5102.2: Methods of underwriting (07/06/17)

Borrower creditworthiness is established and excessive layering of risk is identified by one of the following methods:

(a) Submitting the Mortgage to Loan Product Advisor®

In many cases, the most effective way to evaluate Borrower creditworthiness and identify excessive layering of risk is to submit the Mortgage to Loan Product Advisor. Loan Product Advisor performs an overall evaluation of the credit risks in the Mortgage file based on the information provided by the Seller and credit repositories and returns a Risk Class of either Accept or Caution on the Feedback Certificate.

See Chapter 5101 for additional details regarding Loan Product Advisor Mortgages.

(i) Borrower creditworthiness

A Seller is relieved of the requirements to represent and warrant that the Borrower is creditworthy if the requirements in Section 5101.8 are met.

(ii) Layering of risk

For all Accept Mortgages and A-minus Mortgages, Loan Product Advisor has determined that the layering of risk is acceptable. The Seller does not have to make this determination.

For all Caution Mortgages not eligible as A-minus Mortgages, the Seller must manually underwrite the Mortgages in accordance with Section 5102.2(b). For such Mortgages, there is a strong indication that the layering of risk is excessive and that acceptability and compliance with Freddie Mac requirements is unlikely.

(b) Manually underwriting the Mortgage

Mortgages for which the Seller evaluates the Mortgage data and makes the final determination regarding Borrower creditworthiness and excessive layering of risk are referred to as “Manually Underwritten Mortgages.” Manually Underwritten Mortgages are the following:

■ Mortgages that were never submitted to Loan Product Advisor

■ Mortgages that were submitted to Loan Product Advisor and received an evaluation status of invalid, ineligible or incomplete

■ Mortgages that were submitted to Loan Product Advisor, received a Risk Class of Caution and were not eligible as A-minus Mortgages

For Manually Underwritten Mortgages, the Seller’s conclusion that Borrower credit reputation and capacity are acceptable must be based on the documentation included in the Mortgage file and described on Form 1077, Uniform Underwriting and Transmittal Summary, or another document in the Mortgage file.