5303.5: Income while on temporary leave (09/14/17)

Effective July 6, 2017, the content of this section has moved from Section 5303.6.

The following section provides guidance to Sellers for underwriting Borrowers on temporary leave from their current employment.

Temporary leave

Temporary leave from an employer may encompass various circumstances (e.g., family and medical, short-term disability, maternity, other temporary leaves with or without pay). Temporary leave is generally short in duration. The period of time that a Borrower is on temporary leave may be determined by various factors such as applicable law, employer policies and short-term insurance policy and/or benefit terms. Leave ceases being considered temporary when the Borrower does not intend to return to the current employer or does not have a commitment from the current employer to return to employment. Refer to Chapter 5305 regarding long-term disability income if the Seller has knowledge the Borrower has applied for, is receiving or will be receiving long-term disability benefits or long-term insurance benefits.

Determining qualifying income and Borrower capacity to meet obligations while on temporary leave

During a temporary leave, a Borrower's income may be reduced and/or completely interrupted. The Seller must determine that during and after the temporary leave the Borrower has capacity to repay the Mortgage and all other monthly obligations in accordance with Topics 5100 through 5500. The Seller's determination must be based on required documentation, Seller knowledge and available information.

(a) For Borrowers returning to their current employer prior to or on the first Mortgage payment due date:The Seller may use for qualifying income the Borrower's pre-leave gross monthly income.

(b) For Borrowers returning to their current employer after the first Mortgage payment due date:

The Seller may use for qualifying income the Borrower's gross monthly income amount being received for the duration of the temporary leave
In the event that the income has been reduced or interrupted, the Seller may use for qualifying income the monthly reduced income amount (this amount may be zero) being received for the duration of the leave combined with the Borrower's available liquid assets, as necessary. Available liquid assets may be used as a partial or complete income supplement up to the amount of the income reduction. The "Asset calculation for establishing the debt payment-to-income ratio" described in Section 5307.1(b) does not apply to the calculation of assets as an income supplement when determining qualifying income and Borrower capacity to meet obligations while on temporary leave. Assets that are required for the transaction (e.g., Down Payment, Closing Costs and reserves) may not be considered as available assets.
The total qualifying income must not exceed the Borrower's pre-leave gross monthly income amount

Documentation requirements

The following documentation is required for all Borrowers on temporary leave:

Documentation to verify the Borrower's pre-leave income and employment in accordance with Topic 5300, regardless of leave status
Written statement from the Borrower confirming the Borrower's intent to return to the current employer and the intended date of return
Documentation generated by current employer confirming the Borrower's eligibility to return to the current employer after temporary leave. Acceptable forms of employer documentation that the Seller may obtain from the Borrower include, but are not limited to: an employer-approved leave request, a Family Medical Leave Act document, or other documentation generated by the employer or a third-party verifier on behalf of the employer.

In addition, the following documentation is required for Borrowers returning to the current employer after the first Mortgage payment due date:

Documentation evidencing amount and duration of all temporary leave income sources being used to qualify the Borrower (e.g., short-term disability benefits or insurance, sick leave benefits, temporarily reduced income from employer) that are being received during the temporary leave
All available liquid assets used to supplement the reduced income for the duration of the temporary leave must meet the requirements of and be verified in accordance with the Streamlined Accept Documentation or Standard Documentation requirements, as applicable, listed in Section 5501.3
A written rationale explaining the analysis used to determine the qualifying income, regardless of the underwriting path