Conforming and FHA Underwriting Guide Updates
Overview
NewRez LLC "NewRez" Approved Correspondent Clients: please note that NewRez is aligning with the following guidelines from Freddie Mac bulletins 2021-9 and 2021-12.
- 10-Day Verbal Confirmation of Employment
- Refinance: Documentation of Funds to Close
- Retirement Account Distributions as Income
- Revolving Accounts
Effective Date
Effective immediately for all loans.
Highlights
10-Day Verbal Confirmation of Employment
NewRez will align with Freddie Mac Bulletin 2021-12 permitting the use of an e-mail exchange to confirm the borrower’s employment ten (10) days prior to closing, subject to all of the following:
- Must independently obtain employer’s work e-mail address that includes, at a minimum, all of the following:
- Borrower’s name and current employment status
- Employer’s name
- Name and title of the individual contacted at the employer, date of contact and the individual’s work e-mail address
In addition, the loan file must include:
- Information about the third-party source used to obtain the employer’s e-mail address; and
- Name, title, and employer of the representative who contacted the borrower’s employer and obtained the e-mail verification.
This is applicable to Freddie Mac LPA transactions.
Chapter 1I Employment and Income, Section 1I.1 (f) Verbal Confirmation of Employment has been updated with this information.
Retirement Account Distributions as Income
If the retirement account(s) from which the borrower is currently taking distributions is projected to be depleted within three (3) years, additional, eligible retirement accounts assets, may be used in aggregate, to support the determination of three (3) year continuance.
This is applicable to Freddie Mac LPA and Fannie Mae DU transactions.
Chapter 1I Employment and Income, Section 1I.14 (v) Distributions from Retirement Accounts Recognized by the IRS has been updated with this information.
Refinance: Documentation of Fund to Close
Freddie Mac will no longer require documentation of funds to close on refinance transactions under the following circumstances:
- The required borrower funds are $500 or less;
- No reserves are required per the LPA Feedback Certificate; and
- Loan receives an LPA Accept.
This is applicable to Freddie Mac LPA transactions.
Chapter 1B Transactions, Section 1B.2 (b) Verification of Funds Required to Close has been updated with this information.
Revolving Charge Accounts
Freddie Mac has clarified the following:
- Revolving debt provided on the loan application without a monthly payment amount and there is no documentation showing the monthly payment amount, LPA will use 5% of the outstanding balance as the monthly payment when calculating the DTI ratio.
- Open 30-Day Accounts: The full amount of the outstanding balance must be included in the DTI ratio unless the borrower has sufficient funds to pay off the outstanding balance, in addition to the funds required for the transaction.
This is applicable to Freddie Mac LPA transactions.
Chapter 1H Liabilities and Debt Ratios, Section 1H.4 (s) Revolving Charges/Lines of Credit has been updated with this information.
Comparable Sale Requirements for New or Recently Converted Condos, Subdivisions, or PUDs
NewRez is updating the policy to align with Fannie Mae and Freddie Mac when there are no closed sales in the new subject project or subdivision to the following:
|
Fannie Mae DU |
Freddie Mac LPA |
|
· Two (2) pending sale from inside the subject project or subdivision in lieu of a closed sale and may be a sale by the builder or developer of the subject property; and · Three (3) closed comparable sales from outside the subject subdivision or project |
· One (1) pending sale from inside the subject project or subdivision in lieu of a closed sale and may be a sale by the builder or developer of the subject property; and · Three (3) closed comparable sales from outside the subject subdivision or project. |
Chapter 1J Appraisal, Section 1J.7 (p)(v) Additional requirements for New (or Recently Converted) Condos, Subdivisions, or PUDs.
Solar Panels
Clarified Fannie Mae and Freddie Mac requirement when the solar panels are collateral for the separate debt used to purchase the panels, but they are a fixture to the real estate because a UCC Fixture Filing* has been filed for the panels in the real estate records:
- Fannie Mae DU: Include the solar panel debt in the CLTV.
- Freddie Mac LPA:
- Do not include in CLTV if the UCC Financing Statement or lease agreement claim an interest in the solar panels and not the real property
- If the UCC Financing Statement or lease agreement claims an interest in the real property, include in the real estate
Chapter 1D Property Types, Section 1D.6 Properties with Solar Panels has been updated with this information.
Payoff Installment and Revolving Debt to Close
For cash-out refinance transactions where installment or revolving debt is being paid off at closing, a payoff statement is no longer required. The payoff, based on the credit report or account statement, must be reflected on the Closing Disclosure.
The following chapters have been updated with this information:
- Chapter 1H Liabilities and Debt Ratios
- Chapter 2H Liabilities and Debt Ratios
- Chapter 3H Liabilities and Debt Ratios
FHA Refer and Manually Underwritten Loans
Added complete manual underwriting guidelines for the following topics, outlined in red in the FHA Credit chapter:
- Charge-off accounts
- Collection accounts
- Consumer credit counseling
- Disputed derogatory and non-derogatory credit
- Judgments
Chapter 2F Credit, Section 2F.7 (a) Waiting Period Requirement and 2F.7 (b)(ii) Refer and Manual Underwrite have been updated with this information.