5201.1: Credit assessment with Loan Product Advisor® (10/04/18)
- Marsha Freeman
© Freddie Mac Single-Family Seller Servicer Guide
- The Uniform Residential Loan Application
- The credit reports (see Section 5203.1 for details)
- The Feedback Certificate
- An underwriting summary such as Form 1077, Uniform Underwriting and Transmittal Summary
Direct verification of Mortgage debt, rental payments and other debts not shown on the credit reports are typically not required for Accept Mortgages. Direct verification may be required for Mortgage debts on A-minus Mortgages. (See Section 5101.9.) For Accept and A-minus Mortgages with Borrowers who do not have a usable Credit Score, the requirements in Section 5201.1(c) below apply.
The Seller is not required to obtain or document an explanation of adverse or derogatory information on Accept Mortgages or A-minus Mortgages.
- All of the following requirements must be met in order for Loan Product Advisor to assess a transaction where not all Borrowers have a usable Credit Score:
- At least one Borrower on the transaction must have a usable Credit Score, as determined by Loan Product Advisor
- The transaction must be a purchase or "no cash-out" refinance Mortgage
- The Mortgage must be secured by a 1-unit property and all Borrowers must occupy the property as their Primary Residence
- Borrowers with a usable Credit Score must contribute more than 50% of the total monthly income
- Borrowers without a usable Credit Score must not be self-employed
- For all Borrowers without usable Credit Scores, any debt that is not reported to the credit repositories must be verified to have a satisfactory payment history and the payment must be included in the monthly debt payment-to-income ratio
- At least one Borrower on the transaction must have a usable Credit Score, as determined by Loan Product Advisor
- The transaction must be a purchase or "no cash-out" refinance Mortgage
- The Mortgage must be secured by a 1-unit property and all Borrowers must occupy the property as their Primary Residence
In addition, if the Borrower(s) without a usable Credit Score contributes 50% or more of the total monthly income, the Seller must determine that the Mortgage meets the following requirements:
- Each Borrower without a usable Credit Score must have at least two payment references in the United States comprised of Noncredit Payment References and/or Tradelines not appearing on the credit report. If two or more Borrowers without a usable Credit Score have the same payment reference, then the payment reference may count for each of those Borrowers.Additionally:
- Each payment reference must have existed for at least the most recent 12 months
- At least one Borrower without a usable Credit Score must have a housing payment history as one of the payment references; and:
- In the event more than one Borrower without a usable Credit Score has a housing payment history, then all such housing payment histories for the most recent 12 months (or length of housing payment history if less than 12 months) must be verified
- All housing payment histories must have no 30-day or greater Delinquencies in the most recent 12 months
- For all payment references other than housing:
- Only one payment reference may have one 30-day Delinquency in the most recent 12 months; and
- All payment references must have no 60-day or greater Delinquencies in the most recent 12 months
- Each payment reference must:
- Meet the requirements for written verifications in Section 5102.3
- Meet the age of documentation requirements in Section 5102.4., and
- Be documented in accordance with Section 5202.2(b)
- Each Borrower without a usable Credit Score must have no collections (other than medical), judgments or tax liens filed in the most recent 24 months
- The transaction must be a purchase or "no cash-out" refinance Mortgage
- The Mortgage must be secured by a 1-unit property and all Borrowers must occupy the property as their Primary Residence
- The loan-to-value (LTV), total LTV (TLTV) and Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios must not exceed 95%
- The Mortgage must be a fixed-rate Mortgage
- The Mortgage must not be:
- Secured by a Manufactured Home
- A super conforming Mortgage
In addition, the Seller must determine that the Mortgage meets the following requirements:
- Each Borrower must have at least two payment references in the United States comprised of Noncredit Payment References and/or Tradelines not appearing on the credit report. If two or more Borrowers have the same payment reference, then the payment reference may count for each of those Borrowers.Additionally:
- Each payment reference must have existed for at least the most recent 12 months
- At least one Borrower must have a housing payment history as one of the payment references; and:
- In the event more than one Borrower has a housing payment history, then all such housing payment histories for the most recent 12 months (or length of housing payment history if less than 12 months) must be verified
- All housing payment histories must have no 30-day or greater Delinquencies in the most recent 12 months
- For all payment references other than housing:
- Only one payment reference may have one 30-day Delinquency in the most recent 12 months; and
- All payment references must have no 60-day or greater Delinquencies in the most recent 12 months
- Each payment reference must:
- Meet the requirements for written verifications in Section 5102.3,
- Meet the age of documentation requirements in Section 5102.4, and
- Be documented in accordance with Section 5202.2(b)
- Each Borrower must have no collections (other than medical), judgments or tax liens filed in the most recent 24 months
- When the credit reputation for all Borrowers is established using only Noncredit Payment References, then at least one Borrower must participate in a homeownership education program before the Note Date, or the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages. Refer to Section 5103.6 for requirements related to homeownership education.
- Public records information on a bankruptcy, foreclosure, judgment or collection that does not belong to the Borrower
- Delinquencies that are reported in error
- One or more Tradelines that do not belong to the Borrower
- Tradelines for accounts for which the Borrower is not the primary account holder, but is listed as an authorized user
When the decision repository file used to create the Selected Borrower's credit report contains any authorized user accounts, the Loan Product Advisor decision is considered valid if the Seller obtains and retains in the Mortgage file documentation that evidences at least one of the following for each authorized user account:
- Another Borrower on the Mortgage owns the Tradeline in question
- The Tradeline is owned by the Borrower's spouse, or
- The Borrower has been making the payments on the account for the last 12 months
If the Seller is unable to document one of the above three requirements for each authorized user account, the Seller may consider the Loan Product Advisor decision valid and underwrite the Mortgage as a Loan Product Advisor Mortgage if the Seller determines that the authorized user accounts have an insignificant impact on the Borrower's overall credit history and the information on the credit report is representative of the Borrower's own credit reputation. The Seller should base its determination on the number of the Borrower's own Tradelines, as well as their age, type, size and the payment history, as compared to the authorized user accounts. The Seller must document its determination on Form 1077, Uniform Underwriting and Transmittal Summary, or another document in the Mortgage file.
- Public records information on a bankruptcy, foreclosure, judgment or collection that does not belong to the Borrower
- Delinquencies that are reported in error
- One or more Tradelines that do not belong to the Borrower
Authorized user accounts
When the decision repository file used to create the Selected Borrower's credit report contains Tradelines for accounts for which the Borrower is not the primary account holder but is listed as an authorized user, Loan Product Advisor will return a feedback message indicating when the following requirements must be met:
- The Mortgage file must contain documentation evidencing that for each authorized user account:
- Another Borrower on the Mortgage owns the Tradeline in question, or
- The Tradeline is owned by the Borrower's spouse, or
- The Borrower has been making the payments on the account for the last 12 months
OR
- If the Seller is unable to document one of the above requirements for each authorized user account, the Seller may make the determination that the authorized user accounts have an insignificant impact on the Borrower's overall credit history and the information on the credit report is representative of the Borrower's own credit reputation. The Seller should base its determination on the number of the Borrower's own Tradelines, as well as their age, type, size and the payment history, as compared to the authorized user accounts. The Seller must document its determination in the Mortgage file.
If the Seller is unable to document any of the above four requirements when the feedback message is returned, the Seller must consider the Loan Product Advisor decision invalid and manually underwrite the Mortgage as a Non-Loan Product Advisor Mortgage.