FNMA VS. FHLMC 09/04/2017 Disputed Accounts FNMA When the credit report contains tradelines disputed by the borrower, DU will first assess the risk of the loan casefile using all tradelines, including those disputed. If DU issues an Approve recommendation using the disputed tradelines, no further documentation or action is necessary. DU will issue a message specific to this scenario. If DU does not issue an Approve recommendation when including the disputed tradelines, DU will re-assess the risk without using the disputed tradelines. If DU is then able to issue an Approve recommendation, the lender must investigate the tradelines to determine whether the borrower is responsible for the accounts or if the account information is accurate or complete. If the borrower is not responsible for the disputed accounts, the lender must obtain supporting documentation and may deliver the loan as a DU loan. No further action is necessary regarding the disputed tradelines. If the borrower is responsible for the disputed account, the lender must investigate the information, including determining the aspect of the tradeline that is being disputed. If the borrower is able to provide documentation to disprove any adverse information (such as canceled checks), the lender may deliver the loan as a DU loan. If the borrower is responsible for the disputed account and the account and tradeline information is accurate and complete, the loan is not eligible for delivery as a DU loan. The lender may manually underwrite the loan if the transaction is eligible for manual underwriting. FHLMC LP recognizes disputed accounts as being disputed. If loan received an Accept than no further action is required (which it usually will if less than 2 disputed accounts)
Waiting Period for Mortgage Debt Discharged Through Bankruptcy FNMA If mortgage debt has been discharged through a bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period FHLMC If mortgage debt is discharged through a bankruptcy, and there is a subsequent foreclosure action to reclaim the property in satisfaction of the debt, the borrowers eligibility will be determined by the LP findings report. Future Employment FNMA - This option is limited to the following loan types: 1) Purchase transactions 2) 1-Unit 3) Primary residence 4) Fixed base income only(cannot be employed by family) The lender must obtain and review the borrower s offer or contract for future employment. The employment offer or contract must: 1) Clearly identify the employer and the borrower, be signed by the employer, and be accepted and signed by the borrower; 2) clearly identify the terms of employment, including position, type and rate of pay, and start date; and 3) Must be non-contingent. Note: If conditions of employment exist, the lender must confirm prior to closing that all conditions of employment are satisfied either by verbal verification or written documentation. This confirmation must be noted in the mortgage loan file. The employment start date as shown on the employment offer or contract must be within 90 days of the note date. The lender must deliver the loan with Special Feature Code 707. The lender must document, in addition to the amount of reserves required by DU or for the transaction, one of the following: 1) Financial reserves sufficient to cover principal, interest, taxes, insurance, and association dues (PITIA) for the subject property for six months; or
2) Financial reserves or current income sufficient to cover the monthly liabilities included in the debt-to-income ratio, including the PITIA for the subject property, for the number of months between the note date and the employment start date, plus one. Current income refers to income that is currently being received by the borrower (or coborrower), may or may not be used for qualifying, and may or may not continue after the borrower starts employment under the offer or contract. Current income may be used in lieu of or in addition to financial reserves FHLMC Allowed with a copy of the employment offer letter or employment contract that contains the following: 1) Is fully executed and accepted by the Borrower, 2) Is non-contingent or provide documentation, such as letter or e-mails, from the employer verifying all contingencies have been cleared, 3) Includes the terms of employment, including but not limited to, employment start date and annual base non-fluctuating earnings. The Seller is not required to obtain the paystub for the new employment when: The Note Date is less than 60 days prior to the commencement of employment as documented on the offer letter or employment contract and Adequate liquid assets needed to pay the monthly housing expense and other monthly liabilities between the Note Date and the employment start date are verified, plus 6 months of additional reserves are documented in file. Retirement Income-Pension, annuity, SSI, or similar benefit FNMA will accept any one of the following documents: letters from the organizations providing the income, copies of retirement award letters, copies of signed federal income tax returns, IRS W-2 or 1099 forms, or proof of current receipt. FHLMC - In addition to either a 1099, pay statement, tax returns or an award letter, current receipt must be verified. Award letters and benefit verification letters may be used to verify current receipt, provided they meet the age of documentation requirements(dated within 120 days of the note). Otherwise bank statements continue to be acceptable documentation to document current receipt. For newly established sources of retirement incomeo Document the finalized terms of the newly established income including, but not limited to, the source, type, effective date of income commencement, payment frequency and pre-determined payment amount with the benefit verification letter, notice of award letter or other equivalent documentation from the payor. The income must commence prior to or on the first Mortgage
payment due date. The documentation must be dated no more than 120 days prior to the Note Date. Verification of current receipt is not required. Retirement account distribution as income- FNMA - If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application. In addition the borrower must have unrestricted access without penalty to the accounts; and if the assets are in the form of stocks, bonds, or mutual funds, 70% of the value (remaining after any applicable costs for the subject transaction) must be used to determine the number of distributions remaining to account for the volatile nature of these assets. FHLMC - Distributions from retirement accounts recognized by the Internal Revenue Service (IRS) (e.g., 401(k), IRA) that are not subject to penalty (e.g., early withdrawal penalty) may be considered stable monthly qualifying income. Most recent retirement account statement(s), documentation from financial institution holding retirement account that verifies regularly scheduled distribution arrangements, 1099(s) and/or other equivalent documentation showing income source, type, distribution frequency, distribution amounts and history of receipt (as applicable), and Bank statement(s) or other equivalent documentation evidencing current receipt (as applicable), and Evidence of sufficient assets to support the qualifying income If the retirement distributions are not scheduled monthly payments (e.g., annual, semi-annual, quarterly), the most recent distribution verified through a retirement account statement, 1099 and/or other equivalent documentation, as applicable, is sufficient in lieu of current receipt; however, verification of receipt of multiple distributions may be necessary to determine frequency of distributions, history of receipt and amount of stable monthly qualifying income.
Delayed financing FHLMC - The amount of the cash-out refinance Mortgage must not exceed the sum of the original purchase price and related Closing Costs as documented by the Settlement/Closing Disclosure Statement for the purchase transaction, less any gift funds used to purchase the subject property. A recorded trustee's deed or equivalent documentation may be used when a Settlement/Closing Disclosure Statement was not used for the purchase transaction. FNMA - The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value). Non-Occupant Co-borrower FHLMC- LP will consider the non-occupant s income or qualification purposes. No minimum borrower investment is required. FNMA DU will consider a non-occupant borrower s income as qualifying income for a principal residence with certain LTV ratio limitations. This income can offset certain weaknesses that may be in the occupant borrower s loan application, such as limited income, financial reserves, or limited credit history. If the income of a guarantor, co-signer, or coborrower is used for qualifying purposes, and that guarantor, co-signer, or co-borrower will not occupy the subject property, the maximum LTV, CLTV, and HCLTV ratio may not exceed 95%. Student loan debt FNMA- If a payment amount is provided on the credit report, that amount can be used for qualifying purposes. If the credit report does not identify a payment amount (or reflects $0), the lender can use either 1% of the outstanding student loan balance, or a calculated payment that will fully amortize the loan based on the documented loan repayment terms. FHLMC- If no monthly payment is reported on a student loan that is deferred or is in forbearance, the Seller must obtain documentation verifying the proposed monthly payment amount, or use a minimum of 1% of the outstanding balance for qualifying purposes.
Truncated asset account numbers FNMA- Truncated or masked account numbers for bank and portfolio or investment accounts where at least the last four digits are displayed are permissible on the loan application, in DU, and on asset documentation, including verification reports obtained through the DU validation service. FHLMC- The full account number is required to be shown on asset documentation and the loan application. Multiple financed properties FNMA- For investment properties and second homes, borrowers may own up to ten financed properties. When more than 6 financed properties will be owned by the borrower, Fannie will require special feature code 150 to be used and will require a minimum Fico of 720. Additional reserves must be calculated and documented for financed properties other than the subject property and the borrower s principal residence. The other financed properties reserves amount must be determined by applying a specific percentage to the aggregate of the outstanding unpaid principal balance (UPB) for mortgages and HELOCs on these other financed properties. The percentages are based on the number of financed properties: 2% of the aggregate UPB if the borrower has one to four financed properties, 4% of the aggregate UPB if the borrower has five to six financed properties, or 6% of the aggregate UPB if the borrower has seven to ten financed properties (DU only). FHLMC- maximum of 6 financed properties allowed when the subject of the loan is a 2 nd home or investment property. Additional reserves will be required for all other financed properties, in addition to reserves needed for the subject. Two months for each additional second home and/or 1- to 4-unit Investment Property: In which the Borrower has an ownership interest or on which the Borrower is obligated, and That is financed Court Ordered debt FNMA- Borrower has a debt that was assigned to another party by court order (such as under a divorce decree or separation agreement) and the creditor does not release the borrower from
liability, the debt does not have to be included as a re-occurring obligation, even if borrower is still in title to the property. 12 month payment history is not required to be documented. FHLMC- If the Borrower is listed as the Borrower on a Mortgage that has been assumed by another, the Seller must obtain a copy of the documents transferring the property and any assumption agreement executed by the transferee(such as a divorce decree). As long as the Borrower no longer owns the property(as evidence by removal from deed), the contingent liability may be disregarded, without having to document the most recent 12 months' payment history. Debt in borrowers name-paid by others FNMA- If the lender obtains documentation that a non-mortgage debt has been satisfactorily paid by another party for the past 12 months, then the debt can be excluded from the debt-toincome ratio. This policy applies regardless of whether the other party is obligated on the debt. FHLMC- If the Borrower is a cosigner/guarantor on a debt (which includes Mortgage debt) for another person, and there is evidence that someone other than the Borrower has been making the payments for the most recent 12 months, the contingent liability may be excluded. Document that someone other than the Borrower makes the payments by obtaining copies of canceled checks or a statement from the lender. Document that timely payments are being made via the borrower's credit report, or by obtaining a payment reference directly from the lender. Refinance- General eligibility requirements FNMA- The transaction is being used to pay off an existing first mortgage loan (including an existing HELOC in first-lien position) by obtaining a new first mortgage loan secured by the same property. 1) Borrower does not have to be a borrower on the existing mortgage being refinanced. 2) One of the borrowers must be in title at the time of closing. No seasoning period is applied to the loan on a R/T refinance. FHLMC-When an existing Mortgage will be satisfied as a result of a refinance transaction, one of the following requirements must be met: 1) At least one Borrower on the refinance Mortgage was a Borrower on the Mortgage being refinanced; or
2) At least one Borrower on the refinance Mortgage held title to and resided in the Mortgaged Premises as a Primary Residence for the most recent 12-month period and the Mortgage file contains documentation evidencing that the Borrower, either: a) Has been making timely Mortgage payments, including the payments for any secondary financing, for the most recent 12-month period; or b) Is a Related Person to a Borrower on the Mortgage being refinanced; or 3) At least one Borrower on the refinance Mortgage inherited or was legally awarded the Mortgaged Premises (for example), in the case of divorce, separation or dissolution of a domestic partnership). NOTE: Both Fannie and Freddie require a borrower to individually hold title for 6 months to be eligible for a C/O refinance, except for delayed financing. Self-Employed Losses- FHLMC- If the Borrower is self-employed as indicated on the 1003, and the self-employment income is not used to qualify, the Seller must obtain the Borrower's federal individual income tax returns to determine if there is a business loss that may have an impact on the stable monthly income used for qualifying. A business loss reported on the tax returns would need to be considered in the income analysis of the loan. If the Borrower does not qualify with the loss, then the Seller must perform a business and income analysis to determine whether depreciation adjustments or other factors such as business closure or evidence of a one-time non-recurring event justify a reduction of the reported loss when calculating the stable monthly income. The Seller must obtain additional documentation needed in order to fully evaluate the loss and support the analysis (e.g., business tax returns (final or otherwise), evidence of a one-time non-recurring event). NOTE: If the tax returns or other documentation in the Mortgage file (e.g., IRS tax transcripts, additional Schedule K-1's) reflect positive income from self-employment but that income is not used to qualify, additional documentation (e.g., complete business or federal individual income tax return(s)) is not required. FNMA- Borrower s who are qualified using only income that is not derived from selfemployment. For example, when qualifying borrowers using only retirement income to qualify, no written evaluation of secondary self-employment income is required.
Rental real estate income and expenses reported on Form 8825 FNMA 1) If the borrower is NOT personally obligated on the debt(as evidence by the credit report), standard business income calculation will apply. 2) If the borrower is personally obligated on the mortgage debt (as evidenced by inclusion of the related mortgage(s) on the credit report) and gross rents and related expenses are reported through a partnership or S corporation, the business tax returns may be used to offset the property s PITIA. The steps described below should be followed: 1. Obtain the borrower s business tax returns, including IRS Form 8825 for the most recent year. 2. Evaluate each property listed on Form 8825, as shown below: From total gross rents, subtract total expenses. Then add back insurance, mortgage interest, taxes, homeowners association dues (if applicable), depreciation, and nonrecurring property expenses (if documented accordingly). Divide by the number of months the property was in service. Subtract the entire PITIA (proposed for subject property or actual for real estate owned) to determine the monthly property cash flow. FHLMC- All rental real estate income and expenses reported on IRS Form 8825 for partnerships and S corporations are to be treated as self-employment income, regardless of whether or not the Borrower is personally obligated on the Note. If the borrower is personally obligated on the mortgage debt that is reporting on the 8825, full P&I payment would need to be included in liabilities unless evidence is provided that the business has been making the payments. Following guidance for business debt in the borrower s name for additional documentation requirements when omitting the debt. Requirements for properties in new subdivisions, units in new PUDs or units in recently converted or New Condominium Projects- FHLMC - The appraiser must use comparable sales from within the subject subdivision or project as well as comparable sales in other subdivisions or projects to help demonstrate the marketability of new developments or recently converted projects and the market value of the property. The appraiser must use:
One comparable sale from inside the subject subdivision or project One comparable sale from outside the subject subdivision or project, and One comparable sale from inside or outside the subject subdivision or project FNMA - The appraiser must select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, provided it is a good indicator of value for the subject property. However: In the event there are no closed sales inside a new subject project or subdivision because the subject property transaction is one of the first units to sell, the appraiser may use two pending sales in the subject project or subdivision in lieu of one closed sale. When the appraiser is using two pending comparable sales in lieu of a closed sale, the appraiser must also use at least three closed comparable sales from projects or subdivisions outside of the subject property s project or subdivision. Student Loan Cash-Out Refinances FNMA- The student loan cash-out refinance feature allows for the payoff of student loan debt through the refinance transaction with a waiver of the cash-out refinance LLPA if all of the following requirements are met: proceeds must be paid directly to the student loan servicer at closing; at least one borrower must be obligated on the student loan(s) being paid off, and The student loan must be paid in full partial payments are not permitted. The transaction may also be used to pay off one of the following: 1) an existing first mortgage loan (including an existing HELOC in first-lien position); or 2) a single-closing construction-to-permanent loan to pay for construction costs to build the home, which may include paying off an existing lot lien. The borrower may receive cash back in an amount that is not more than the lesser of 2% of the new refinance loan amount or $2,000. The standard cash-out refinance LTV, CLTV, and HCLTV ratios apply per the Eligibility Matrix. FHLMC- No. **Keep in mind above subject to investor overlays**