU validation service is not available for Freddie Mac loans, Non-Conforming or Government (such as VA, FHA, and Rural Development) loans. There may be additional restrictions for income types and other loan components. Refer to the Selling Guide Announcement and the DU Validation Service Reference Guide for more detail. Fannie Mae is working with the following designated vendors to offer the DU validation service: NOTE: Borrowers must provide consent for the lender to order the report from the vendor. Signed Borrower s Authorization (wet or esigned) will satisfy this requirement. Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 3
DU Validation Service Benefits Easier Documentation Process. Borrowers save time by consenting to use electronic data versus collecting documents such as paystubs, bank statements, and investment account statements. Streamlined Loan Processing. Keeps lenders focused on exceptions. Dynamic Underwriting. Validates key loan data up front, provides more certainty on income and asset calculations, and confirms that the validated component meets Fannie Mae s requirements. Process Efficiencies. Reverification is not required for assets, income, and/or employment validated in DU as long as the report date has not yet expired. DU will offer messaging on expiration dates. Day 1 Certainty. Lender receives certainty regarding income, assets, and employment information validated by DU. With validation, lenders will receive freedom from representations and warranties with regard to the accuracy of income and/or asset calculation, borrower employment status, and the integrity of the data from the vendor. Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 4
DU Validation Service and TPO Business Models Lenders must order the vendor income and/or employment reports directly (using their own subscriptions with Equifax) and may not rely on reports pulled by brokers. Because the income and employment reports produced by Equifax are considered consumer reports and thus subject to the Fair Credit Reporting Act, the entity ordering the report must be the same entity making the loan decision. This should also be the same entity issuing an Adverse Action Notice should it be required. Brokers can still order income and employment reports; however, the lender must re-order as well. This process is currently not required for the asset validation report ordered through FormFree (effective Dec 10 th, 2016). Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 5
Loan Criteria for Income Validation Using The Work Number Reports The Lender must obtain consent from the borrower(s) to pull electronic data for validation The borrower must be an active employee as defined by the DU validation service (for example, The Work Number report cannot reflect that the borrower is on leave or terminated). The lender loan number and the borrower s Social Security number entered in DU must match exactly to the lender loan number and the borrower s Social Security number on The Work Number report in order for DU to access an electronic copy of the report. The income type must be eligible for validation via The Work Number and identified correctly as base, bonus, overtime, or commission on the report. Income identified as other on the report is not validated by DU. *If an instant verification was provided and it not usable do to the reporting or breakdowns of income we cannot proceed with manual/researched verification. Standard income documentation applies as per the AUS Feedback.* NOTE: If a borrower has income generated from self-employment that is not eligible to be validated by DU, then no income will be validated even if another income type is otherwise eligible for validation (base income, for example). For all loans, including those with validated income, the lender must continue to ensure the income amount it enters in DU is appropriate based on its review and investigation of any inconsistent or contradictory information in the loan file and the vendor report. 6
Types of Income that can be Validated NOTE: Borrowers Employed by Family Members or Interested Parties When income has been validated by the DU validation service, the lender is not required to determine if the borrower is employed by a family member or interested party to the property sale or purchase. 7
Types of Income that cannot be Validated Alimony Child Support IRA/Asset account disbursements K-1s Rental Fannie Mae Day 1 Certainty Training 8
Minimum Requirements for Income Calculations Using The Work Number or Tax Transcripts via Equifax Base: Minimum History: 12 months of base income reported on The Work Number report. NOTE: DU will use the most recent start date (not the original start date) to determine if at least the minimum requirement of 12 months of income have been reported Bonus: Minimum History: 24 months of bonus income reported on The Work Number report. Overtime and Commission less than 25% of borrower s total income: Minimum History: 24 months of overtime or commission income reported on The Work Number report. Commission equal to or greater than 25% of borrower s total income: DU calculates the monthly commission income used for validation using the same calculations above that apply to commission less than 25% of the borrower s total income; however, the lender must obtain both the report and Equifax tax transcripts in order for DU to validate the income. See the additional calculations that must be completed based on the Equifax tax transcripts outlined below. Commission equal to or greater than 25% of borrower s total income : Minimum History: Two years of tax transcripts (and 24 months of commission income reported on The Work Number report). Social Security: Minimum History: Most recent tax transcript. Pension/Retirement : Minimum History: Most recent tax transcript. Self-Employment: Minimum History: Two years of tax transcripts. **Refer to Fannie Mae s DU Validation Service Reference Guide for detailed requirements and calculations on all income types** 9
Some Work # Q & A 10
Employer Code List for The Work # https://secure.theworknumber.com/popups/findemployer.aspx 11
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Employment Validation NOTE: The Information Effective Date on the vendor report must be no more than 35 days prior to the Report Date. 13
Types of Assets that can be Validated NOTE: When the borrower is receiving funds from a gift, the loan is not eligible for asset validation. In addition, if any borrower on the loan is using employment-related assets as income, the loan is not eligible for asset validation. Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 14
Asset Calculations Using AccountChek Asset Reports To validate assets, DU may use calculation methods that differ from the standard asset calculations in the Selling Guide. The DU validation service assesses assets as follows: Checking, savings, CD and money market accounts are considered first. If additional funds are required, DU will proceed to assess stock, mutual fund and retirement accounts. The amount of assets available is aggregated across all like accounts for all borrowers on the loan. Bonds and stock options are not eligible for consideration and will not be considered by DU even if they are included on the vendor report. 15
Additional DU Messaging with regards to Asset Validation Large Deposits For purchase transactions, DU automates the assessment of large deposits as part of the asset validation process. The DU validation service will identify large deposits in accordance with the definition provided in the Selling Guide, and will determine when large deposits need to be verified by the lender. When a large deposit needs to be documented, DU will issue a message specifying the amount of the large deposit, as well as the institution name and account number of the account that includes the large deposit. If no message is issued by DU, then no documentation of any large deposit appearing on the asset report is required when assets have been validated. Increase in Amount of Assets Required at Closing If the actual amount of funds required to complete the transaction is greater than the Funds Required to Close specified in DU (which is a component of the Total Funds to be Verified amount used for asset validation purposes), the lender must ensure that the file includes sufficient documentation of liquid assets to cover the additional amount. DU will issue a message with this reminder when assets have been validated. See Section B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report for additional details on whether the loan must be resubmitted to DU. 16
Enhanced Property Inspection Waiver Special Feature Code Specific to PIW s under this program is 801 (not 807 as for DURP loans) In order for a PIW to be considered, a prior appraisal must be found for the subject property in Fannie Mae s Collateral Underwriter (CU ) data, and that appraisal must be associated with one of the borrowers on the loan casefile. 17
Collateral Underwriter Version 4.0 Effective on December 10, lenders may receive Day 1 Certainty with freedom from representations and warranties on property value for eligible loans with a CU risk score of 2.5 or lower on the appraisal. This new offering, powered by CU, will provide greater speed and simplicity while maximizing the efficiency of your business. Fannie Mae will offer this enforcement relief on representations and warranties related to the property value for eligible loan casefiles that are secured by a one-unit detached, attached, or condominium property. The enforcement relief will be offered on loan casefiles that receive an Approve/Eligible recommendation in Desktop Underwriter (DU ) if the appraisal received a CU risk score of 2.5 or below. NOTE: Two-to-four unit properties, manufactured homes, and units in cooperative projects will not be eligible for the enforcement relief. Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 18
Question & Answers Q. Employment was not validated for a borrower because the employer name on the VOE does not match the employer name in DU. The discrepancy is really just a data-entry error the employer name is reflected differently on The Work Number report than on the application ( Federal National Mortgage Association vs. Fannie Mae, for example). Does this mean this employment record cannot be validated? A. If, after performing the appropriate due diligence, the lender determines that the reason for the difference in employer name is purely data entry and the employers are, in reality, the same, the lender may update the employer name in DU to match the name as it appears on The Work Number report and resubmit to DU. Q. What percentage of income can be validated? A. The DU validation service can validate roughly 80% of income types. Automated verification of income through The Work Number by Equifax covers up to 30% of employers with new employers added all the time. Manual verification of income from Equifax can triple the verification of income rates. Additionally, the 4506-T tax transcript, also from Equifax, expands income types (e.g. pension, self-employed, social security/disability). 19
Question & Answers Q. If income is validated by DU, does the lender still need to obtain a Verbal Verification of Employment (VVOE) per Selling Guide B3-3.1-07, Verbal Verification of Employment? A. Yes. The lender is responsible for fulfilling the requirement to obtain a verbal verification of employment in accordance with the Selling Guide. When employment is validated by DU, DU may be able to automate this process via a vendor report obtained from a designated vendor. This validation fulfills the requirement to obtain a verbal verification of employment. The lender must comply with all DU messages, including ensuring the loan closes by the Close by date stated in the DU employment validation message. **For Approve/Eligible loans, if employment has been validated and the lender closed the loan within the date outlined in the DU message (10 days from date that The Work Number report is obtained), the lender will receive enforcement relief of the representation and warranty that the borrower is employed as of the closing date** 20
Lender s additional responsibilities when a component has been validated In order to preserve the representations and warranties enforcement relief, the lender additionally must take the following steps: Confirm that the designated vendor report matches the borrower, including the employer name (for The Work Number reports); Investigate any inconsistent or contradictory information, resolve, and then update DU if necessary; Ensure that the documentation meets the age of credit document requirements as contained in the specific DU messages issued; Comply with all DU messages and document the file accordingly. Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 21
MI Partners and Investors All four of EMM s MI Partners (National, Genworth, Essent and Radian) and our Investors are on board with all aspects of Fannie s Day 1 Certainty without additional overlays Lender NMLS 2926. This document is intended for use by E Mortgage Management, LLC and it's business partners only. It may not be disseminated without express, 22