avoiding common underwriting errors...avoiding common underwriting errors 31 effective for...

Avoid Common Underwriting ErrorsSuggested Best Practices

June 2020

Customer Education

Brought to you by: Genworth Customer Development and Process Consulting

0Avoiding Common Underwriting Errors

Agenda

Introduction

General Underwriting Tips

– Resources

– Examining and Documenting Files

Specific Errors and Recommendations

– Capacity, Credit History, Capital, Compliance

Questions and Answers

Avoiding Common Underwriting Errors 1Avoiding Common Underwriting Errors

ResourcesJob Aides, Tools, Websites

Avoiding Common Underwriting Errors 2

Fannie Mae –Single Family


https://www.fanniemae.com/singlefamily

https://www.fanniemae.com/singlefamily

Fannie Mae Job Aids/FAQs

https://www.fanniemae.com/singlefamily/originating-underwriting-training

Avoiding Common Underwriting Errors 4Avoiding Common Underwriting Errors

https://www.fanniemae.com/singlefamily/originating-underwriting-training

Fannie Mae-FAQ: Top Trending


https://singlefamily.fanniemae.com/faq-top-trending

https://singlefamily.fanniemae.com/faq-top-trending

Avoiding Common Underwriting Errors

https://sf.freddiemac.com/

6

https://sf.freddiemac.com/


https://sf.freddiemac.com/tools-learning/tools-learning

https://sf.freddiemac.com/tools-learning/tools-learning


https://sf.freddiemac.com/tools-learning/freddie-mac-learning/overview

https://sf.freddiemac.com/tools-learning/tools-learning#popular-in-learning




https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/mortgage_products_resources.pdf

https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/mortgage_products_resources.pdf


https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/lpa_resources.pdf

https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/lpa_resources.pdf

Documentation and Rental Income

Matrix– Documentation Matrix Updated

June 2020

– Rental Income Matrix Updated

December 2019

– Assists with processing and

documenting loan files

– Be mindful of Product Overlays


https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf


Genworth Underwriting Guidelines



https://new-content.mortgageinsurance.genworth.com/documents/national/underwriting-

guidelines/UnderwritingManual.COVIDBulletin.050620.pdf

https://new-content.mortgageinsurance.genworth.com/documents/national/underwriting-guidelines/UnderwritingManual.COVIDBulletin.050620.pdf

Genworth MI Top Decision Errors


https://new-content.mortgageinsurance.genworth.com/2020-05/MI.Decision%20Tips.0420.pdf


Genworth MI Decision Tips Updated Every Quarter




Underwriting Tips


https://new-content.mortgageinsurance.genworth.com/documents/contract-svcs/00329.ContractServices.TipSheet.0420.pdf

https://new-content.mortgageinsurance.genworth.com/documents/contract-svcs/00329.ContractServices.TipSheet.0420.pdf

Genworth Rate Express®


Training Tools and Information



25Avoiding Common Underwriting Errors 25

Common Underwriting ErrorsCOVID-19 Policy Updates, Fannie Mae, Freddie Mac, Genworth



https://singlefamily.fanniemae.com/

Fannie Mae COVID-19 ResourcesFannie Mae Updates, FAQs, Fannie Mae’s COVID 19 webpage

https://singlefamily.fanniemae.com/


https://singlefamily.fanniemae.com/media/22321/displayhttps://singlefamily.fanniemae.com/media/22316/display

Fannie Mae COVID-19 UpdatesFannie Mae LL2020-03 and LL2020-04, both updated from their

original issuance.

https://singlefamily.fanniemae.com/media/22321/display

https://singlefamily.fanniemae.com/media/22316/display


Fannie Mae appraisal policies are effective immediately and have been

extended for applications taken on or before June 30, 2020

– Temporary appraisal requirement flexibilities: Allowing exterior-only inspection

appraisal or desktop appraisals for certain transactions

– Desktop appraisals: allowing for purchase transactions when an interior and

exterior appraisal is not available

– Exterior only inspection appraisals: allowing for on purchases and limited cash-

out refinance of Fannie Mae-owned loans

– Identification of a Fannie Mae loan: reminding lenders and Sellers about the Loan

Lookup tool to identify a Fannie Mae-owned loan

– Desktop Underwriter messaging updated to identify when Fannie Mae owns an

existing loan on a limited cash-out refinance

– Revisions to the scope of work, statements of assumptions and limited conditions,

and appraiser’s certifications: requiring modified language to be used with

exterior-only and desktop appraisals

– No changes to CTP loans

Fannie Mae LL-2020-04 & LL-2020-03

See LL-2020-04 For Complete Appraisal Flexibilities


Continuity of Income*: Effective March 23, 2020 to June 30, 2020

– Verbal VOE

• Lenders may obtain a written VOE confirming the borrower’s current

employment status within the same timeframe as the verbal VOE

requirements.

• An email directly from the employer’s work email address that identifies the

name and title of the verifier and the borrower’s name and current employment

status may be used in lieu of a verbal VOE. In addition, the lender may obtain

the VOE after loan closing, up to the time of loan delivery

• Paystubs: Lenders may obtain a year-to-date paystub from the pay period that

immediately precedes the note date.

• Bank Statements: The lender can provide bank statements (or other

alternative documentation as permitted by the Selling Guide (B3-4.2-01)

evidencing the payroll deposit from the pay period that immediately precedes

the note date.

*If employment has been validated by the DU validation service, the validation will remain eligible for representation and warranty relief on employment provided the lender

complies with the “close by” date in the DU message

Fannie Mae LL-2020-04 & LL-2020-03


Effective for applications taken April 14, 2020 through June 30, 2020

– Age of Documents

• For most income and asset documents age requirements is reduced from four

months to two months or 60 days from the note date. If an asset statement is

issued quarterly, lenders must obtain the most recently quarterly statement.

• Employment and income verification received directly from a third-party

verification vendor, the information in the vendor’s database cannot be more than

60 days old as of the note date..

• Due to the federal income tax filing extension grated through July 15,2020,

eliminating the following documentation requirements.– A copy of the IRS Form 4868 (Application for Automatic Extension of Time to File US Individual Tax Return)

– IRS Form 4506-T (Request for Transcript of Tax Return) transcript confirming “No Transcript Available” for the 2019

tax year

• CTP Single Close transactions require income and asset documentation to be

dated within 60 days of the original closing

Fannie Mae LL-2020-04 & LL-2020-03


Effective for applications taken April 14, 2020 through June 30, 2020

unless noted

– Self-Employment

• Lenders must confirm that the borrower’s business is open and operating within 10 business

days of the note date (or after closing but prior to delivery). See LL 2020-03 for examples to

confirm the business open and operating.

– Market-based assets

• When using stocks, stock options or mutual funds for down payment or closing costs,

evidence of the borrower’s actual receipt of funds from the sale or liquidation must be

documented in all cases

• When used for reserves, only 70% of the value of the asset must be considered

Fannie Mae LL-2020-04 & LL-2020-03


Due to the pandemic’s continuing impact on businesses throughout the

country, lenders are now required to obtain the following additional

documentation to support the decision that the self-employed income

meets Fannie’s requirements:

– An audited year-to-date profit and loss statement reporting business revenue,

expenses, and net income up to and including the most recent month preceding the

loan application date; or

– An unaudited year-to-date profit and loss statement signed by the borrower

reporting business revenue, expenses, and net income up to and including the

most recent month preceding the loan application date, and two business

depository account(s) statements no older than the latest two months represented

on the year-to-date profit and loss statement. Lenders must review the two most

recent depository account statements to support and/or not conflict with the

information presented in the current year-to-date profit and loss statement.

Otherwise, the lender must obtain additional statements or other documentation to

support the information from the current P & L.

Fannie Mae LL-2020-03 Effective June 11, 2020

And Remains Effective Until Further Notice

Note: The year-to-date profit and loss statement must be no older than 60 days as of the note date consistent with current Age of Documentation requirements in LL-2020-03


Lenders must review the profit and loss statement, and business

depository accounts, if required, and other relevant factors to determine

the extent to which a business has been impacted by COVID-19. LL-

2020-03 addresses:

–Business Operations

–Business Income

–Business Stability

–Business Income Calculation Adjustments

• When the lender determines current year net business income has been

impacted by COVID-19 and is:

– Less than the historical monthly income calculated using Form 1084, but is

stable at its current level, the lender must reduce the amount of qualifying

income calculated using Form 1084 to no more than the current level of stable

income as determined by the lender

– More than the historical income calculated using Form 1084, the lender must

use no more than the currently stable level of income calculated using Form

1084 to qualify the borrower




Reminders and Suspension of Employment Validation Service

– Reminder that unemployment may only be used if it clearly is associated with

seasonal employment reported on the signed federal tax returns and lenders

verified the income by following B3-3.1-09 of the Selling Guide.

• The CARES Act allows for unemployment for furloughed and unemployed individuals but it

is considered short-term income in nature and not a reliable and predictable source of

income

– Furloughed borrowers are workers who are suspended from active employment

and do not typically have a guarantee of when they will return to work; therefore

use of this income is “ineligible” under Fannie Mae’s Temporary Leave Income

Policy B3-3.1-09

– New Casefiles created May 4, 2020 through June 30, 2020 Fannie Mae is

suspending Rep and Warrant Relief for employment validation with the DU

validation service. Lenders must perform a Verbal Verification of Employment

current Fannie Mae policies per the Selling Guide or applicable Lender Letter

Fannie Mae LL-2020-04 & LL-2020-03


Updated Policy for new Purchases and refinance transactions

– Lenders must review borrower’s credit report to determine the status of all

mortgage loans. In addition, lenders must apply due diligence for each mortgage

loan on which the borrower is obligated, including co-signed mortgage loans and

mortgage loans not related to the subject transaction to determine whether the

payments are current as of the note date of the new transaction. For purposes of

these requirements, “current” means the borrower has made all the mortgage

payments due in the month prior to the note date of the new loan transaction by no

later than the last business day of that month. Examples of acceptable additional

due diligence methods to document the loan file include:

• A loan payment history from the servicer or third-party verification service

• A payoff statement (for mortgages being refinanced)

• The latest mortgage account statement from the borrower, and

• A verification of mortgage

– A borrower who is not current and has missed payments on any mortgage loan is eligible for

a new mortgage loan if those missed payments were resolved in accordance with the

requirements in the table on the next slide



38

https://sf.freddiemac.com/about/covid19

Freddie Mac COVID 19 Updates

Freddie Mac Resources


https://sf.freddiemac.com/about/covid19

Bulletin 2020-5


Guidance Related to Covid-19

https://guide.freddiemac.com/app/guide/content/a_id/1003723


Bulletin 2020-5


The temporary flexibilities are effective immediately for all Mortgages in process and remain in

place for Mortgages with Applications Received on or before June 30, 2020.

Credit Underwriting:

– Employed Income – 10-day pre-closing verification (PCV), Sellers may obtain

one of the following in lieu of the 10-day PCV:

• An email directly from the employer’s work email address that identifies the

name and title of the verifier and the Borrower’s name and current employment

status

• Year-to-date (YTD) paystub from the pay period that immediately precedes the

Note date

• An asset account statement evidencing the payroll deposit from the pay period

that immediately precedes the Note date


The temporary flexibilities are effective immediately for all Mortgages in process and

remain in place for Mortgages with Applications Received on or before June 30,

2020.

Appraisal Flexibilities Include:

– Temporary appraisal requirement flexibilities: Allowing exterior-only inspection

appraisal or desktop appraisals for certain transactions, see Bulletin 2020-5 for

full details

– Desktop appraisals: allowing for purchase transactions when an interior and

exterior appraisal is not available

– Exterior only inspection appraisals: allowing for on purchases and limited or no

cash-out refinances of Freddie Mac-owned loans

– Identification of a Freddie Mac loan: reminding lenders and Sellers about the

Loan Lookup tool to identify a Freddie Mac-owned loan

– Cash-out loans and CTP and new construction require full appraisals

– Revisions to the scope of work, statements of assumptions and limited

conditions, and appraiser’s certifications: requiring modified language to be

used with exterior-only and desktop appraisals

Bulletin 2020-5


The temporary flexibilities are effective immediately for all Mortgages in

process and remain in place for Mortgages Applications Received on or before

May 17, 2020 to Mortgages with Application Received Dates through June 30,

2020

Appraisal Flexibilities Include:

– Appraisal waivers: encouraging lenders to accept waiver offers when

eligible

– No changes to delivery at this time

– Completion reports (Form 1004D/442) allowing alternatives when a Form

1004D/442 cannot be obtained

– CHOICERenovationSM and GreenCHOICE MortgagesSM: no changes

– For Freddie Mac loans submitted and resubmitted to Loan Product Advisor

on or after March 29, 2020, expanding ACE appraisal waivers to include

certain cash-out and “no cash-out” refinances below:

Bulletin 2020-5

Freddie Mac Training


https://learn.freddiemaclearning.com/Saba/Web_spf/NA3P1PRD0123/guest/ledetail/cours000000000008862

https://learn.freddiemaclearning.com/Saba/Web_spf/NA3P1PRD0123/guest/ledetail/cours000000000008862

Bulletin 2020-8


Guidance Related to Covid-19

https://guide.freddiemac.com/app/guide/bulletin/2020-8


Bulletin 2020-8


The temporary credit underwriting requirements below are effective for Mortgages with

Application Received Dates on or after April 14, 2020, and remain in place for Mortgages with

Application Received Dates on or before June 30, 2020; however, Sellers are encouraged to

apply these updates to existing loans in process.


– All Income and Asset documentation must be dated no more than 60 days

prior to the Note Date, except

• If an asset account is reported on a quarterly basis, the most recent quarterly statement

must be obtained.

• Electronic income verifications obtained from 3rd party verification service provider must

have information from the electronic data base dated no more than 60 days prior to the

Note Date

Bulletin 2020-8







– Self-employed Borrowers: Verification of the current existence of the

business- business open and operating

• Confirm that the Borrower’s business is open and operating within 10 Business Days

prior to the Note Date.

Bulletin 2020-8







– Stocks, Stock Options and Mutual Funds: Evidence of liquidation, including

Borrower receipt of funds, is required when any of these funds are being used for

Down Payment and/or Closing Costs. No more than 70% of the balance in these

accounts may be used to meet the reserve requirements (see Guide Section

5501.2)

Bulletin 2020-14

48

This Bulletin provides:

Temporary requirements related to:

– Mortgage purchase eligibility

– Self reporting requirements for

mortgages in COVID 19 related

forbearance

Extension of certain previously

announced temporary requirements

Additional guidance and reminders

including those related to:

• Furloughs and layoffs

• Unemployment Compensation

• Automated Income Assessment with

Loan Product Advisor® using tax

return data




Bulletin 2020-14

49

The temporary flexibilities are in effect for all Mortgages in process and

remain in place for Mortgages with Applications Received on or before June

30, 2020.

GUIDANCE AND REMINDERS

Furloughs and layoffs

Freddie Mac provides requirements for income while on temporary leave

in Section 5303.5. These requirements do not extend to employer-initiated

actions such as furloughs and layoffs, regardless of whether there is a

projected “return to work” date.


https://guide.freddiemac.com/app/guide/section/5303.5

Bulletin 2020-14

50



30, 2020.

Unemployment compensation

While we recognize that many individuals have become eligible for

assistance and compensation available through the Unemployment

Insurance Provisions provided in the Coronavirus Aid, Relief and Economic

Security Act (“CARES Act”), the assistance and compensation are

temporary in nature and therefore do not represent a stable or continuous

source of income.

As such, unemployment compensation continues to be eligible for use in

qualifying only when it is associated with seasonal employment and all

other requirements in Section 5303.3 are met.



Bulletin 2020-14

51



30, 2020.

Automated income assessment with Loan Product Advisor® using tax

return data

To align with the IRS federal tax filing extension, we are revising our

requirements applicable to automated income assessment with Loan

Product Advisor® using tax return data (i.e., AIM for self-employed). For

Mortgages with Loan Product Advisor initial submission dates on or after

August 1, 2020, the Borrower’s most recent tax returns filed with the IRS

must be the 2019 tax return. This is an extension of the May 1, 2020

deadline.


Bulletin 2020-17

52

This Bulletin provides:

Temporary requirements related

to:

– Purchase and refinance requirements

for borrowers with existing Mortgages

– Effective June 2, 2020 and effective

until further notice

– In addition to reviewing the

Borrower’s credit report, Sellers must

exercise additional due diligence to

verify whether or not each Mortgage

is current (per Freddie Mac

definition), has been reinstated after

the application received dates, or is in

a repayment plan, loan modification

Trial Period Plan, Payment Deferral

or is subject to another loss mitigation

program.


Bulletin 2020-17

53

The Seller must include any related documentation in

the Mortgage file. Examples of ways the Seller may

confirm compliance with the requirements of being

“current” include:– Reviewing the payment history provided by the servicer for each existing

mortgage

– Reviewing the Borrower-provided mortgage statements or electronic

Mortgage history for each existing mortgage

– Using a third-party verification service to confirm Mortgage Payment history

– For Mortgages being refinanced, reviewing the pay-off statement


See Bulletin 2020-17 For “Current” Definition and Full Eligibility

Details

Bulletin 2020-19

54

These temporary requirements are effective for Mortgages with Application Received on and

after June 11, 2020 and until further notice. It is encouraged to implement these requirements

to loans in process.


Due to the pandemic’s continuing impact on businesses throughout the

country, lenders are now required to obtain the following additional

documentation:– An unaudited YTD profit and loss statement (P & L) reporting business revenue, expenses,

and net income up to and including the most recent month preceding the loan application date

and be dated no more than 60 days prior to the Note Date. It must be signed by the borrower.

And

• Two months business account statements no older than the latest two months represented

on the YTD P & L statement. Or

– An audited YTD P & L reporting business revenue, expenses, and net income up to and

including the most recent month preceding the loan application date and be dated no more

than 60 days prior to the Note Date.

Additional documentation may be needed to supplement the minimum required documentation in

order to effectively assess the impact of the pandemic on the business.



Bulletin 2020-19

55





Reviewing YTD P&L statements, business account statements and other

documentation ▪ The Seller must determine if the business revenue, expenses and net income documented in

the unaudited YTD profit and loss statement are reasonably consistent with the revenue and

expense cash flow documented on the business account statements

▪ If the information on the YTD profit and loss statement is not reasonably consistent with the

information on the business account statements, additional documentation (e.g., month-to-

month or quarterly trending for YTD profit and loss, additional months and/or more recent bank

statements) must be obtained to support the information and resolve the discrepancy

▪ If the unaudited YTD profit and loss statement cannot be supported by business account

statements and/or other documentation, the self-employment income is not eligible for use in

qualifying

▪ If the unaudited YTD profit and loss statement is supported, or if an audited YTD profit and

loss statement is used, proceed to determining the current level of stable monthly income as

outlined by Freddie Mac. See next slide.



Bulletin 2020-19

56





Establishing Stable Monthly

IncomeThe Seller must review the YTD profit

and loss statement (unaudited or

audited), business account statements,

and all other relevant factors and

documentation to determine the extent to

which a business has been impacted by

COVID-19. Refer to



Bulletin 2020-19

57





Establishing Stable Monthly Income- continued

▪ The Seller must establish the current level of stable monthly self-

employment income using details from the YTD profit and loss statement,

business account statements, and supplemental documentation, as

applicable

▪ The Seller must determine whether the income level has declined by

comparing the information on the YTD profit and loss statement to the

business revenue (i.e., gross receipts or sales) and expenses reported on

the most recent year’s business tax return(s), and the net monthly income

as calculated in accordance with requirements and guidance in Chapter

5304, including use of Guide Form 91, Income Calculations, or a similar

alternative form

▪ See examples on next slidehttps://guide.freddiemac.com/app/guide/bulletin/2020-19


Bulletin 2020-19

58





Establishing Stable Monthly Income- continued



Genworth Mortgage Insurance Credit Policy

Announcements


Genworth aligns with the GSE recent communications

https://new.mortgageinsurance.genworth.com/guidelines

https://new.mortgageinsurance.genworth.com/guidelines

Common Underwriting ErrorsCapacity, Credit History, Capital, Compliance


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


Five Cs

Capacity

Credit History

Collateral

Capital

Compliance

Six Cs

Capacity

Credit History

Collateral

Capital

Compliance

Common Sense


Capacity ErrorsIncome Calculation and Documentation, Self-Employed Borrowers


CapacityTwo Year History is Required on the URLA for All Applicants

Borrowers Who Experienced Recent Employment Gaps (e.g. 30

Days), A Letter Of Explanation Is Not Required, But The Seller

Remains Responsible For Establishing The Employment Is Stable,

Which May Require Analysis Of Recent Employment Gaps64

Freddie Mac Documentation Matrix

Avoiding Common Underwriting Errors64

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

– Is there a decline? If so, has the income stabilized?

• Provide documentation to support

– Job change, provide ALL W-2s from prior year or years depending on verification

message

Documentation

– READ the AUS results

– Check for overlays

– Seek additional documentation if:

• Inconsistent

• Discrepancies

• Possible misrepresentation-google® the business, look at a satellite map, Secretary of

State website

Capacity- Income


Fannie Mae Single Family Selling Guide

§B3-3.1-01, Employment and Other Sources of Income

Capacity: Fannie Mae


Capacity: Fannie Mae


https://www.fanniemae.com/content/guide/selling/b/index.html

67

https://www.fanniemae.com/content/guide/selling/b/index.html

Capacity: Freddie Mac


https://guide.freddiemac.com/app/guide/topic/5300


https://guide.freddiemac.com/app/guide/topic/5300


Capacity: Freddie Mac

Income continuance charts were added to Topic 5301.1‏

– Income and earnings types typically without documentable

continuance

– Income types with documentable continuance

– Other income types that may or may not have documentable

continuance


Freddie Mac’s Single-Family Seller/Servicer Guide Series 5000: Origination and Underwriting

Topic 5300: Stable Monthly Income and Asset Qualification Sources

Chapter 5301: General Requirements for All Stable Monthly Income and Asset Qualification Sources


69


Capacity

Examine Paystubs Carefully

– Clear explanations for withholding items

• Possible undisclosed debt

– Consistent information

• Address on the stub does it match the 1003?

• Social Security number

– Last four digits match the 1003?

– Year to date income

• Showing on paystub, does it support qualifying income

• Review prior year or years with ytd and qualifying income…Consistent?

– Stale dated?

– Year End paystubs for borrowers with OT, bonus, commission incomes or

– Verification of Employment for clarity on– OT

– Bonus

– Commission

– See next slide for examples


Capacity: Fannie Mae Selling Guide


https://www.fanniemae.com/content/guide/selling/b3/3.1/01.html



Trends of Income

– Verify trends of income before using to qualify for a mortgage

– Income used must be likely to continue




Capacity: Effective for Mortgages with Settlement Dates on or After July 2, 2020

but Sellers are ENCOURAGED to implement as soon as possible




Capacity: Freddie Mac 2019-20*

Effective for Mortgages with Settlement Dates on or After July 2, 2020

but Seller are ENCOURAGED to implement as soon as possible

– Require that when the borrower’s income is derived from fluctuating hourly

employment earnings, under no circumstances may the employment history be

less than 12 months.

– Clarifying that “fluctuating hourly employment earnings” are considered to be

wages that are based on an hourly rate of pay and where the number of hours

fluctuate each pay period

– Alignment of income calculation requirements for all fluctuating employment

income types (hourly base, overtime, bonus, commission and tips). The

calculation is based on whether the income trend is determined to be consistent,

increasing or declining.

– Adding requirements for additional analysis when income fluctuation between

the prior year(s) and year-to-date exceeds 10%.


*Updated with Bulletin 2020-13; See Guide 5301.1 and 5303.2

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


https://new.mortgageinsurance.genworth.com/self-employed-borrower-calculators

76

https://new.mortgageinsurance.genworth.com/self-employed-borrower-calculators

Fannie Mae Income Calculations‏

– Bulletin 2016-05

• 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


Capacity: Self-Employed Income

77

Freddie Mac Income Calculations‏


• Distributions are not required for partnerships and S corporations but business must be

capable of paying out profit and generating future earnings

– Documentation requirements

• Borrower must be self-employed (have ownership interest of 25% or more) in the same

business for at least five years to obtain one year tax returns;

• Borrowers that are self-employed in the same business less than five years two years

tax returns are required

• Verification of existence of the business required and must be completed prior to

delivery date but not more than 120 days prior to the Note date.


• Updated policy for self-employment when disclosed and not used for qualifying. Income

or loss not required to be evaluated or documented for each borrower when:

– Has a primary source of income, other than self-employment, used for qualifying the Mortgage

and

– Is self-employed, and the self-employment income is a secondary source of income



78



Freddie Mac Income Documentation

79



Capacity

Show Your Income Calculation Work

– Agencies/Investors require calculations for all income scenarios

• Have a worksheet or address how income was calculated and maintain in file

– Self-Employed Borrowers

• Written analysis

• Available Worksheets on The Genworth Website without requiring and ID or password

– Fannie Mae Cash Flow Analysis (Form 1084)

– Freddie Mac Income Analysis (Form 91)

– Schedule Analysis Method (SAM)

– Base, OT, Commission, Other Income Worksheet

– Rental Worksheets: Form 92, 1037, 1038, 1039

– Fannie Mae Form 1088

– Liquidity (Quick and Current Ratio)

– Income worksheet for base, bonus, OT, Commission income types

• All Genworth calculators can be found at https://new.mi.genworth.com/self-employed-

borrower-calculators

• Written explanation is helpful along with the worksheet


https://new.mi.genworth.com/self-employed-borrower-calculators

Credit History ErrorsCredit Scores, Credit Reports, Liabilities


Credit History

Credit Concerns Not Always Recognized by AUS or Common Errors

– Examples of Errors

• No evidence in file why you are *omitting a debt

• Taxes and insurance for properties owned free and clear omitted

• Debts evidenced on paystub or disclosed during initial application

• Paid mortgage tradeline with paid P&L noted in the comments section with no

explanation or documentation

• Borrower paying off debt but funds are not sourced (only have funds to close verified)

– Significant derogatory events

• Financial mismanagement

• Extenuating circumstances?

– Does my investor allow for extenuating circumstances?

• Re-established credit requirements met?

• Waiting period met ?


*See Fannie Mae Selling Guide or Freddie Mac Seller/Servicer Guide for guidance on excluding debts from a

borrower’s DTI Ratio.

82

Credit HistoryCredit Scores

– Minimum score requirement?

• Non-traditional credit borrowers (without a credit score) eligible for AUS submission with

Fannie Mae’s Desktop Underwriter® 10.0 and higher versions

– Two non-traditional credit references must be reviewed and one must be housing related

– See Selling Guide §B3-5.4-03: Verification and Documentation of Alternative Credit

• Non-traditional credit borrowers (without a credit score) eligible for AUS submission with

Freddie Mac’s Loan Product Advisor May 14, 2017

– Two Non-traditional tradelines must be verified and one must be housing related

– See Freddie Mac Bulletin 2017-02 for more details

– Within definition

• Genworth Simply UnderwriteSM

– 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?


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 and higher must include trended credit data

• For now, lenders do not need to analyze trended data

• Borrowers making minimum monthly revolving account payments may still be able to

receive an Approve recommendation from DU


https://www.fanniemae.com/content/faq/do-du-release-06252016-faqs.pdf

Disputed Information

– AUS Loans

• DU provides messaging if impactful and further action necessary

• Loan Product Advisor 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

Credit History


Credit HistoryMinimum Payments

– Usually on credit report. If not on credit report

• Creditor supplied documentation

• Revolving,

– DU uses the greater of:

• 5% of outstanding balance or

• $10

– Loan Product Advisor allows

• 5% of outstanding balance

Open Ended Accounts (O-J or O-I under MOP on Credit Report)

– Sufficient funds for repayment plus funds to close and reserves

• Yes

– Inclusion not required

• No

– Inclusion of 5% outstanding balance required for Freddie Mac if no payment listed

– Cannot close loan for Fannie Mae

– Third party responsibility• Document with letter from employer/responsible party

https://www.fanniemae.com/content/guide/selling/b3/6/05.html


https://guide.freddiemac.com/app/guide/content/a_id/1000663 Chapter 5401.2

86

https://www.fanniemae.com/content/guide/selling/b3/6/05.html


Credit History

Student Loans

– Fannie Mae


Guidelines Stated Are Generic Fannie Mae Policy

87

Credit History

Student Loans

– Freddie Mac


Prudent Underwriting Practices Will Apply

88

https://sf.freddiemac.com/content/_as

sets/resources/pdf/update/docmatrix.

pdf


Credit History

Excluding Debts – Contingent Liabilities or Not

– Fannie Mae and Freddie Mac

• Allows for any type debt (revolving, leases, student loans & mortgage debt)

– Must document 12 month payment history with no delinquencies

– Evidence payments made by someone other than borrower(s)

– Mortgaged properties must be counted in the maximum financed properties. See additional

guidelines regarding use of rental income.

– For mortgages payments to be excluded, the person making the payments must be obligated on

the mortgage debt

– Situations requiring inclusion in debt ratio

• Obligator’s payment not documented

• Sufficient history (12 months) not established

• History of 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


https://www.fanniemae.com/content/guide/selling/b3/6/05.html#Debts.20Paid.20by.20Others

https://guide.freddiemac.com/app/guide/content/a_id/1000663 Chapter 5401.2

89

https://www.fanniemae.com/content/guide/selling/b3/6/05.html#Debts.20Paid.20by.20Others


Credit History

Recent Credit Inquiries

– Definition

• Freddie Mac: within past 90 days

– Review updated messages on Loan Product Advisor Feedback

• Fannie Mae: The report must list all inquiries that were made in the previous 90 days.

– 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

• See next slide for examples


Capital ErrorsAssets to Close, Borrower’s Own Funds, Gift Funds, Reserves and

Large Deposits


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 be included as IPC

– Check for guideline overlays

– Put a condition on loan approval and Closing instructions for IPC not to exceed

“X” amount

– See guidelines on next slides


IPC’s- Fannie Mae




IPC’s- Freddie Mac


*Freddie determines value by using the lessor of the sales price or appraised value

*

94



Capital


Purchase Price (or refinance of all debt to be paid off)

- Earnest Money Deposit (only if verified)

- Other Financing (if applicable)

- Loan Amount Applied for

+ Balance Owed on 30 day accounts “O”

+ Closing Costs

+ Prepaids and escrows

+ Judgments, collections and debt to be brought current,

paid down or paid off prior to/or at closing.

+ Required Reserves

__________________________

= Total Required Funds

95

CapitalAssets to Close

– Cash to close plus any reserves?

– Reserves

• Loan Product Advisor/DU

– Verify funds required

– Best practice: only enter needed funds

– Match assets on 1003 with DU/Loan Product Advisor and 1008; Verify and submit to underwriter

only what is needed.

– Manual calculation

• Additional reserves need to be calculated when:

– Borrower is selling a home and needs cash to complete that transaction

– Loan product Advisor loans when discount points are being paid by anyone other than borrower

– Other funds necessary for transaction (manual calculation??)

• Debts paid at close (check guidelines)

• 30-day accounts, if applicable

• Credit card financing, if applicable (funds to payoff or include in DTI)

• Collections and charge-off

– Multi family owner occupied, second homes and investment transactions - see guidelines

• Judgements or garnishments


Capital

Large Deposits Fannie Mae

– A large deposit is a single 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

Deposits Which May Indicate Borrowed Funds Must Be Investigated.


Capital

Large Deposits Freddie Mac

– A large deposit is any single 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

Deposits Which May Indicate Borrowed Funds Must Be Investigated.




Capital

Earnest Money

– Documentation

• From eligible source (account listed on 1003?)

• Correct documentation per guidelines – Is it a gift?

– Make sure funds are not counted twice

• Back out of bank account balance if necessary


Capital: Fannie Mae


1. If the borrower receives a gift from a relative or domestic partner who has lived with the borrower for the last 12 months, or from a

fiancé or fiancée, the gift is considered the borrower’s own funds and may be used to satisfy the minimum borrower contribution

requirement as long as both individuals will use the home being purchased as their principal residence.

Borrower’s Own Funds: Fannie Mae Selling Guide Chapter B3-4.3-04‏

Personal Gift (09-29-2015)

10

0

Capital: Freddie MacBorrower’s Own Funds Freddie Mac Seller Servicer Guide (Chapter

5501.3(b)(i))

– 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


1


Gift Funds

– Enter into AUS correctly

– Must come from acceptable source

– 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

– Document correctly

– *Verify donor availability

• Funds transfer per investor guidelines

– Fannie Mae and Freddie Mac prior to, or at closing

– Other restrictions

• Investment properties, gifts are not allowed

*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.

Fannie Mae Single Family Selling Guide § B3-4.3-04, Personal Gifts

(09/29/2015) ; Freddie Mac Seller Servicer Guide §5501.3(c)

Capital

10

2

Capital- Gift Funds

Availability & Transfer of FundsThe 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 (Fannie Mae Only)

Fannie Mae Only & Freddie Mac: 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 with remitter as the donor.


Fannie Mae Single Family Selling Guide §B3-4.3-04, Personal Gifts (09/29/2015) ; Freddie Mac Seller Servicer

Guide §5501.3(c)

10

3

Assets and Liabilities

Do not enter gift funds in Section 2. Gifts are entered in Section 4.

*

*New

List Assets‏

– Breakdown by type of asset

– Ask applicant which account or accounts or “source” of funds will be used for the transaction

– Collect two months assets statement

– Know what is considered a large deposit

– Explain any change source of funds must be communicated to you (i.e. borrower was to get a

gift but now liquidating their 401k)

– Does borrower have access to retirement accounts without restriction?

– Proof of liquidation?


4

Capital- Gift Funds: Freddie Mac

Page 24 of matrix https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf


5


Assets & Liabilities

Do not enter gift funds in Section 2. Gifts are entered in Section 4.

*

*New

Gifts must be evidenced by a letter signed by the donor, called a gift‏

letter. The gift letter must:

– specify the dollar amount of the gift;

– specify the date the funds were transferred;

– include the donor’s statement that no repayment is expected; and

– indicate the donor’s name, address, and relationship to the borrower

Documentation of donor ability/transfer and proof of receipt of the gift‏

will be required prior (prior to for Freddie Mac) or at closing.


6

ComplianceCompleteness


7


Compliance

Ensure Completeness of the Loan Application and Loan Package

– Two year history

• Employment

• Residence

– Occupancy

• Make sense

• Consistent throughout loan file

– Final 1003 URLA Signed

– Buyer/Seller CD in closed package

– AUS updated with final data

• Matched with 100 data

• Within tolerances, if permitted

– Proofread

• All information provided

• All documents in file


8



3

Genworth Rate Express®


4

LOS Connections


5



6


11

7Avoiding Common Underwriting Errors 11

7

Additional MI Site Information


8

➢ ActionCenter®: 800 444.5664

➢ Your Local Genworth

Regional Underwriter

➢ Your Genworth Sales

Representative

Your Genworth Resources


9

Legal 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. You should always check with your own legal advisors for

interpretations of legal and compliance principles applicable to your business.

,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.

Genworth Mortgage Insurance Offers A Comprehensive Suite Of Training

Opportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve Your

Borrowers Better. Visit mi.genworth.com To Learn More.

Collateral Underwriter®, Home Ready® and Desktop Underwriter® or DU® are registered trademarks of Fannie Mae

Loan Product Advisor®, Home Possible®, Loan Collateral Advisor® and Home Value Explorer® (HVE®) are registered trademarks of Freddie Mac

ActionCenter®, Homebuyer Privileges® and Rate Express® are registered trademarks of Genworth Mortgage Insurance

Simply UnderwriteSM is a registered service mark of Genworth Mortgage Insurance


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