Hello,
We are pleased to announce that after confirming with all our investors, RHFC is
aligning with the following Fannie Mae credit policy updates as announced in SEL-201506 and SEL-2015-07 (scheduled to be incorporated into DU version 9.2 August Update).
Since the DU messaging will not be updated until August 2015; the current DU
messaging may be disregarded if all Fannie Mae eligibility criteria are met:
Payoff of Revolving Debt At or Prior to Closing
o When a revolving account is being paid off at or prior to closing, the current
policy requires lenders to document that the revolving account has also been
closed in order to exclude the payment from the debt-to-income (DTI) ratio. The
Selling Guide has been updated to remove the requirement that the revolving
account be closed. Going forward, revolving accounts that are paid down to zero
at closing may remain open and no monthly payment needs to be included in the
DTI ratio.
Conversion of Principal Residence Requirements No Longer Apply
o Borrower’s equity in their previous residence no longer needs to be documented.
o Follow the standard rental income and financial reserve requirements when
converting to an investment property.
o Standard reserve requirements for all financed properties owned by the borrower
at closing must be met.
Stocks, Bonds, and Mutual Funds
Fannie Mae updated the policies related to the use of vested stocks, bonds, and mutual
funds (including retirement accounts) when they are used for down payment, closing
costs, and reserves. Instead of requiring a standard reduction in value, the policies have
been simplified as follows:
o Assets used as reserves: 100% of the value of the asset(s) may be used when
determining available reserves.
o Assets used for down payment and closing costs: If it is documented that the value
of the asset(s) is at least 20% more than the funds needed for closing, no
documentation of liquidation is required. Otherwise, documentation of the
borrower’s actual receipt of funds from the sale/liquidation is required.
NOTE: As a reminder, non-vested assets are not eligible for down payment, closing
costs, or reserves.
Unreimbursed Employee Business Expenses
The following changes and clarifications apply to unreimbursed employee business
expenses for DU loans only (they are not applicable to loans underwritten with LP):
 For a borrower who is qualified using base pay, bonus, overtime, or commission
income less than 25% of the borrower’s annual employment income:
o Unreimbursed employee business expenses are not required to be analyzed
or deducted from the borrower’s qualifying income, or added to monthly
liabilities. This applies regardless of whether unreimbursed employee
business expenses are identified on tax returns (IRS Form 2106) or tax
transcripts received from the IRS.
o Union dues and other voluntary deductions identified on the borrower’s
paystub do not need to be deducted from the borrower’s income or treated
as a liability.
o Tax returns are not required to document these sources of income. Note:
Although Fannie Mae does not require tax returns to document these
sources of income, transcripts must still be obtained and included in the
loan file as per RHFC’s Income Validation Policy. **This is not
applicable on loans approved under the W2 program.**
 For borrowers earning commission income that is 25% or more of annual
employment income, unreimbursed employee business expenses must be deducted
from gross commission income regardless of the length of time that the borrower
has filed that expense with the IRS.
o The exception to this guideline is if the expense is an actual automobile
lease or loan payment. If borrowers report an automobile allowance as part
of their monthly qualifying income, the Underwriter must determine if the
automobile expenses reported on IRS Form 2106 should be deducted from
income or treated as a liability. The Selling Guide describes how the lender
is to make this determination.
Tip Income
Fannie Mae now provides guidance in cases where the borrower’s full amount of tip
income may not be reported by the employer on the VOE, paystub or W-2. The borrower
may report additional tip income to the IRS on Form 4137. This income may be used if
the most recent two years of Federal Tax Returns including Form 4137 are obtained.
Use of IRS W-2 Transcripts in Lieu of W-2s
In cases where the borrower is unable to provide a W-2, IRS “Wage and Income
Transcripts” are acceptable in lieu of the actual W-2 forms.
Permit Prepayment Penalties on Subordinate Liens
The restriction that subordinate financing may not include any prepayment penalties or
other prepayment restriction no longer applies.
Optional Data Fields on the Verification of Employment (Form 1005
and 1005 (S))
Optional Data Fields on the Verification of Employment (Form 1005 and 1005 (S)). The
Verification of Employment (Form 1005 and Form 1005 (S)) may be used to document
income for a salaried or commissioned borrower in lieu of a paystub and W-2 forms.
However, some of the data requested by the form is not generally provided by employers,
nor is it available on paystubs and W-2s. As a result, the following fields on the forms are
optional:
11 – Probability of continued employment
14 – If overtime or bonus is applicable, is its continuance likely?
16 – Date of Applicant’s next pay increase
17 – Projected amount of next pay increase
18 – Date of applicant’s last pay increase
19 – Amount of last pay increase
24 – Reason for leaving (Part III – Verification of Previous Employment)
The remaining fields on the form must be completed as applicable to the borrower.
In addition, please be informed that loans approved under DU Refi Plus exception
guidelines have been extended until December 2016.
Please email RHFC Underwriting Support at [email protected] if you have any
questions about these updates.
Please share this information with your loan officers.