Biggest mistake made when using primary residence rental income

Over the last few days we have been putting the final touches on our 2018 underwriting training courses launching March 2nd.  While I was reviewing the rental income course I realized we did not provide enough information in one key area.  There is a difference for rental income generated from a primary residence on a conventional loan versus a rental property.  To make sure we keep our training the best on the market, we created additional content for the training library just for this topic.

Our audit reviews show most underwriters properly interpret FNMA/FHLMC guidelines on when you can use income […]

FNMA does their own tax changes in 2018

Up til a few days ago working with a borrower on a conventional loan who has an active IRS repayment plan meant a decline was probably going to be the result from underwriting.  From time to time people underestimate their tax liability when April 15th rolls around and must work out a payment plan to the IRS to get their taxes paid.

When this prospective borrower shows up ready to buy a home, this IRS debt may seem like any other debt to the mortgage applicant.  However in the mortgage world this is a serious problem that needs to be dealt […]

Big income calculations change for self-employed borrowers

Sometimes guideline changes can be hidden in plain sight.  While working on some training updates recently, one of those changes popped out at me, and these changes will be disruptive!.

Remember when, a little over two years ago, Fannie Mae changed a rule relating to self-employed borrowers? In our training videos, I now refer to it as the “big D question”— what number should be used: the K-1 income or the distribution K-1 income? This change, made by FNMA and followed soon after by FHLMC, had us reconstructing spreadsheets and remaking training videos to cover the new income calculation concept of […]

Will the new tax laws affect mortgage underwriting?

Welcome to our first blog of 2018, this marks our fourth year of creating content focused on the topic of mortgage underwriting!  There are many guideline changes already lined up at FHLMC alone, so this will be a busy first few weeks of 2018 with lots of topics to cover, so lets get started!
New Tax Laws Changing Underwriting
One of the more difficult skill sets to learn as an underwriter is evaluating a self-employed borrower’s tax return.  The news is full of tax reform changes passed in December 2017.  This brings up the question.  How will the new tax laws affect […]

Should we reconsider Santa?

Many people reading this might be asking, “where is the latest mortgage underwriting topic?”   Since it is Christmas I am asking for a favor to take a blog-cation to share a Christmas thought I have had this year.   The topic I have been thinking about this Christmas season is, should we reconsider Santa?

Before I lose you, I am not writing a “war on Christmas” or suggesting giving Santa the boot.  But I do have thoughts on how we can reshape the current version of Santa.  A very popular trend of super hero movies is to provide origin movies explaining how […]

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