What’s Your Mortgage IQ by Karen Deis, Sept 2011 issue

by 26 Oct 2011
I always recommend that when you read a new mortgage rule, that you review your files in process and your pre-approved files.  Because here’s the dealio, there can be a delay in DU (both Fannie & Government) and LP to update the rules on their system.    When Fannie, Freddie, FHA and VA changes or updates a mortgage rule, quite a few of them are effective immediately.  However, it could take up to 60-90 days for the programmers (yes programmers) to update the underwriting systems.    So, when you run something thru DU, you do not receive the “findings” with the NEW rule update, it is because it is not programmed yet.    So, that is  tripping up loan officers up these days—and unfortunately, they do not find out until the underwriter comes back with new or additional conditions (or heaven forbid, denies the loan).   If it’s happened to you, that is the reason why.     VA Rental Income:   What are VA rules when a Veteran is receiving rental income on another home?   This is from Chapter 4 of the VA Handbook. Verification:  Rental of Other Property Not Securing the VA Loan Obtain the following:  
  • Documentation of cash reserves totaling at least 3 months mortgage payments (principal, interest, taxes, and insurance - PITI), and
  • Individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years, which show rental income generated by the property.
  Analysis:  Rental of Other Property Not Securing the VA Loan Rental income verified as stable and reliable may be included in effective income.  If there is little or no prior rental history on the property, make a determination based on review of:  
  • Documentation of the applicant’s prior experience managing rental units or other   background involving both property maintenance and rental
  • Any leases on the property, and
  • The strength of the local rental market.
  FHA Contingent Liability – I have a borrower who is co-owns a property with his ex-girlfriend.  She is making the payments.  I have 12 months cancelled checks.  Can this loan be approved without including the mortgage payment?    Per the guideline from the 4155.1 Handbook, FHA allows the mortgage to NOT be included in your borrowers’ income if the guideline below is met: (Quit claiming the property to her will not help and will not be necessary,   nor will proving he is renting elsewhere.) 4.C.5.e. Contingent Liability on Cosigned Obligations Contingent liability applies, and the debt must be included in the underwriting analysis, if an individual applying for an FHA-insured mortgage is a cosigner/co-obligor on a
  • car loan
  • student loan
  • mortgage, or
  • Any other obligation.
If the lender obtains documented proof that the primary obligor has been making regular payments during the previous 12 months, and does not have a history of delinquent payments on the loan during that time, the payment does not have to be included in the borrower's monthly obligations.
    Fannie/Freddie Non-Owner Occupied:  On Conventional - My client owns two other properties.  He wants to buy a 4-unit home that is fully occupied.  Can I use an offset of the rent from each unit to qualify since he has prior experience?   Short answer -- yes -- using supporting leases and/or appraisal Operating Income statement with a 25 percent vacancy ratio applied.  Fannie does not have an experience requirement, but Freddie does require a  two year history of property management.  You may also need rent loss insurance and six months PITI in reserve. _______________________________________________________________________________   USDA Home with two Kitchens: I have a client looking to buy a home that is all one level.  The right side has the normal rooms. Walking thru the laundry room is a larger room that has a small kitchen a bedroom and bath with a separate entrance.  Would this be considered an “in-laws” quarters and be allowed with USDA?   It is possible to go an RD GRH loan but you need to check with your investor and more importantly I would confirm in advance property eligibility with your local USDA field office since regulations did not specifically address what is known as "Accessory Dwelling Units."  I have actually done this before using an RD loan but I confirmed in advance the property’s eligibility.   The property I had did not generate income, was on a single lot and was on a single electrical meter (the couple’s parents were going to live in the other side and yes we did count all household income). We knew we could take it FHA but we wanted to go RD. Ultimately it was determined that the property was acceptable but since there is no specific regulation addressing this and there is the potential for property to be what is known as "income producing" I would check with your local USDA field office as to their opinion on property eligibility. I can foresee this all coming down to an opinion issue.   FHA has always preferred to this as an "Accessory Dwelling Unit" or more commonly known as an "mother-in-law" quarters. In the "Improvements" section of the appraisal the appraiser refers to it as "One with Accessory Unit."  According to FHA an "Accessory Dwelling Unit" is defined as a habitable living unit added to, created within, or detached from a single-family dwelling that provides the basic requirements for living, sleeping, eating, cooking, and sanitation.   Accessory Dwelling Units (ADUs) are commonly understood to be a separate additional living unit, including separate kitchen, sleeping, and bathroom facilities, attached or detached from the primary residential unit, on a single-family lot. ADUs are usually subordinate in size, location, and appearance to the primary unit and may or may not have separate means of ingress or egress. Attached units, contained within a single-family home, known variously as "mother-in-law quarters" are the most common type of accessory dwelling unit.  
Accessory units usually involve the renovation of a garage, basement, or small addition to a single-family home. If they generate income, they are not considered accessory units, but a second unit. As for RD… if it generates income it is not eligible at all.  
Credit Revolving Accounts: How long does it take for the credit bureaus to generate a score for a new revolving account?    
Here is a short answer, if you have NO credit reporting (high school student fresh out of school) then it CAN take up to six months to generate a score.   I actually have a credit report showing one credit card reporting for five months with NO scores on any of the three bureaus!!!  (The sixth month it scored)That being said, if you have older closed accounts or prior credit, and do not have any scores, opening a credit card the first month reporting it will typically generate a score.
Compliance HMDA:  If I send out an application by mail and never receive the application back signed what is the received that I should use in my mortgage system?  Currently we use the date the applicant signed the application as the received date but if it is never sent back, what date do you use?  
If you sent out a “blank” application by mail, but it is not returned, you should not have anything in your system -- no application occurred.   Application by mail is only input to your system when it is received back in the mail.  The way you ask your question leads me to believe you did an application by phone -- that is the date of application.  You then mailed that application to the borrower and they did not return it.  The application date is the date you input the borrower's information.    Your application by phone does not change to an application by mail because you mailed the documents for review and signature.

Written and contributed by Karen Deis of Mortgagecurrentcy.com.  Provided monthly by www.mortgagecurrentcy.com- interpreting the Rules and Regulation Changes for loan officers, processors, underwriters, and owners/managers. Mortgage Talking Points TM, charts and checklists included.


Should CFPB have more supervision over credit agencies?