Fannie Mae Selling Guide Updated

On December 19, 2017, Fannie Mae updated its Selling Guide to address underwriting borrowers with frozen credit, disaster-affected loans, and additional areas outlined below. Several changes are effective immediately. With this update, Fannie Mae also provides additional detail related to its expectations and requirements for sellers/servicers’ Internal Audit function. Fannie Mae is requiring that any changes necessary to conform to these more detailed Internal Audit requirements be implemented by July 1, 2018. Lastly, due to changes in Texas law effective January 1, 2018, Fannie will not purchase Texas Section 50(a)(6) loans for the first twelve days in January 2018.

  • Underwriting Borrowers with Frozen Credit
  • Use of Premium Pricing
  • Cash-Out Refi Waiting Periods for Properties Owned by LLCs
  • Rep & Warranty Relief for Loans Impacted by a Disaster
  • Ownership and Retention of Loan Files and Records                           
  • Early Funding                                                                                             
  • Lender Internal Audit Requirements
  • Texas Section 50(a)(6) Loans

A summary of the updated provisions is included below.  The entire Fannie Mae bulletin is available: Here                                                                  

Underwriting Borrowers with Frozen Credit                   

Effective immediately

For manually underwritten loans and DU Version 10.0 and Version 10.1 loan casefiles submitted or resubmitted to DU beginning the weekend of November 18, 2017, if the borrower’s credit information is frozen at one of the credit repositories, the credit report is still acceptable as long as:

  • credit data is available from two repositories
  • a credit score is obtained from at least one of those two repositories, and
  • lender requested a three in-file merged report

If credit information is frozen at one of the credit repositories, but there is no credit score or information available from the other two credit repositories, the borrower can be underwritten under Fannie Mae’s nontraditional credit guidelines. DU has been updated to underwrite loan casefiles when a borrower has placed a freeze on their credit report at only one of the three credit repositories.

A loan for a borrower with credit data frozen at two or more of the credit repositories will not be eligible either manually or in DU. 

Use of Premium Pricing                  

Effective immediately

The following requirements on premium pricing have been added:

      • Premium pricing definition, which refers to when a borrower selects a higher interest rate on a mortgage loan in exchange for a lender credit, has been added to the Glossary
      • Lender credit cannot be used to fund any portion of the borrower’s down payment or reserves, and should not exceed the amount needed to offset the borrower’s closing costs
      • Lender credit derived from premium pricing is not considered an interested party contribution even if the lender is an interested party to the transaction
      • Community Seconds® loans used to provide down payment assistance may not be funded in any way through the first lien mortgage, such as through premium pricing.

Cash-Out Refi of Properties Owned by LLC Seasoning Requirement            

Effective immediately

Fannie Mae now allows time held in an LLC that is controlled or majority owned by the borrower(s) to count towards the borrower’s six-month ownership requirement. Acknowledging the November change to post-origination transfer into a LLC under certain conditions, Fannie Mae has clarified the waiting period prior to a cash-out refinance transaction.

Representation and Warranty Relief for Disaster-Impacted Loans      

Evaluation begins early 2018

The Representation and Warranty Relief framework has been revised to apply to all relief for mortgage loans subject to a disaster-related forbearance plan.  To be eligible for relief, the following applies:

    • Loan impacted by a disaster occurring on or after August 25, 2017
    • Property or borrower’s place of employment location is designated by FEMA as eligible for Individual Assistance as a result of a disaster
    • Acceptable payment history based on the latest of end date as required under Version 1 or 2 of the framework or date loan transitions out of disaster-related forbearance and is brought current via a reinstatement, repayment plan, or permanent modification
    • Loan must be brought current through a lump sum payment or a repayment plan completed as agreed in accordance with the relevant forbearance and/or modification provisions of the Fannie Mae Servicing Guide
    • Servicer must accurately report the delinquency status codes for forbearance (09), repayment plan (12), and modifications (BF during the trial period and 28 when the permanent modification is executed)

The period of time the loan is in forbearance “counts” toward the payment history requirement and the months in forbearance are not considered delinquent within the relief framework. Disaster-impacted loans otherwise eligible for future relief will be evaluated starting in early 2018 for possible relief.

Ownership and Retention of Loan Files and Records    

Effective immediately

The content consolidated with this release pertains to the ownership and retention of loan files and records. There were no changes to existing policies with this consolidation effort. The duplicate content was removed from the Servicing Guide on December 13, 2017.

Early Funding               

Currently in effect

Fannie Mae’s Loan Delivery application is being expanded to enable seamless delivery of Early Funding loans, replacing the legacy Funding Express application. The only change to the Selling Guide is the removal of references to Funding Express and replacement with Loan Delivery.

Lenders Internal Audit                 

Necessary changes must be implemented by July 1, 2018

Fannie Mae’s Selling Guide has contained a high-level requirement for lender internal audit and management control systems. With this update, Fannie Mae has provided additional details its expectations and requirements for sellers/servicers Internal Audit function. All sellers/servicers must have internal audit and management controls to evaluate and monitor the overall quality of their loan production and servicing, which must include the following minimum requirements:

    • Procedures must be independent of all key functions of the loan manufacturing process and the servicing processes that they review
    • Seller/servicer’s lines of reporting must reflect the independence of the audit process at all levels
    • Audit function must not share any reporting lines with the functional areas that it reviews
    • Audit function must report directly to the seller/servicer’s senior management and/or board of directors. Exceptions are permitted in situations in which the size of the seller/servicer’s organization is insufficient to support adequate resources to allow for separation of these functions.
    • Procedures must be consultative, so that they help the seller/servicer accomplish its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control, and governance processes

Texas Section 50(a)(6) Loans         

Effective January 1, 2018

The Texas Constitution has been amended affecting home equity lending. The amendments changed a number of provisions regarding Texas Section 50(a)(6) loans; however, the impacts to the Selling Guide are minimal because the Guide requires the lender to comply with the law and does not describe the requirements of the law.  The amendments apply to Texas Section 50(a)(6) loans made on or after January 1, 2018.

Fannie Mae will not purchase Texas Section 50(a)(6) loans closed during the first 12 days of 2018 because the amendments include a revised form of 12-day notice.

Fannie Mae will purchase Texas Section 50(a)(6) loans that otherwise meet its requirements closing on or after January 13, 2018.

The above changes and purchasing policy do not apply to Texas Section 50(a)(6) loans that are closed in 2017.

 

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Marissa Blundell, JD, principal, services as CLA Bankers Advisory’s chief operating officer, overseeing all quality control and compliance assessment services. She is a graduate of Skidmore College and New England School of Law. She is admitted to the Massachusetts Bar. Marissa provides compliance training to clients, conducts public training webinars, and speaks at state and regional industry events. She is co-chair of the Massachusetts Mortgage Bankers Association Legislative Committee and is a member of the Mortgage Action Alliance Steering Committee and the national Mortgage Bankers Association's Quality Assurance Committee.

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