Exclude borrower debt paid by others on FHLMC loans?

Off and on for the last few years I have been a volunteer financial coach at my church using the Financial Peace University program created by Dave Ramsey.   This is a fantastic program that provides all you need to know about how to keep a “peaceful” balance of money in your life.

One of the many lessons is about co-signing for debt.  To put it nicely I would say Dave Ramsey is opposed to co-sighing for debt.  If you go to YouTube and look him up, you will hear him say “Never ever never never never never never (I mean NEVER […]

#1 mistake while underwriting a cash out delayed financing loan!

The conventional (FNMA/FHLMC) cash out delayed financing exception program seems to carry a lot of misinformation with the program.  I think the reason behind this top mistake is it isn’t a widely used program.  Unless you work at a lender where the sales staff has a good clientele of rehabbers or investment property purchasers, you may not see this program.

Before we review the top mistake I have found in underwriting, let us review the basics of the cash out refinance delayed financing exception.
What is Cash Out Delayed Financing?
When a borrower requests a cash out refinance they must be on the […]

Major changes to student loan rules for FHLMC

The challenge of estimating the effect student loans on a potential borrower’s ability to repay their mortgage still seems to be an issue at both Fannie Mae and Freddie Mac.  With the rising cost of getting an education, making a wrong move now could be detrimental to the future of our industry.

Here is an example of the problem.  The borrower’s credit report on any student loan payment may or may not be what the borrower is paying or will pay in the near future for those loans.  For example, I have seen student loans with a $50,000 balance show a […]

The problem with “other” income

A question that has come up in our email box recently is “Can I use “other income” noted on the VOE”?  I think the increase of this question in our in-box  has to do with the increased use of Fannie Mae’s Day 1 Certainty program.  When I reply and ask a few questions it goes something like this.  “Fannie Mae does not allow “other” income can you tell me the type of income it is?”  I will generally get a puzzled response such as “Mike, Fannie Mae states you can use other income!!  While it is true there is a section called other income in […]

Property inspection waiver now on purchase deals

Good news for borrowers in the purchase market!  Fannie Mae added to a lender announcement on 09/26 that it had expanded its PIW (property inspection waiver) program to include purchases!  Even better, you won’t have to wait to use this new option as it was included with the DU 10.1 release dated 08/19.

When can you use the PIW:

Must be offered on the DU findings (FNMA noted on lower LTV loans the chances are highest)
Can be used on primary residences, second homes, and investment properties

When is the PIW not eligible:

When the subject property has a gift of equity

Does my borrower have to pay off tax liens or judgments?

Credit reporting agencies have changed the rules.  The question of judgments and tax lien payoffs has come up at multiple lenders.  Multiple different lenders have contacted me with questions from their team, here is the main question I receive.
“Since the borrower’s credit report does not show any tax liens or judgments this means we are not required to payoff or look for collections and judgments and we can we “skip” paying off these accounts is that correct?”
Handling Tax Liens & Judgments
The short answer on this question is NO.  The borrower must pay off these types of debts.  However, the method […]

2 new updates on FHLMC appraisal waiver program

The technology that has been leading the industry news over the last year has been Fannie Mae’s Day One Certainty program.  This program’s goal is to give lenders immediate certainty that their income, assets, and value will be approved.  This improvement allows sellers relief that loans sold to Fannie Mae will not return as a buy-backs costing thousands!
FHLMC Appraisal Waiver Updates
But did you know that Freddie Mac has been working just as hard on their warranty relief program as well?  Freddie Mac uses their Loan Advisor Suite of tools to provide this same relief to lenders, and with announcement 2017-10 […]

Big changes coming for FHLMC rental income

Coming in February 2018 underwriters will need to consider more information before using rental income to qualify a borrower.  Agencies, banks, credit unions, and broker shops will adjust guidelines based on risk in their loan portfolio.  So far I have not read any articles or reports that rentals have become an issue for FHLMC.  However, I do know in the last two years they opened more financing to borrowers.  These guidelines included moving the maximum number of financed properties from four to six, and removing the two-year history of property management to use rental income to qualify.
FHLMC Rental Income Rules […]

The ABCs of the income continuance rule for FHLMC

One of the basic requirements from both FNMA and FHLMC is for the underwriter to determine the stability of the income used to qualify.  This is where the concept of continuance comes in.  Sometimes I know the readers of this blog like to go deep into subjects like K-1 income or what can you use instead of distributions to support the K-1 income, but let us not forget about underwriting 101!
Income Stability Rules
In my training the 10 point underwriting process step 3 is the income evaluation step.  In this step I teach that all income must meet the following four statements:


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 […]