In Fannie’s latest announcement, SEL 2012-4, they covered 3 separate issues, but the one you need to really sink your teeth into are the changes to the new way income and employment will now be viewed. Before I get into some of the changes, right now, these apply to manually underwritten files, with the DU implementation right around the corner.
First, there are a total of 60 changes that affect 9 distinct topics that now show up in the Selling guide.
Here’s a highlight of some of them…
- You’ll find a new section describing how to determine variable income such as overtime, bonus, and commission income
- A new section called “continuity of income” now states that if the income does not have an expire date, the lender should conclude that it’s likely to continue and no need to document the 3-year continuance. This goes for SS, Disability and retirement income
- The 4506T only has to be signed one time.
- VOE can be used in lieu of paystub, W-2’s
- If your borrower has rental income, only need 1 year’s tax returns—instead of 2 and the operating statement is no longer required.
- Now allows for employment offers and contracts to use the income instead of delaying the closing to get a 30-day paycheck stub.
- Child support proof has been reduced to 6 months
- And if your borrower receives retirement income, there are new requirements.
These all went into effect on May 15 but be sure to follow up with your lenders and their overlays.
As you can see, some of these changes are going to make your life easier but you’ll need to read every single one of them and review the files you have in process now. This is one of the bigger changes we’ve seen in employment and income underwriting in years.
In the same Fannie announcement, they have clarified many DU refi and DU refi plus rules, with the biggest one being that allows a simultaneous refi of an existing subordinate lien when refinance the 1st mortgage. No date has been set for when you can start... but we will let you know when it goes into effect. They probably need to time to update this option in the DU software system.
And still the same announcement, there are 18 states and Washington DC that qualify for $7.6 billion, with a b, funds that are called Hardest Hit Funds—where if someone refis using HARP (either Fannie or Freddie) you can draw from this account to reduce the loan balance at the time of the refinance. The funds are distributed by each state so you’re job, should you be in one of those states, is to find out which housing authority is holding on these funds and how your clients can benefit.