Freddie Mac Updates Alter DTI Calculations, Multi Property Requirements

by devteam July 16th, 2015 | Share

A number of selling updates to Freddie Mac’srnSingle-Family Seller/Servicer Guide are slated to go into effect over the nextrnseveral months.  The largest number of updatesrnconcern credit and underwritingrn</p

The first of these changes effect therncalculation of debt payment-to-income ratios (DTI) where a borrower isrnobligated by student loans.  Effectivernfor mortgages with settlement dates on or after August 1 the minimum paymentrnthat must be used in lieu of a verified monthly payment, i.e. when a loan is inrnforbearance or deferred, will drop to 1 percent from 2 percent of thernoutstanding loan balance.  This could changernthe required imputed minimum payment on a 2014 graduate’s average student loanrnbalance of $33,000 from $660 a month to $330. rn</p

The new Seller letter will also allow thernsubstitution of a percentage based payment on student loans, revolving andrnopen-end accounts only when there is no verification of an actual requiredrnpayment.  Also, monthly payments can bernexcluded from the DTI calculation if the borrower is self-employed and thernpayment is made by his or her business.</p

In analyzing other real estate financed byrna borrower who is applying for a mortgage for a second home or investmentrnproperty the number off allowable other properties for which the borrower isrnfinancially obligated will be increased from four to six. The change will alsornremove the requirements that a borrower must have a two-year history ofrnmanaging investment properties and that he/she maintain six months of rent lossrninsurance in order to use income from an investment property (whether thernsubject property or another) for qualifying purposes. These changes will be effectivernfor settlement dates on or after October 26, 2015.  </p

Another change involves mortgages with abatements.  Loans with funds provided to a lender orrnthird party by an interested party to pay or reimburse in whole or in part arncertain number of the Borrower’s Mortgage payments in excess of the Prepaids/Escrowsrnare not eligible for sale to Freddie Mac. This is being revised to excludernpayment of up to 12 months of homeowners’ association dues by an interestedrnparty from definition as an abatement considering it instead as an interestedrnparty contribution subject to those requirements and other conditions.  </p

Other changes include:</p<ul class="unIndentedList"<liWhererngift funds are used for Borrower Funds or reserves a gift letter is stillrnrequired, however for settlement dates on or after August 1 that letter need nornlonger identify the mortgaged premises.</li</ul<ul

  • Whenrnconducted verbal verifications of employment the borrowers employment statusrnmust be verified but not whether the borrower is employed or on leave. </li</ul

    Thernletter also extends the time for changes announced earlier to requirements forrncomparable sales for properties located in new subdivisions, Planned UnitrnDevelopments and new and recently converted condo projects and Updates the NewrnMexico and Kentucky Security instruments and the Texas Home Equity AffidavitrnAgreement.rn</p

    The company also announced a changernaffecting loan origination companies in three states, Delaware, Maine, andrnMissouri.  Those states did not requirernsuch companies to register and obtain identification numbers from the NationalrnMortgage Loan System (NMLS) so Freddie Mac issued special delivery codes to thosernoriginations.  All three states nowrnrequire NMLS registration so effective August 24, 2015 use of the specialrndelivery codes will be ended.

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  • About the Author


    Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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