B5-5.2-02: DU Refi Plus and Refi Plus Underwriting Considerations (09/26/2017)

Mortgage loans originated under DU Refi Plus must be underwritten through DU, and are not eligible for underwriting through any other automated underwriting system.

When a loan is delivered as a DU Refi Plus loan, the DU Refi Plus message must be issued on the final submission to DU.

In addition, the DU Underwriting Findings report will clearly indicate that the recommendation received was for DU Refi Plus.

DU performs its standard credit risk assessment for DU Refi Plus loans, which includes a comprehensive review of the borrower's credit and mortgage payment history.

A new merged credit report with the borrower's credit score is required.

No minimum credit score is required to establish eligibility. The representative credit score will be used for pricing purposes.

Because DU is unable to determine if a DU Refi Plus loan casefile is either a higher-priced mortgage loan or a higher-priced covered transaction under Regulation Z, the lender must make this determination. If the lender does determine that the loan casefile is either a higher-priced mortgage loan or a higher-priced covered transaction, the loan casefile must have a representative credit score of 620 or more and a debt-to-income ratio of 50% or less in order to be eligible for delivery to Fannie Mae.

Lenders are not relieved of complying with Regulation Z by only adhering to the stricter representative credit score and debt-to-income ratio. The mortgage loan must comply in all respects with Regulation Z requirements for higher-priced mortgage loans and higher-priced covered transactions, including the underwriting and consumer protection requirements.

Lenders are not required to comply with the waiting period and re-establishment of credit requirements for significant derogatory credit events for DU Refi Plus loans. DU will issue a message when a significant derogatory credit event is identified that indicates the loan is eligible for delivery regardless of when the event occurred. DU will not require the payoff or satisfaction of a judgment shown on the credit report.

In addition, DU will not require Form 1003 (or 1003 (S)) VIII, Declarations a through f to be reviewed or DU will not consider them in the underwriting evaluation.

• The borrower benefit provision (described above) must be met. The terms of the modified loan (trial or permanent) must be used for this comparison. If the borrower was previously in a trial period plan, but denied a permanent modification, the current terms of the loan must be used for this purpose.

• The borrower must meet DU's mortgage delinquency policy.

Income must be verified in accordance with the Income Documentation Requirements table below. Lenders are not required to verify or assess the borrower’s history or receipt of income or the anticipated continuity of the income.

The amount of assets (which may include reserves) must be verified to the extent that the DU Underwriting Findings report requires such verification.

Assets must be verified in accordance with the Asset Documentation Requirements table below. Lenders are not required to investigate large deposits that appear on account statements. Proof of liquidation of assets is not required even if those assets are used by the borrower to pay closing costs. Furthermore, Fannie Mae's standard policy regarding “discounting” of certain assets applies if the assets are required to satisfy DU reserve requirements.

Each borrower must complete and sign a separate IRS Form 4506–T at or before closing.

See B3-3.1-06, Requirements and Uses of IRS Request for Transcript of Tax Return Form 4506-T, for additional information.

A new mortgage note, security instrument, and applicable riders and addenda are required.

Except as otherwise expressly provided under DU Refi Plus described herein, all other loan documentation requirements contained in this Selling Guide applicable to newly-originated mortgages apply.

All new mortgage loans originated under Refi Plus must be manually underwritten.

Payment change ≤ 20%: no minimum credit score required. Lenders do not need to obtain a new merged credit report, but must obtain the representative credit score for pricing purposes.

Payment increase > 20%: minimum representative credit score of 620. A new merged credit report with credit scores is required. The representative credit score will be used for pricing purposes and to determine eligibility.

If the lender does determine that under Regulation Z the loan is either a higher-priced mortgage loan or a higher-priced covered transaction, the loan must have a representative credit score of 620 or more and a debt-to-income ratio of 45% or less in order to be eligible for delivery to Fannie Mae.

Lenders are not relieved of complying with Regulation Z by only adhering to the stricter representative credit score and debt-to-income ratio. The mortgage loan must comply in all respects with Regulation Z requirements for higher-priced mortgage loans and higher-priced covered transactions, including the underwriting and consumer protection requirements.

Lenders are not required to comply with the waiting period and re-establishment of credit requirements for significant derogatory credit events for Refi Plus loans or the payoff or satisfaction of a judgment identified on the credit report.

In addition, Form 1003 or (1003(S)) VIII, Declarations a through f are not required to be reviewed or considered in the underwriting evaluation.

• The borrower benefit provision (described above) must be met. The terms of the modified loan (trial or permanent) must be used for this comparison. If the borrower was previously in a trial period plan, but denied a permanent modification, the current terms of the loan must be used for this purpose.

• The borrower must meet the mortgage payment history requirements for Refi Plus measured by either contractual or modified payments, as applicable.

Payment change ≤ 20%: lenders are not required to calculate a DTI ratio.

Payment increase > 20%: maximum DTI ratio of 45%.

Lenders are not required to investigate large deposits that appear on the statements. However, certain assets must be “discounted” when used for reserves. Refer to the applicable asset type in Chapter B3–4, Asset Assessment, for additional information.

Payment increase > 20%: verification of all income sources and amounts in accordance with the Income Documentation Requirements table below. Lenders are not required to verify or assess the borrower's history or receipt of income or the anticipated continuity of the income.

Payment change ≤ 20%: verification of assets required to close is not required. The only assets that must be verified are those required to satisfy the reserve alternative option (described above).

Payment increase > 20%: verification of assets to close if the borrower is required to bring funds to closing. The assets must be verified in accordance with the Asset Documentation Requirements table below. Lenders are not required to investigate large deposits that appear on account statements. Proof of liquidation of assets is not required even if those assets are used by the borrower to pay closing costs.

Payment change ≤ 20%: borrowers are not required to complete and sign an IRS Form 4506–T.

Payment change > 20%: each borrower (regardless of income source) must complete and sign a separate IRS Form 4506–T at or before closing.

See B3-3.1-06, Requirements and Uses of IRS Request for Transcript of Tax Return Form 4506-T, for additional information.

A new mortgage note, security instrument, and applicable riders and addenda are required.

Except as otherwise expressly provided under DU Refi Plus described herein, all other loan documentation requirements contained in this Selling Guide applicable to newly-originated mortgages apply.

Verbal verification of employment

See B3-3.1-07, Verbal Verification of Employment, for additional requirements.

Base Pay (salary or hourly)

Bonus and Overtime Income

One paystub

Applies to primary employment, secondary employment (second job and multiple jobs), and seasonal income.

One paystub or one year personal tax return.

Applies without regard to the percentage of commission earnings.

One year personal tax return

Applies to primary and secondary self-employment.

Lease or one year personal tax return (Form 1007 is not required).

Applies to rental income from subject property or from other properties owned by the borrower.

Lender must receive:

• the borrower’s written confirmation of his or her intent to return to work, and

• no evidence or information from the borrower's employer indicating that the borrower does not have the right to return to work after the leave period.

Regardless of the date of return, the amount of the “regular employment income” the borrower received prior to the temporary leave must be used to qualify.

All Other Income Types

• Automobile Allowance

• Boarder Income

• Capital Gains Income

• Disability Income – Long-Term

• Foreign Income

• Foster-Care Income

• Interest and Dividends Income

• Mortgage Credit Certificates

• Mortgage Differential Payments Income

• Notes Receivable Income

• Public Assistance Income

• Royalty Payment Income

• Tip Income

• Trust Income

• Unemployment Benefits (seasonal or non-seasonal in nature)

• VA Benefits Income

Lender must determine appropriate documentation.

Examples include (but are not limited to): an award letter or equivalent documentation or agreement, one paystub or equivalent documentation, one year personal tax return, IRS 1099 Form, or one month bank statement reflecting direct deposit.

• Checking Accounts

• Savings Accounts

• Certificates of Deposit

• Money Mark Accounts

• Stocks, Bonds, Mutual Funds

• Retirement Accounts

• Trust Accounts

• Secured Borrowed Funds

• Donations from Entities (Hardest Hit Fund)

• Gifts