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Fannie Mae will be updating Desktop Underwriting (DU)

Fannie Mae will be updating Desktop Underwriting (DU) mid-August.

Breaking News

I have some news to share! Fannie Mae will be updating Desktop Underwriting (DU) mid-August. There are a few changes you should be aware of:

  • Foreclosure Message Updates • We will be able to exclude inaccurate foreclosure information from the eligibility assessment. • We will be able to exclude foreclosures due to extenuating circumstances* from the eligibility assessment.
  • Deed-in-Lieu of Foreclosure and Pre-Foreclosure Sale Message Updates • Waiting period requirement will be updated to 4 years; 2 years if caused by extenuating circumstances*. The loan to value (LTV) restrictions previously associated to different waiting periods will no longer apply.
  • Mortgage Account Charge-Off Message Addition (New Policy) • Mortgage accounts that have been subject to a charge-off will require a 4-year waiting period; 2 or more years if charge-off was caused by extenuating circumstances*.
  • 2014 Area Median Income Limits • DU will be updated to reflect the 2014 Area Median Incomes (AMIs) used to determine eligibility for MyCommunityMortgage loan. MSAs to determine the AMI will no longer be used. Limits will be applied only at the county-level.

*FNMA defines Extenuating Circumstances as “nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations”. Examples include but are not limited to serious illness, death of a wage earner, job layoff, etc. Extenuating Circumstances will be considered on a case-by-case basis.

 

Fannie Mae Underwriter Release Notes Version 9.1 –“Kinda” Clarifying Foreclosure Waiting Periods (Effective 8-16-14)

Lenders have been put on “notice” by Fannie that they will be changing the waiting periods if someone has had a foreclosure, a pre-foreclosure or a mortgage charge-off in the past. However, they have not totally clarified how much will be required as a down payment, either. If you are working with someone who has had a past foreclosure, please contact me right away because it’s all subject to change on 8-16-14.
 
Rule Synopsis: The changes that are being released in DU Version 9.1 and outlined below are:
  • Foreclosure message updates
  • Deed-in-lieu of foreclosure and preforeclosure sale message updates
  • Charge-off policy message addition
  • 2014 Area Median Income Limits
  • Special Feature Code Retirement
Foreclosure Message Updates
  1. In a previous release DU was updated to allow lenders to instruct DU to disregard foreclosure information when the account was also reported as a deed-in-lieu of foreclosure or a preforeclosure sale.
  2. With this update, the lender will now be able to do this same thing in two additional situations, as shown below.
    • a) Inaccurate foreclosure information – when a lender determines the information is inaccurate, they can now type “Confirmed CR FC Incorrect” in the explanation field for Question C in the declarations section of the online loan application and resubmit the loan casefile to DU. This will instruct DU not to consider the foreclosure in the eligibility assessment. DU will then issue a message to require the lender to show the event was completed over seven years ago, or that the account was not subject to a foreclosure.b) Foreclosures due to extenuating circumstances – with this release, a lender now has the ability to instruct DU to disregard foreclosure information when the lender confirms that the mortgage meets the applicable timeframes and eligibility for a foreclosure due to extenuating circumstances. This is accomplished again by typing “Confirmed CR FC EC” into the explanation field for Question C of the declarations section of the online loan application. Again, DU will issue a message to instruct the lender to document that the foreclosure was due to an extenuating circumstance and that the foreclosure occurred three or more years from the disbursement date of the new loan.
Note: When more than one item needs to be entered in the Explanation field, the items must be separated by a comma. For example, when the borrower has conflicting foreclosure and preforeclosure sale information on one tradeline, and inaccurate foreclosure information on another, the lender may instruct DU to disregard the foreclosure information on those tradelines by entering “Confirmed CR PFS, Confirmed CR FC Incorrect.” Here is a quick snapshot showing the example of how to enter the information:
Deed-in-lieu of foreclosure and preforeclosure sale message updates
  1. Waiting periods for borrowers who have had a previous deed-in-lieu of foreclosure or preforeclosure sale will be updated to now require a four-year waiting period.
  2. A two-year waiting period will still be permitted when due to extenuating circumstances.
  3. The LTV restrictions that were tied to different waiting periods have been removed.
  4. Fannie Mae will provide more clarity on this topic in an upcoming Selling Guide update.
Charge-off Policy Message Addition
  1. This update will include a new policy that requires a four-year waiting period for a mortgage account that has been charged-off.
  2. When the credit report identifies a mortgage account with a ‘manner of payment code’ of 9, DU will issue a message for the lender to confirm the accuracy of the information.
  3. If the mortgage loan was subject to a charge-off, the four-year waiting period is measured from the completion of the charged-off mortgage account and the disbursement date of the new loan.
  4. When a lender can confirm that the charged-off mortgage account was due to extenuating circumstances, the waiting period may be reduced to two years from completion of charged-off account to disbursement of new loan.
Fannie Mae will provide more clarity on this topic in an upcoming Selling Guide update. 2014 Area Median Income Limits
  1. These income figures will be updated in the August 16, 2014 release.
  2.  
Special Feature Code Retirement
  1. Special Feature Code (SFC) 214 will be retired with this update.
  2. Special Feature Code (SFC) 127 will now be used at delivery to identify all loans underwritten through DU.
Miscellaneous Updates to Align with the Selling Guide DU Refi Plus Messages
  1. DU will be updated so that the HPML (higher priced mortgage loan) or HPCT (higher priced covered transaction) is not issued on investment property transactions.
  2. When a borrower had a previous bankruptcy, foreclosure, DIL of Foreclosure, or a preforeclosure, the messaging will be updated to make it clear that the presence of same does not impact the eligibility of the casefile; the same applies to a mortgage account that was subject to a charge-off.
Previous Significant Derogatory Events
  1. When DU identifies a bankruptcy, foreclosure, deed-in-lieu of foreclosure, preforeclosure sale, or mortgage charge-off, and it is up to the lender to determine if the waiting period has been met, then:
    • a. DU will instruct the lender that the waiting period is measured from the disbursement date of the new loan, not the credit report date.
  2. On loan casefiles where DU measures the waiting period and uses that information in the eligibility assessment, the credit report date will continue to be used, as DU does not know the disbursement date of the new loan.
    • a. For loan casefiles that will have met the waiting period requirement based on disbursement date, but not credit report date, the lender may pull a new report after the waiting period has elapsed in order to receive an Eligible recommendation.
Interpretive Comments
The Foreclosure Message updates have already been in place for a while now, and the addition of the ability for lenders to instruct DU to not consider inaccurate Foreclosure information and Foreclosures due to Extenuating Circumstances will likely be easier to implement since the industry has already had the flexibility in the past for similar issues.I would of course still recommend that you check with your industry partners, whether you are a broker or correspondent, to determine their flexibility and willingness to embrace these changes without overlays or restrictions. You would want to do this research prior to getting these changes out to your borrowers or referral partners so that you do not have to backtrack if lenders are unwilling to embrace the type of autonomy that this is providing to the origination channel.Regardless of the outcome, the ability to instruct DU to ignore the eligibility check on significant mortgage derogatory credit still carries an enormous amount of risk for the originating or selling lender/broker. If you get it wrong, and the loan has funded/originated, you really put your branch/office at risk for a repurchase.Use sparingly. The fact that Fannie has removed the tiered LTV’s for different events and timeframes is a nice addition for the Deed-in-Lieu of Foreclosure and Preforeclosure events – subject to, of course, your industry partners accepting this with no overlays. This announcement does not leave it clear enough to know if Fannie will allow a maximum LTV per the eligibility matrix when the four-year waiting period expires for a Deed-in-Lieu of Foreclosure or a Preforeclosure. Their current breakdown includes a two-year waiting period with an 80% LTV without extenuating circumstances; a two-year waiting period with a 90% LTV with extenuating circumstances; a four-year waiting period with a 90% LTV; or a maximum LTV per the eligibility matrix for a seven-year waiting period. It is unclear if they will be limiting the LTV to 90% for this four-year waiting period change, or if they will allow full LTV’s per the eligibility matrix at the four-year mark, or still require a seven-year wait for maximum LTV’s. The future selling guide update may clear all this up, but Fannie does not say when they will distribute…. Presumably before DU Version 9.1 is updated in August. We will update our Mortgage Talking Points and Charts/Checklists for this topic once Fannie provides clarification on maximum LTV’s and waiting periods for derogatory credit events as it relates to Deed-in-Lieu of Foreclosure and Preforeclosure events. Loan Officer/Processor/Closer/Manager/Owner Interpretation Approach with caution until we all know for sure that the industry will embrace these changes. If they do, this can be a big win for someone with erroneous credit information or for someone that has had a significant derogatory event on their previous mortgage(s), and the timeframe is truly reduced from seven years to four years. There will be more to follow on this topic once Fannie more formally announces this in a selling guide update. Underwriter Interpretation I am sure that these kinds of flexibilities can cause you to prematurely turn grey, especially if being asked to downgrade the loan to a manual underwrite or by telling DU to not consider a foreclosure (or similar event) in the eligibility of the loan when run through DU. The burden of accepting the documentation to prove that the event was because of an extenuating circumstance or that the information is altogether erroneous can be very stressful, as this is an emotional topic for all parties involved. Don’t shy away from holding to your conditions if you believe the documentation is weak in any way.
 
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Questions, Comments or For more information you can email Christian Penner at TheMortgageTeam@ChristianPenner.com or visit us online at www.ChristianPenner.com or you can call us directly at: 561-316-6800

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Fannie Mae will be updating Desktop Underwriting (DU)


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Phone: (561) 316-6800

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Fannie Mae will be updating Desktop Underwriting (DU)