Freddie Mac issued Bulletin 2011-20 on May 25, 2011, updating promoting necessities pertaining to mortgage and belongings eligibility and credit score underwriting, as well as selling and servicing requirements for mortgages registered with MERS. In this text, we will assess those updates.
Assets as a basis for loan qualification
Freddie Mac has updated their selling manual to allow for using eligible borrower belongings as a source of income for qualifying. The eligible property encompasses retirement, lump-sum distributions, and proceeds from the sale of a commercial enterprise. Chapters 37.13, 37.22 and 37.23 of the Freddie Mac Seller Servicer Guide were updated to reflect the following:
The retirement finances ought to be in an account identified through the IRS (401k, IRA, etc.)
The borrower(s) ought to be the sole proprietor of the account
The account should be right now accessible in its entirety
The account budget may not be subject to a penalty
The borrower’s right to the funds have to be fully vested
Borrowers ought to signal IRS shape 4506-T and offer maximum recent retirement asset statements
Lump-sum distribution of funds (no longer deposited to an eligible retirement asset)**
Funds need to be derived from a retirement account diagnosed by using the IRS (401k, IRS, and so forth.) and must be deposited right into a non-retirement brokerage or depository account
A borrower needs to have been the recipient of the lump-sum distribution funds
Borrower(s) ought to be the sole owner(s) of the account maintaining the funds from the lump-sum distribution (people no longer obligated on the loan may not have ownership in the account)
Proceeds from the lump-sum distribution should be straight away accessible of their entirety
Borrowers need to signal IRS form 4506-T, offer most current three months non-public depository or brokerage account statements, agency distribution letter and/or check stubs to proof receipt and type of lump-sum distribution and IRS 1099-R, if obtained
Lump-sum distribution proceeds have to know not where or cutting-edge be challenge to a penalty
Sale of borrower’s enterprise
Borrower(s) must be the sole owner(s) of the proceeds from the sale of the commercial enterprise that had been deposited
Proceeds have to be deposited right into a non-retirement brokerage or depository account
Borrower(s) have to be the only proprietor(s) of the account holding the proceeds from the sale of the enterprise (people now not obligated at the mortgage may not have ownership in the account)
Proceeds from the sale of the enterprise must be without delay on hand of their entirety
Borrowers ought to sign IRS form 4506-T, provide maximum recent 3 months non-public depository or brokerage account statements, absolutely completed ultimate files evidencing final sale of business to reveal sale fee and internet proceeds, copy of agreement for sale of commercial enterprise and most current enterprise tax return previous to sale of the business
The sale of the business must now not have resulted in the following
Retention of business assets and/or existing secured and unsecured debt
Ownership interest or supplier held notes to the customer of the business
How to calculate the monthly qualifying income from eligible belongings
Borrowers can be qualified for the loan the usage of 70% of the eligible asset balance divided by 360.
For instance: Asset stability = $a hundred,000 x 70% = $70,000 / 360 = $194.Forty four/mo.
Any finances that are to be used to finish the mortgage transaction (down fee, final prices, prepaid/escrows, and many others.) need to be subtracted from the asset balance previous to calculating 70% of the stability.
For example: Asset stability = $a hundred,000 However, $20,000 might be used as down price.
$a hundred,000 – $20,000 = $eighty,000 x 70% = $56,000 / 360 = $one hundred fifty five.56/mo.
Restrictions and eligibility necessities
In order to apply the eligible belongings as a foundation for mortgage qualification the borrowers should meet all of the following:
The mortgage is secured through a 1 unit primary residence or 2nd domestic (2-4 unit and funding properties are not eligible)
The mortgage transaction must be both a buy, no cash out refinance or Relief Refinance (cash out refinance transaction aren’t eligible)
The maximum LTV/TLTV/HTLTV is 70%
Payment of mortgage utility prices with credit score cards, coins advances and unsecured lines of credit score
Chapter 26.6.4 of the Freddie Mac dealer guide has been updated to mirror an increase in the most quantity that may be charged or superior from a credit score card, cash increase or unsecured line of credit to pay for fees related to the loan. As of May 25, debtors may additionally fee/advance the greater of 2% of the loan quantity or $1500. The previous guideline restricted expenses/advances to one% of the mortgage quantity. The provision restricting the amount that may be charged/strengthen for appraisal and credit file fees has been deleted as nicely.
Earthquake insurance requirements for California condo gadgets
Freddie Mac requires earthquake coverage for a condominium unit if the condo complicated is positioned in an “excessive threat” zip code. The earthquake coverage requirement may also practice to devices in rental complexes in “moderate chance” zip codes based totally on the Risk Management Solutions (RMS) Earthquake Insurance Requirements Matrix. The Earthquake Insurance Requirements Matrix takes into attention characteristics of a complicated including 12 months constructed, creation class, parking kind and the wide variety of tales within the dedication of earthquake coverage necessities for a unit in a condo complex in a “slight risk” zip code. A lender may touch Freddie Mac at 1-800-FREDDIE to verify if earthquake insurance could be required by using imparting the zip code and required characteristic facts. Freddie Mac will advise the vendor of the requirements and send a written confirmation of the type. Copies of the RMS Earthquake Insurance Requirements Matrix and zip code listing will no longer be provided to Sellers upon request.
Property description and analysis
Freddie Mac has made updates to Chapter forty four that emerge as effective for mortgages with agreement dates on or after September 1, 2011. With the updates to Chapter 44, in particular 44.2 and forty four.15, Freddie Mac is reminding Sellers that the adequacy of the situation belongings as collateral for the loan requires as lots emphasis as the borrower’s creditworthiness. The updates to the Seller/Servicer Guide offer additional element on Freddie Mac’s necessities for evaluation of the records contained in appraisal reports as well as make clear requirements for acceptability of residential homes and incomplete improvements.
Some highlights of the updates to Chapter 44.2 encompass the requirement of the collateral to symbolize the very best and best use as improved or as proposed according to plans and specifications. With regards to incomplete improvements, rationalization is provided to reflect that the Seller or Servicer have to manipulate disbursements from accounts installed for of completion escrow, specifying completions inspections ought to be completed through appraisers on Form 442 and the file need to be retained within the loan report. It is cited that the necessities for incomplete enhancements do now not apply to incomplete power conservation improvements.
Chapter 44.15 presents extra element and rationalization regarding the evaluation of the records contained within the belongings description and analysis sections of the appraisal report. Specific sections updated with an added element of required facts encompass the Subject, Contract, Neighborhood, Site and Improvements sections. Some highlights of these changes and updates consist of putting the obligation at the Seller to offer the appraiser with an entire agreement for sale of the problem assets irrespective of whether the appraisal was ordered by using the Seller or some other lender. The Site segment now requires that the appraisal record no longer best gives the zoning type however additionally an outline of the category as well. Chapter forty-four.15 addresses Freddie Mac’s necessities for appraisal reports which can be required to be finished the use of Uniform Appraisal Dataset (UAD) with respect the appraiser’s responsibility for reporting the situation and pleasant of the property.
Manufactured domestic eligibility
Freddie Mac has added 2 extra eligibility requirements for manufactured houses.
If any part of a 1 unit residing is a manufacture domestic, regardless of any structural modifications, the mortgage needs to meet the requirements of Chapter H33 (Manufactured Homes) and be added to a mortgage secured with the aid of a synthetic domestic
A loan secured via a synthetic home that was formerly occupied or established on an everlasting basis and later moved is ineligible for buy through Freddie Mac
The Seller/Servicer guide has been updated to address obligations regarding mortgages registered with MERS. (Chapters four.14, 6.11, 16.Eight and 22.Thirteen have all be revised to reflect these adjustments.)
A Servicer has to right away notify Freddie Mac upon any termination of its MERS membership, whether or not voluntary or involuntary. For each MERS-registered Mortgage being serviced for Freddie Mac, and right away upon such termination, the Servicer should put together an challenge of the Mortgage from MERS to itself, have the project done and, in which required by means of regulation, record the finished assignment in the public land records.
A Seller/Servicer that chooses to register a Mortgage with MERS has to use affordable nice efforts to sign up such Mortgage prior to transport to Freddie Mac.
A Servicer, upon the deactivation of a Mortgage from MERS, should put together a project of the deactivated Mortgage from MERS to itself, have the challenge achieved and, wherein required with the aid of regulation, file the carried out assignment inside the public land statistics.
A Seller need to warrant that MERS is the mortgagee of file (both by using being named within the Security Instrument as nominee for the Seller or by being named because the assignee in a recorded task of the Security Instrument) or, in which relevant, that MERS is not the mortgagee of record for purposes of I registration.
A Seller should make certain that the MIN is introduced to Freddie Mac along side all Mortgage facts and other information required with the aid of the Purchase Documents, and the MIN should be similarly indicated on the Security Instrument and related documents.
A Seller/Servicer must provide its Document Custodian with enough information to permit a Transferor Servicer and Freddie Mac to decide whether or not a Mortgage that is included in a Subsequent Transfer of Servicing is registered with MERS at the time of the Transfer of Servicing.
** If the lump-sum distribution budget have been deposited to an eligible retirement asset, the necessities for retirement belongings must be accompanied.
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Sarah Lagattolla is Director of Credit Risk Services for Bankers Advisory. She is an FHA D.E. Underwriter and a senior member of the Quality Control services division. Bankers Advisory is based totally in Belmont, Massachusetts and the firm authors policy manuals and state rule matrices for AllRegs.