It seems over the last few years FNMA and FHLMC are moving just a little further apart in how they look at lending. In my opinion FNMA seems to hold a bit of a lower barrier of entry than FHLMC in general. A few examples come to mind, first off FNMA will allow rental income for a borrower who does not have two years of landlord experience where FHLMC will not. Another example, FNMA will allow you to finance up to ten properties where FHLMC only allows four.
Another area of difference is for borrowers who are re-entering the workforce. With the recent state of the economy you may run across this issue more often now. This one can sneak up on you if you are not careful because FNMA has no special guidelines for borrower’s returning to work but FHLMC has a guideline that can be a “deal killer”!
Here is FHLMC requirement for borrowers re-entering the workforce quoted from AllRegs.
FHLMC Seller Servicer Guide Vol 1 37.13
( V ) Re-Entering the workforce
For a borrower who re-entering the workforce and has less than a two-year employment and income history, the borrower’s income may be qualifying income if the borrower has been at the current employer for a minimum of six months and there is evidence of a previous employment history.
As per the norm for working in the mortgage business this guideline creates questions that don’t have exact answers stated in the guidelines. These questions (and you may think of more) should be addressed by the risk management at your company so you ready for them when it pops up.
1) How long does a borrower have to be out of work before he/she is “re-entering” the workforce? Some investors have said sixty days, some ninety days for example.
2) What if a borrower is off work for a long period of time due to family change (i.e. having kids or caring for an elderly parent), what would you use to document employment for five years ago?
Keeping up with these little “quirks” is tough, but education and a good underwriting system will always help to reduce the number of errors. For example, we built a rule into uber-writer (our FREE income analysis tool) that remembers to check for this situation! Check it out at www.uber-writer.com to see it in action and sign up for free!