Genworth Financial: Slides for Understanding Freddie Mac’s Loan Prospector Feedback Certificate...

Loan Prospector®

Understanding the Feedback Certificate

August 2013

©2012 Genworth Financial, Inc. All rights reserved.

Loan Prospector– Highlights Certain Credit Policy Updates– Understanding the Recommendations– Data Integrity Reviews– Documentation Matrix– Reminders– Help Tools and Training– Genworth Guidelines

Agenda

Today’s Session Covers Conventional Loans Only

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Bulletin 2011-04

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• Credit Policy Changes:

– Maximum LTV, TLTV and HTLTV to 95% for all conventional Mortgages

– Short sale processing fees, buyer discount fee or short sale buyer fees MUST be considered and treated as sales concessions NOT financing concessions as per Section 25.3

**LP has been updated to reflect these changeshttp://www.freddiemac.com/

http://www.freddiemac.com/


Bulletin 2011-04

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• Mortgage Eligibility:

– Sellers still must subtract “sales concessions” from the sale price as per Chapter 44.3 and 44.15(f) of the Seller Guide.

– Appraisers still must provide market value without regard to sales or financing concessions and provide appropriate comparables.




Bulletin 2011-7

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• Mortgage Eligibility:

– Amended asset documentation requirements to require a gift letter to be signed by the donor in all cases of gift money from a relative.




Updates Bulletin 2011-15 ..

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• Highlights of the Bulletin:

– Removes the option of obtaining a letter from an accountant to confirm use of business assets will not have a detrimental impact on the business (See Chapter 37.13(b) of the Guide

– For a mortgage to qualify as an “owner occupied” property, at least one borrower must occupy the property as a primary residence as of the delivery date. Effective for mortgage with delivery dates on or after Dec 1, 2011




Updates Bulletin 2011-21

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• Mortgage eligibility and credit underwriting (Effective February 15, 2012;Sellers may implement immediately)

– Updated and provided additional guidance for “employed” and “other” income.

– Borrower’s on Temporary Leave from current employment.

– Adding guidance on retirement, survivor and dependent benefits, long-term disability and social security supplemental security income

– In some cases reducing the documentation for history of recent.

– Adding verification of “type” of income by requiring award letters.

– Change in Alimony, child support and separate maintenance income requirements.

– Guide sections 37.13, 37.13(a), 37.13(c), 37.22 and 37.223 have been reorganized/updated. http://www.freddiemac.com/




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• Mortgage eligibility and credit underwriting

– Revised Section 24.6 Requirements for Cash-out Refinances to allow a cash-out. refinance mortgage when property was purchased free and clear and borrower has not been on title for at least six months.

– When obtaining subsequent opinions of value, Sellers must rely on the most accurate and supported opinion of market value (which may require seller to rely on the lower value appraisal) and comply with Exhibit 35.

– New Section 44.16 of the Seller Guide: Reviewing Appraisal Reports, Obtaining Subsequent Appraisal Reports and Field Review Reports, and Reconciling Multiple Opinions of Market Value.





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Eligibility and credit highlights:

– Updates requirements for borrower funds

– Chapter 26 re-titled “Borrower Funds” and reclassified terminology for “Borrower Funds” and “Other Borrower Funds”

– Eliminates use of proceeds from Cash Out Refinance as reserves.

– Retires Alt 97 Mortgage and all references

– Revises requirements for use of Mortgage Credit Certificates (MCCs) See next slide..

– Credit policy changes are effective for mortgages with settlements on or after August 1, 2012.

Loan Prospector




Mortgage Credit Certificates Change:

– What is an MCC? A certificate issued by certain state or local governments that allow for a taxpayer to claim a tax credit for some portion of the mortgage interest paid during the tax year.

– Freddie Mac is removing the requirement that is can only be used with Home Possible Mortgages.

– Freddie Mac is removing requirement that is must be deducted from the housing expense but can added to qualifying income.

– See the Seller Guide Chapter 37 for more information on the use and calculation of MCC.

– Changes are effective August 1, 2012


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Updates Bulletin 2012-18 & 2012-22

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Bulletin 2012-21

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• ARM Caps and Qualification Rates

– ARMS with initial periods of less than or equal to 5 years require they have Initial Caps and Periodic caps that are less than or equal to 2% or less

– ARM products with caps that exceed the above will be retired.

– All ARMS with initial adjustment periods of five years of less, ARMS with financed permanent buydowns or ARM loans with temporary subsidy buydowns must be qualified at the greater of the note rate plus 2 or the fully indexed rate.

– LP will be updated July 14, 2013 with the changes.

– Changes are effective for loans with settlement dates of July 1, 2013 or after.

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Bulletin 2013-13

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• ARM Caps and Qualification Rates

– ARMS with initial periods of less than or equal to 5 years require they have Initial Caps and Periodic caps that are less than or equal to 2% or less

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Industry Letter July 2, 2013

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• Update to Industry Letter issued in May

• Changes for applications taken on or after January 10, 2012

• Mortgages must be fully amortizing (no IO or potential neg am)

• No terms >30 years

• Mortgages must not have total points & fees in excess of 3% of the total loan amount (or other limits as per CFPB final rule)

Loan Prospector

http://www.freddiemac.com/sell/guide/bulletins/pdf/iltr070213.pdf

http://www.freddiemac.com/sell/guide/bulletins/pdf/iltr070213.pdf

Loan Prospector Receives a “Request File” By:– Importing your loan file from your loan origination system into Loan Prospector.– Direct Data Entry of your loan file into Loan Prospector.– A Link on Your Lender’s Website Allowing You to Import Your File Into Loan

Prospector.– Seamless submission via your Loan origination system.

Loan Prospector the Process

Be familiar with your Loan Origination System And Any Mapping Issues Your Interface May have With Loan Prospector

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LP...The Process ContinuedLP Returns a “Response File”:

– Documentation Checklist: Used to Help You Process/Document Your File…see example on next slide

– Credit report: LP allows for several options for Credit Reports. In-file credit reports or Tri-Merged Credit Report (If You Opted to Order a Tri-Merged Credit Report there is an Additional Charge).

– Full Feedback Certificate• Provides Information Used in Determining Final Approval Requirements As Well As Documentation

Requirements.• Remember: The Feedback Certificate Is a “Recommendation” Not an Approval!

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LP...The Process Continued– For Validation You May Use In-file Credit Reports Pulled Either Inside or Outside Loan

Prospector (In File Credit Reports Are the Default in LP) and three must be requested for each borrower.

– You May Select to Order a Tri-merged Credit Report Either Through Loan Prospector or through your LOS or Credit Vendor.

– For Validation You May Use Either of These Tri-merged Credit Reports (verify your investor requirements if it’s other than Freddie Mac). There is an additional Charge for merged reports issued through LP.

– All credit reports Must Be in the Closed Loan Package, even the LP in-files that may not have been used for underwriting purposes.

– LP Views Name and address, Social Security, Public Records/Disputed Items and Credit Scores on the in File Credit Reports.

– LP DOES NOT Read the Tri-merged or the Trade Lines on Any Type Credit Report.

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Check with your Investor - Many Require Use of Tri-Merged Reports Only

Credit Report Options for LP

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LP Defaults to Infile Credit Reports– Lenders can order or reissue merged

reports for additional fees– Document provide detailed instructions on

how to order or reissue credit reports– Verify with investor what type of report is

required

LP Functionality Guide June 2013

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http://freddiemac.com/learn/qr.html

– Refer originators or LP users to Freddie Mac’s website for help with common questions or data entry issues.

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Risk Factors Used By Loan Prospector

Sample Loan Prospector Doc Checklist

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Sample LP Feedback Certificate

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Loan Prospector “Risk Class”

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The Risk Classes

• Risk Classes for:

• Conventional / Conforming Loans

–ACCEPT

–CAUTION

Loan Prospector “Documentation Level”

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Documentation Level

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Documentation Levels for Conventional Conforming Loans

– Streamlined Accept (Generally The Rule of One…).

– Standard (Generally The Rule of Two) Documentation for this level will vary depending on the Risk Recommendation provided by Loan Prospector: For Example: If loan recommendation is Accept, A-Minus eligible, or Caution different documentation rules apply.

– Also Investor Documentation Overlays may apply

See the Freddie Mac Conventional Conforming Documentation Matrix for Specific Documentation Requirements

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Documentation Matrix– Updated June 2013

– Assists in properly documenting the file per the LP feedback certificate.

– Overlays may apply if you sell loans to an investor other than Freddie Mac.

http://www.freddiemac.com/learn/qr.html



Documentation Matrix

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Loan Prospector Documentation Matrix is broken out by Topic AND by Documentation Level (Streamlined Accept or Standard)

Credit and Liabilities (page one of matrix)

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Credit and Liabilities (page two of matrix)

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The Loan Prospector Documentation Matrix reminders Sellers Of Common Credit Policy Requirements

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Documentation Matrix– Regardless of the Risk Classification

any evidence of a short sale must be considered a significant and adverse derogatory event.

– Lenders must apply the appropriate policies manually.

– (page three of matrix)

Follow Freddie Mac Policy as stated in Seller Guide, Chapter 37.16.2 and the Rental Income Matrix (page three of matrix)

– Seller Guide Details Guidelines depending on the pending disposition of the current primary residence.

Sale or Conversion of Primary Residence

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Follow Freddie Mac Policy as stated in Seller Guide, Chapter 37.16.2 and the Rental Income Matrix

– Conversion to rental property:


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Follow Freddie Mac Policy as stated in Seller Guide, Chapter 37.16.2 and the Rental Income Matrix

– Conversion to a Second Home:


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Calculation of Stable Monthly Income

The Matrix Gives What Section Of The Freddie Mac Seller Guide You Can Find More Information.

Page four of matrix

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Freddie Mac Requires A Two Year History For Commission, Bonus And Overtime Income If Using For Qualification Purposes

Income Documentation Requirements

Page four of matrix

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Loan Prospector Does NOT Know When An Applicant Is Employed By A Family Member, Property Seller Or Real Estate Broker. Apply These Guidelines Manually

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Page five of matrix

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Page six of matrix

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Page seven of matrix

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Page eight of matrix

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Self Employment Requirements

Page eight of matrix

Sellers Must Indicate in LP When A Borrower Is Self-Employed In ALL cases

Form 91-Income Analysis form

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http://www.freddiemac.com/learn/uw/form_91.htm

l

Page seven of matrix

http://www.freddiemac.com/learn/uw/form_91.htm

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Page nine of matrix

Many Investors Have Overlays When It Comes To Self Employed Borrowers. Always Follow The Applicable Credit Policy For Your Investor

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Sellers Must Indicate in LP When A Borrower Is Self-Employed In ALL cases

Page nine of matrix

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Other Income Requirements

Page ten of matrix

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Other income sources are addressed on pages 10-13 of the June 2013 matrix

Page 11 of matrix

Form 90-Verbal VOE

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Form 90 Is Available For Down Load At www.Freddiemac.com

Page 20 of matrix

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For Rental Income Requirements, See Rental Income Matrix Which Was Updated October 2010

Page 13 of matrix

Rental Income Matrix

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• Updated October 2010

– Note that the sections with a bar in margin are the “updates”.

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The Matrix Was Updated To Require Reserves Regardless Of The Use Of Rental Income If Subject Property Of The Loan Is A 2-4 Unit Primary Or A 1-4 Unit Investment

Transaction

• Updated October 2010

– LP was updated December 19, 2010 to reflect the changes in reserve requirements.

– See also Freddie Mac Bulletin 2010-23 for more information for recent changes.

– Clarifies Freddie Mac policy when rental properties have been undergoing renovation.

Loan Prospector


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• Updates

– Reminds sellers to use rental income to qualify from an investment property the borrower must have a two year history of owning and managing rental properties…even under the “Conversion of a Current Primary to an Investment Property”. See Guide Section 37.16.2 (c) and (d) for more information.

– Leases alone are never used to qualify.

The Matrix Was Updated To Require Two Year History Of Owning Rentals If You Want To Use Rental income From A Recently Acquired “Other” Rental Property.

Leases Alone Are No Longer Acceptable

Rental Income MatrixNotes

– Gift funds not allowed on investment transactions.

– Use of boarder income for a single family not allowed.

– Maximum of four financed properties when subject of your loan is an investment.

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Asset Requirements

Page 13 of matrix

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Asset Requirements

Page 14 of matrix

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Asset Requirements

Page 15 of matrix

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Asset Requirements

Page 16 of matrix

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Asset Requirements

Page 17 of matrix

Asset Requirements

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Assets Reminders– Many assets require proof of liquidation if used for down payment or closing

costs.• CD, Stock, bond, life insurance policies or retirement accounts

– Reserve requirements must be manually applied to LP loans.• i.e. No reserves entered but the transaction type may still require reserves.

– Retirement accounts used for reserves entered at entered at 70% of the vested amount.• Terms of withdrawal is required.

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Eligibility Requirements

Page 18 of matrix

Eligibility Requirements Updated with the June 2013 Matrix

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Eligibility Requirements

Page 19 of matrix

Eligibility Requirements Updated with the June 2013 Matrix

Credit Processing Information

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• Read ALL Findings Report Messages

– Ensure each message has been cleared, documented or does not apply.

– Verification of all reserves entered into LP is required or they must be removed

– Reserves may be required, verify per the Seller Guide and product requirements

Income/Employment Messages

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• Documentation “Level” Determines the documentation required

– Lenders are required to document self employed income even if not using the income to qualify.

– Obtain individual tax returns to review for possible business losses and determine the effect any possible business loss has on the qualifying income.

Asset Messages

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• Documentation “Level” Determines the documentation required

– Reserves must be verified if entered into LP.

– Accounts opened in the past 90 days must be sourced as well as all large deposits or large increases in any asset account.

– Provide proof of liquidation as applicable for certain asset types.

Loan Processing/Delivery Fee Messages

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• General Processing and Delivery Fee Messages Appear

– Does the occupancy make sense?

– MI obtained in required coverage amount?

– Are sales/financing concessions within guidelines?

Loan Processing/Delivery Fee Messages

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Credit Report Processing Information

– Guidance when no payment listed or liability not on credit report

– Contingent liability requirements

Freddie Mac Purchase Eligibility

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• Review the Feedback Certificate for Purchase Eligibility Messages

– Freddie Mac Eligible

– Freddie Mac Ineligible

– Freddie Mac 500 A-minus Offering and Feedback Level and Purchase Restrictions, If Applicable

Many lenders and MI companies do NOT allow for A-Minus loans to be delivered or insured. Always check investor requirements.

Caution and A Minus LoansReview the Credit Risk Comments

– For Caution and A- Loans, Be Sure to Review the Credit Risk Comments on the Feedback Certificate.

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Caution Risk Class

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October 2010 www.FreddieMac.com/learn

http://www.freddiemac.com/learn

LP HVE Estimate Now Available

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LP Updates HVE Estimate Now Available

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http://www.loanprospector.com/about/features/hve_results.html

HVE Message Guidance

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http://www.freddiemac.com/learn/pdfs/uw/hve_messages.pdf

New HVE Feedback Messages- Tips

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http://www.loanprospector.com/about/features/hve_results.html

HVE Message Guidance

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http://www.freddiemac.com/learn/pdfs/uw/hve_messages.pdf

HVE FAQs

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http://www.freddiemac.com/hve/faq.html

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Verify all information and resubmit to LP as necessary

Always RememberData Submitted to LP Must Be, True, Correct, Accurate

– Support LP minimum documentation requirements as per the LP feedback certificate.

– Meet any requirements not addressed within LP.• Large Deposits, Sales Contract, Appraisal Issues, Etc.

– Meet any delivery requirements of the lender or MI Company, such as Fico score, ratio restriction or appraisal form.

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Common ErrorsDouble Check Your Data. The Most Common Errors are:

– Social Security Number entered wrong– Address Information Wrong– Reserves entered in LP but NOT verified– Property Type entered incorrectly (condo but entered as single family)– HOA or Condo or PUD dues not included in DTI– Liabilities omitted without supporting documentation– Inquires not cleared as either a new account opened or no credit granted

(effective February 1, 2011)– Estimation liability payments when documentation is required– If any of the above data is incorrect, resubmission to LP is required– MI required but MI guidelines not followed

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Always RememberA Few Reminders:

– *Use 70% of the vested value of the borrower’s 401k, IRA, KEOGH, 403b or any other IRS qualified plan as reserves (You must apply this percentage manually then enter the correct amount into your system or LP).

– Ensure any loans are subtracted from value of the asset account and that your applicant is fully vested.

– **Loans secured by a “Financial Asset” may be excluded from the debt calculation ONLY if it was granted by a financial institution. It should always be listed on the Form 1003/65.

– LP does not validate if your applicant has the required minimum percentage into the transaction if LTV is > 80%. This is a manual verification.

– LP does not validate if the maximum seller paid fees have been exceeded. You must validate this and it is now based off the TLTV.

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*Guide Section 37.22, 37.23

**Guide Section 37.16

See Loan Prospector Documentation Matrix Dated June 2013 And Rental Income Matrix Dated October 2010 For More Details


– Address items that Loan Prospector cannot see such as missing pages to bank statement or unrealistic commute.

– All assets and reserves entered in Loan Prospector must always be verified or removed (LP will not allow you to enter zero, you can use $1 for assets). Regardless of the amount you enter, you must verify the funds for closing/reserves on a purchase and effective May 1, 2011 on all refinances*).

– Collections are not required to be paid off by Freddie Mac but may be a requirement of the lender.

– Tax Liens and judgments must be paid and funds to do so must be verified in addition to the funds required to close.

– Investment transactions/rental income, refer to the Freddie Mac Rental Income Matrix for requirements.

– LP does NOT have a maximum DTI but many investors and MI companies do regardless of the AUS recommendation of “Accept”.

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– If an applicant indicates they are Self Employed (25% or more ownership in a business), you must indicate this in LP even if you are NOT using that income. See the Documentation Matrix and the Feedback Certificate for additional information.

– Loans in deferment must be included in debt ratio. Obtain documentation to support the payment amount used-no ESTIMATING unless that is your investor’s policy.

– If a revolving debt or open ended debt does not show a payment on the credit report ,you are required to use 5% of the balance unless your investor has a different policy. You can also get a copy of the statement evidencing a lower payment.

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Freddie Mac No Longer Allows For Delivery Of Any 97% LTV Loans, Including The Home Possible Mortgage

Loan Product Data Entry Tip

Condo Job Aid

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http://www.freddiemac.com/learn/pdfs/uw/condo.pdf

http://www.freddiemac.com/learn/pdfs/uw/condo.pdf

Additional Resources and Help

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• Visit Freddie Mac’s Home Page www.freddiemac.com/singlefamily

– Single Family Loans: Resources for Sellers/Servicers

– Changes to Delivery Fees and Credit Requirements

– Guide Bulletins and Forms

– Allregs

– Mortgage Product Requirements

– Documentation and Rental Income Matrix

– Single Family News Email Sign up

– Freddie Mac Training


www.freddiemac.com

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www.freddiemac.com

Freddie Mac “Single-Family”

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www.freddiemac.com

The Learning Center

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Freddie Mac Quick References

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http://www.freddiemac.com/learn

Loan Prospector® Resource Center

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http://loanprospector.com/

Loan Prospector® Resource Center

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http://loanprospector.com/

Genworth GuidelinesAccess Genworth website www.mortgageinsurance.genworth.com

• Click on rates and guidelines

91Credit Reports & Credit Scoring

http://www.mortgageinsurance.genworth.com/

©2012 Genworth Financial, Inc. All rights reserved.

Legal DisclaimerGenworth Mortgage Insurance is happy to provide you with these training materials. While we strive for accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is not a substitute for advice of counsel. You should always check with your own legal advisors for interpretations of legal and compliance principles applicable to your business.

GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS.

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®Loan Prospector is a Registered Trademark of Freddie Mac

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