Freddie Mac issued Bulletin 2011-20 on May 25, 2011, updating promoting necessities of mortgage and belongings eligibility, credit score underwriting, and 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 use eligible borrower belongings as a source of income for qualifying. The qualified 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 should 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 accessible in its entirety
The account budget may not be subject to a penalty
The borrower’s right to the funds has 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 loan may not have ownership in the report)
Proceeds from the lump-sum issuance should be straight away accessible in their entirety
Borrowers need to signal IRS form 4506-T, offer the most current three months non-public depository or brokerage account statements, agency distribution letter and check stubs to prove 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 a 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 report)
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 a maximum recent three months of non-public depository or brokerage account statements, absolutely completed ultimate files evidencing the final sale of the business to reveal sale fee and internet proceeds, a copy of the agreement for the sale of commercial enterprise and most current enterprise tax return previous to the sale of the business.
The sale of the business must not have resulted in the following.
Retention of business assets and 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 using 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 to be used to finish the mortgage transaction (down fee, final prices, prepaid/escrows, etc.) need to be subtracted from the asset balance before calculating 70% of the stability.
For example, Asset stability = $ hundred 000. However, $20,000 might be used as a down price.
$a hundred,000 – $20,000 = $eighty,000 x 70% = $56,000 / 360 = $one hundred fifty five.56/mo.
Restrictions and eligibility necessities
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 transactions aren’t eligible)
The maximum LTV/TLTV/HTLTV is 70%
Payment of mortgage utility prices with credit score cards, coin 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 charged or superior from a credit score card, cash increase, or unsecured line of credit to pay for fees related to the loan. May 25, debtors may additionally cost/advance the greater of 2% of the loan quantity or $1500. The previous guideline restricted expenses/advances to one of the mortgage quantities. The provision limiting the amount that may be charged/strengthened 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 apply devices in rental complexes in “moderate chance” zip codes based on totthe Risk Management Solutions (RMS) Earthquake Insurance Requirements Matrix. The Earthquake Insurance Requirements Matrix considers the characteristics of a complicated including 12 months of construction, creation class, parking kind, and the wide variety of tales within the dedication of earthquake coverage necessities for a condo complex “slight risk” zip code. A lender may contact Freddie Mac at 1-800-FREDDIE to verify if earthquake insurance could be required using 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 reminds Sellers that the adequacy of the situation belongings as collateral for the loan requires as much emphasis as the borrower’s creditworthiness. The updates to the Seller/Servicer Guide offer additional elements on Freddie Mac’s necessities for evaluating the records contained in appraisal reports and making clear requirements for the acceptability of residential homes and incomplete improvements.
Some highlights of the updates to Chapter 44.2 encompass the collateral requirement to symbolize the best and best use as improved or proposed according to plans and specifications. Regarding incomplete improvements, rationalization reflects that the Seller or Servicer has to manipulate disbursements from accounts installed for completion escrow. Specifying completion inspections should be completed through appraisers on Form 442, and the file needs to be retained within the loan report. It is cited that the necessity for incomplete enhancements does not apply to insufficient power conservation improvements.
Chapter 44.15 presents extra elements and rationalization regarding evaluating the records contained within the appraisal report’s belongings description and analysis sections. Specific areas updated with an added feature of required facts encompass the Subject, Contract, Neighborhood, Site, and Improvements sections. Some highlights of these changes and updates include putting the Seller’s obligation to offer the appraiser an entire agreement to sell the problem assets, irrespective of whether the Seller or some other lender ordered the appraisal. The Site segment now requires that the appraisal record no longer best gives the zoning type; however, it also outlines the category. Chapter forty-four. Fifteen addresses Freddie Mac’s necessity for appraisal reports, which can be required to be finished using the Uniform Appraisal Dataset (UAD) concerning the appraiser’s responsibility for reporting the property’s situation and pleasantness.
Manufactured domestic eligibility
Freddie Mac has added two extra eligibility requirements for manufactured houses.
If any part of a 1 unit residing is manufactured domestically, 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.MERS necessities
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 been revised to reflect these adjustments.)
A Servicer has to notify Freddie Mac immediately 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 a challenge of the Mortgage from MERS to itself, have the project done, and, which required using regulation, record the finished assignment in the public land records.
A Seller/Servicer who chooses to register a Mortgage with MERS has to use affordable efforts to sign up for such a Mortgage before moving 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 needs to warrant that MERS is the mortgagee of the file (both by using being named within the Security Instrument as nominee for the Seller or by being called 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 ensure that the MIN is introduced to Freddie Mac alongside all Mortgage facts and other information required with the Purchase Documents’ aid, 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 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 has been deposited to an eligible retirement asset, the necessities for retirement belongings must be accompanied.
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Sarah Lagattolla is the Director of Credit Risk Services for Bankers Advisory. She is an FHA D.E. Underwriter and a senior Quality Control services division member. Bankers Advisory is based in Belmont, Massachusetts, and the firm authors policy manuals and state rule matrices for AllRegs.