7 Updated Guidelines Underwriters Need To Know – SEL 2017-06

Many people have heard the rumors and seen the blogs and articles about the DTI going up to 50% announced in the new DU 10.1 version now out in the market!  Did you know there are other important updates in SEL 2017-06 that can help more credit worthy borrowers?  Let’s review!

Changes announced in SEL 2017-06

Change 1 – Expanded DTI from 45% to 50%
No real explanation needed here, however not every loan will approve at the higher DTI.  Therefore, it is worth a try if you have a turn down for DTI on DU 10.0.  Trying the loan under DU 10.1 might be the trick.

Change 2 – Increased LTV’s for ARMs
The great thing about ARMs are generally lower rates, but a larger down payment is required.  FNMA has now taken away that requirement and expanded the ARM LTV’s to match LTV’s with almost all fixed rates on all occupancy and number of units!  Check out the NEW CHART HERE

Change 3 – Employment offers or contracts
This change will help correspondents more than direct sellers or banks due to their flexibility to hold onto a loan until the borrower started their new job after closing.  This new guideline applies to a borrower who is getting a new job and has not started the new job at the time of closing.  This rule change allows the loan to be sold prior to the start date of employment which was not possible before.  There are some restrictions such as one unit, purchases only, primary residence, no variable pay, etc provided the employment start date is within 90 days of the note date.

Change 4 – Disputed Trade lines
FNMA has given better direction on the DU findings about disputed trade lines. As a result, the new DU disputed trade lines will be given clear instructions on what the lender must due to investigate and document the information.

Change 5 – Time Share Accounts
There used to be some debate on the question “is a time share a mortgage debt, or installment debt”.  Therefore DU 10.1 states that regardless of what the credit report states, time share loans are considered as installment loans, not mortgage loans. This change will correct issues when running loans through DU and creating confusion to the AUS on how many financed properties that are owned by the borrower.

Change 6 –  Student loan debt clarification

DU 10.1 allows for a new option on determining student loan payment debts.  Previously if a student loan was shown as zero on the credit report the lender would need to qualify the loan with either 1% of the balance as the payment OR follow the chart for estimating the payment based on prevailing student loan interest rates.  Now if you can document that the reason the loan payment is zero is due to income based repayment plan you can use the zero to qualify.

Change 7- Alimony Treatment
This change has not been talked about much, but I promise it will save loans!  FNMA now allows lenders to deduct alimony from the income instead of always counting it as a debt.  Check this out…

OLD METHOD EXAMPLE
Gross income
$5,000 per month total income to qualify

DEBTS
$1000 PITI Subject
$1000 Rev / Installment / Student Loan
$500   Alimony Payment
$2,500 Total Debt

50% DTI

NEW METHOD EXAMPLE
Gross income
$5,000 per month
($500) per month alimony now allowed to be deducted from the income

$4,500 total income to qualify

DEBTS
$1000  PITI Subject
$1000  Rev / Installment / Student Loan
$2,000 Total Debt

44.4 DTI

I know I have seen many great blogs an articles about the new 50% DTI which is great, but as you can see that is not the only improvement on SEL 2017-06 to pay attention to!

By |2017-12-27T14:50:54+00:00August 2nd, 2017|Uncategorized|7 Comments

About the Author:

Michael Whitbeck
Michael is a subject matter expert on the process of mortgage underwriting. With 25 years in the mortgage business holding different positions in his career such as loan officer, underwriting manager, auditing supervisor, and chief credit officer. Through those experiences, he continually built content and systems to teach a process to improve people's underwriting skill set. Michael is the co-creator of UberWriter. UberWriter is the only online mortgage calculator that can determine any of the 30+ types of income listed in the agency guidelines. UberWriter has been a huge success in the market and half of the top 10 companies on the Scotsman Guide use UberWriter and produce thousands of income reports per month. Outside of the mortgage world Michael is a recreational pilot, loves Jeep adventures with his wife Jennifer. As a military veteran himself, he helps out with veterans organizations.

7 Comments

  1. Sanjeev October 2, 2017 at 7:22 AM - Reply

    Please share on New Article. Texas 50(A)-6.

    • Michael Whitbeck
      Michael Whitbeck October 2, 2017 at 4:17 PM - Reply

      Hi Sanjeev

      Thank you for the comment I will add this to the list of topics to talk about in the future!

  2. Marilyn Lauber August 5, 2017 at 8:10 PM - Reply

    Thank you for posting

  3. TRACEY August 4, 2017 at 9:35 AM - Reply

    HELP HELP

    IAM HAVING A MAJOR ISSUE WITH MY BORROWER REGARDING A STUDENT LOAN.
    MY BUYERS STUDENT LOAN PAYMENT SHOWS UP ON THE CREDIT REPORT AS A VERY LOW PAYMENT BECAUSE IT IS INCOME BASED.

    MY BUYER ALSO IS IN A PUBLIC SERVICE LOAN FORGIVENESS PROGRAM.

    MY BUYER IS GOING FHA

    • Michael Whitbeck
      Michael Whitbeck August 16, 2017 at 8:39 AM - Reply

      Good News Tracey! FNMA is now allowing these low payment to qualify as of a few days ago! Check out FNMA B3-6-05 Monthly Debt Obligations!

      Student Loans
      If a monthly student loan payment is provided on the credit report, the lender may use that amount for qualifying purposes.
      If the credit report does not reflect the correct monthly payment, the lender may use the monthly payment that is on the student
      loan documentation (the most recent student loan statement) to qualify the borrower.
      If the credit report does not provide a monthly payment for the student loan, or if the credit report shows $0 as the monthly
      payment, the lender must determine the qualifying monthly payment using one of the options below.
      • If the borrower is on an income-driven payment plan, the lender may obtain student loan documentation to verify the
      actual monthly payment is $0. The lender may then qualify the borrower with a $0 payment.
      • For deferred loans or loans in forbearance, the lender may calculate
      – a payment equal to 1% of the outstanding student loan balance (even if this amount is lower than the actual fully
      amortizing payment), or
      – a fully amortizing payment using the documented loan repayment terms.

  4. Eva August 3, 2017 at 3:48 PM - Reply

    Thanks Michael for the illustration on the old way and new way of calculating the Alimony. I have been producing loans for many years and never realized it affected the debt ratio that significantly.

  5. Kim Miller August 3, 2017 at 3:38 PM - Reply

    Great information on updates! As always! Thank you!

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