Fannie Mae released Selling Guide Announcement SEL -2018-09
On December 4, 2018, Fannie Mae released Selling Guide Announcement SEL -2018-09 describing changes made to the following key topics:
- Self-employment income calculation – enforcement relief when using approved vendor tool
- Commissions and unreimbursed business expenses – updated policy based on tax law changes
- Appraisal waiver policy – for loans in process at time of disaster
- On-frame modular and modular construction – eligible property type added
- Small business administration loans – clarified as subordinate financing if secured by the subject
- Flood insurance – individual policies for single unit condos now permitted
The entire announcement, which includes a link to the updated Form 1008, is available for viewing here: https://www.fanniemae.com/content/announcement/sel1809.pdf
With this update, the Selling Guide has also been updated to reflect changes announced in the Desktop Underwriter/Desktop Originator (DU/DO) Version 10.3 Release. The following are key points from this announcements:
Self-employment income calculation
Qualified vendor tools may be used by lenders to calculate self-employment income. With this update, Fannie Mae has approved LoanBeam’s FNMA SEI 1084 workbook as such a tool, and if lenders use this tool to calculate income and enter the amount in DU, representation and warranty enforcement relief will be provided on the accuracy of the calculation. However, the lender remains responsible for determining the eligibility of the self-employment income, completeness and accuracy of data in the tool, accurate entry of the calculated income amount in DU, applying special feature code 777 to delivery, and the lender is not permitted to perform any manual overrides of the tool’s output results.
This provision is effective immediately.
Commission income and unreimbursed business expenses
Commission income will be treated consistently regardless of the percentage of income such commissions represent. Due to changes in the tax law, lenders will not be able to identify unreimbursed business expenses and therefore the requirement for IRS Form 2106 is being removed, and the policy regarding automobile expenses is changing. The full amount of an automobile allowance may now be treated as income, and the lease or financing expense must be included as a debt for the purposes of calculating the DTI ratio.
These changes may be implemented immediately. Detailed instructions related to DU messages pending a future release to incorporate these changes are included in the bulletin.
Appraisal waiver policy for disasters
The appraisal waiver policy is updated to permit exercise of appraisal waiver offers on loans in process at the time of a disaster under certain circumstances. In order to do so, lenders must meet the same property eligibility requirements current in place for loans already closed but not yet delivered when a disaster strikes.
Effective with casefiles submitted on or after the weekend of December 8, 2018
On-frame modular and modular construction
On-frame modular homes that comply with local building codes, attached to a permanent foundation, and are built using the same materials as comparable stick-build homes are now an eligible property type. Multi-unit buildings such as attached condos and townhomes may be built using modular construction techniques that comply with local building codes.
Small business administration loans
Small business administration loans secured by a subject property must be treated as subordinate financing and included in the calculation of the CLTV and HCLTV ratios. The monthly payment must also be included as a debt in the borrowers DTI ratio calculation, unless the debt is properly excluded as a business debt not in the borrower’s name.
Immediate implementation of this clarification is encouraged, but must take place by March 2019.
Flood insurance
Flood insurance sections from the Selling Guide and Servicing Guide have been simplified and consolidated. Fannie has also clarified the following aspects of the flood insurance requirements:
- High LTV refinance loans securing attached condo projects are acceptable with individual flood insurance dwelling policies
- Projects with over 25% commercial space that maintain a master flood insurance policy must obtain coverage to equate to coverage available to projects maintaining a Residential Condominium Building Association Policy
- A flood insurance declarations page may NOT be used to verify if private insurance coverage is equivalent to National Flood Insurance Program (NFIP) coverage; the full policy must be reviewed
- For units in a project, the contents coverage for the building must be the lesser of 100% of the insurable value, or the maximum NFIP coverage available
- For two-to-four unit projects, the condo homeowner’s association no longer needs to maintain a master flood insurance policy. Individual policies covering a single unit are permitted.
- Loans in communities in the Emergency Program of the NFIP no longer need to maintain coverage to account for the difference between what is available through the Emergency Program and the Regular Program
- Immediate implementation of this clarification is encouraged, but must take place by March 1, 2019
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