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FannieMae -- DESKTOP ORIGINATOR/DESKTOP UNDERWRITER (DO/DU) |
| Code | Loan Type |
|---|---|
| 200 | 30 Year FRM -- Conforming |
| 210 | 15 Year FRM -- Conforming |
| 220 | 20 Year FRM -- Conforming |
| 221 | 30 Year FRM -- Conforming -- Lender Paid 2/1 Buydown |
| 800 | 30 Year FRM - Community Homebuyers Program -- Conforming |
| 810 | 15 Year FRM - Community Homebuyers Program -- Conforming |
| 807 | 7/23 Balloon Mortgage -- Conforming |
Desktop Underwriter (DU) represents a more sophisticated way of assessing mortgage risk, enabling the tailoring of specific loan terms based on an individual borrower's risk profile. These flexibilities include streamlined documentation and appraisals, flexible mortgage insurance requirements, and expanded loan to value ratios and product offerings. While the system is referred to as DO/DU, Network actually utilizes the DU portion of the system. By using DU, underwriters can clearly focus on cases requiring more expertise and analysis.
DU indicates the minimum income and asset verification requirements, credit related documentation requirements and the required level of appraisal field work necessary to complete the processing of the loan file.
DU dictates the appropriate answer, regardless of the waivers. For example, a loan may appear to meet all the criteria for an 80/10/10 without MI, but DU requires MI. The MI requirement is accurate because DU has looked at all the risk criteria and determined that the ratios are high, therefore DU requires MI.
See Recommendations for a description of the DU decisions.
Fixed Rate Mortgage
A fixed rate level payment loan that amortizes the payment over 30, 20 or 15 years.
Balloon Mortgage
A Balloon/Reset Mortgage is a fixed rate level payment loan which has a lump sum payment due at the end of seven years. There is a reset option at the Balloon Maturity Date.
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An IRS form 4506 for all self employed borrowers must be signed and in the file.
Loans with first liens that have LTV’s 75.01 to 80% are available provided:
AND; EITHER
Mortgage Insurance must be obtained at the coverage level indicated by DU and must remain in effect for 84 months. Coverage of 20% is required if the subordinate financing is not originated by or is not held by an institutional lender;
OR
If the borrower puts 20 % down, a 10% HELOC mortgage that has no disbursements can be closed concurrently (this option does not require Mortgage Insurance). The HELOC cannot be used to provide any funds for the initial transaction.
Loans with first liens that have LTV’s 75.01 to 80% are available provided:
Check pricing sheet to see if there is a price adjustment.
DU's streamlined property valuation processes and appraisal report forms are examples of the documentation flexibilities available for mortgages underwritten through the system. As part of its risk analysis, DU recommends the use of one of the three different levels of streamlined property appraisal or inspection documentation for loans processed through the system. The system will recommend one of the following documentation levels for each eligible one unit property processed through the system with a complete property address:
One unit investment properties are eligible for streamlined appraisals with exterior only or interior and exterior inspections reported on forms 2055 and 2065. Two additional FannieMae forms are required:
FannieMae's standard property documentation forms Small Residential Income Property Appraisal Report Form 1025 and Form 216 are required for two to four unit properties processed through the system.
When DU recommends Form 2075, FannieMae will rely on the property valuation performed by the system. In such cases, the message generated by DU will acknowledge that the system valued the property and accepts the sales price for the transaction as the market value of the property. An appraisal is not required for these transactions as long as the property does not have any apparent adverse physical deficiencies or conditions, apparent adverse environmental conditions, or the subject property does not conform to the neighborhood. Therefore, the lender is not responsible for the traditions warranties regarding the valuation of the property that is performed by DU.
In certain situations, Network is required to upgrade the property documentation to the next higher level. For example,
Lenders may require a higher level of property documentation for loans processed through DU. For example, supplemental documentation from the appraiser might be necessary to address specific underwriting concerns. For example, to address their concerns, the lender might ask for the appraiser to provide an estimate of the site value for the subject property, a replacement cost estimate, data about additional comparable sales and listings, etc., (even though the DU form does not require this level of detail).
| Condition | Verification | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Verification of Available Assets | |||||||||||
| For each liquid asset listed on the application, DU will
issue a verification message specifying the verification requirements
for that asset.There will also be a verification message that will
indicate the amount of assets that the lender is required to verify. In
some cases, this amount will include only the amount of funds needed for
closing; in other cases, it will include some level of reserves (or all
reserves) in addition to funds needed for closing.
For example, assume the closing costs and down payment for a loan total $8,000, and the following assets are entered on the 1003;
DU will issue a verification message for each asset, in addition to a message stating that "Assets totaling $16,000 must be verified" Based on the risk analysis, the system requires reserves to be verified in addition to funds needed for closing (as indicated in a a verification message). To comply with this requirement the lender can verify two of the three assets listed on the application. DU may recommend loans for approval that are marginally short funds to close; however, this does not relieve the lender of the requirement to verify all funds needed for closing (as indicated in a verification message). |
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| Liquid assets | |||||||||||
| DU considers the following assets liquid and will include the value in the amount of funds available for closing and reserves: | |||||||||||
| Checking and savings accounts, gift funds, certificates of deposit, money market funds, mutual funds, stock and bonds, secured borrowed funds, bridge loans, retirement accounts, trust funds, other liquid assets, net equity from properties pending sale. | |||||||||||
| Non liquid assets | |||||||||||
| The following assets are not considered liquid:
Cash deposit on sales contract, cash value of life insurance, net worth of business owned, automobiles, other non-liquid assets. |
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| Depository Assets | |||||||||||
For each depository asset that is required to be
verified, a verification message will request:
A VOD can be obtained in place of the bank statements. Monthly statements must be dated within 45 days of application date. Quarterly statements must be within 90 days of application date. VOD's must be dated within 120 days of the closing date. Assets must be verified using the requested documentation and must support the amounts disclosed on the 1003. Explanations should be provided for large deposits over the one month or two month statement period, as applicable. If a borrower provides a quarterly statement, the lender must confirm that the funds in the account have not been transferred to another asset account that is verified with more current documentation. |
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| Non Depository Assets | |||||||||||
In the Underwriting Findings report, DU specifies the
required verification procedure for each non depository asset present in
the loan file:
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| Gift Funds | |||||||||||
| DU will always include gifts from the 1003 in available funds but will issue a message indicating that they must be verified. | |||||||||||
| Proceeds from sale of an existing home | |||||||||||
| A copy of the fully executed settlement statement is
required. Equity from properties "Pending sale" in the REO
schedule is calculated using the following formula: (sales price x 90%)
- mortgages. If the result is positive, it will be added to the funds
available for closing. If negative, the net loss will be added to the
amount of funds required for closing. The lender can override this value
by entering the actual proceeds, as verified on the settlement
statement.
Proceeds from properties already sold must be included in a liquid asset account. |
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| Cash deposit on sales contract | |||||||||||
| Cash deposit on sales contract (earnest money) can be
entered as a liquid asset or it can be entered in the details of
transaction as an "Other Credit" to be subtracted from
required closing costs, but it should not be entered as both.
If the cash deposit is greater than two percent of the sales price, it must be verified with a canceled check or a written statement from the holder of the deposit. The source of funds must be verified with a bank statement or VOD. |
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2/1 lender funded buydowns are permitted (program code 121);
3/2/1 buydowns are permitted.
Loans with cash out that have LTV’s 75.01 to 80% are available provided:
Balloon mortgages with cash out that have LTV’s 70.01 to 75% are available provided that:
Loans with cash out that have LTV’s 75.01 to 80% are available provided:
If the loan is submitted under the Community Homebuyers Program, additional information must be entered in the DU system. In the Community Lending Product list box, select Community Homebuyers Program. The other programs are not offered by Monument. The FannieMaeNeighbors eligible and Community Seconds buttons will be activated, select No. By entering this additional information, the system will show the income limit for the borrowers.
| Condition | Verification | |
|---|---|---|
| Verification of Mortgage or Rental History | ||
| When a verification of mortgage or verification of rental history is required, DU will include the requirement in its findings. This requirement is waived for some cases. | ||
| Late payments | ||
| For approved loans, no explanation is required for late payments.
For referred loans, the underwriter should confirm the accuracy of the information with the borrower. Additional information should be collected if it is necessary to justify an approval. |
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| Past due accounts/collections | ||
| Depending on the risk assessment of the case, past due accounts and accounts in collection may be identified in a verification message. The underwriter can determine if these accounts must be paid by closing, factoring in the effect that may have on the borrower's ability to make future mortgage payments. | ||
| Judgements and garnishments | ||
| Depending on the risk analysis of the case, the Underwriting Findings
report may identify if the Public Records section of the credit report
contains any judgements or garnishments.
The underwriter can determine if these accounts must be paid prior to closing, factoring in the effect this may have on the borrower's ability to make future mortgage payments. |
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| Bankruptcy | ||
| For one unit owner occupied loans and second homes:
If the public records section of the credit report shows a bankruptcy was filed or discharged within the last two years of the the credit report date, the case will be "Ineligible" for sale to FannieMae. Bankruptcies for which there is no discharge date will be identified in the Underwriting Findings report. The underwriter must document the discharge and, depending on when it occurred, must determine if the loan meets FannieMae's eligibility and credit requirements. Bankruptcies that were discharged more than 24 months ago will also be identified in the Underwriting Findings report. Depending on the recommendation of the case, the lender must determine whether the borrower has successfully reestablished an acceptable credit history, and whether the borrower represents an acceptable credit risk to FannieMae. For investor loans on owner occupied two to four unit properties: If any of the borrowers has filed for bankruptcy in the last five years, then the loan is not eligible for sale to FannieMae. |
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| Foreclosures | ||
| For one unit owner occupied loans and second homes:
If the public records section of the credit report shows that a foreclosure was filed or the proceedings were completed within the last twelve months of the credit report date, the case will be "Ineligible" for sale to FannieMae. If the foreclosure proceedings were completed 12 to 36 months prior to the credit report date, the case will Refer. The Underwriting Findings report will identify all foreclosures in the credit report, no matter when the foreclosure occurred. The underwriter must fully evaluated the circumstances surrounding the foreclosure and assess all relevant risk factors about the case before deciding to approve the loan outside of DU. For investor loans and owner occupied two to four units properties: If any borrower has had a property foreclosed upon, then the loan is not eligible for sale to FannieMae. |
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| Unverified Liabilities | ||
| For Approved loans, independent verification of credit, balance and
payment is not required.
For Referred loans, independent verification of creditor balance and payment information is required if:
If the balance and payment information is not verified, an explanation must be provided stating why the liability is immaterial. |
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| Inquiries | ||
| For Approved loans, explanations are not required for inquiries.
For Referred loans, underwriters should examine inquiries to determine if they represent potential sources of undisclosed credit and request explanations if necessary. |
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| Discrepancies between the 1003 and credit report | ||
| DU compares the balances and payments of the debts on the credit
report with the debts on the 1003. If DU finds material differences,
underwriters are required to confirm that all debts from the credit
report are included on the 1003 and provide documentation to support the
use of payments and balances lower than the credit report on the 1003.
Undisclosed debts may be identified in the Underwriting Findings report if they have a material impact on the case. The Underwriter will be required to add the debt to the 1003 and resubmit the case, or provide documentation that supports the omission from the 1003. |
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For all recommendations, underwriters are expected to apply due diligence when reviewing the documentation in the loan file to determine if there is any potentially derogatory or contradictory information that is not part of the data submitted to DU. Lenders are obligated to take action when contradictory or derogatory information would justify additional investigation or would provide grounds for a decision that is different from the recommendation that DU delivers. Furthermore, while DU offers a streamlined level of documentation, a more comprehensive level of documentation is always acceptable and in some instances should be required by the lender when circumstances in the loan file warrant it.
The following table summarizes the documentation and appraisal requirements by recommendation.
| Recommendation | Eligible for streamlined income and asset (1) | Eligible for appraisal (2) | ||
|---|---|---|---|---|
| Approve/Eligible | Yes | Yes | ||
| Approve/Ineligible | Yes | Yes | ||
| Refer/Eligible | Yes (4) | Yes | ||
| Refer/Ineligible | Yes (4) (5) | Yes | ||
| Refer with Caution | Yes (4) | Yes | ||
| Out of Scope | No (3) | Yes |
( 1 ) This column indicates whether the loan can be documented per the income and asset requirement listed in the verification messages/closing conditions section of the Underwriting Findings report.
( 2 ) This column indicates whether the lender can obtain the appraisal according to the appraisal requirement message in the verification messages/closing conditions section of the Underwriting Findings report, that is Form 2055, Form 2065 or Form 2075. Some out of scope cases will have an appraisal message indicating that the standard appraisal is required.
( 3 ) Income and assets should be documented according to the seller guide. The three file merged credit report obtained through DU can be used in place of the RMCR. However if the case is out of scope because of a lack of credit scores, a non traditional credit report may need to be obtained for those borrowers that do not have credit scores and/or a sufficient credit history.
( 4 ) The lender must document the compensating factors as well as the rationale that was applied in the course of making the final decision to approve the loan outside of DU. If the factors supporting a lender's decision to approve the loan cannot be derived from the verification listed in the DU Underwriting Findings report, the lender must request additional verification or documentation as appropriate and include this information in the loan file.
(5) Ineligible loans are not to be funded under the product codes of this program description.
The amount and type of documentation required are dependent on the system's analysis of risk and the type of income the borrower earns -- wage earnings, commission income or self employment income. The following table lists documentation requirements for verifying income.
| Condition | Verification | |
|---|---|---|
| Salary or Hourly wage earnings | ||
An income verification message will be issued for each current job and
will require income to be documented according to one of the following
options:
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| To complete the verbal VOE, the underwriter must independently obtain
the employer's phone number and address. The verification must be
completed and documented prior to the closing date using the Monument
Underwriter's VOE Certification Form.
When a paystub is required, the paystub can be dated no earlier than 30 days prior to the application date and must include year to date income covering a period of at least 30 days. If the borrower is employed by a relative, the lender should carefully evaluate the borrower's earnings and determine if the borrower owns any part of the business. If so the borrower should be identified as being self-employed, and subject to providing federal income tax returns. |
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| Part Time income | ||
| The borrower must have a twelve month history on all part time jobs in
order to include the income for qualifying purposes. DU will check for
the 12 month history, and if the history is less than twelve months, the
system will issue a message that the part time income must be removed
from DU.
Part time income must be documented with a paystub and W-2 if the part time income is not from self-employment. Income should be calculated based on an average of the paystub and W-2 earnings (12 month minimum average). If the part time income is from self employment, DU will require two years tax returns. |
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| Commission income | ||
| If the commission income is less than 25 percent of total income, DU
will generally require that it be documented with one paystub, or one
paystub and W-2. The documented telephone confirmation may also be
required.
If the commission income exceeds 25 percent of total income, personal federal income tax returns for the previous year or for the past two years will be required. A signed 4506 is also required. For loans originated between January 1 and April 15 of the calendar year, if the borrower has not filed prior year federal tax returns, the 1099's or W2's for the prior year in addition to the tax returns required in the Underwriting Findings report are required. The income is calculated from the previous year, taking into consideration business expenses that are deducted from earnings. Monthly income should then be calculated based on an average of the number of months represented in the documentation. If DU requires two years of tax returns but the borrower has only been receiving commission income for one year, the monthly income should be based on a 24 month average. |
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| Self employed income | ||
Depending on the borrower's risk profile, DU will require income
documentation according to one of the following options:
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| To complete the verbal VOE, the underwriter must independently obtain
the employer's phone number and address. The verification must be
completed and documented prior to the closing date using the Monument
Underwriter's VOE Certification Form.
Length of Self employment: The borrower must be self employed for at least one year in order to include the income from self employment. If the borrower has been self employed less than one year, the lender must confirm that the borrower is in the same line of work and the borrower must be able to document a reasonable probability of success based on market feasibility studies and pro forma financial statements for the business. The lender must carefully analyze the following factors:
If the self employment does not meet the above guidelines, the income cannot be utilized. |
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| In addition to the tax returns, a signed 4506 is required.
For loans originated between January 1 and April 15 of the calendar year, if the borrower has not filed prior year federal tax returns, the following documentation is required:
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For loans originated after April 15 of the calendar year, the following documentation is required:
Income is calculated based on the number of months represented by the documentation. When a year to date P&L statement is required, the income on that statement may be used in determining the monthly income if it is consistent with the previous year's earnings. If the earnings on the P&L suggest that the business is no longer able to support the level of earnings on the tax returns, the lender should further investigate the viability of the business. Additional tax returns should be requested if the lender determines that the documentation is needed to verify the consistency of income. |
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| Other non employment income | ||
Generally, income from sources other than employment must be verified
according to the procedures in the FannieMae selling guide. In the
Underwriting Findings response, DU lists the required verification
procedures for each income type present in the loan file. The following
types of income can be entered in DU as long as they are verified and
calculated by the lender:
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| Subject property -- net cash flow | ||
| Subject property net cash flow should be entered for all investment properties and 2-4 units owner occupied properties. Lenders will calculate this value using FannieMae form 216 and enter it into the loan application. If the value is positive, it will be added to income. If negative, it will be treated as a liability and included in the total expense ratio calculation. | ||
| Net rental income | ||
| Net rental income is calculated for all rental properties in the REO schedule based on the following formula: (gross rental income x 75%) - mortgage payment - insurance/maintenance/taxes/misc. | ||
| If the value is positive, it will be added to income. If negative, it
will be treated as a liability and included in the total expense ratio
calculation.
Net rental income applies only to rental properties, and should not be used to report income/loss on the subject property. Net rental income can be entered directly into Section V of the loan application. Copies of the borrower's most recent federal income tax returns are required as evidence of receipt of rental income. However, if a property is not listed on Schedule E, a copy of the lease is acceptable. Depreciation should be added back to the net income or loss shown on Schedule E. Unallowed losses should be deducted from the net income that is shown in Schedule E and any loss carryovers from previous years should be added to the net income. The DU calculated value may be overridden in the REO schedule if the lender's calculation (Based on the Schedule E) differs from the system's calculation. |
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| Employment Gaps | ||
| For approved loans, explanations for employment gaps are not required.
For loans that receive a Refer recommendation, the underwriter should assess the stability of the income. If there are previous employment gaps that are likely to recur and likely to affect the stability of the income this should be factored in to the underwriting decision before approving the loan outside of DU. |
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Loans with LTV’s from 70.01% to 80% are available provided:
Loans with LTV’s from 70.01% to 80% are available provided:
$ 40,000
The required level of mortgage insurance coverage will vary depending on the loan characteristics. DU will identify when mortgage insurance is required.
Owner Occupied Primary
Type LTV Number Purchase, Rate/Term, Cash Out All Unlimited
Second Homes and One Unit Investment / Non Owner Properties
Type LTV Number Purchase, Rate/Term 0 - 65.00% 7 (For a total of 8) Cash Out 60 - 65.00% 3 (For a total of 4) Cash Out 0 - 60.00% 7 (For a total of 8)
Non Owner 2 Units
Type LTV Number Purchase, Rate/Term, and Cash Out 0 - 60.00% 7 (For a total of 8)
Network has delegated approval for this program.
Not applicable.
Approve/Eligible - Based on the data submitted, the loan meets FannieMae's credit risk and eligibility requirements.
Approve/Ineligible - This loan does not meet FannieMae's eligibility requirements. The loan does meet FannieMae's credit risk requirement based on the eligibility parameters (such as borrower, product, maximum LTV). However, the risk analysis does not take into consideration any additional credit risk that might be associated with the ineligible condition.
Refer/Eligible - The loan meets FannieMae's eligibility requirements. DO/DU evaluated a combination of risk factors including the LTV ratio, housing and expense ratios, available assets, each borrower's credit history, employment status, product type and purpose of the loan. Based on the data, DO/DU is not able to recommend approval. The loan must be referred to an underwriter to determine if the loan meets FannieMae's credit risk requirements.
Refer/Ineligible - The loan does not meet FannieMae's eligibility requirements. DO/DU evaluated a combination of risk factors including the LTV ratio, housing and expense ratios, available assets, each borrower's credit history, employment status, product type and purpose of the loan. Based on the data, DO/DU is not able to recommend approval. The loan must be referred to an underwriter to determine if the loan meets FannieMae's credit risk requirements.
Refer with Caution - DO/DU evaluated a combination of risk factors including the LTV ratio, housing and expense ratios, available assets, each borrower's credit history, employment status, product type and purpose of the loan. Based on the data, DO/DU is not able to recommend approval. The loan must be referred to an underwriter to determine if the loan meets FannieMae's credit risk requirements.
Out of Scope - DO/DU does not contain the rule or models that are necessary in order to underwrite the product, borrower or type of loan submitted.
Fixed Rate Mortgage
FNMA/FHLMC Multistate Fixed Rate Note, Form # 3200, 12/83 or acceptable State Specific format.
Balloon Mortgage
FNMA Multistate Balloon Fixed Rate Note, Form 3260, 3/87.
FNMA Multistate Balloon Note Addendum, Form 3266, 12/89.
FNMA Multistate Balloon Rider, Form 3180, 12/89.
Addendum to Form 1003.
Investment Properties
Number of Units Reserves Required One Unit Two months Two to Four Units Six months
Purchase
Loans with LTV's from 80.01 to 90% are available provided:
Rate/Term Refinance
Loans with LTV's from 70.01 to 80% are available provided:
Cash Out Refinance
Available provided:
| Self employed income | ||
Depending on the borrower's risk profile, DU will require income
documentation according to one of the following options:
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| To complete the verbal VOE, the underwriter must independently obtain
the employer's phone number and address. The verification must be
completed and documented prior to the closing date using the Monument
Underwriter's VOE Certification Form.
Length of Self employment: The borrower must be self employed for at least one year in order to include the income from self employment. If the borrower has been self employed less than one year, the lender must confirm that the borrower is in the same line of work and the borrower must be able to document a reasonable probability of success based on market feasibility studies and pro forma financial statements for the business. The lender must carefully analyze the following factors:
If the self employment does not meet the above guidelines, the income cannot be utilized. In addition to the tax returns, a signed 4506 is required. For loans originated between January 1 and April 15 of the calendar year, if the borrower has not filed prior year federal tax returns, the following documentation is required: |
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For loans originated after April 15 of the calendar year, the following documentation is required: |
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Income is calculated based on the number of months represented by the documentation. When a year to date P&L statement is required, the income on that statement may be used in determining the monthly income if it is consistent with the previous year's earnings. If the earnings on the P&L suggest that the business is no longer able to support the level of earnings on the tax returns, the lender should further investigate the viability of the business. Additional tax returns should be requested if the lender determines that the documentation is needed to verify the consistency of income. |
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