What’s Your Mortgage IQ? April 2012 Issue

by 04 May 2012

Do you use Twitter to let your clients and real estate agents know what’s happening in your corner of the mortgage world?  Well, one of the new features that has just been added to MortgageCurrentcy.com is “automatic tweets,” where you can just click and like magic, it appears on your Twitter feed.  I’ve included a couple of them here.  Please feel free to steal them

Fannie Appraisal Economic Life:  An appraiser states the remaining economic life of the home is 20 years. Does my loan term have to be 20 years or less?

(Tweet) Fannie does not require the mortgage term to have any correlation to the remaining economic life of the property.(Tweet)  However, property deficiencies must be addressed in the appraisal report and carefully considered by the underwriter in the analysis of the acceptability of the condition of the property.

Fannie/Freddie Self Employment:  Can you use business funds for a purchase on a 95% LTV?   

Yes, but this subjects the business to full review.  Use the Fannie Cash Flow Analysis Chart when you submit the loan to underwriting.

  • The money from the business would need to be deposited into the borrower's personal accounts – documenting the source of the large deposit.  
  • Then the business needs to show the source of funds – this can get complicated with large deposit activity in the business accounts. You are better off with VOD.  
  • The business being the source of income also needs to show it can sustain the withdrawal of funds through its documentation.
  • You will need a letter from the business accountant stating that the withdrawal of funds will not impede the business operation or income.
Compliance: Copy of Credit Report:  Can loan officers give borrowers a copy of their credit report?

(Tweet)The FCRA does not prohibit a lender from providing the consumer a copy of their credit report (Tweet) nor does the act require the lender to do so.    Your employer may have policies prohibiting the practice for various reasons.

Fannie/Freddie HARP 2.0 -  How do we determine LTV if no current appraisal is required?

You enter in a value as you have always done – Fannie will either issue a PIW and accept the value, or require some level of appraisal. 

Freddie will issue an HVE ratio. This must be within tolerance set (.20 with high or medium confidence) or you will need to rep/warrant value.  Lender policies may differ for both with regard to value entered and appraisal requirements.


USDA Conventional Credit Rule:  What does it mean that if a borrower qualifies for “conventional credit,” they cannot get an USDA Rural Housing loan?

This issue has caused much controversy over the years, but that should have ended with release of AN 4594. No longer is the definition of “conventional credit” left up to the varied interpretations by both lenders and USDA RD field staff.  (tweet) Finally there’s a clear picture of how RD defines conventional credit and who qualifies for USDA loans (Tweet)…and I think they did a great job in clearing up this issue.

The goal with this AN is to maintain regulatory compliance with 1980-D while at the same time not forcing a good loan to other products as a result of misapplying the “conventional credit” rule. USDA RD wants the good loans too, and the intent of this AN is to help ensure just that. Better quality loans mean better performance, and a better chance of funding fee and annual fee costs being reduced over time as a result of better loan portfolio performance.

If an applicant fails at any of the “tests for conventional credit qualifying,” then they are eligible for a USDA RD GRH loan. The USDA RD field offices can no longer create or enforce their own set of rules with regard to this issue. While in many cases well-intended old habits are hard to break…this AN sets forth guidelines that apply across the United States and must be adhered to.

Note also that the AN states, “Approved participating lenders should make the determination of whether the applicant is capable of meeting such criteria. Form RD 1980-21, ’Request for Single Family Housing Loan Guarantee’, requires both the lender and the applicant to certify that the applicant is unable to secure credit from other sources upon terms and conditions which the applicant can reasonably fulfill. The certification can be made if the applicant does not meet the requirements to obtain a traditional conventional credit loan”…as defined in this AN. (You’ll find a Mortgage Talking Points™ USDA and the Meaning of Conventional Credit: Who Qualifies on the MortgageCurrentcy.com website.)


FHA Student Loans:   What payment percentage or estimate do we use on a student loan that doesn’t have a payment amount on the credit report?

FHA does not allow for payment estimates.  You will have to contact the loan servicer and ask for a payment schedule.  (I've had to do this several times and they were able to provide it.)

FHA Credit Counseling:  If a borrower is participating in a Credit Counseling plan, would that disqualify them for an FHA loan

Here’s what you’ll find in FHA Handbook - 4155.1  4.C.2.i Consumer Credit Counseling Payment Plans:

(Tweet) Participating in a consumer credit counseling program does not disqualify a borrower from obtaining an FHA-insured mortgage (tweet), provided the lender documents that

  • one year of the pay-out period has      elapsed under the plan,
  • the borrower's payment performance has      been satisfactory and all required payments have been made on time, and
  • the borrower has received written      permission from the counseling agency to enter into the mortgage      transaction.

TOTAL Scorecard Accept/Approve Recommendation

The borrower's decision to participate in consumer credit counseling does not trigger a requirement for additional documentation, as the credit scores already reflect the degradation in credit history. No explanation or other documentation is needed.


VA Original DocumentsDoes VA require original docs, as opposed to faxed forms such
as VOEs, VOD’s etc.?

 The only original document requirement is for the Certificate of Eligibility (which actually no longer applies now that we get them online) and the Note and Trust Deeds. 

From the VA Handbook, Chap 5, 3d - Use of Imaged Documents:

When submitting loan documents to VA, lenders may use imaged documents.  However, in contrast, lenders must submit the original Certificate of Eligibility and security instrument.  In the event of an onsite VA audit of closed loans, lenders must be able to provide the audit team members with printed copies of requested files or on-line access to records at the auditor’s request.


Note: Lenders are expected to continually monitor the integrity of their imaging system to ensure consistent quality and to prevent unauthorized alteration or destruction of records. 

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?