5301.1: General requirements for all stable monthly income (05/22/18)

(a) Overview: Analysis of stable monthly income amount.

The analysis, verification, calculation and determination of the stable monthly income amount is integral to the overall qualification of the Borrower and determination of the Borrower's capacity to repay the Mortgage and other monthly obligations.

Topic 5300 provides requirements and guidance for the determination of stable monthly income. The Seller must determine when additional analysis and documentation is needed to support the determination of stable and consistent monthly income.

(b) General requirements for all stable monthly income

Stable monthly income is the Borrower's verified gross monthly income from all acceptable and verifiable sources that can reasonably be expected to continue for at least the next three years. For each income source used to qualify the Borrower, the Seller must determine that both the source and the amount of the income are stable, with a consistent level of earnings.Regardless of the underwriting path, the income qualification sources used to qualify the Borrower (whether or not specifically addressed in Topic 5300) and the documentation in the Mortgage file must be evaluated for stable monthly income qualification requirements and must meet the requirements of Topic 5300. Income qualification sources that do not meet these requirements or are not calculated correctly may invalidate the Loan Product Advisor Risk Class on the Feedback Certificate.The Seller must include a written analysis of the income qualification sources and amount in the Mortgage file. In addition, all documentation used to establish stable monthly income must be retained in the Mortgage file.

(c) Income stability and history requirements

The Seller must consider the length of history of the income and whether the earnings have been level and consistent. When evaluating stability of income based upon historical receipt, additional layering of risk may be present depending upon the degree of income volatility. As a result, the Seller must determine when additional documentation (e.g., an additional year of earnings history) is necessary to support income stability.In most instances, a two-year history of receiving a consistent level of income is required in order for the income to be considered stable and used for qualifying. While the source of income may vary, the Borrower must have a consistent level of income despite changes in the sources of income. If the Borrower has less than a two-year history of receiving income, the Seller must provide a written analysis to justify the determination that the income that is used to qualify the Borrower is stable.

(d) Continuance

For all income used to qualify the Borrower, the Seller must determine whether the income is reasonably expected to continue. This determination must focus on the Borrower's past employment/self-employment history, history of receipt of other income and the probability of continued consistent receipt of the income used to qualify the Borrower. At a minimum, the Seller must base the determination on the requirements of Topic 5300, and any other documentation contained in the Mortgage file.The Seller may consider all income for qualifying the Borrower, provided the Seller does not have knowledge, information or documentation that contradicts a reasonable expectation of continuance or probability of consistent receipt over at least the next three years.Continuance of income is categorized as follows:

Income and earnings types typically without documentable continuance (likely to continue) (Chart A)
Income types with documentable continuance (Chart B)
Income types that may or may not have documentable continuance, depending upon the source (e.g., government program, private insurer) and terms of the specific income type (e.g., retirement, long-term disability) (Chart C)

Chart A: Income and earnings types typically without documentable continuance
For earnings and income types that typically do not have documentable continuance, the Seller is not required to obtain documentation to verify income continuance, absent any knowledge or information that the income is no longer being received or is likely to cease. However, when the Seller has knowledge or information that the income may not be reasonably expected to continue, the Seller must conduct additional evaluation and/or obtain documentation in order to determine if the income can be used. For example, if a Borrower has been receiving additional employed income such as overtime or bonus, but the Seller has information or documentation evidencing that the income is already discontinued or will be discontinued due to the completion of a project or termination of a bonus program, the "likely to continue" requirement would not be met and the income cannot be used for qualification purposes.
Earnings types and income types	Continuance requirements
Base non-fluctuating employment earnings	Income must be likely to continue for at least the next three years. The Seller is not required to obtain documentation to verify income continuance, absent any knowledge, information or documentation that the income is no longer being received or is likely to cease.
Fluctuating hourly employment earnings
Commission income
Bonus income
Overtime income
Restricted stock and restricted stock units subject to performance-based vesting provisions
Tip income
Automobile allowance
Military entitlements
Military Reserve or National Guard
Unemployment (associated with seasonal employment)
Self-employment income
Royalty payments (two-year history)
Foster-care income
Housing or parsonage allowance
Mortgage Credit Certificate
Rental income
Tax-exempt income

Chart B: Income types with documentable continuance
For income types with documentable continuance, the documentation requirements for each individual income type listed within Topic 5300 provide the minimum documentation required in order for the Seller to verify income continuance for at least three years. Highlights of the requirements from the individual income types are provided for illustrative purposes only.
Income types	Continuance requirement highlights
Mortgage differential	Document duration of payments (Refer to Sections 5303.3, 5305.1 and 5305.2)
Notes receivable
Royalty payments (one-year history)
Restricted stock and restricted stock units subject to performance-based vesting provisions
Trust income (fixed payment)
Alimony, child support and/or separate maintenance	Document duration of obligation (Refer to Sections 5305.1 and 5305.2)
Homeownership Voucher Program (HOV)	Document duration of HOV term limit for assistance (Refer to Sections 5305.1 and 5305.2)
Dividend and interest	Document sufficient assets (Refer to Sections 5305.1 and 5305.2)
Capital gains
Trust income (fluctuating payments)
Retirement account distributions as income

Chart C: Income types that may or may not have documentable continuance
Certain income types are comprised of multiple income sources, each of which may have specific requirements with respect to continuance, whether defined or undefined. For this reason, this grouping of income types may or may not have documentable continuance. For example, if the source of retirement income is Social Security retirement benefits, no additional documentation of continuance is required; however, if the source is a retirement annuity from an insurance company, there will generally be a defined term in which case continuance must be documented. Highlights of the requirements from the individual income topics are provided for illustrative purposes only.
Income types	Continuance requirement highlights
Retirement income(b) (e.g., Social Security, defined benefit pension, annuity, other similar benefits)	Sellers must be knowledgeable about the source of the specific income type in order to determine whether or not documentable continuance is applicable. This includes, but is not limited to, knowledge of factors with respect to whether the payments are received pursuant to a written agreement, government program, law and/or regulation, as well as the applicable eligibility criteria governing the continued receipt of the income. (a) Pending or current re-evaluation of medical eligibility for insurance and/or benefit payments is not considered an indication that the insurance and/or benefit payment will not continue. (b) Refer to Section 5305.1 for general requirements for these income types and Section 5305.2 for topic-specific requirements for these income types.
Survivor and dependent benefits(b) (e.g., Social Security Survivor Benefits, Survivors' Department of Veterans Affairs (VA) benefits, other similar benefits)
Long-term disability income(a), (b) (e.g., Social Security disability benefits, VA disability compensation, worker's compensation, private disability insurance)
Social Security Supplemental Security Income (SSI)(a), (b)
Public assistance income(b) (e.g., Temporary Assistance for Needy Families (TANF))