understanding loan product advisor
TRANSCRIPT
September 2021
Understanding Loan Product Advisor- Advanced Guidelines and Updates
Genworth Mortgage Insurance Corporation and Genworth Mortgage Insurance Corporation of North Carolina©2021 Genworth Mortgage Insurance Corporation. All rights reserved.
Enact Training
Freddie Mac’s Website • Link to www.freddiemac.com• Link to Client Resource Center https://my.sf.freddiemac.com/• Subscription Center• Learning Center• http://www.freddiemac.com/loanadvisorsuite/• Single Family News• Pending Loan Product Advisor® Enhancements
Freddie Mac Updates - Where To Get Them
www.freddiemac.com
https://sf.freddiemac.com/about/single-family/subscription-center
Freddie Mac’s Client Resource Center
https://my.sf.freddiemac.com/https://my.sf.freddiemac.com/
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https://sf.freddiemac.com/about/covid19 https://guide.freddiemac.com/app/guide/bulletin/2021-28
Tool to help document files
Loan Product Advisor Documentation Matrix
https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf
Tool to help document files
Freddie Mac Rental Income Matrix
https://sf.freddiemac.com/content/_assets/resources/pdf/update/rental.pdf
Review the Feedback Certificate for Purchase Eligibility Messages • Freddie Mac Eligible• Freddie Mac Ineligible (Not eligible for sale to Freddie Mac/Investor)• Freddie Mac 500 A-minus Offering
Feedback Certificate
Many Lenders Do NOT Allow For A-Minus Loans To Be Delivered Or Insured. Always Check Investor Requirements
Risk Classes for:
Conventional / Conforming Loans• ACCEPT• CAUTION
Feedback Certificate
Documentation Levels for Conventional Conforming Loans• Streamlined Accept (Generally the Rule of One…).• Standard (Generally the Rule of Two) But Investor Product/Program Requirements may apply
Feedback Certificate- Loan Details
Feedback Certificate-Loan-to-Value Ratios
Feedback Certificate- Qualifying Ratios
Feedback Certificate- Credit Report Details
Tammy Testcase
Borrowers with Credit FreezeCredit and Liabilities
https://guide.freddiemac.com/app/guide/content/a_id/1000641
If consumers ask for a freeze online or by phone, the credit reporting agency must have the freeze in place within one business day. And when consumers want to lift the freeze, the credit reporting agencies have to make that happen within one hour.
(If consumers make the request by mail, the agency must place or lift the freeze within three business days.)
Credit and Liabilities
https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs
Feedback Certificate- Mortgage Details
Is Property type entered correctly (condo, PUD, manufactured home)
Are the HOA dues, flood insurance or MI payments included in the housing payment, if applicable? Do you have written support?
Does the occupancy make sense?
Property Type and PITIA
Borrower Section
Lender Loan Info
Paying off a second mortgage? Verify it was used to purchase the property or treat the loan as a cash out. Verify seasoning requirements for ownership and taking cash out. Is the property currently offered for sale or has it been offered for sale in the past six months? For refinance transactions, properties must have been taken off the market as of loan disbursement
date.
Refinance
Feedback Certificate- Mortgage Details
Feedback Certificate- Mortgage Details
Required ARM Detail
Freddie Mac Qualifying Requirements
https://guide.freddiemac.com/app/guide/content/a_id/1000523
Freddie Mac Qualifying Requirements
https://guide.freddiemac.com/app/guide/content/a_id/1000523
Freddie Mac Qualifying Requirements
https://guide.freddiemac.com/app/guide/content/a_id/1000523
Feedback Certificate- Asset Details
Feedback Certificate- Transaction Details
Feedback Certificate- Mortgage Summary
Feedback Certificate- Data Quality
Feedback Certificate- Employment and Income Messages
*4506-C will be noted
*
Documenting Employment and Income
Break Out Income Type For Proper AUS Results
When a borrower has less than a two-year history of primary employment you may be able to determine the income is stable.However, when the borrower’s income is derived from fluctuating hourly earnings the employment history must be at least 12 monthsRefer to Selling Guide 5303.2 for additional information and requirements.
Employment Income
Effective for Mortgages with Settlement Dates on or After July 2, 2020 • 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%.
Fluctuating Hourly Employment Earnings
Primary Employment typically should have a two-year history.Documentation requirements include all of the following:• Y-T-D Paystub(s) Must be within 30 days of the application• W-2 Form(s)• 10-day Pre-closing Verification (PCV)• Or, all of the following:• Written VOE• Y-T-D Earnings and most recent calendar year• 10-day PCV
Employment Income
Freddie Mac Income Calculations• Updated Form 91 Income Calculations Form
• Enact posted updated Form 91 at enactmi.com• Revised documentation requirements
• Two years tax returns for businesses in existence less than five years• One year tax return for businesses in *existence more than five years• 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.
Employment: Self-Employed Income
* Temporary guidelines
*And the borrower has affiliation with the business for more than 5 years
History of receipt: A history of receipt is not requiredContinuance: Must be likely to continue to remain tax exemptCalculation: To determine the amount to adjust (i.e., "gross-up") the Borrower's income, use:•25% of the tax-exempt portion of the income or•The current federal and state income tax withholding tablesDocumentation: Copy of complete federal individual income tax return for the most recent one-year period or other documentation evidencing that the income, or a portion of the income, is tax exempt.
Non-Taxable Income
History of receipt: A history of receipt is not requiredContinuance: Must be likely to continue to remain tax exemptCalculation: May gross up 15% of the income without obtaining additional documentation.Documentation: No documentation when grossing up only 15% of the income.
Non-Taxable Income- *Social Security Only
*Social Security income (i.e., retirement income, disability benefits, survivor benefits and Supplemental Security Income)
Feedback Certificate- Asset and Reserves Messages
All funds used in the transaction must come from eligible sources.For purchases, document the borrower has sufficient funds verified from eligible sources.For refinances, verification of funds is required unless the funds to close are $500 or less and reserves are not required and the loan received a LPA Risk Class of Accept.
Assets
– Most recent one or two months asset statements (depending on documentation path-Streamline or Standard)
– Be sure to read Feedback to confirm how much you need to verify– Asset documentation valid for four months for both existing and new construction– You are required to provide proof of liquidation for certain non-liquid of assets used for
closing such as stock, bonds, cash value of life insurance in most cases
Asset General Documentation Requirement
Standard Depository Messages:• Number of months documentationBest Practices:• Do you have All of the pages?• Truncated account numbers allowed as long as the last four digits are displayed
Assets
Direct account verifications and asset account statements used to verify the Borrower's accounts held in financial institutions must meet the following additional requirements:Direct account verifications (i.e., verification of deposit form (VOD)) must:
• Identify the financial institution• Identify the account owner(s)• Identify the account number, which at a minimum must include the last two digits• Identify the type of account• Identify account open date• Identify the current account balance• Identify the average balance for the previous two months• Identify any outstanding loans secured by the asset• Include the title, signature and phone number of the depository representative who completed the verification
When using a direct account verification, the Seller must include documentation of the source of funds when an account is opened within 90 days of verification and/or when the current balance in an account is significantly greater than the average balance.
Assets
Freddie Mac Selling Guide Chapter 5501.3
Mutual Funds and Other *Non-liquid Account Types:• Proof of liquidation
Proof Of Liquidation• When used for the down payment or closing costs, if the value of the asset is at least 20% more than the amount
of funds needed for the down payment and closing costs, no documentation of the borrower’s actual receipt of funds realized from the sale or liquidation is required
*Non-liquid Account Type Applies to:• Stocks, Bonds, and Retirement Accounts in the form of stocks, bonds and mutual funds
Assets
Retirement accounts (401k or IRA)• Accounts that allow for withdrawals only in connection with the borrower’s employment termination,
retirement, or death, or the account does not allow for any type of withdrawal should not be entered
Look For Indications That the Account is an IRA or Retirement Account - Borrowers Do Not Always Tell You
• Many investment accounts can be retirement accounts, so carefully review for evidence of the account type
• If less than 100% vested, you can use only the vested portion• Look for any loans taken out again the account, as you must subtract those when determining
available assets• Borrowers must have access to the account and it must allow for withdrawals, regardless of current
employment status
Assets
Borrower’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• Enact follows the GSE guidelines on borrower’s own funds
Minimum Borrower Contribution
LPA uses the number of financed properties to apply the following eligibility guidelines for casefiles when the borrower has multiple financed properties and the subject property is an investment or second home.:
• A minimum credit score of 720 is required for borrowers with 7-10 financed properties• Borrowers are limited to a maximum of 10 financed properties
Assets
Funds to CloseThe Seller must verify that the Borrower has sufficient funds to qualify for the Mortgage transaction (i.e., any funds required to be paid by the Borrower and Borrower reserves) except as follows:• The transaction is a refinance transaction, and• Funds required to be paid by the Borrower are $500 or less, and• No reserves are required for the transaction (i.e., as specified in Section 5501.2 or required by
the Feedback Certificate), and• The Mortgage is a Loan Product Advisor® Mortgage with a Risk Class of AcceptAll funds used to qualify the Borrower for the Mortgage transaction, including, but not limited to, funds for Down Payment, Closing Costs and reserves, must come from the eligible sources described in Section 5501.3.
When an interested party is contributing to the Mortgage transaction, the requirements in Section 5501.5 must be met.
Assets
https://guide.freddiemac.com/app/guide/section/5501.1
Are all the assets per LPA verified plus any additional that are needed to payoff a judgment or collection?
Evidence of liquidation if needed? Additional reserves? Loan Product Advisor does not validate if the maximum seller paid fees have been exceeded. You
must validate this based off the TLTV.
Assets
• Enter each asset separately according to account type• Verify you have all pages to the asset statement• Review for large deposits and remove any unsourced funds that are not needed• Do you need one or two months statements?• Do you have consecutive and most recent statements?• Does transaction require reserves? Don’t just rely on AUS results• Additional funds needed to payoff a judgment, tax lien, pay down an account • Multiple Financed properties guidelines met? Fannie Mae guidelines are different than Freddie Mac• Support bank statements with VOD or VOD with bank statements• Review for alterations or inconsistent information
Asset and Reserve Best Practices
• Check for overlay of minimum credit score
• Check for overlay of minimum number of credit scores
• Check for overlay of minimum number of tradelines used in credit score
Feedback Certificate- Credit and Liabilities Messages
Disputed Information• Loan Product Advisor will provide “Invalid” recommendation if impactful
Collections are not required to be paid off by Freddie Mac, but may be a requirement of the lender.Tax Liens and judgments must be paid and funds must be verified, in addition to the funds required to close.
Credit and Liabilities
To exclude a liability that someone else pays requires documentation for 12 months showing timely payment and to exclude a mortgage, they must be a co-signer
When excluding a mortgage payment that someone else has been verified making the payments, it is the PITIA that can be excluded as long as no rental income is being used from that property; Note that the property MUST be included in the borrower’s multiple financed property count & the UPB for the mortgage must be included in the calculation of reserves for multiple financed properties
Liabilities
Revolving: Indicate both the balance and monthly payment on all revolving accounts. Do not “omit” the debt even when 10 or fewer payments remain. These payments should always be included in the applicant’s debt ratio. 30-Day Charge: Monthly payments on open-end accounts are not required to be included in the monthly debt payment if the borrower has sufficient verified funds to pay off the outstanding account balance.Installment: Indicate both the balance and monthly payment on all installment accounts. If less than 10 payments remain, the payment will not be included in the applicant’s debt ratio.
Liabilities
Leases: Indicate both the balance and monthly payment on all leases. Do not “omit” the debt even when 10 or fewer payments remain. Lease payments should always be included in the applicant’s debt ratio.
Liabilities
Child Support: Indicate both the balance and monthly payment on all support accounts. If less than 10 payments remain, the payment should not be included in the applicant’s debt ratio.
Alimony: Must be deducted from the monthly income.
Other Liabilities
Student Loans: Indicate both the balance and monthly payment on all student loans.• All student loans in repayment, forbearance or deferment
• If the payment amount is greater than zero, use the payment reported on the credit report or other documentation, or
• If the monthly payment amount reported on the credit report is zero, use 0.5% of the outstanding loan balance as reported on the credit report
Liabilities
Effective for Mortgages with Settlement Dates on and after January 2, 2020 Currently, Sellers may exclude a Borrower’s monthly student loan payment from the DTI ratio if:
• The monthly payment may be excluded from the DTI provided the documentation in the file indicates• The loan has 10 or less monthly payments remaining until the balance of the forgiven, canceled, discharged or
paid or• The monthly payment is deferred or is in forbearance and the full balance of the loan will be forgiven, cancelled,
discharged or paid at the end of the deferment or forbearance periodAND• The borrower currently meets the requirements for the student loan forgiveness, cancellation, discharge or
employment-contingent repayment program, as applicable, and the Seller is not aware of any circumstances that will make the borrower ineligible in the future
Additionally, the Seller must document in the Mortgage file that the Borrower currently meets the requirements for the student loan forgiveness, cancelation, discharge or employment-contingent repayment program. In response to Seller inquiries, we are requiring that for the monthly student loan payment to be excluded from the DTI ratio as stated above, the Mortgage file must contain documentation indicating that the Borrower is eligible or approved for the student loan forgiveness, cancelation, discharge or employment-contingent repayment program. Evidence of eligibility or approval must come from the student loan program or the employer, as applicable. Guide impact: Section 5401.2
Liabilities
Liabilities
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/conv_total_monthly_debt_lpa5.pdf
Feedback Certificate- Property and Appraisal Messages
Feedback Certificate- General Messages
FAQ’s
https://sf.freddiemac.com/general/loan-product-advisor-faq#specification-v-5-0-06
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