Desktop Underwriter® Training Webinar Slides

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  • Desktop Underwriter® Training Webinar Slides

    1. 1. Company Confidential ©2011 Genworth Financial, Inc. All rightsreserved.Desktop Underwriter® TrainingJune 2013©2012 Genworth Financial, Inc. All rightsreserved.
    2. 2. AgendaIn Today’s Session– Understanding Recommendations– Understanding DU®Risk Analysis– Recent SEL Announcements– Release Notes for Versions 9.0– Analyzing Reports– Credit, Income and Asset Review– Data Integrity Reminders– Help Tools– Additional TrainingToday’s Session Addresses Only Conventional Loans2How to Become A Desktop Underwriter June 2013
    3. 3. General Lender RequirementsWhen underwriting loans with DU, the lender must:– Employ prudent underwriting judgment– Confirm the accuracy of the data it submits– Ensure that the loan complies with all of the verification messages and approvalconditions– Apply due diligence when reviewing the documentation in the loan file– Review the credit report to confirm the borrower’s credit history was accurate andcomplete– Determine if there is any potentially derogatory or contradictory information– Take action when erroneous data, contradictory or derogatory information are inthe loan file3How to Become A Desktop Underwriter June 2013
    4. 4. SUMMARY: Contains “DU” Recommendation and Purchase EligibilityPOTENTIAL RED FLAGS: Indicates possible inconsistencies in the loanapplicationFINDINGS SECTION: Indicates strengths in the file/loan applicationVERIFICATION MESSAGE/APPROVAL CONDITIONS SECTION: Containsminimum DU requirements for documentationUNDERWRITING ANALYSIS REPORT: Modern 1008/Summary of thetransactionOBSERVATIONS SECTION: Contains “FYI” for you and your lenderLENDER GUIDANCE FOR USE WITH APPLICANTS: Will appear only onRefer/w Caution and Expanded Approval RecommendationsAnalyzing Reports4How to Become A Desktop Underwriter June 2013
    5. 5. Risk Factors Evaluated by DU®DU 9.0 risk assessment considers probability of future seriousdelinquency rather than default– Credit History (serious delinquency rather than default)– Delinquent Accounts– Mortgage Accounts– Revolving Credit Utilization– Public Records, Foreclosures, and Collection Accounts– Inquiries– Borrower’s Equity and LTV– Liquid Reserves (Changes requirements for certain assets and loan transactions)– Loan Purpose– Loan Term– Loan Amortization Type– Occupancy Type– Total Expense Ratio– Property Type-Changed Condo Risk Factor– Co-borrowers5How to Become A Desktop Underwriter June 2013
    6. 6. Recommendations in DU 9.06How to Become A Desktop Underwriter June 2013
    7. 7. Recommendations-EligibleWith DU 9.0 the Expanded Approvals (EA) have been retired and will onlybe returned on DU Refi Plus loan casefiles7How to Become A Desktop Underwriter June 2013
    8. 8. Recommendations-Ineligible8How to Become A Desktop Underwriter June 2013
    9. 9. Recommendations-Refer with CautionWith DU 9.0 the Expanded Approvals (EA)was retired. Refer withCaution/IV has been replaced with a Refer with Caution recommendation9How to Become A Desktop Underwriter June 2013
    10. 10. DU Out of Scope Recommendation– DU is unable to underwrite the particular product, mortgage, or borrowerdescribed in the submission• No credit score• Cash Out, Purchase and construction loans with a CLTV > 105%• Balloon Terms greater than 30 yearsMortgages that receives an Out of Scope recommendation in DU– Must be manually underwritten per the Seller Guide; or– Not delivered to Fannie MaeRecommendations- Out of Scope10How to Become A Desktop Underwriter June 2013
    11. 11. SEL- 2012-04Selling Guide Updates– Applies to DU and manuallyunderwritten loans– Updates to DU Refi Plus & Refi Plus– Employment & Income Policy Changes– Updated Eligibility Matrix– Updated Standard ARM Plan Matrix– Let’s look at some of the highlights…11How to Become A Desktop Underwriter June 2013
    12. 12. DO/DU 9.0Changes– Updated credit risk engine– Retirement of the EA levels– Updates (lowers) maximum LTV/CLTV/HCLTV ratios for ARMS (most now at 90%LTV/CLTV Max)– Removes streamlined appraisal form options– Condo project “Limited Review” Change– Updates income documentation requirements– Added sources of income to online loan application– Updates high-balance mortgage credit score requirements (subject to 620 for FRM 720 for IO loans)– Updates the DU Findings Report– Reserves for 2-4 Unit Principal residence transactions– Manual reserve calculation for specific transactions– Disputed Tradeline message update– Additional Out of Scope transactions– New Estimated Value Appraisal Message– Verification of funds for 30-day accounts– Retirement of Fannie Mae Neighbors™– Updates the 2012 AMI limits– Retires 8.212How to Become A Desktop Underwriter June 2013
    13. 13. Eligibility Matrix- October 2012https://www.fanniemae.com/singlefamily/originating-underwriting13How to Become A Desktop Underwriter June 2013
    14. 14. DO/DU Release NotesWeekend of October 20, 2012– DU 9.0 implemented for newly createdcasefiles– SEL-2012-04 updates will be effective forDU loan casefiles.• See next slide for the changeshttps://www.efanniemae.com/sf/guides/duguides/dureleasenotes/14How to Become A Desktop Underwriter June 2013
    15. 15. DO/DU 9.0 SupplementWeekend of October 20, 2012– DU 9.0 used 2012 AMI or Area MedianIncome to determine eligibility forMyCommunityMortgage loan casefiles.– Casefiles originally submitted to 8.3 andresubmitted to 9.0 will be underwrittenusing the new 2012 limits– Retires the FannieNeighbors Optionhttps://www.efanniemae.com/sf/guides/duguides/dureleasenotes/15How to Become A Desktop Underwriter June 2013
    16. 16. DU Version 9.0 May Update16How to Become A Desktop Underwriter June 2013
    17. 17. SEL 2013-0417Announced May 28, 2013– DU will be updated with a futurerelease– Lenders may manually apply theupdated income and documentationrequirements and can disregard anyDU messages that contradict thoseupdates– Lenders must implement forapplications on or after September 1,2013How to Become A Desktop Underwriter June 2013
    18. 18. 2013-04Changes– Credit documents must be no more than four months old on the date the note is signed– Existing and new construction will have the same document expiration requirements– Social security received by a dependent or disabled dependent require 3 year continuance to beverified– Timing of Tax Returns, Tax Return Signature alternatives, Use of IRS Tax Transcripts.• Guidance on allowable age of federal tax returns• Definition of “most recent year’s tax return• Clarification of borrower signatures and allowable alternatives to obtaining a borrower’s signature• How IRS tax return transcripts that result from Form 4506-T may or may not be used to verify income– Requirements for other types of income such as royalty contracts, trust income or parsonage incomeand checking/savings accounts that can be used as employment-related assets has beenupdated/clarified– Single entity ownership in a project requires lenders to include any units owned by thedeveloper/sponsor that are subject to a lease or lease/purchase arrangement must be included in thecalculation of “10%” max; Units owned by the developer/sponsor that are vacant and being marketedfor sale are NOT included.– Updates on calculation of real estate taxes for housing expense including situations with a short-termabatement or new construction to ensure taxes are not underestimated– Various waiting period policy changes including use of credit report date and/or disbursement date(depending on the policy) instead of application date– Updates to further address identification of significant derogatory credit events that may or may notappear on the credit report18How to Become A Desktop Underwriter June 2013
    19. 19. 2013-04Credit Document Expiration Dates19How to Become A Desktop Underwriter June 2013
    20. 20. 2013-044506-T Policy Highlights20How to Become A Desktop Underwriter June 2013
    21. 21. 2013-04Most Recent Tax Returns21How to Become A Desktop Underwriter June 2013
    22. 22. 2013-04Several Updates to Chapter B3-3 Employment Documentation22How to Become A Desktop Underwriter June 2013
    23. 23. 2013-04Several Updates to Chapter B3-3.19 Other Sources of Income23How to Become A Desktop Underwriter June 2013
    24. 24. 2013-044506-T Policy Highlights24How to Become A Desktop Underwriter June 2013
    25. 25. 2013-04Condo Project Review-Additional “Ineligible reasons”25How to Become A Desktop Underwriter June 2013
    26. 26. 2013-04Updated Waiting Periods for Significant Derogatory Events26How to Become A Desktop Underwriter June 2013
    27. 27. 2013-0427How to Become A Desktop Underwriter June 2013
    28. 28. Qualifying Ratio in DU28How to Become A Desktop Underwriter June 2013
    29. 29. Potential Red Flag Messages8.0 has moved these messages from the “Potential Red Flag Section” toVerification section29How to Become A Desktop Underwriter June 2013
    30. 30. Potential Red Flag Messageshttps://www.efanniemae.com/sf/technology/ou/du/pdf/dupotentialredflagmessagematrix.p30How to Become A Desktop Underwriter June 2013
    31. 31. Potential Red Flag Messageshttps://www.efanniemae.com/sf/technology/ou/du/pdf/dupotentialredflagmessagematrix.p31How to Become A Desktop Underwriter June 2013
    32. 32. Potential Red Flag Messageshttps://www.efanniemae.com/sf/technology/ou/du/pdf/dupotentialredflagmessagematrix.p32How to Become A Desktop Underwriter June 2013
    33. 33. FindingsDU indicates strengths in the loan2013-04 Document expiration will be updated to be stated in months ratherthan days and will be four months for both new and existing construction33How to Become A Desktop Underwriter June 2013
    34. 34. Findings- Minimum MI Coverage Levels34How to Become A Desktop Underwriter June 2013
    35. 35. Credit Requirementshttps://www.efanniemae.com/sf/technology/ou/du/pdf/ducreditscoremodel.p35How to Become A Desktop Underwriter June 2013
    36. 36. Minimum Credit Score RequirementsFannie Mae Selling Guide Section B3-5.1-01, General Requirements for Credit Scores (11/13/2012)36How to Become A Desktop Underwriter June 2013Genworth requirement for minimum credit score must be meet whenGenworth Mi is needed and may be higher than stated Fannie Mae scores
    37. 37. Significant Derogatory Credit EventsB3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (05/28/2013)Bankruptcy (Chapter 7 or Chapter 11)– A four-year waiting period is required, measured from the discharge or dismissaldate of the bankruptcy action– Exceptions for Extenuating Circumstances– A two-year waiting period is permitted if extenuating circumstances can bedocumented, and is measured from the discharge or dismissal date of thebankruptcy action37How to Become A Desktop Underwriter June 2013Time period for waiting is established by the credit report date notapplication date for DU loans
    38. 38. B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (05/28/2013)Multiple Bankruptcy Filings– A borrower with more than one bankruptcy filing within the past seven years, afive-year waiting period is required, measured from the most recent dismissal ordischarge dateExceptions for Extenuating Circumstances– A three-year waiting period is permitted if extenuating circumstances can bedocumented, and is measured from the most recent bankruptcy discharge ordismissal date. The most recent bankruptcy filing must have been the result ofextenuating circumstancesSignificant Derogatory Credit Events39How to Become A Desktop Underwriter June 2013
    39. 39. B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (05/28/2013)Foreclosure– A seven-year waiting period is required, and is measured from the completiondate of the foreclosure action as reported on the credit report or other foreclosuredocuments provided by the borrower– Exceptions for Extenuating Circumstances– A three-year waiting period is permitted if extenuating circumstances can bedocumented, and is measured from the completion date of the foreclosureaction. Additional requirements apply between three and seven years, whichinclude:• Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV,CLTV, or HCLTV ratios for the transaction per the Matrix• The purchase of a principal residence only is permitted• Limited cash-out refinances are permitted for all occupancy types pursuant to theeligibility requirements in effect at that timeNote: The purchase of second homes or investment properties and cash-out refinances (any occupancy type) are not permitted until aseven-year waiting period has elapsed.Significant Derogatory Credit Events40How to Become A Desktop Underwriter June 2013
    40. 40. B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (05/28/2013)Deed-in-Lieu of Foreclosure and Pre-foreclosure Sale– These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property istransferred back to the servicer. A pre-foreclosure sale or short sale is the sale ofa property in lieu of a foreclosure resulting in a payoff of less than the totalamount owed, which was pre-approved by the servicer.– The following waiting period requirements apply:• Two years 80% maximum LTV ratios1• Four years 90% maximum LTV ratios1• Seven years LTV ratios per the Matrix1 The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.Significant Derogatory Credit Events41How to Become A Desktop Underwriter June 2013
    41. 41. B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (05/28/2013)Significant Derogatory Credit Events42How to Become A Desktop Underwriter June 2013Time period for waiting is established by the credit report date notapplication date for DU loans
    42. 42. DU Credit ProcessingCredit Processing Continued..– Authorized User Accounts: DU considers authorized user accounts in it’s credit riskassessment. FICO scores may be impacted but DU’s risk engine looks at the trade linesand makes a credit recommendation.– Lenders typically should underwrite without the benefit of these trade lines unless yourborrower is the authorized user and you have confirmed they have been making thepayments on the account.Accounts Paid off at Closing– Revolving debt paid off at closing must be included in the DTI unless the account is paid offand closed. Funds must be verified to pay off the account in addition to the amount DUrequires and underwriters must use discretion and include a payment even if the account isbeing closed out.43How to Become A Desktop Underwriter June 2013
    43. 43. DU Credit ProcessingCredit Processing Continued…– Judgments, Garnishments and Liens:• Must always be paid• Underwriters must verify sufficient funds to do so in addition to the funds DU required• DU does NOT automatically add these to the required funds for closing.– Mortgage Delinquencies:• Credit reports that contain a mortgage that was reported within the last six months and was 60 ormore days past due when it last reported, will receive a “Refer w/Caution” recommendation• If the mortgage was not 60 days or more past due when the account was last reported, but has been60 days or more past due in the last 12 months, the loan will receive an “Ineligible” recommendation– Collections, Charge offs:• Do NOT need to be paid off• Check with your investor or your internal policies they may differ44How to Become A Desktop Underwriter June 2013
    44. 44. Maximum DTI in DUFor loan casefiles underwritten through DU– DU determines the maximum allowable debt-to income ratio based on the overall riskassessment of the loan casefile– DU will apply a maximum allowable total expense ratio of 45%, with flexibilities offered upto 50% for certain loan casefiles with strong compensating factors45How to Become A Desktop Underwriter June 2013
    45. 45. The total monthly obligation is the sum of the following:– Monthly housing expense (PITI)– Monthly payments on installment debts and other mortgage debts that extendbeyond ten months (including deferred installment loans);– Monthly payments on revolving debts (unless payoff and closing out);– 30 Day charge accounts -monthly balance will not be calculated in the DTI butincluded as reserves in the “required funds to be verified” with DU 9.0• Do not Omit or mark paid by close• Verify MOP is “O” on credit report and mapped correctly into DU– Monthly payments on lease agreements, regardless of the expiration date of thelease;– Any net loss from a rental property– Any deferred student loans. If no payment listed, lenders may use 2% of theUPB or obtain documentation of what the actual payment will be– Any debit that significantly impacts the borrower’s ability to pay their monthlyobligations must be counted (such as revolving debt even when being paid offand closed out)Liabilities Calculated in DU46How to Become A Desktop Underwriter June 2013
    46. 46. The total monthly obligation is the sum of the following:– Monthly alimony, child support, or maintenance payments that extend beyond tenmonths– Unreimbursed Employee Expenses (when a 24 month average can not becalculated the monthly expenses is used in the DTI and NOT used to reducemonthly income)– Business debt in the borrower’s name unless-• the account in question does not have a history of delinquency,• the business provides acceptable evidence that the obligation was paid out of companyfunds (such as 12 months of canceled company checks), and• the lender’s cash flow analysis of the business took payment of the obligation intoconsideration.Liabilities Calculated in DU47How to Become A Desktop Underwriter June 2013Be familiar with your or your investor’s policy on the treatment ofunreimbursed business expenses
    47. 47. Updated Logic for Disputed Trade lines with 9.0– IF DU doesn’t issue the disputed trade line message, the lender is not requiredto further investigate• Lenders must include the payment, if any in the borrower’s DTI2013-04– Follow Seller Guide B3-6-03 for instructions for tax amounts when paymentabatement exists or the property is new construction.– Calculations must be based of the land and improvementsLiabilities in DU48How to Become A Desktop Underwriter June 2013
    48. 48. DU 9.0 May Update49How to Become A Desktop Underwriter June 2013
    49. 49. DU 9.0 Updated Income Assessment50How to Become A Desktop Underwriter June 2013
    50. 50. •General Levels of Documentation: Other Income– With DU 9.0 the following income types will be added to the online application:– Capital Gains– Employment-Related Assets– Foreign Income– Royalty Income– Season Income– Temporary Leave– Tip IncomeAnalyzing Reports Employment & Income51How to Become A Desktop Underwriter June 2013
    51. 51. Fannie Mae Seller GuideContinuance of Income52How to Become A Desktop Underwriter June 20132013-04 provides guidance for several “other types” of income. Referto the Fannie Mae Selling Guide for more information.
    52. 52. Sample Non Salary Income MessagesAnalyzing Reports Employment & Income53How to Become A Desktop Underwriter June 2013
    53. 53. Analyzing Reports Employment & IncomeIncome Trending– After the monthly year-to-date income amount is calculated, it must be compared to prioryears’ earnings using the borrower’s W-2’s or signed federal income tax returns (or astandard Verification of Employment completed by the lender or third-party employmentverification vendor)• If the trend in the amount of income is stable or increasing, the income amount should be averaged• If the trend was declining, but has since stabilized and there is no reason to believe that theborrower will not continue to be employed at the current level, the current, lower amount of variableincome must be used• If the trend is declining, the income may not be stable. Additional analysis must be conducted todetermine if any variable income should be used, but in no instance may it be averaged over theperiod when the declination occurred54How to Become A Desktop Underwriter June 2013DU 9.0 Updated message for Employment
    54. 54. Analyzing Reports Employment & IncomePay Stub– The paystub must be dated no earlier than 30 days prior to the initial loan application dateand it must include all year-to-date earnings– Additionally, the paystub must include sufficient information to calculate the incomeW-2’s– If a W-2 is required, lenders must obtain W-2’s for all jobs held in the prior yearVOE/Form 1005– VOE with year-to-date income may be substituted for the paystub or for the paystub andW-2– The VOE must contain the prior year’s earnings if it is a substitute for the W-255How to Become A Desktop Underwriter June 2013
    55. 55. Analyzing Reports Employment & IncomeVerbal VOE (VVOE)– Lenders must independently obtain a phone number and, if possible, an address for theborrowers employer– Lenders must contact the employer verbally and confirm the borrowers currentemployment status within *10 business days prior to the note dateDocument the conversation with all of following:– name and title of the person who confirmed the employment for the lender– name and title of the person who completed the verification,– date of the call– the source of the phone number– See additional guidelines for borrowers in the military, on temporary leave and when usinga third party vendor*As per SEL-2012-04 Lenders may obtain VVOE after closing butprior to delivery of the loan to Fannie Mae56How to Become A Desktop Underwriter June 2013
    56. 56. Analyzing Reports Employment & IncomeMost recent two years tax returns required when the borrower:– Earns 25% or more of his or her income from commissions;– Is employed by family members;– Is employed by interested parties to the property sale or purchase;– Receives rental income from an investment property (only one year of tax returns isrequired unless the borrower meets one or more of the other conditions in this list);– Owns 5-10 financed properties and the subject of your loan is a second home orinvestment transaction– Receives income from temporary or periodic employment (or unemployment) oremployment that is subject to time limits, such as a contract employee or a tradesman– Receives income from capital gains, royalties, real estate, or other miscellaneous non-employment earnings reported on IRS Form 1099;– Receives income that cannot otherwise be verified by an independent and knowledgeablesource;– Uses foreign income to qualify;– Uses interest and dividend income to qualify; or– Receives income from sole proprietorships, limited liability companies, partnerships, orcorporations, or any other type of business structure in which the borrower has a 25% orgreater ownership interest.57How to Become A Desktop Underwriter June 2013
    57. 57. Analyzing Reports Employment & IncomeForm 4506-T, Form 4506 or Form 8821Form must be signed only once during the application process– The timing is at the lender’s discretion but it must be signed on or before the closing of themortgage loan– The Lender must document the requirement to obtain an executed IRS Form 4506-T withthe IRS in their written quality control (QC) planWhen completing lenders must– Fill in as the recipient of the tax documents — either its name or the name of the servicer, ifservicing will be transferred within 120 days of the taxpayer signing the form;– Indicate that the request is for documentation concerning the year or years for which theborrower’s income was or will be used in underwriting the loan; and– Date the form with the date on which the borrower signs the form (or ascertain that theborrower dates the form when he or she signs it)NOTE: IRS Forms 4506-T and 4506 are valid for 120 days after completion (including signature) by the borrower. IRS Form 8821 is valid for 60 daysafter completion. I58How to Become A Desktop Underwriter June 2013
    58. 58. Analyzing Reports Employment & Income•General Levels of Documentation: Base Earnings– Recent pay stub dated within 30 days of application and the previous one or twoyears W-2– Verbal verification of employment within 10 business days of closing or after closingbut prior to loan delivery– Or a written verification of employment (Written VOE 1005) can be used in place ofeither of the above documentation as long as it contains applicable info59How to Become A Desktop Underwriter June 2013
    59. 59. •General Levels of Documentation: Bonus and Overtime– Recent pay stub dated within 30 days of application and W-2’s for past two years anda verbal verification of employment– Or a written verification of employment (Written VOE 1005) can be used in place ofeither of the above documentation as long as it contains applicable info– See additional requirements for “Variable” income in the Fannie Mae 2012 SellingGuide Section B3-3.1, Employment and Other Sources of IncomeAnalyzing Reports Employment & IncomeTwo or more years of receipt of a particular type of variable income is recommended; however, variable income thathas been received for 12 to 24 months may be considered as acceptable income, as long as the borrower’s loanapplication demonstrates that there are positive factors that reasonably offset the shorter income history.60How to Become A Desktop Underwriter June 2013
    60. 60. Analyzing Reports Employment & IncomeCommission income less than 25% of borrower’s total annualemployment income– One recent pay stub, or– recent pay stub and the previous two years W-2– Or a written verification of employment (Written VOE 1005) can be used in place of eitherof the above documentation as long as it contains applicable infoSee DO/DU Release Notes DU Version 9.0 for complete list ofupdatesCommission income ≥ 25% of borrower’s total annual employmentincome– Pay stub, W-2’s and most recent signed federal tax returns for two years (per FannieMae Seller Guide policies); Lenders must review for unreimbursed businessexpenses– If more than 60 days from the last filed tax return has passed current income mustbe confirmed61How to Become A Desktop Underwriter June 2013
    61. 61. •General Levels of Documentation: Self-Employment– Most recent (per the Fannie Mae Seller Guide Policies) two years personal and twoyears federal business tax returns– If applicant’s filed an extension, provide most recently filed two years federal taxreturns, plus a copy of IRS form 4868.– Lenders must then review the total tax liability reported on the IRS form 4868and compare it with the borrower’s tax liability from the previous two years as ameasure of income source stability and continuance.– An estimated tax liability that is inconsistent with the previous years may makeit necessary for the lender to require the current tax returns in order to proceed– Profit and loss statement may be required by your investors or on a case by casebasis– Verbal VOE required to verify existence of a business within 30 days of closing orafter closing but prior to loan delivery for all self employed borrowers.Analyzing Reports Employment & Income62How to Become A Desktop Underwriter June 2013Policy above reflect 2013-04 requirements effective September 1,2013
    62. 62. •General Levels of Documentation: Self-Employment– Business returns can be waived if certain requirements are met– Borrower has been self employed in the same business for at least five years– Borrower’s individual tax returns show an increase in self-employment incomeover the last two years; and– The borrower is paying the down payment and closing costs with his or herown funds, and is not using any funds from the business accountAnalyzing Reports Employment & IncomeLenders may still need to obtain business returns even when the above criteria hasbeen met63How to Become A Desktop Underwriter June 2013
    63. 63. •General Levels of Documentation: Second Job, Self Employed– Personal & Business tax returns covering most recent two year period per FannieMae Seller Guide policies, along with a verbal verification of employmentAnalyzing Reports Employment & Income64How to Become A Desktop Underwriter June 2013•General Levels of Documentation: Second Job, not Self Employed– One recent pay stub and W-2’s for most recent two year period along with a verbalverification of employment
    64. 64. •General Levels of Documentation: Retirement Income– If a monthly distribution is received from 401(k), IRA, SEP or Keogh account the borrowermust have unrestricted access too the accounts without penalty– When funds are drawn from assets, stocks, bonds or mutual funds, you must factorpotential volatility of the income streamAnalyzing Reports Employment & IncomeReview Announcement SEL-2012-04 and Fannie Mae 2012 SellingGuide section B3-3.1-09 for complete details on Other Sources ofIncome.65How to Become A Desktop Underwriter June 2013
    65. 65. DU Income Review•General Underwriting Requirements– Lenders must review the “type” of income earned and entered in DU; income usedfor qualifying must be reasonably stable and likely to continue at the current levels.RED FLAG: Declining income– Bonus and Overtime must be annualized or not used at all.– Commission Income must be entered as “commission” and any unreimbursedexpenses from the IRS form 2106 should be subtracted– Employment by a relative requires applicant to provide tax returns regardless of theDU income documentation message– Second Job must have a minimum typically of a two year history– Enter self employed income in “base” income field & sure to mark the selfemployment box– Non taxable sources of income can typically be grossed up 25% if evidence that it isnon taxable is provided (Tax Returns)– Handwritten pay stubs are typically not acceptable nor “stale dated stubs”Reminder! 2012-04 has significant changes to underwriting policy66How to Become A Desktop Underwriter June 2013
    66. 66. Findings-Funds Section (Assets and Reserves)DU 9.0 includes new updated & modified fields. This helps to determine if aresubmission into DU is required. A tolerance for assets will be announced in thefuture.67How to Become A Desktop Underwriter June 2013
    67. 67. •Types of Assets used for closing/reserves– Checking/Savings: Amount held in applicant’s account as ofapplication.– Gift Deposited*: Amount of Gift received from a acceptable donor(Exclude this amount from the account balances previously listed).– Gift Not yet Deposited*: This amount should be equal to the verifiedassets from the acceptable donor.– Money Market Funds: Amount held in applicant’s account as ofapplication date.– Certificate of Deposits (CD):– Equity/Sale Proceeds from an Existing Home: The net proceeds that willbe received prior to closing as evidenced by the HUD I closingstatement.– Other Liquid Assets (If properly verified): Cash Value of Life Insurance,Trust Funds, Funds to be Saved or Tax Refund– Sale of an Asset: Boat, Car, stamp collection.*Gift funds alone typically cannot be used for reserves and Sale of personal property typically cannot beused for the full amount of required borrowers down payment68How to Become A Desktop Underwriter June 2013
    68. 68. •Types of Assets used for closing/reserves– Stocks, Mutual Funds: Number of shares, value or recent statement– Vested Interest in Retirement Funds: Includes funds in pension and401K and IRA accounts.– Gift Funds: Must be from an acceptable donor. See the seller guide foracceptable donors.69How to Become A Desktop Underwriter June 2013
    69. 69. •DU 8.2 Updates– DU updated to allow for personal gifts, and in some cases gift s or grants from anentity, employer assistance, and Community Seconds as minimum borrowercontribution for certain transactions– Gift funds are never allowed on Investment transactions and DU will provideeligibility messages if data entered correctly on 1003– Gift letters will be required for all loans when gift funds are being used.Borrower Minimum ContributionFannie Mae SEL 2010-13 changes the gift letter requirements andborrower minimum contribution requirements70How to Become A Desktop Underwriter June 2013
    70. 70. Borrower Minimum ContributionFannie Mae Sel Announcement 2010-13 changes the gift letterrequirements and borrower minimum contribution requirements71How to Become A Desktop Underwriter June 2013
    71. 71. Findings-Assets and ReservesMonthly bank statements must be dated within 45 days of the initialloan application date and be the most recent•General Levels of Documentation: Asset Assessment– Most recent one month bank statements– Most recent two months consecutive bank statements– Be sure to read also read how much you need to verify– Proof of liquidation of assets used for closing72How to Become A Desktop Underwriter June 2013
    72. 72. Findings-Assets and ReservesReserve Requirements– For loan casefiles underwritten with DU, DU will determine the reserve requirements basedon the overall risk assessment of the loan casefile and the minimum reserves that may berequired for the transaction– Reserves may be considered a compensating factor in DUs risk analysis, and may serveto improve the underwriting recommendation– Manual reserve overlays may apply to certain transactions73How to Become A Desktop Underwriter June 2013
    73. 73. Findings-Assets and ReservesSelling Guide Announcement SEL-2012-04 and DU 9.0 ReserveUpdates– Updates reserve requirement in DU for 2-4 unit principal residence transactionsto require a minimum of six months reserves regardless of the use of rentalincome– Certain casefiles DU is unable to determine the reserve requirement. Lendersmust perform a manual calculation of the required minimum reserves for thetransaction.• Lenders must add to the amount of “Total Funds to be Verified” the minimum reserverequirements specified in the Fannie Mae Selling Guide for the following scenarios:– Principal residence transaction where the current principal residence is pending sale, convertingto a second home, or converting to an investment property; and– Second home and investment transactions for borrowers who will have 1-10 financed properties– The total amount of assets to be verified, per the guidance above, must bereflected in the Asset section of the loan application.74How to Become A Desktop Underwriter June 2013
    74. 74. Stocks, bonds and mutual funds for reserves– 70% of the value may be used (reduced from 100%)Stock Options and non-vested restricted stock– These assets are no longer eligible for use as reservesAsset Assesment75How to Become A Desktop Underwriter June 2013
    75. 75. Retirement accounts (401k or IRA)– 60% of the vested amount may be used for reserves– If these assets are needed to support the amount of funds required for closing andreserves, the available account balance must be documented with a recent depository orbrokerage account statement as well as the conditions under which the funds may bewithdrawn– If funds needed for closing, proof of liquidation and deposit/receipt is required– Retirement accounts allow for withdrawals only in connection with the borrower’semployment termination, retirement, or death, the retirement account asset should not beenteredAsset Assessment76How to Become A Desktop Underwriter June 2013
    76. 76. AssetsFannie Mae Selling GuideAnnouncement SEL 2012-13– Updates reserve requirements– Guidance for large deposits77How to Become A Desktop Underwriter June 2013
    77. 77. Fannie Mae SEL Announcement 2012-13Retirement Assets Used for Reserves– If the retirement assets are in the form of stocks, bonds, or mutual funds, in order to beconsidered for reserves, the account must be discounted by 30% to account for marketvolatility– In addition, if the borrower is not of retirement age (typically 59 ½) and will be assessed anearly withdrawal penalty, that penalty (10% unless confirmed otherwise) must be added tothe discount for a total discount of 40%– If the borrower is at or above retirement age, the additional 10% penalty does not need tobe applied– In order to be considered as effective reserves, retirement accounts must be vested andallow for withdrawals regardless of current employment statusDU was updated in May 2013 to reflect these changesSeller Guide Chapter B3-4.3-03 Retirement Accounts78How to Become A Desktop Underwriter June 2013
    78. 78. Fannie Mae SEL Announcement 2012-13Indications of Borrowed Funds– Lenders must obtain borrower’s written explanation and documentation of the source oflarge deposits that are reflected on bank statements– Large deposits are defined as a single deposit that exceeds 25% of the total monthlyqualifying income for the loan– If the source of a large deposit is readily identifiable on the account statement, such asdirect deposits where the source of the deposit is printed on the statement, lenders do notneed to obtain further explanation or documentation– If the source of the deposit is printed on the statement, but the lender still has questions asto whether the funds may have been borrowed, the lender should obtain additionaldocumentation– Lenders must investigate accounts opened within 90 days of the application date andaccount balances that are considerably greater than the average balance reflected on theVerification of Deposit Form 1006.Seller Guide has been updated– B3-4.2-01 Verification of Deposits and Assets– B3-4.2-02 Depository Assets79How to Become A Desktop Underwriter June 2013
    79. 79. Reserves-Second Home or Investment Transactions•Borrowers with five to ten financed properties•Underwriting Requirements- Five to Ten Financed Properties– No bankruptcy or foreclosure in past seven years nor any delinquencies within the past 12 months on anymortgage loans.– DU also cannot verify how many properties a borrower owns-look for a new findings message reminding thelender to verify this requirement– Borrower must have reserves for the subject and for other properties currently owned in accordance with newReserve Requirements for Multiple Financed Properties– Lender must execute 4506T & review tax transcripts– Guidelines do NOT apply to DU Refi Plus™ mortgages80How to Become A Desktop Underwriter June 2013
    80. 80. Reserves-Second Home, Investment & MultipleFinanced Properties•Amount of Reserves varies as per guidelines below•Definition of Reserves-Based on Each Property Owned– Principal and Interest– Hazard, flood and/or mortgage insurance premiums (as applicable)– Real Estate Taxes– Ground rent and/or special assessments– Owner’s association dues or monthly coop corporation fees– Any subordinate financing payments81How to Become A Desktop Underwriter June 2013
    81. 81. Reserves-Second Home or Investment Transactions•Underwriting Requirements-Five to Ten Financed Properties. DUcannot identify how many financed properties your borrower owns-When it’s five to ten financed properties:– Rental Income from other properties must be supported by two years tax returnsregardless of DU findings message when borrowers own five to ten financedproperties.– DU also cannot verify how many properties a borrower owns-look for a new findingsmessage below reminding the lender to verify the many requirements for multiplefinanced properties82How to Become A Desktop Underwriter June 2013
    82. 82. Findings-Assets and ReservesSelling Guide Announcement SEL-2012-04 Reserve Updates183How to Become A Desktop Underwriter June 2013
    83. 83. Primary Residence ConversionPrimary Residence Conversions require additional reservesregardless if manually underwritten or submitted to DU 9.084How to Become A Desktop Underwriter June 2013
    84. 84. Second Home or Investment PropertiesMortgages for Second Home or Investment properties requireadditional reserves regardless if manually underwritten or submittedto DU 9.085How to Become A Desktop Underwriter June 2013
    85. 85. Interested Party Contributions & 8.3Interested Party Contributions– Optional field on the on line 1003– IPC message when IPCs are in excess of the standard guidelines allowed– DU will calculate an “adjusted LTV/CLTV” when this field is completed– Sample of the message is listed below86How to Become A Desktop Underwriter June 2013DU 9.0 May Update
    86. 86. www.efanniemae.com, Announcement SEL-2010-09Appraisal Requirements•Fannie Mae Announcement 2010-09updated the appraisal requirements.– When and interior/exterior appraisal reportis required, interior photos are required.– If the last transaction of the subject was anREO or foreclosure sale a fullinterior/exterior appraisal report is required– MC1004 is required in all cases– Many other clarifications and updates canbe found in the announcement relating toappraisal and appraiser requirements87How to Become A Desktop Underwriter June 2013
    87. 87. Appraisal RequirementsUpdated Appraisal Documentation RecommendationsA full interior/exterior appraisal is always required regardless of the DUappraisal option when the last sale was an REO or foreclosure sale88How to Become A Desktop Underwriter June 2013
    88. 88. Appraisal RequirementsUpdated Project Review Requirements DU 9.0– DU will require a full project review on principle residences located in condominiumprojects when the LTV/CLTV/HCLTV is greater than 80%• Limited review will no longer be permitted89How to Become A Desktop Underwriter June 2013DU 9.0 May Update
    89. 89. When You Change Data…Be sure to review findings report after any changes?– Do you still have a property fieldwork waiver?– Do you now need tax returns?– Do you only need one month bank statement?– Is loan “Eligible” or “Ineligible” due to cash back to borrower?• Review details of transaction for payoff, closing cost, prepaids• DURP loans have special requirements to remain eligible– Shipping/Closing: Review final HUD I with findings report• Do you still have enough to close? Review DU findings report and bank statements to confirm• Review reserve requirements as well90How to Become A Desktop Underwriter June 2013
    90. 90. Findings - Observation SectionContains “FYI” Information for You and Your Lender91How to Become A Desktop Underwriter June 2013
    91. 91. Findings - Validate All Information92How to Become A Desktop Underwriter June 2013
    92. 92. Data Integrity Reminders•Lenders are responsible for integrity of the data submitted to DesktopUnderwriter– Do you have all pages to the bank statement and are all large depositsaddressed and sourced?– Is the correct percentage used when using stocks, bonds or retirement fundsfor reserves? Did you subtract any outstanding loans and is applicant fullyvested?– Paying off a second mortgage? Verify it was used to purchase the property ortreat the loan as a cash out. Also verify seasoning requirements for ownershipand taking cash out.– Is the property currently offered for sale or has it been offered for sale in thepast six months?– Is Property type entered correctly (condo, PUD, manufactured home)– Are the HOA dues, flood insurance or MI payments included in the housingpayment, if applicable? Do you have written support?– Does the occupancy make sense? Are the “Potential Red Flags” cleared as perthe DU findings report?– Are all the assets per DU verified plus any additional that are needed to payoffa judgment or collection? Evidence of liquidation if needed? Additionalreserves?93How to Become A Desktop Underwriter June 2013
    93. 93. Data Integrity Reminders•Lenders are responsible for integrity of the data submitted to DesktopUnderwriter– Deferred loans must always be included in the debt ratio– Lease Payments must always be included in the debit ratio regardless of number ofpayments remaining– Installment/lease debt without a payment on the credit report, you must obtaindocumentation to verify the actual monthly payment amount (Exception: DeferredStudent loans as per policy in SEL 2011-04)– DU 8.2 will require all revolving debt to be included in the DTI regardless of monthsremaining to pay and 8.3 will provide updated message reminding lender to includethe revolving debt being paid off UNLESS the account will be closed out– Income should NOT be averaged from the W-2s and lumped into “Base”– Do names, addresses and social security numbers match from document todocument?94How to Become A Desktop Underwriter June 2013
    94. 94. RememberAdditional Guideline Overlays– Fico Score– Appraisal Form– DTI– Funds to payoff items– Reserves– Always check MI guidelines when applicableDU provides minimum documentation requirements. In some cases moreinformation may be needed to make a credit decision95How to Become A Desktop Underwriter June 2013
    95. 95. http://fanniemae.com/portal/index.htmlFannie Mae Website96How to Become A Desktop Underwriter June 2013
    96. 96. Fannie Mae Website97How to Become A Desktop Underwriter June 2013
    97. 97. Fannie Mae Websitehttps://www.fanniemae.com/singlefamily/originating-underwriting98How to Become A Desktop Underwriter June 2013
    98. 98. Genworth Guidelines for Credit Unionshttp://www.mortgageinsurance.genworth.com/cuHow to Become A Desktop Underwriter June 2013 99
    99. 99. Additional Resources100How to Become A Desktop Underwriter June 2013GENWORTH RESOURCESAction Center: 800 444-5664Your Local Genworth Underwriting ManagerYour Genworth Account Executive or Manager
    100. 100. 101Legal DisclaimerGenworth Mortgage Insurance is happy to provide you with these training materials. Whilewe strive for accuracy, we also know that any discussion of laws and their application toparticular facts is subject to individual interpretation, change and other uncertainties. Ourtraining is not intended as legal advice, and is not a substitute for advice of counsel. Youshould always check with your own legal advisors for interpretations of legal andcompliance principles applicable to your business.Genworth expressly disclaims any and all warranties, express or implied, including withoutlimitation warranties of merchantability and fitness for a particular purpose, with respect tothese materials and the related training. In no event shall Genworth be liable for any direct,indirect, incidental, punitive or consequential damages of any kind whatsoever with respectto the training and the materials.How to Become A Desktop Underwriter June 2013®Desktop Originator/Desktop Underwriter (DO ®/DU ® )are registered trademarks of Fannie Mae.®Loan Prospector is a Registered Trademark of Freddie Mac

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