5202.2: Documenting Borrower credit reputation for Manually Underwritten Mortgages (03/02/16)

(a) Required documentation

The Seller is required to document the Borrower's credit reputation and the Seller's determination that the Borrower's reputation is acceptable. Although the documentation necessary to establish an acceptable credit reputation may vary, Freddie Mac requires that the Mortgage file documentation clearly demonstrates the Borrower met his or her obligations over an extended period of time.To document the Borrower's credit reputation for Manually Underwritten Mortgages, the Seller must use the following documentation:

The Uniform Residential Loan Application
The credit reports (see Section 5203.1 for details)
For Caution Mortgages, the Feedback Certificate
Any direct verification of payment histories
An underwriting summary such as Form 1077, Uniform Underwriting and Transmittal Summary
Additional documentation may be required depending on the Borrower's credit history

The first step in documenting credit reputation is to document the Borrower's existing credit history. This must be done by documenting a history of payments made by the Borrower through the credit reporting process as detailed in Section 5203.1 and/or by direct verification. If the credit report does not contain a reference for each significant open debt, including housing debt, listed on the Mortgage application, the Seller must obtain a separate written verification for each unreported debt. Accounts listed on the credit report as "will rate by mail only" or "need written authorization" also require separate verification by the Seller.

The Seller must document in the Mortgage file and describe on Form 1077

Any additional risks uncovered during the evaluation of the credit history
The Seller's analysis and conclusion that the Borrower's credit reputation is acceptable

The documents used to establish the Borrower's credit history must be consistent with each other and with the Borrower information found on the Mortgage application. The Mortgage file must also include any supporting documentation necessary to address derogatory information or other risks identified by other sources.

When underwriting with Credit Scores, the Seller must identify on Form 1077, or another document in the Mortgage file, the Credit Score selected for each Borrower and the process used to select that Credit Score from among all Credit Scores received for that Borrower. An explanation for any Credit Scores found to be unusable due to an insufficient number of Tradelines or inaccurate information should also be included.

See Section 5202.5(b) for documentation of the Borrower's explanation of adverse or derogatory credit information.

(b) Documentation of Tradelines and Noncredit Payment ReferencesTradelines (e.g., installment loans, revolving charge accounts and Mortgages) and Noncredit Payment References (e.g., rent, utilities and insurance) may appear on a credit report meeting the requirements of Section 5203.1 or the Seller may obtain a direct verification from the creditor or other acceptable documentation of payment history meeting the requirements of this section.If the verification of a Noncredit Payment Reference on the credit report or direct verification is provided by a source other than a professional business, the Mortgage file must also include other documentation supporting the payment history, for example, canceled checks, depository statements or receipts issued by the creditor, subject to requirements below.

(i) Direct verificationA direct verification may be either a completed verification form or a computer-generated payment history obtained by the Seller directly from the creditor and signed by the individual providing the verification.Direct verifications must contain sufficient information to establish the following:

The name and address of the creditor
The name of the payor
The name and title of the individual providing the credit reference
The telephone number of the creditor
The account number, if applicable
The nature of the obligation (rent, utilities, payment for purchases, insurance, etc.)
The highest credit balance, if applicable
The amount of the payment due
The outstanding balance
The current and historical status of the account. The completed verification form must indicate the number of times and duration of times past due. The historical account status format should be "0 x 30, 0 x 60, 0 x 90 days" late. However, alternative formats are acceptable as long as the meaning is clear. Statements such as "current," "as agreed," or "satisfactory" are not acceptable by themselves because they are too vague.
For a housing payment history, age of the reference if the length of housing payment history is less than 12 months

General reference letters without the above information are not sufficient documentation for establishing an acceptable credit reputation.

(ii) Other acceptable documentation

In lieu of a direct verification from the creditor, the Seller may obtain canceled checks, receipts issued by the creditor in accordance with the requirements of subsection (iii) below, or depository account statements from the Borrower. The Mortgage file must also contain documentation that substantiates the terms of the debt repayment (e.g., a copy of a fully executed lease agreement for a rental verification).For rental verification, if the Seller obtains a copy of a fully executed lease agreement and either canceled checks, depository account statements or receipts from the creditor for payments in cash in accordance with the requirements of subsection (iii) below, and the Seller confirms that the Borrower has made timely payments in accordance with the terms of the lease for the most recent 12 months, the documentation requirements of this subsection (ii) are met.The obtained documentation must contain sufficient information to establish the following:

The name and address of the creditor
The name of the payor
The nature of the obligation (rent, utilities, payment for purchases, insurance, etc.)
The highest credit balance, if applicable
The amount of the payment due
The outstanding balance
The current and historical status of the account, including number of times past due and how many days past due
For a housing payment history, age of the reference if the length of housing payment history is less than 12 months

Documented payments of a voluntary nature, such as deposits to a savings account, contributions to a payroll savings plan or contributions to a stock purchase plan of at least 12 months may be included as one of the Noncredit Payment References if the history shows periodic deposits (at least quarterly) resulting in a growing balance over the year. If a savings history is used as one of the Noncredit Payment References, the Mortgage file must contain documentation, such as depository account statements that meet the requirements of Section 5501.3(a)..

(iii) Special requirements for receipts

Receipts from the creditor are acceptable documentation only if the payments being verified were made in cash and there is no evidence in the Mortgage file that the payments were made by checks or direct bank transfers.