Freddie Mac Updates Credit and Underwriting Rules
By Anna DeSimone
July 15, 2015, Freddie Mac published Bulletin 2015-12, Selling Guide Updates. Highlights of the Bulletin are provided:
Credit and Underwriting Topics:
- Maximum Number of Financed Properties
- Use of Income from Investment Properties
- Minimum monthly payment required to be included in the DTI when student loans are deferred or in forbearance
Interested party contributions – abatements
Currently, Mortgages with abatements (that are funds provided to a lender or third party by an interested party to pay or reimburse in whole or in part a certain number of the Borrower’s Mortgage payments in excess of the Prepaids/Escrows) are not eligible for sale to Freddie Mac. Freddie Mac is revising the requirements to state that the payment of up to 12 months of homeowners association dues by an interested party is not considered an abatement but is considered an interested party contribution and is subject to the requirements for interested party contributions and other conditions. Sections 25.3 and 42.3 have been updated to reflect these changes.
Multiple financed properties
Effective for Mortgages with Settlement Dates on or after October 26, 2015, Freddie Mac is revising the multiple financed property requirements as follows:
- Increasing from four to six the maximum number of financed properties that the Borrower may own or be obligated on when the transaction is a second home or an Investment Property Mortgage
- Clarifying certain types of properties that should not be included in the count of financed properties
Sections 22.22 and 22.22.1 have been updated to reflect these changes. Cross-references in Section B24.2 have also been updated as a result of these changes.
Rental income
Effective for Mortgages with Settlement Dates on or after October 26, 2015, Freddie Mac is removing the requirement that the Borrower must have a two-year history of managing Investment Properties to use the income from a subject Investment Property or other Investment Properties owned by the Borrower for qualifying purposes. Sections 37.14 and 37.16.2 have been updated to reflect these changes.
Rent loss insurance
Effective for Mortgages with Settlement Dates on or after October 26, 2015, Freddie Mac is removing the requirement that the Borrower must have six months of rent loss insurance to use rental income from the subject Investment Property for qualifying purposes. Sections 22.22.1, 37.14, and 58.3.2 and Exhibit 5 have been updated to reflect these changes.
Debt payment-to-income ratio calculation
Effective for Mortgages with Settlement Dates on or after August 1, 2015:
- Freddie Mac is revising the minimum monthly payment amount that must be included in the debt payment-to-income ratio (“DTI”) calculation when a student loan is deferred or is in forbearance and no monthly payment is verified from 2% to 1% of the outstanding balance of the student loan
- Freddie Mac is clarifying that Sellers may calculate monthly payments for student loans, revolving accounts and open-end accounts based on a specified percentage of the outstanding balance only when there is no documentation in the Mortgage file indicating the actual monthly payment amount
- Freddie Mac is permitting the exclusion of a monthly payment from the DTI calculation when the Borrower is self-employed and the monthly payment is made by the Borrower’s business, subject to certain conditions
Sections 37.13, 37.16 and 37.17 have been updated to reflect these changes.
Gift letters
A gift letter is required when gift funds are used as Borrower Funds or reserves. Effective for Mortgages with Settlement Dates on or after August 1, 2015, Freddie Mac is removing the requirement that the gift letter must identify the Mortgaged Premises. Sections 37.22 and 37.23 have been updated to reflect these changes.
Verbal verification of employment
Freddie Mac is updating the requirements to provide that when conducting verbal verifications of employment, the Seller must verify the Borrower’s employment status, and not whether the Borrower is employed or on leave. Section 37.20 and Guide Form 90 have been updated to reflect this change.
Property Eligibility – Comparable sales selection
Effective for Mortgages with Application Received Dates on or after September 1, 2015. In Bulletin 2015-7, Freddie Mac revised the selection requirements for comparable sales for properties located in new subdivisions, units located in new Planned Unit Developments (PUDs) and units located in recently converted and New Condominium Projects. To provide additional time for Sellers to adjust their processes, if necessary, Freddie Mac is extending the effective date for these changes from May 14, 2015 to Mortgages with Application Received Dates on or after September 1, 2015. In the interim, Sellers either may continue to use the requirements in effect prior to Bulletin 2015-7, or may implement the changes sooner if they are able to do so. Sections L33.6, 42.8 and 44.15 have been updated to reflect this change.
Please refer to the Bulletin for additional changes and important information.
About the Author
Anna DeSimone is President and Founder of Bankers Advisory and Principal of CliftonLarsonAllen LLP. She can be reached at anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
Comments are closed.