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More Relatively Big Changes in Most Recent Fannie Selling Guide
Fannie Mae has published a set of changes to its Selling Guide. The changes affect verification ofrnself-employed income, Home-Style Renovation loans, eligibility reviews forrnPlanned Unit Developments (PUDs), use of new disclosure forms, and cash-backrnpair-offs on mandatory whole loan commitments.</p
Self-Employment Income</p
The changes to self-employment income policies affectrncalculation and documentation of business income where the borrower does notrnhave a history of business income distributions. The Guidernhas been updated to provide an alternative approach in which the lender canrnverify by confirming the borrower has (1) access to the business income and (2)rnthere is adequate liquidity in the business to support withdrawal ofrnearnings. The previous method ofrnverification remains in effect as an alternative lenders may use.</p
Also within the self-employment income portion of the updaternthe Guide will now reflect that onlyrnthe most recent year of individual and business income federal tax returns willrnbe required for certain Desktop Underwriter (DU) case files as long as thernreturns show at least 12 months of self-employment income. The lender must also complete the Fannie Mae Cash Flow Analysis (Form 1084) orrnanother acceptable form of cash flow analysis. rnThe update also contains a minor clarification that broadens a referencernto “salaried income” in a section regarding the need for a written evaluationrnof that income.</p
The above changes go into effect immediately on a voluntary basisrnbut will be required for loans with application dates on or after February 1,rn2016.</p
PUD Eligibility Reviews</p
The Selling Guide</ihas previously required lenders to conduct a review of attached PUD unitsrnagainst the ineligible project characteristics list of Fannie Mae's projectrneligibility requirements but did not require this of detached PUD units. In order to align requirements Fannie Mae is immediatelyrnremoving the requirement for attached units as well.</p
HomeStyle Renovation Loans</p
Fannie Mae approved lenders are allowed to deliver HomeStylernRenovation loans prior to completion of renovation work as long as the loan isrnprovided with recourse. This approvalrnwill now be included as an addendum to the Master Selling and ServicingrnContract (MSSC) eliminating the need for a master contract and credit variance. The requirements for removing recourse arernbeing added to the Selling Guide. In addition Fannie Mae has added the Appraisal Update and/or Completion Report</i(Form 1004D) to its HomeStyle CompletionrnCertificate (Form 1036) as evidence of the completion of renovation.</p
Cash-Back Pair-Off Process</p
A fourth change is to the cash back pair-off process. Underrnthis option, if a lender is unable to meet the terms of a mandatory whole loanrncommitment and, because of market fluctuations, the applicable whole loanrncommitment price is greater than at the time of pair-off, Fannie Mae willrnprovide the lender with cash back. This optionrnhas only been available to certain lenders on a negotiated, contractual basisrnbut will now be standardized and added to the Selling Guide so it will no long be necessary for lenders to engagernin special negotiations or execute additional contracts.</p
Ineligible Projects (Non-Incidental Business Arrangements</p
The examples of non-incidental business income have beenrnrevised to remove income earned by the homeowners association through leasernagreements with telecommunications and cable companies as it does not meet thernactive ownership definition. The 15rnpercent cap relative to the association’s operation budget no longer applies tornthis income.</p
New Disclosure Forms</p
An earlier revision to the Selling Guide included referencernto the new Closing Disclosure form that becomes effective in October. The revision included a requirement that thernlender use the applicable version of the Disclosure form; the standard versionrnor the alternate version for refinances. rnDue to feedback from lenders indicating they are not prepared tornimplement both standard and alternate versions at this time the requirement forrnthe alternative version is deleted. Itsrnvoluntary use is encouraged and Fannie Mae will communicate new dates forrnmandatory usage and delivery next year.
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About the Author
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Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.
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