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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
3Avoiding Common Underwriting Errors
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
Fannie Mae-FAQ: Top Trending
Avoiding Common Underwriting Errors 5
https://singlefamily.fanniemae.com/faq-top-trending
Avoiding Common Underwriting Errors 7
https://sf.freddiemac.com/tools-learning/tools-learning
8Avoiding Common Underwriting Errors
https://sf.freddiemac.com/tools-learning/freddie-mac-learning/overview
https://sf.freddiemac.com/tools-learning/tools-learning#popular-in-learning
9Avoiding Common Underwriting Errors
https://sf.freddiemac.com/tools-learning/freddie-mac-learning/overview
https://sf.freddiemac.com/tools-learning/tools-learning#popular-in-learning
10Avoiding Common Underwriting Errors
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/mortgage_products_resources.pdf
Avoiding Common Underwriting Errors 11
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
Avoiding Common Underwriting Errors 12
https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf
Genworth Underwriting Guidelines
Avoiding Common Underwriting Errors 13
Avoiding Common Underwriting Errors 14
https://new-content.mortgageinsurance.genworth.com/documents/national/underwriting-
guidelines/UnderwritingManual.COVIDBulletin.050620.pdf
Genworth Underwriting Guidelines
Avoiding Common Underwriting Errors 15
Genworth MI Top Decision Errors
Avoiding Common Underwriting Errors 16
https://new-content.mortgageinsurance.genworth.com/2020-05/MI.Decision%20Tips.0420.pdf
Avoiding Common Underwriting Errors 17
https://new-content.mortgageinsurance.genworth.com/2020-05/MI.Decision%20Tips.0420.pdf
Avoiding Common Underwriting Errors 18
https://new-content.mortgageinsurance.genworth.com/2020-05/MI.Decision%20Tips.0420.pdf
Genworth MI Decision Tips Updated Every Quarter
Avoiding Common Underwriting Errors 19
https://new-content.mortgageinsurance.genworth.com/2020-05/MI.Decision%20Tips.0420.pdf
Avoiding Common Underwriting Errors 20
https://new-content.mortgageinsurance.genworth.com/2020-05/MI.Decision%20Tips.0420.pdf
Genworth Underwriting Guidelines
Avoiding Common Underwriting Errors 21
Underwriting Tips
Avoiding Common Underwriting Errors 22
https://new-content.mortgageinsurance.genworth.com/documents/contract-svcs/00329.ContractServices.TipSheet.0420.pdf
Genworth Rate Express®
Avoiding Common Underwriting Errors 23
Training Tools and Information
Avoiding Common Underwriting Errors 24
Training Tools and Information
25Avoiding Common Underwriting Errors 25
Common Underwriting ErrorsCOVID-19 Policy Updates, Fannie Mae, Freddie Mac, Genworth
Avoiding Common Underwriting Errors 26
27Avoiding Common Underwriting Errors
https://singlefamily.fanniemae.com/
Fannie Mae COVID-19 ResourcesFannie Mae Updates, FAQs, Fannie Mae’s COVID 19 webpage
28Avoiding Common Underwriting Errors
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.
29Avoiding Common Underwriting Errors
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
30Avoiding Common Underwriting Errors
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
31Avoiding Common Underwriting Errors
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
32Avoiding Common Underwriting Errors
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
33Avoiding Common Underwriting Errors
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
34Avoiding Common Underwriting Errors
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
Fannie Mae LL-2020-03 Effective June 11, 2020
And Remains Effective Until Further Notice
35Avoiding Common Underwriting Errors
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
36Avoiding Common Underwriting Errors
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
Fannie Mae LL-2020-03 Effective June 2, 2020
And Remains Effective Until Further Notice
37Avoiding Common Underwriting Errors
Fannie Mae LL-2020-03 Effective June 2, 2020
And Remains Effective Until Further Notice
38
https://sf.freddiemac.com/about/covid19
Freddie Mac COVID 19 Updates
Freddie Mac Resources
Avoiding Common Underwriting Errors
Bulletin 2020-5
39Avoiding Common Underwriting Errors
Guidance Related to Covid-19
https://guide.freddiemac.com/app/guide/content/a_id/1003723
Bulletin 2020-5
40Avoiding Common Underwriting Errors
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
41Avoiding Common Underwriting Errors
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
42Avoiding Common Underwriting Errors
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
43Avoiding Common Underwriting Errors
https://learn.freddiemaclearning.com/Saba/Web_spf/NA3P1PRD0123/guest/ledetail/cours000000000008862
Bulletin 2020-8
44Avoiding Common Underwriting Errors
Guidance Related to Covid-19
https://guide.freddiemac.com/app/guide/bulletin/2020-8
Bulletin 2020-8
45Avoiding Common Underwriting Errors
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.
Credit Underwriting:
– 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
46Avoiding Common Underwriting Errors
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.
Credit Underwriting:
– 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
47Avoiding Common Underwriting Errors
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.
Credit Underwriting:
– 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
Avoiding Common Underwriting Errors
https://guide.freddiemac.com/app/guide/bulletin/2020-14
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.
Avoiding Common Underwriting Errors
Bulletin 2020-14
50
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.
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.
Avoiding Common Underwriting Errors
Bulletin 2020-14
51
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.
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.
Avoiding Common Underwriting Errors
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.
Avoiding Common Underwriting Errors
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
Avoiding Common Underwriting Errors
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.
Avoiding Common Underwriting Errors
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.
https://guide.freddiemac.com/app/guide/bulletin/2020-19
Bulletin 2020-19
55
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.
Avoiding Common Underwriting Errors
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.
https://guide.freddiemac.com/app/guide/bulletin/2020-19
Bulletin 2020-19
56
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.
Avoiding Common Underwriting Errors
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
https://guide.freddiemac.com/app/guide/bulletin/2020-19
Bulletin 2020-19
57
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.
Avoiding Common Underwriting Errors
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
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.
Avoiding Common Underwriting Errors
Establishing Stable Monthly Income- continued
https://guide.freddiemac.com/app/guide/bulletin/2020-19
Genworth Mortgage Insurance Credit Policy
Announcements
59Avoiding Common Underwriting Errors
Genworth aligns with the GSE recent communications
https://new.mortgageinsurance.genworth.com/guidelines
Common Underwriting ErrorsCapacity, Credit History, Capital, Compliance
Avoiding Common Underwriting Errors 60
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
Avoiding Common Underwriting Errors 61
Five Cs
Capacity
Credit History
Collateral
Capital
Compliance
Six Cs
Capacity
Credit History
Collateral
Capital
Compliance
Common Sense
Avoiding Common Underwriting Errors 62
Capacity ErrorsIncome Calculation and Documentation, Self-Employed Borrowers
Avoiding Common Underwriting Errors 63
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
Avoiding Common Underwriting Errors 65
Fannie Mae Single Family Selling Guide
§B3-3.1-01, Employment and Other Sources of Income
Capacity: Fannie Mae
Avoiding Common Underwriting Errors 66
Capacity: Fannie Mae
Avoiding Common Underwriting Errors
https://www.fanniemae.com/content/guide/selling/b/index.html
67
Capacity: Freddie Mac
68Avoiding Common Underwriting Errors
https://guide.freddiemac.com/app/guide/topic/5300
https://guide.freddiemac.com/app/guide/content/a_id/1000659
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
Avoiding Common Underwriting Errors
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
https://guide.freddiemac.com/app/guide/section/5301.1
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
Avoiding Common Underwriting Errors 70
Capacity: Fannie Mae Selling Guide
Avoiding Common Underwriting Errors 71
https://www.fanniemae.com/content/guide/selling/b3/3.1/01.html
Capacity: Fannie Mae Selling Guide
Avoiding Common Underwriting Errors 72
https://www.fanniemae.com/content/guide/selling/b3/3.1/01.html
Capacity: Fannie Mae Selling Guide
Trends of Income
– Verify trends of income before using to qualify for a mortgage
– Income used must be likely to continue
Avoiding Common Underwriting Errors 73
https://www.fanniemae.com/content/guide/selling/b3/3.1/01.html
Capacity: Effective for Mortgages with Settlement Dates on or After July 2, 2020
but Sellers are ENCOURAGED to implement as soon as possible
Avoiding Common Underwriting Errors 7474
https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf
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%.
Avoiding Common Underwriting Errors 7575
*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
Avoiding Common Underwriting Errors
https://new.mortgageinsurance.genworth.com/self-employed-borrower-calculators
76
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
Avoiding Common Underwriting Errors
Capacity: Self-Employed Income
77
Freddie Mac Income Calculations
– Bulletin 2016-19
• 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.
– Bulletin 2018-15
• 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
Avoiding Common Underwriting Errors
Capacity: Self-Employed Income
78
Capacity: Self-Employed Income
Avoiding Common Underwriting Errors
Freddie Mac Income Documentation
79
https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf
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
Avoiding Common Underwriting Errors 80
Credit History ErrorsCredit Scores, Credit Reports, Liabilities
Avoiding Common Underwriting Errors 81
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 ?
Avoiding Common Underwriting Errors
*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?
Avoiding Common Underwriting Errors 83
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
Avoiding Common Underwriting Errors 84
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
Avoiding Common Underwriting Errors 85
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
Avoiding Common Underwriting Errors
https://guide.freddiemac.com/app/guide/content/a_id/1000663 Chapter 5401.2
86
Credit History
Student Loans
– Fannie Mae
Avoiding Common Underwriting Errors
Guidelines Stated Are Generic Fannie Mae Policy
87
Credit History
Student Loans
– Freddie Mac
Avoiding Common Underwriting Errors
Prudent Underwriting Practices Will Apply
88
https://sf.freddiemac.com/content/_as
sets/resources/pdf/update/docmatrix.
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
Avoiding Common Underwriting Errors
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
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
Avoiding Common Underwriting Errors 90
Capital ErrorsAssets to Close, Borrower’s Own Funds, Gift Funds, Reserves and
Large Deposits
Avoiding Common Underwriting Errors 91
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
Avoiding Common Underwriting Errors 92
IPC’s- Fannie Mae
Avoiding Common Underwriting Errors 93
https://www.fanniemae.com/content/guide/selling/b3/4.1/02.html
IPC’s- Freddie Mac
Avoiding Common Underwriting Errors
*Freddie determines value by using the lessor of the sales price or appraised value
*
94
https://guide.freddiemac.com/app/guide/content/a_id/1000668
Capital
Avoiding Common Underwriting Errors
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
Avoiding Common Underwriting Errors 96
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.
Avoiding Common Underwriting Errors 97
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.
Avoiding Common Underwriting Errors 98
https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf
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
Avoiding Common Underwriting Errors 99
Capital: Fannie Mae
Avoiding Common Underwriting Errors
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
Avoiding Common Underwriting Errors 10
1
Avoiding Common Underwriting Errors
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.
Avoiding Common Underwriting Errors
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?
Avoiding Common Underwriting Errors 10
4
Capital- Gift Funds: Freddie Mac
Page 24 of matrix https://sf.freddiemac.com/content/_assets/resources/pdf/update/docmatrix.pdf
Avoiding Common Underwriting Errors 10
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.
Avoiding Common Underwriting Errors 10
6
ComplianceCompleteness
Avoiding Common Underwriting Errors 10
7
Avoiding Common Underwriting Errors
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
Avoiding Common Underwriting Errors 10
8
Genworth Underwriting Guidelines
Avoiding Common Underwriting Errors 11
3
Genworth Rate Express®
Avoiding Common Underwriting Errors 11
4
LOS Connections
Avoiding Common Underwriting Errors 11
5
Training Tools and Information
Avoiding Common Underwriting Errors 11
6
Training Tools and Information
11
7Avoiding Common Underwriting Errors 11
7
Additional MI Site Information
Avoiding Common Underwriting Errors 11
8
➢ ActionCenter®: 800 444.5664
➢ Your Local Genworth
Regional Underwriter
➢ Your Genworth Sales
Representative
Your Genworth Resources
Avoiding Common Underwriting Errors 11
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
Avoiding Common Underwriting Errors 12
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