Announcement 18-0004: Government and Conventional Underwriting Guideline Updates

VA Product Underwriting Changes

Document

Old Requirements

Updated Requirements

VA Underwriting Guidelines

Borrower Eligibility

Must be a veteran who served the minimum duty with other than a dishonorable discharge. Active duty with at least 181 days of duty. DD Form 214 is required. Un-remarried surviving spouse of eligible veteran (COE). Reservists/National Guard. Certificate of Eligibility must have sufficient entitlement to meet minimum 25% guaranty. All borrowers must occupy the subject property.

Borrower Eligibility

Must be a veteran who served the minimum duty with other than a dishonorable discharge. Active duty with at least 181 days of duty. DD Form 214 is required. Un-remarried surviving spouse of eligible veteran (COE). Reservists/National Guard. Certificate of Eligibility must have sufficient entitlement to meet minimum 25% guaranty. All borrowers must occupy the subject property.

Note: DD Form 214 is not required for veterans receiving VA Disability Compensation.

Ineligible Collateral

Mobile homes, single-wide manufactured homes, State-approved medical marijuana producing properties, co-ops, Condo Hotels, energy efficient mortgages,  properties with sink holes, properties serviced by hauled water, properties with cisterns, properties with a wastewater stabilization pond/lagoon (aka sewage lagoon), properties with individual water purification systems required to make the water safe for human consumption (does not include systems installed to improve the taste or softness of the water),properties in Hawaii with water catchment systems, Hawaiian properties in Lava Zones 1 and 2, and Department of Hawaiian Home Lands (DHHL), loans are ineligible.

Ineligible Collateral

Mobile homes, single-wide manufactured homes, State-approved medical marijuana producing properties, co-ops, Condo Hotels, energy efficient mortgages, properties encumbered with Property Assessed Clean Energy (PACE) or Home Energy Renovation Opportunity (HERO) obligations, properties with sink holes, properties serviced by hauled water, properties with cisterns, properties with a wastewater stabilization pond/lagoon (aka sewage lagoon), properties with individual water purification systems required to make the water safe for human consumption (does not include systems installed to improve the taste or softness of the water),properties in Hawaii with water catchment systems, Hawaiian properties in Lava Zones 1 and 2, and Department of Hawaiian Home Lands (DHHL), loans are ineligible.

Added new - VA Exemption – County Property Taxes

Disabled veterans may be exempt from county property taxes. Exemption must be documented by proof of veteran’s 100% disability and the fully executed application for the exemption.

FHA Product Underwriting Changes

Document

Old Requirements

Updated Requirements

FHA Underwriting Guidelines

Housing Obligations/Mortgage Payment History

Cash-Out Refinance Transactions

A borrower is not eligible for a cash-out refinance if there is any delinquency within 12 months of the case number assignment date.

CMS must document that the Borrower has made all payments for all their Mortgages within the month due for the previous 12 months or since the Borrower obtained the Mortgages, whichever is less.

Housing Obligations/Mortgage Payment History

Cash-Out Refinance Transactions

A borrower is not eligible for a cash-out refinance if there is any delinquency (mortgage late payments) within 12 months of the case number assignment date or within 12 months of the new closing date.

CMS must document that the Borrower has made all payments for all their Mortgages within the month due for the previous 12 months or since the Borrower obtained the Mortgages, whichever is less.

Evaluating Liabilities and Debts

Undisclosed Mortgage Debt

When an existing debt or obligation that is secured by a mortgage but is not listed on the credit report and not considered by the AUS is revealed during the application process, CMS must obtain a verification of Mortgage directly from the Servicer.

The mortgage must be downgraded to a Refer and manually underwritten if the mortgage history reflects:

·       a current delinquency;

·       any delinquency within 12 months of the case number assignment date or

·       more than two 30 Day late payments within 24 months of the case number assignment date.

A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late Mortgage Payments.

Evaluating Liabilities and Debts

Undisclosed Mortgage Debt

When an existing debt or obligation that is secured by a mortgage but is not listed on the credit report and not considered by the AUS is revealed during the application process, CMS must obtain a verification of Mortgage directly from the Servicer.

The mortgage must be downgraded to a Refer and manually underwritten if the mortgage history reflects:

·       a current delinquency;

·       any delinquency within 12 months of the case number assignment date or within 12 months of the new closing date; or

·       more than two 30 Day late payments within 24 months of the case number assignment date.

A Mortgage that has been modified must utilize the payment history in accordance with the modification agreement for the time period of modification in determining late Mortgage Payments.

Additional Required Analysis of Stability of Employment Income

Frequent Changes in Employment

If the Borrower has changed jobs more than three times in the previous 12-month period, or has changed lines of work, CMS must take additional steps to verify and document the stability of the Borrower’s Employment Income. CMS must obtain:

·       transcripts of training and education demonstrating qualification for a new position; or

·       employment documentation evidencing continual increases in income and/or benefits.

Additional Required Analysis of Stability of Employment Income

Frequent Changes in Employment

If the Borrower has changed jobs more than three times in the previous 12-month period, or has changed lines of work, CMS must take additional steps to verify and document the stability of the Borrower’s Employment Income. Additional analysis is not required for fields of employment that regularly require a Borrower to work for various employers (such as Temp Companies or Union Trades). CMS must obtain:

·       transcripts of training and education demonstrating qualification for a new position; or

·       employment documentation evidencing continual increases in income and/or benefits.

Gifts (Personal and Equity)

Documenting the Transfer of Gifts

CMS must verify and document the transfer of gift funds from the donor to the Borrower in accordance with the requirements below.

a. If the gift funds have been verified in the Borrower’s account, obtain the donor’s bank statement showing the withdrawal and evidence of the deposit into the Borrower’s account.

b. If the gift funds are not verified in the Borrower’s account, obtain the certified check or money order or cashier’s check or wire transfer or other official check, and a bank statement showing the withdrawal from the donor’s account.

If the gift funds are paid directly to the settlement agent, CMS must verify that the settlement agent received the funds from the donor for the amount of the gift, and that the funds were from an acceptable source by a review of the donor’s bank statement.

If the gift funds are being borrowed by the donor and documentation from the bank or other savings account is not available, CMS must have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction.

CMS and its Affiliates are prohibited from providing the loan of gift funds to the donor unless the terms of the loan are equivalent to those available to the general public.

Regardless of when gift funds are made available to a Borrower, CMS must be able to make a reasonable determination that the gift funds were not provided by an unacceptable source.

Gifts (Personal and Equity)

Documenting the Transfer of Gifts

CMS must verify and document the transfer of gift funds from the donor to the Borrower in accordance with the requirements below.

a. If the gift funds have been verified in the Borrower’s account, obtain the donor’s bank statement showing the withdrawal and evidence of the deposit into the Borrower’s account.

b. If the gift funds are not verified in the Borrower’s account, obtain the certified check or money order or cashier’s check or wire transfer or other official check, and a bank statement showing the withdrawal from the donor’s account.

If the gift funds are paid directly to the settlement agent, CMS must verify that the settlement agent received the funds from the donor for the amount of the gift, and that the funds were from an acceptable source by a review of the donor’s bank statement.

If the gift funds are being borrowed by the donor and documentation from the bank or other savings account is not available, CMS must have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction.

CMS and its Affiliates are prohibited from providing the loan of gift funds to the donor unless the terms of the loan are equivalent to those available to the general public.

Regardless of when gift funds are made available to a Borrower, CMS must be able to make a reasonable determination that the gift funds were not provided by an unacceptable source.

If the gift donor’s beginning account balance is enough to cover the gift transfer, that is considered an acceptable source. If additional deposits made are needed to provide the gift funds, the source of funds must be documented.

Conventional Product Underwriting Changes – Fannie Mae

Document

Old Requirements

Updated Requirements

Guidelines

NA

Non-U.S. Citizen

Added - Non-U.S. citizens lawfully residing in the U.S. as a permanent or non-permanent resident alien are eligible with supporting documentation. Foreign Nationals, borrowers with Diplomatic Immunity and Non-U.S. citizens who have no lawful residency status in the United States are not eligible.

Added new - Short Payoffs

Definition

A short payoff is when a lender agrees to accept less than the full balance of the mortgage loan as payment in full for the debt.

Eligibility Requirements

Short payoffs are not eligible. FNMA will not accept a refinance transaction where a lender has approved a short payoff.

Cash-Out Refinance

Modifications/ Restructures

If the existing loan being refinanced has been modified, this is permitted as long as CMS confirms a good mortgage history for the most recent 12 months on the modified mortgage, a copy of the modification agreement is required and the loan must receive an AUS “Approve” or “Accept” finding.

Deleted requirements

Continuity of Income

A key driver of successful homeownership is confidence that all income used in qualifying the borrower will continue to be received by the borrower for the foreseeable future. Unless CMS has knowledge to the contrary, if the income does not have a defined expiration date and the applicable history of receipt of the income is documented (per the specific income type), CMS may conclude that the income is stable, predictable, and likely to continue. CMS is not expected to request additional documentation from the borrower.

If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, CMS must document the likelihood of continued receipt of the income for at least three (3) years.

Continuity of Income

A key driver of successful homeownership is confidence that all income used in qualifying the borrower will continue to be received by the borrower for the foreseeable future. Unless CMS has knowledge to the contrary, if the income does not have a defined expiration date and the applicable history of receipt of the income is documented (per the specific income type), CMS may conclude that the income is stable, predictable, and likely to continue. CMS is not expected to request additional documentation from the borrower.

If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, CMS must document the likelihood of continued receipt of the income for at least three (3) years.

If CMS is notified that the borrower is transitioning to a lower pay structure, for example due to pending retirement, CMS must use the lower amount to qualify the borrower.

Continuity of Income

Defined Expiration Date*

CMS must document 3–year continuance

•    alimony or child support

•    distributions from a retirement account – for example, 401(k), IRA, SEP, Keogh

•    mortgage differential payments

•    notes receivable

•    public assistance

•    royalty payment income

•    Social Security (not including retirement or long-term disability)

•    trust income

Continuity of Income

Defined Expiration Date*

CMS must document 3–year continuance

•    alimony or child support

•    distributions from a retirement account – for example, 401(k), IRA, SEP, Keogh

•    mortgage differential payments

•    notes receivable

•    public assistance

•    royalty payment income

•    Social Security (not including retirement or long-term disability)

•    trust income

•    VA benefits (not including retirement or long-term disability)

Employment-Related Assets as Qualifying Income

Maximum LTV/CLTV/HCLTV

70%

Minimum Credit Score

DU: 620

Standard : Higher of 620 or minimum Credit Score per the Eligibility Matrix

Number of units

One- to four-unit properties

Employment-Related Assets as Qualifying Income

Maximum LTV, CLTV, and HCLTV Ratio

70%

80% if the owner of the asset(s) being used to qualify is at least 62 years old at the time of closing. If the asset(s) is jointly owned, all owners must be borrowers on the loan and the borrower whose employment-related asset is being used as income must be at least 62 years old at the time of closing.

Minimum Credit Score

DU: 620

Manual: Higher of 620 or minimum Credit Score per the Eligibility Matrix

Number of units

As permitted by occupancy type.

Installment Debt

All installment debt that is not secured by a financial asset—including student loans, automobile loans, and home equity loans —must be considered part of the borrower’s recurring monthly debt obligations if there are more than ten monthly payments remaining. However, an installment debt with fewer monthly payments remaining also should be considered as a recurring monthly debt obligation if it significantly affects the borrower’s ability to meet his or her credit obligations.

Installment Debt

All installment debt that is not secured by a financial asset—including student loans, automobile loans, and timeshares—must be considered part of the borrower’s recurring monthly debt obligations if there are more than ten monthly payments remaining. However, an installment debt with fewer monthly payments remaining also should be considered as a recurring monthly debt obligation if it significantly affects the borrower’s ability to meet his or her credit obligations. See Federal Income Tax Installment Agreements below for treatment of payments due under a federal income tax installment agreement.

Note: A timeshare account should be treated as installment debt regardless of how it is reported on the credit report or other documentation (that is, even if reported as a mortgage loan).

Manufactured Housing

Lender Eligibility

CMS is not required to obtain specific approval to deliver mortgages secured by manufactured homes.

·       Condominium project manufactured homes are not eligible.

·       Co-ops and single width manufactured homes are not eligible.

Manufactured Housing

Lender Eligibility

CMS is not required to obtain specific approval to deliver mortgages secured by manufactured homes.

However, CMS must obtain Fannie Mae’s project acceptance for any condominium projects if they are composed of manufactured homes. Both the land and the dwelling must be subject to the Condo Association.

Renamed Property Inspection Waivers (PIW) and DU Refi Plus property fieldwork waiver to Appraisal Waivers

Added new - Rural High-Needs Appraisal Waiver requirements

In selected rural high-needs areas, Fannie Mae may offer appraisal waivers through DU for certain transactions. This appraisal waiver may be combined with other loan products, such as HomeReady.

The rural high-needs appraisal waiver offer will be considered for the following transactions only:

• loan casefiles that receive an Approve/Eligible recommendation;
• purchase transactions;
• one-unit principal residence properties (excluding manufactured homes);
• borrowers with income at or below 100% of the area median income; and
• LTV ratios up to 97% and CLTV ratios up to 105% with a Community Seconds.

The following are ineligible for the rural high-needs appraisal waiver:

• cash-out or limited cash-out refinances;
• second homes and investment properties; and
• all other transactions that are ineligible for an appraisal waiver as listed above.

The following table provides the requirements related to the home inspection. These requirements must be met for CMS to exercise the rural high-needs appraisal waiver.

Payment of Mortgage Insurance Premiums

Premium plans for mortgage insurance may be:

·       monthly plans – monthly premiums from accumulated escrow deposits (with no initial payment at closing),

·       annual plans – an initial payment at closing to cover the first year's premium and annual renewal premiums thereafter paid from accumulated escrow deposits,

·       single-premium plans – lump-sum premium at closing to purchase life-of-the-mortgage coverage, or

·       split-premium plans – an initial payment at closing and an ongoing monthly premium from accumulated escrow deposits.

Payment of Mortgage Insurance Premiums

Premium plans for mortgage insurance may be:

·       monthly plans – monthly premiums from accumulated escrow deposits (with no initial payment at closing),

·       annual plans – an initial payment at closing to cover the first year's premium and annual renewal premiums thereafter paid from accumulated escrow deposits, or

·       single-premium plans – lump-sum premium at closing to purchase life-of-the-mortgage coverage.

Conventional Product Underwriting Changes – Freddie Mac

Document

Old Requirements

Updated Requirements

Guidelines

Occupancy Types

Second Home and Multiple Properties Financed

Each second home mortgage must meet the following requirements:

1.     For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or related to the builder, developer or the property seller.

2.     Each borrower individually and all borrowers collectively must not be obligated on (e.g., Notes, land contracts and/or any other debt or obligation) more than six (6) 1 to 4-unit financed properties, including the subject property and the borrower's primary residence

Examples of financed properties that do not have to be counted in this limitation include:

·       Commercial real estate

·       Multifamily (five or more units) real estate

·       Timeshares

·       Undeveloped land

·       Property titled in the name of the borrower's business provided that the borrower, in his or her individual capacity, is not on title and/or is not obligated on the property

·       Property titled in the name of a trust where the borrower is a trustee, provided that the borrower in his or her individual capacity, is not on title and/or not obligated on the property.

3.     Rental income from the borrower's second home or 1-unit Primary Residence may not be considered as stable monthly income in the credit qualification analysis.

4.     The monthly housing expense related to a borrower's current Primary Residence must be used in computing the borrower's monthly housing expense-to-income ratio.

5.     The monthly PITIA on the second home must be considered in calculating the borrower's Monthly Debt Payment-to-Income Ratio.

6.     The reserves requirements in Reserves must be met.

Occupancy Types

Second Home and Multiple Properties Financed

Each second home mortgage must meet the following requirements:

1.     For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or related to the builder, developer or the property seller.

2.     Each borrower individually and all borrowers collectively must not be obligated on (e.g., Notes, land contracts and/or any other debt or obligation) more than six (6) 1 to 4-unit financed properties, including the subject property and the borrower's primary residence, provided that when the number of 1- to 4-unit financed properties (including the subject property and the Borrower's Primary Residence) is greater than six, the Mortgage must:

·       Be a Loan Product Advisor® Mortgage with a Risk Class of Accept, and

·       Have a minimum Indicator Score of 720

Examples of financed properties that do not have to be counted in this limitation include:

·       Commercial real estate

·       Multifamily (five or more units) real estate

·       Timeshares

·       Undeveloped land

·       Property titled in the name of the borrower's business provided that the borrower, in his or her individual capacity, is not on title and/or is not obligated on the property

·       Property titled in the name of a trust where the borrower is a trustee, provided that the borrower in his or her individual capacity, is not on title and/or not obligated on the property.

3.     Rental income from the borrower's second home or 1-unit Primary Residence may not be considered as stable monthly income in the credit qualification analysis.

4.     The monthly housing expense related to a borrower's current Primary Residence must be used in computing the borrower's monthly housing expense-to-income ratio.

5.     The monthly PITIA on the second home must be considered in calculating the borrower's Monthly Debt Payment-to-Income Ratio.

6.     The reserves requirements in Reserves must be met.

Investment Property and Multiple Properties Financed

An Investment Property Mortgage delivered to Freddie Mac must meet the following special underwriting requirements:

(i)             For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or related to the builder, developer or property seller.

(ii)            Each borrower individually and all borrowers collectively must not own and/or be obligated on (e.g., Notes, land contracts and/or any other debt or obligation) more than six (6) 1- to 4-unit financed properties, including the subject property and the borrower's Primary Residence

Refer to Guidelines for additional information.

Investment Property and Multiple Properties Financed

An Investment Property Mortgage delivered to Freddie Mac must meet the following special underwriting requirements:

(i)             For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or related to the builder, developer or property seller.

(ii)            Each borrower individually and all borrowers collectively must not own and/or be obligated on (e.g., Notes, land contracts and/or any other debt or obligation) more than ten (10)  1- to 4-unit financed properties, including the subject property and the borrower's Primary Residence, provided that when the number of 1- to 4-unit financed properties (including the subject property and the Borrower's Primary Residence) is greater than six, the Mortgage must:

·       Be a Loan Product Advisor® Mortgage with a Risk Class of Accept, and

·       Have a minimum Indicator Score of 720

Refer to Guidelines for additional information.

Borrower Types

Non-U.S. Citizen

Non-U.S. citizens lawfully residing in the U.S. as a permanent or nonpermanent resident alien are eligible. Non-U.S. citizens who have no lawful residency status in the United States are not eligible.

Borrower Types

Non-U.S. Citizen

Non-U.S. citizens lawfully residing in the U.S. as a permanent or nonpermanent resident alien are eligible with supporting documentation. Foreign Nationals, borrowers with Diplomatic Immunity and Non-U.S. citizens who have no lawful residency status in the United States are not eligible.

Freddie Mac Special Requirements for Condominiums

Added Glossary Definitions and Other Terms used in this Section

CMS should be familiar with the Glossary definitions of the following terms:

Condominium Project Review and General Condominium Project Eligibility Requirements

Freddie Mac’s Condominium Project review and eligibility requirements provide a sequential process for project eligibility review.

CMS must determine compliance with:

·       The Condominium Project review requirements, and

·       The Condominium Project eligibility requirements, which have two components:

1. The general Condominium Project eligibility requirements, and

2. The Condominium Project eligibility requirements for one of the particular project review types that are set forth in either Streamlined Reviews, Established Condominium Projects, Other Condominium Projects or Reciprocal Project Reviews

Condominium Project Review and General Condominium Project Eligibility Requirements

Freddie Mac’s Condominium Project review and eligibility requirements provide a sequential process for project eligibility review.

CMS must determine compliance with:

·       The Condominium Project review requirements, and

·       The Condominium Project eligibility requirements, which have two components:

1. The general Condominium Project eligibility requirements, except for mortgages secured by detached condominium units reviewed under the detached condominium projects review type as set forth in this section, and

2. The Condominium Project eligibility requirements for one of the particular project review types that are set forth in either Streamlined Reviews, Established Condominium Projects, New Condominium Projects, Detached Condominium Projects or Reciprocal Project Reviews

For Freddie Mac-owned "no cash-out" refinance Condominium Unit Mortgages, CMS does not need to determine compliance with the Condominium Project review and eligibility requirements if the Condominium Unit Mortgage being refinanced is currently owned by Freddie Mac in whole or in part or securitized by Freddie Mac and the requirements in this section are met.

Condominium Project Review Requirements

CMS must review and determine that a Condominium Project complies with Freddie Mac’s requirements within 180 days prior to the Note Date. CMS must deliver a Condominium Unit mortgage no later than 120 days after the Note Date. If the Condominium Unit mortgage is not delivered within 120 days after the Note Date, CMS must update the review and determination of the Condominium Project eligibility.

Condominium Project Review Requirements

CMS must review and determine that a Condominium Project complies with Freddie Mac’s requirements as follows:

CMS must deliver a Condominium Unit mortgage no later than 120 days after the Note Date. If the Condominium Unit mortgage is not delivered within 120 days after the Note Date, CMS must update the review and determination of the Condominium Project eligibility.

Condominium Project Review Requirements

CMS must ensure that:

1. The project complies with the General Condominium Project Eligibility Requirements; and
2. The Condominium Unit mortgage, the Condominium Unit and the Condominium Project comply with project eligibility requirements for one of the following project review types:

·       Streamlined Reviews

·       Established Condominium Projects

·       New Condominium Projects

·       2- to 4-Unit Condominium Projects

·       Detached Condominium Projects

·       Reciprocal Project Reviews 

Condominium Project Review Requirements

CMS must ensure that:

1. The project complies with the General Condominium Project Eligibility Requirements; except for Mortgages secured by Detached Condominium Units reviewed under the Detached Condominium Projects review type as set forth in this section;  and
2. The Condominium Unit mortgage, the Condominium Unit and the Condominium Project comply with project eligibility requirements for one of the following project review types:

·       Streamlined Reviews

·       Established Condominium Projects

·       New Condominium Projects

·       Detached Condominium Projects

·       Reciprocal Project Reviews 

Overview of Condominium Requirements and Project Review Types

Listed below is an overview of Condominium requirements and project review types:

A Condominium Project and Condominium Unit mortgage must comply with the following¹:

·       Condominium Project Review and General Condominium Project Eligibility Requirements, and

·       Not be an Ineligible Condominium Project Type (See Ineligible Projects) and

·       The project eligibility requirements for one of the following project review types: (Streamlined Reviews, Established Condominium Projects, Other Condominium Projects or Reciprocal Project Reviews)

o   Streamlined Reviews for Established Projects

o   New Condominium Project Reviews

o   2- to 4- Unit Condominium Project Reviews

o   Detached Condominium Project Reviews

o   Reciprocal Project Reviews

Overview of Condominium Requirements and Project Review Types

Listed below is an overview of Condominium requirements and project review types:

A Condominium Project and Condominium Unit mortgage must comply with the following¹:

·       Condominium Project Review and General Condominium Project Eligibility Requirements², and

·       Not be an Ineligible Condominium Project Type (See Ineligible Projects) and

·       The project eligibility requirements for one of the following project review types: (Streamlined Reviews, Established Condominium Projects, New Condominium Projects, Detached Condominium Projects or Reciprocal Project Reviews)

o   Streamlined Reviews for Established Projects

o   New Condominium Project Reviews

o   Detached Condominium Project Reviews

o   Reciprocal Project Reviews

¹ If the requirements for Freddie Mac–owned “no cash-out” refinance condominium unit mortgages in this section are met, compliance with the condominium project review and eligibility requirements is not required.

² Detached Condominium Units reviewed under the Detached Condominium Projects review type as set forth in this section are not required to comply with the general condominium project eligibility requirements in this section and are not subject to the ineligible projects requirements in this section.

Condominium Project Review and General Condominium Project Eligibility Requirements

General Condominium Project Eligibility Requirements

The Condominium Project must comply with the following general Condominium Project eligibility requirements:

Ineligible project

The project must not be an Ineligible Project.

Project insurance

The project must have insurance that complies with the applicable requirements of Freddie Mac General Property Insurance Requirements.

Title insurance

The Condominium Unit must be covered by a title insurance policy that complies with the Title Insurance requirements.

Project ownership

When control of the Homeowners Association (HOA) has been or will be turned over to the unit owners, the unit owners must have either (i) an undivided ownership interest in the land on which the project is located or (ii) a leasehold interest in the land on which the project is located.

Ownership and use of the Common Elements

The unit owners must be the sole owners of, and have the right to the use of, the Common Elements, including all buildings, roads, parking, facilities and Amenities except as specified below. The developer must not retain any ownership interest in the Common Elements, facilities and Amenities, except as a unit owner.

A project with shared Amenities is eligible if two or more HOAs share the Amenities (such as recreational or fitness facilities, swimming pools and clubhouses) for the sole use of the unit owners, and the HOAs have an agreement specifying:

• A description of the shared Amenities and the terms of the unit owners’ permitted use of the shared Amenities
• How the shared Amenities will be funded, managed and maintained, and
• The method for resolving disputes between the HOAs regarding the shared Amenities 

The developer must not retain any ownership interest in the Common Elements, facilities and Amenities, except as unit owner. The Common Elements, including parking and Amenities such as recreational facilities, must not be subject to a lease between the unit owners or the HOA (as lessee) and any other party (as lessor), with the exception of commercial leases for parking, or permit arrangements for parking, entered into with parties unrelated to the developer.

Financing of Limited Common Elements

The unit owners must be the sole owners of, and have the right to the use of, the Common Elements, including all buildings, roads, parking, facilities and Amenities except as specified below. The developer must not retain any ownership interest in the Common Elements, facilities and Amenities, except as a unit owner. A project with shared Amenities is eligible if two or more HOAs share the Amenities (such as recreational or fitness facilities, swimming pools and clubhouses) for the sole use of the unit owners, and the HOAs have an agreement specifying:

• A description of the shared Amenities and the terms of the unit owners' permitted use of the shared Amenities
• How the shared Amenities will be funded, managed and maintained, and

The method for resolving disputes between the HOAs regarding the shared Amenities

Projects on Leasehold Estates

If a Condominium Project is on a leasehold estate, the lease must comply with the requirements of Special Warranties for Leaseholds.

Removed General Condominium Project Eligibility Requirements

Added new - Freddie Mac-owned "No Cash-out" Refinance Condominium Unit Mortgage Requirements

For Freddie Mac-owned "no cash-out" refinance Condominium Unit Mortgages, CMS does not need to determine compliance with the Condominium Project review and eligibility requirements set forth above if the Condominium Unit Mortgage being refinanced is currently owned by Freddie Mac in whole or in part or securitized by Freddie Mac and the following requirements are met:

1.     The maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratio is 80%. The requirements in Section 4301.4(c) are not applicable.

2.     The Condominium Project is not a Condominium Hotel, houseboat project, timeshare project or project with segmented ownership (all as described in Section 5701.3)

3.     The Condominium Project must have insurance that complies with the applicable requirements in Chapter 8202

4.     The Condominium Unit must be covered by a title insurance policy that complies with the requirements of Chapter 4702

5.     If available, Proof of the ULDD Data Point Related Investor Loan Identifier of the existing Condominium Unit Mortgage is provided in the Mortgage file and the delivery requirements in Section 6302.16(b)(ii) are met

6.     If the Condominium Unit Mortgage being refinanced has recourse, indemnification or was credit enhanced after it was sold to Freddie Mac:

a.     CMS of the new refinanced Condominium Unit Mortgage is the Servicer of the Condominium Unit Mortgage being refinanced

b.     The Condominium Unit Mortgage is delivered with recourse or indemnification; and

c.     The Condominium Unit Mortgage meets the requirements in the table below:

Ineligible Projects

Overview

Mortgages secured by units in any of the following types of projects described in this section are not eligible for sale to Freddie Mac.

Ineligible Projects

Overview

Mortgages secured by units in any of the following types of projects described in this section are not eligible for sale to Freddie Mac, except for Mortgages secured by Detached Condominium Units reviewed under the Detached Condominium Projects review type as set forth in this section.

Ineligible Projects

Added new - Projects in Which the Unit Owners do not have an Undivided Ownership Interest or Leasehold Interest in the Land on which the Project is Located

A project in which, when control of the Homeowners Association (HOA) has been or will be turned over to the unit owners, the unit owners do not have either: (1) an undivided ownership interest in the land on which the project is located; or (2) a leasehold interest in the land on which the project is located.

Ineligible Projects

Project that is a Legal Nonconforming Use

A Condominium Project with legal non-conforming use and the jurisdiction in which the project is located does not allow the rebuilding of the improvements to current density in the event of their partial or full destruction. This restriction does not apply to Detached Condominium Projects or if the jurisdiction in which the project is located allows the rebuilding of the improvements to their current density in the event of their partial or full destruction.

Removed requirements for Project that is a Legal Nonconforming Use

Ineligible Projects

New Project Sold with Excessive Seller Contributions

A New Condominium Project where the builder, developer or property seller is offering financing or sale arrangements for Condominium Unit mortgages. These individual mortgages have builder/developer contributions that do not comply with the requirements of the Purchase Documents, including Interested Party Contributions.

Examples include, but are not limited to:

• Rent-backs or leasebacks
• Payments of principal, interest, taxes and insurance (PITI), or
• HOA assessments that exceed limitations in Interested Party Contributions, and
• Undisclosed contributions not disclosed on the Settlement/Closing Disclosure Statement

Removed requirements for New Project Sold with Excessive Seller Contributions

Ineligible Projects

Condominium Hotel

A Condominium Hotel is a project that is operated and managed as a commercial hotel or similar type of transient housing, even though the units are individually owned.

Projects that have one or more of the following characteristics are considered a Condominium Hotel or similar type of transient housing, and are ineligible projects:

·       Projects that include hotel type services and characteristics such as registration services, rentals of units on a daily basis, daily cleaning services, central telephone service, central key systems and restrictions on interior decorating

·       Condominium Projects that are conversions of a hotel (or a conversion of a similar type of transient housing) unless the project was a gut rehabilitation and the resulting condominium units no longer have the characteristics of a hotel or similar type of transient housing

·       Projects with mandatory or voluntary rental-pooling and revenue-sharing agreements (or similar agreements that restrict the unit owner’s ability to occupy the unit) to assure an inventory of units for rent on a frequent basis, such as daily, weekly, monthly or seasonally (see Condo Hotels for further guidance), and

·       Projects with names that include the words “hotel,” “motel,” “inn,” “lodge” or a branded hotel chain or name

If owners of Condominium Units in projects in resort locations rent their units (either individually or through a rental management company) on a short-term basis, this alone does not indicate that the project is to be considered a Condominium Hotel. CMS s must fully analyze all the characteristics of the project and related information to determine if the project is a Condominium Hotel.

Condo Hotels provides additional details on determining whether a project is a Condominium Hotel.

Ineligible Projects

Condominium Hotel

Any project that is a Condominium Hotel is a project that is operated and managed as a commercial hotel or similar type of transient housing, even though the units are individually owned.

Projects that have one or more of the following characteristics are considered a Condominium Hotel or similar type of transient housing, and are ineligible projects:

·       Projects that include hotel type services and characteristics such as registration services, rentals of units on a daily basis, daily cleaning services, central telephone service, central key systems and restrictions on interior decorating

·       Condominium Projects that are conversions of a hotel (or a conversion of a similar type of transient housing) unless the project was a gut rehabilitation and the resulting condominium units no longer have the characteristics of a hotel or similar type of transient housing

·       Projects with mandatory or voluntary rental-pooling and revenue-sharing agreements (or similar agreements that restrict the unit owner’s ability to occupy the unit such as blackout dates and occupancy limits) to assure an inventory of units for rent on a frequent basis, such as daily, weekly, monthly or seasonally (see Condo Hotels for further guidance), and

·       Projects and/or HOAs that are licensed as a hotel, motel or similar type of transient housing

If owners of Condominium Units in projects in resort locations rent their units (either individually or through a rental management company) on a short-term basis, this alone does not indicate that the project is to be considered a Condominium Hotel. CMS s must fully analyze all the characteristics of the project and related information to determine if the project is a Condominium Hotel. Related informational resources may include but are not limited to, Project Documents (e.g., by-laws, project budgets and financial statements), offering statements (or their equivalent) and marketing materials, web sites, contracts for sale and appraisal reports.

Condo Hotels provides additional details on determining whether a project is a Condominium Hotel.

Ineligible Projects

Project with Excessive Commercial or Non-residential Space

A project in which more than 25 percent (25%) of the total above and below grade square footage of the project (or more than 25 percent (25%) of the total above and below grade square footage of the building in which the project is located) is used as commercial or non-residential space.

The Projects with Excessive Commercial or Non-residential Space topic provides additional details on projects with excessive commercial or non-residential space.

Ineligible Projects

Project with Excessive Commercial or Non-residential Space

A project in which more than 35 percent (35%) of the total above and below grade square footage of the project (or more than 35 percent (35%) of the total above and below grade square footage of the building in which the project is located) is used as commercial or non-residential space.

The Projects with Excessive Commercial or Non-residential Space topic provides additional details on projects with excessive commercial or non-residential space.

Ineligible Projects

Added new - Project in which the Unit Owners do not Possess Sole Ownership of the Common Elements

A project in which the unit owners are not the sole owners of, and do not have the right to the use of, the Common Elements, including all buildings, roads, parking, facilities and Amenities is not eligible except as specified below.

A project with shared Amenities is eligible if two or more HOAs share the Amenities (such as recreational or fitness facilities, swimming pools and clubhouses) for the sole use of the unit owners, and the HOAs have an agreement specifying:

·       A description of the shared Amenities and the terms of the unit owners' permitted use of the shared Amenities

·       How the shared Amenities will be funded, managed and maintained, and

·       The method for resolving disputes between the HOAs regarding the shared Amenities

The developer must not retain any ownership interest in the Common Elements, facilities and Amenities, except as unit owner. The Common Elements, including parking and Amenities, such as recreational facilities, must not be subject to a lease between the unit owners or the HOA (as lessee) and any other party (as lessor), with the exception of commercial leases for parking, or permit arrangements for parking, entered into with parties unrelated to the developer.

Ineligible Projects

Project with Excessive Single Investor Concentration

Any project in which an individual or a single entity such as an investor group, partnership or corporation owns more than the following total number of units in the project:

Vacant units being actively marketed by the developer are not included in the calculation of the developer’s percentage of ownership. Any units leased by the developer must be included in the calculation of the developer’s percentage of ownership.

For projects with 21 or more units, a Housing Finance Agency (HFA), or similar entity based on State or local law or regulation, can own no more than 15 percent (15%) of the total number of units in the project without that ownership being considered an excessive single investor concentration provided that:

• The units owned by the HFA, or similar entity based on State or local law or regulation, are used for low- or moderate-income rental purposes, and
• The HFA, or similar entity based on State or local law or regulation, that owns the units must be current in paying unit assessments and any other financial obligations to the HOA with no delinquencies on these payments within the past 12 months

Ineligible Projects

Project with Excessive Single Investor Concentration

Any project in which an individual or a single entity such as an investor group, partnership or corporation owns more than the following total number of units in the project:

Vacant units being actively marketed by the developer are not included in the calculation of the developer’s percentage of ownership. Any units leased by the developer must be included in the calculation of the developer’s percentage of ownership.

Selection and Validation of Credit Score

Authorized User Accounts

An authorized user of the credit account is when a credit account owner permits another person to have access to and use an account. This practice is intended to assist related individuals in legitimately establishing a credit history and credit score based on the account and payment history of the account owner, even though the authorized user is not the account owner.

Loan Product Advisor Loans: Credit report tradelines that list a borrower as an authorized user cannot be considered in the underwriting decision, except when one of the following exist:

·       Another borrower in the mortgage transaction is the owner of the tradeline.

·       The borrower can provide written documentation (e.g., canceled checks, payment receipts, etc.) that he or she has been the actual and sole payer of the monthly payment on the account for at least 12 months preceding the date of the application.

·       The tradeline is owned by a spouse and the spouse is not on the loan transaction.

If written documentation of the borrower’s monthly payments on the authorized user tradeline is provided, then the payment history must be considered in the credit analysis and the monthly payment obligation must be included in the debt-to-income ratio.

Selection and Validation of Credit Score

Authorized User Accounts

When  selected Borrower's credit report contains Tradelines for accounts for which the Borrower is not the primary account holder but is listed as an authorized user, Loan Product Advisor will return a feedback message indicating when the following requirements must be met:

The Mortgage file must contain documentation evidencing that for each authorized user account:

·       Another Borrower on the Mortgage owns the Tradeline in question, or

·       The Tradeline is owned by the Borrower's spouse, or

·       The Borrower has been making the payments on the account for the last 12 months

OR

·       If CMS is unable to document one of the above requirements for each authorized user account, CMS may make the determination that the authorized user accounts have an insignificant impact on the Borrower's overall credit history and the information on the credit report is representative of the Borrower's own credit reputation. CMS should base its determination on the number of the Borrower's own Tradelines, as well as their age, type, size and the payment history, as compared to the authorized user accounts. CMS must document its determination in the Mortgage file.

If CMS is unable to document any of the above four requirements when the feedback message is returned, CMS must consider the Loan Product Advisor decision invalid. 

Monthly Debt Payment-to-Income Ratio

Monthly Debt Payment-to-Income Ratio

Liabilities included in the monthly debt payment-to-income ratio

The monthly debt payment is the sum of the monthly charges for the following liabilities:

1. Monthly housing expense (see Monthly housing expense-to income ratio)

2. Payments on all installment debts with more than 10 months of payments remaining, including debts that are in a period of either deferment or forbearance. Examples of installment debts with deferred payments include:

Debts on furniture, household items and automobiles on which the initial payment is delayed for a period of time as part of a promotional campaign by the merchant

Student loans on which the repayment period has not yet started because the Borrower is still in school or payment has been suspended for a period of time with the approval of the creditor

Student loans in repayment

For calculating the monthly DTI ratio, use the greater of:

·       The monthly payment amount reported on the credit report, or

·       One-half of one percent (0.5%) of the original loan balance or outstanding balance as reported on the credit report, whichever is greater

For Student loans in deferment or forbearance

Use the greater of:

·       The monthly payment amount reported on the credit report, or

·       One percent (1%) of the original loan balance or outstanding balance as reported on the credit report, whichever is greater

Monthly Debt Payment-to-Income Ratio

Monthly Debt Payment-to-Income Ratio

Liabilities included in the monthly debt payment-to-income ratio

The monthly debt payment is the sum of the monthly charges for the following liabilities:

1. Monthly housing expense (see Monthly housing expense-to income ratio)

2. Payments on all installment debts with more than 10 months of payments remaining, including debts that are in a period of either deferment or forbearance.

Student loans in repayment, deferment or forbearance

For student loans in repayment, deferment or forbearance:

·       If the monthly payment amount is greater than zero, use the monthly payment amount reported on the credit report or other file documentation, or

·       If the monthly payment amount reported on the credit report is zero, use 0.5% of the outstanding loan balance, as reported on the credit report

Monthly Debt Payment-to-Income Ratio

Monthly Debt Payment-to-Income Ratio

Other installment debt

When a monthly payment on an installment debt, other than a student loan, is not reported on the credit report or is listed as deferred or in forbearance, CMS must obtain documentation verifying the monthly payment amount.

Payments on installment debts secured by financial assets, in which repayment may be obtained by liquidating the asset, may be excluded from the monthly debt payment-to-income ratio when qualifying the borrower, regardless of the payment amount or number of payments remaining. The loan secured by the financial asset must have been made by a financial institution. CMS may consider only the portion of the funds that exceeds the loan balance as funds used to qualify the Borrower for the Mortgage transaction. See Assets for more information.

Monthly Debt Payment-to-Income Ratio

Monthly Debt Payment-to-Income Ratio

Other installment debt

When a monthly payment on an installment debt, other than a student loan, is not reported on the credit report or is listed as deferred or in forbearance, CMS must obtain documentation verifying the monthly payment amount.

Payments on installment debts secured by financial assets, in which repayment may be obtained by liquidating the asset, may be excluded from the monthly debt payment-to-income ratio when qualifying the borrower, regardless of the payment amount or number of payments remaining. The loan secured by the financial asset must have been made by a financial institution. CMS may consider only the portion of the funds that exceeds the loan balance as funds used to qualify the Borrower for the Mortgage transaction. See Assets for more information.

All installment debt that is not secured by a financial asset—including automobile loans, and timeshares—must be considered part of the borrower’s recurring monthly debt obligations if there are more than ten monthly payments remaining. However, an installment debt with fewer monthly payments remaining also should be considered as a recurring monthly debt obligation if it significantly affects the borrower’s ability to meet his or her credit obligations.

Note: A timeshare account should be treated as installment debt regardless of how it is reported on the credit report or other documentation (that is, even if reported as a mortgage loan).

Stable monthly income and documentation requirements for self-employed Borrowers

Self-Employment Income not Used for Qualification

Self-employment disclosed on Form 65, Uniform Residential Loan Application (or other documentation) but not used to qualify

If the Borrower is self-employed and the self-employment is not considered for qualification purposes, CMS must obtain pages 1 and 2 of the Borrower’s federal individual income tax returns, and the applicable schedules (e.g., Schedule C, Schedule E), to determine if there is a business loss that may have an impact on the stable monthly income. Refer to IRS Form 4506-T requirements for all income and asset qualification sources for information about using IRS tax transcripts to meet certain portions of this requirement.

·     If a business loss is reported and the Borrower qualifies with the loss, then CMS is not required to obtain any additional documentation relating to the business loss

·     If a business loss is reported and the Borrower does not qualify with the loss, then CMS must perform a business and income analysis to determine whether depreciation adjustments or other factors such as business closure or evidence of a one-time non-recurring event justify a reduction of the reported loss when calculating the stable monthly income. CMS must obtain additional documentation needed in order to fully evaluate the loss and support the analysis (e.g., business tax returns (final or otherwise), evidence of a one-time non-recurring event).

If the tax returns or other documentation in the Mortgage file (e.g., IRS tax transcripts, additional Schedule K-1’s) reflect positive income from self-employment but that income is not used to qualify, additional documentation (e.g., complete business or federal individual income tax return(s)) is not required.

Stable monthly income and documentation requirements for self-employed Borrowers

Self-Employment Income not Used for Qualification

Self-employment disclosed on Form 65, Uniform Residential Loan Application (or other documentation) but not used to qualify

CMS is not required to obtain any additional documentation or evaluate the income or loss from the self-employment for each Borrower on the Mortgage who:

·     Has a primary source of income, other than self-employment, used for qualifying for the Mortgage (e.g., salaried income from primary employment), and

·     Is self-employed and self-employment income is a secondary source of income

For each Borrower on the Mortgage who is self-employed and does not have another source of income that is used in qualifying for the Mortgage, the following requirements apply:

CMS must obtain pages 1 and 2 of the Borrower’s federal individual income tax returns, and the applicable schedules (e.g., Schedule C, Schedule E), to determine if there is a business loss that may have an impact on the stable monthly income. Refer to IRS Form 4506-T requirements for all income and asset qualification sources for information about using IRS tax transcripts to meet certain portions of this requirement.

·     If a business loss is reported and the Borrower qualifies with the loss, then CMS is not required to obtain any additional documentation relating to the business loss

·     If a business loss is reported and the Borrower does not qualify with the loss, then CMS must perform a business and income analysis to determine whether depreciation adjustments or other factors such as business closure or evidence of a one-time non-recurring event justify a reduction of the reported loss when calculating the stable monthly income. CMS must obtain additional documentation needed in order to fully evaluate the loss and support the analysis (e.g., business tax returns (final or otherwise), evidence of a one-time non-recurring event).

If the tax returns or other documentation in the Mortgage file (e.g., IRS tax transcripts, additional Schedule K-1’s) reflect positive income from self-employment but that income is not used to qualify, additional documentation (e.g., complete business or federal individual income tax return(s)) is not required.