Selling Guide Announcement SEL-2012-13: Selling Guide Updates

Selling Guide Announcement SEL-2012-13

November 13, 2012

Selling Guide

Updates

The Selling Guide has been updated to include changes to the following topics:

 Ownership of Mortgage Loans Prior to Purchase or Securitization

 Redelivery of Mortgage Loans

 Premium Recapture

 Obtaining a Pool Purchase Contract

 Refinances that Include the Financing of Real Estate Taxes

 Depository Accounts

 Reserves

 Updates to DU Refi Plus

™

and Refi Plus

™

Mortgages

 Delayed Financing Policy

 Outstanding Collections

 Signature Requirements for HUD-1 Settlement Statements in Escrow States

 Miscellaneous Selling Guide Updates

Each of the updates is described below. The affected topics (and specific paragraphs) are noted for each

policy change. Lenders should review each topic to gain a full understanding of the policy changes. The

updated topics are dated November 13, 2012.

Effective Date

Unless othe

rwise stated

below, all updates and clarifications are effective immediately.

NOTE: The Selling Guide has not yet been updated to reflect the contents of the following previously issued

announcements:

■ SEL-2012-12, Disaster Policy and Updates to DU Refi Plus

™

and Refi Plus

™

Property Policies, and

■ SEL-2012-08, New Lender Selling Representations and Warranties Framework.

These announcements will be incorporated in the next Selling Guide update. Until such time, lenders must

continue to refer to these announcements.

Ownership of Mortgage Loans Prior to Purchase or Securitization

A number of industry participants, including mortgage sellers and their warehouse lenders, have raised

questions concerning how their security interests and rights in mortgage loans may be impacted during Fannie

Mae’s certification processes for whole loan and MBS deliveries and, in particular, how their security interests

and rights in the mortgage notes delivered to a document custodian for certification are preserved prior to the

remittance of purchase proceeds by Fannie Mae. To respond to these concerns, Fannie Mae has added

language to the Selling Guide to clarify the rights of mortgage sellers (or, as applicable, their warehouse

lenders) during the loan pooling, certification, and acquisition processes.

Updated Selling Guide Topics

 A3-3-04, Document Custodians (Role and Responsibilities of the Document Custodian)

 C1-2-03, Ownership of Mortgage Loans Prior to Purchase or Securitization and Third-Party Security

Interests

 C2-2-03, General Information on Whole Loan Purchasing Policies (Warehouse Lender’s Release of

Interest in the Property)

 C3-7-04, Delivering Data and Documents

Redelivery of Mortgage Loans

The Selling Guide currently states that if the conditions that made a mortgage loan ineligible for purchase can

be cured and the loan now meets Fannie Mae standards, it may be redelivered to Fannie Mae. Fannie Mae is

further clarifying that acceptance of the redelivered mortgage loan is at the sole and absolute discretion of

Fannie Mae and the transaction must be on a negotiated basis.

Updated Selling Guide Topic

 A2-3.2-02, Repurchases Resulting From Warranty Violations (Redelivery of Loans)

Premium Recapture

In February of this year, the Selling Guide was updated to reserve Fannie Mae’s right to request

reimbursement for premiums and buyup proceeds paid on any mortgage loan that paid off within 120 days of

acquisition or securitization. This policy is being updated to reflect that Fannie Mae in its sole discretion may

require reimbursement by the lender for any premiums or buyup proceeds paid in connection with the

purchase of the mortgage loan without regard to the 120-day limitation, if that loan is subsequently

repurchased by the lender.

Updated Selling Guide Topics

 B2-1.2-05, Prohibited Refinancing Practices (Overview)

 C1-1-01, Execution Options (Premium Pricing Recapture)

 C3-3-02, Accessing Buyup and Buydown Ratios and Calculating Payments or Charges (Buyup

Payment Recapture)

Obtaining a Pool Purchase Contract

The Selling Guide has been updated to clarify that a lender seeking to obtain a pool purchase contract must

first be evaluated by Fannie Mae. In other words, a Fannie Mae-approved seller is not automatically entitled to

take out MBS contracts. Several of the factors considered by Fannie Mae are also described in this topic.

Updated Selling Guide Topic

 C3-2-05, Obtaining a Pool Purchase Contract (MBS Pool Purchase contracts Overview)

Refinances that Include the Financing of Real Estate Taxes

The Selling Guide has been revised to include requirements concerning the refinance options (limited cash-out

or cash-out) that are available when a borrower includes real estate taxes in the new loan amount that are

coming due, pending payment, or past-due. In addition, escrow requirements have been revised to require that

an escrow account be established for refinance transactions when delinquent taxes (past due by more than 60

days) are being included in the new loan amount, subject to applicable law or regulation.

Updated Selling Guide Topics

 B2-1.2-02, Limited Cash-Out Refinance Transactions (Acceptable Uses)

 B2-1.2-03, Cash-Out Refinance Transactions (Acceptable Uses)

 B2-1.4-04, Escrow Accounts

Depository Accounts

Verification of Deposits and Assets

In lieu of requiring the borrower to provide a bank statement, if the lender is also the depository for a

borrower’s account, the lender may produce a printout or other alternative verification of the asset produced

directly from the lender’s system.

Depository Accounts

The checking and savings account topic ha

s been renamed “Depository Accounts” to more accurately

represent the topic content. The topic was updated to include references to money market and certificate of

deposit accounts.

Indications of Borrowed Funds

The Selling Guide has been update

d to provide additional clarity with regard to the lender’s responsibilities for

investigating possible indications of borrowed funds, such as large deposits and recently opened accounts.

The requirements include the following:

 Lenders must obtain the borrower’s written explanation and documentation of the source of large

deposits that are reflected on bank statements. Large deposits are defined as a single deposit that

exceeds 25% of the total monthly qualifying income for the loan. If the source of a large deposit is

readily identifiable on the account statement, such as direct deposits where the source of the

deposit is printed on the statement, the lender does not need to obtain further explanation or

documentation. However, if the source of the deposit is printed on the statement, but the lender still

has questions as to whether the funds may have been borrowed, the lender should obtain

additional documentation.

 Lenders must investigate accounts opened within 90 days of the application date and account

balances that are considerably greater than the average balance reflected on the Verification of

Deposit (Form 1006 or 1006S).

Updated Selling Guide Topics

 B3-4.2-01, Verification of Deposits and Assets

 B3-4.2-02, Depository Accounts

Reserves

Retirement Assets Used for Reserves

The Selling Guide policies related to the value of certain retirement assets have been revised. Rather than

requiring a discount on certain types of accounts being used as reserves, the discount will depend upon the

volatility of the account (such as, stocks, bonds, or mutual funds) and whether or not an early withdrawal

penalty needs to be applied. In addition, the information regarding when retirement accounts may be

considered as effective reserves has been clarified.

In order to align with the changes made to the value of retirement assets, lenders may manually apply these

changes to Desktop Underwriter

(DU

) loan casefiles until the related DU messages are updated in a future

DU release.

Updated Selling Guide Topic

 B3-4.3-03, Retirement Accounts

Clarification of Minimum Reserve Requirements

In Announcement SEL-2012-07, Selling Guide and Other Updates, Fannie Mae updated the requirements

pertaining to the manual underwriting of borrowers without credit scores (or if one borrower has credit scores

and other borrowers do not have credit scores). This update of the Selling Guide further clarifies that there is

no minimum reserve requirement for these transactions, and that the requirements apply without regard to the

product, such as MyCommunityMortgage

or HomeStyle

Renovation. (This latter requirement also applies to

DU loan casefiles.)

In addition, the minimum credit score requirements have been clarified for Community Solutions

™

and

Community HomeChoice

™

mortgage loans based upon the qualifying ratio and reserve requirements, and

references to B3-5.1-01, General Requirements for Credit Scores, have been added.

Updated Selling Guide Topics

 B3-5.1-01, General Requirements for Credit Scores (Exceptions to the Minimum Credit Score

Requirement, Manual Underwriting: Borrowers Without Credit Scores, DU Loan Casefiles: Co-

borrowers Without Credit Scores)

 B5-6-03, MyCommunityMortgage Underwriting Methods and Requirements (MCM Borrowers with

Nontraditional Credit: Manual Underwriting Only)

 B5-6-04, MyCommunityMortgage: Additional Eligibility and Underwriting Requirements for

Community Solutions and Community HomeChoice (Community Solutions: Qualifying Ratios,

Credit Scores, and Reserve Requirements for Manually Underwritten Loans; Community

HomeChoice: Qualifying Ratios, Credit Scores, and Reserve Requirements for Manually

Underwritten Loans

Updates to DU Refi Plus and Refi Plus Mortgages

Incorporation of Announcement SEL-2012-11, Updates to Eligible Existing Loan Requirements for DU

Refi Plus™ Mortgage Loans

In Announcement SEL-2012-11 Fannie Mae revised the eligibility requirements for mortgages with investor-

paid primary or pool mortgage insurance. If the lender converts the existing investor-paid coverage to

borrower-paid or lender-paid coverage, the loans are eligible for refinance under DU Refi Plus. These changes

are now incorporated into the Selling Guide.

Refi Plus Borrower Eligibility

In addition, the borrower eligibility requirements for Refi Plus have been updated to more clearly reflect that at

least one of the original borrower(s) must be retained on the new loan. (The requirements as currently written

in the Guide imply this requirement, but the new language makes it clearer.)

Updated Selling Guide Topic

 B5-5.2-01, DU Refi Plus and Refi Plus Eligibility (Borrower Eligibility, Eligible Existing Mortgage

Loan Types)

Effective Date

As indicated in Announcement SEL-2012-11, the DU Refi Pl

us database was updated on October 13, 2012, to

accommodate this change to investor-paid coverage.

New Effective Date for Refi Plus Property Valuation Requirements in Announcement SEL-2012-12

In Announcement SEL-2012-12, Fannie Mae eliminated the option that a

llowed the le

nder to use the original

appraisal for a Refi Plus transaction. Because lenders may have some loans in their pipelines for which they

were using this option, Fannie Mae is extending the effective date for this policy change to applications dated

on or after January 1, 2013.

Delayed Financing Policy

The changes made in the following topics in the Selling Guide are in response to lender questions about

certain aspects of Fannie Mae’s delayed financing policy. These updates are intended to clarify, not change,

the current policy.

 B2-1.2-03, Cash-Out Refinance Transactions

• Added a reminder that borrowers with five to ten financed properties are ineligible for cash-out refinance

transactions on second homes or investment properties unless all of the requirements in the Delayed

Financing Exception section are met.

• Defined the measurement of the six-month eligibility timeframe for delayed financing from the date on

which the subject property was purchased to the application date of the new refinance.

• Clarified that if the source of funds to purchase the subject property was an unsecured loan or a loan

secured by an asset other than the subject property (such as a HELOC on another property), all cash-out

proceeds from the refinance must be used to pay down the original loan and must be reflected on the

HUD-1 Settlement Statement for the refinance transaction. Any payment on the balance remaining from

the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.

 B2-2-03, Multiple Financed Properties for the Same Borrower. This topic now includes a reminder

that for cash-out refinances of second homes or investment properties for borrowers with five to ten

financed properties, the purchase of the property had to occur within six months of the application

date and all other delayed financing exception requirements must be met.

Outstanding Collections

References to the impact of outstanding collections on Fannie Mae’s first lien position have been removed

from the topics below. No outstanding collection or charge-off would endanger Fannie Mae’s first lien position,

making proof of this scenario by the lender unnecessary.

The collection message issued by DU on one-unit principal residence transactions will be updated to reflect

this change in a future DU release. Until that time, lenders may disregard the requirement specified in the

message that the lender confirm that the collection accounts pose no threat to Fannie Mae's first mortgage

lien.

Updated Selling Guide Topics

 B3-5.3-09, DU Credit Report Analysis (Past-Due, Collections, and Charge-Off Accounts)

 B3-6-07, Debts Paid Off At/Prior to Closing (Collections, Charge-Offs, Judgments, Garnishments,

and Liens)

Signature Requirements for HUD-1 Settlement Statements in Escrow States

Currently, the Selling Guide requires that the mortgage loan file contain a copy of the final HUD-1 Settlement

Statement (or other closing statement) signed by the borrower and seller, if applicable. This requirement has

been updated for loans in escrow states to allow the final HUD-1 Settlement Statement to be signed only by

the escrow agent, with signatures of the borrower and seller no longer required.

Updated Selling Guide Topics

 A2-5.1-02, Individual Mortgage Loan Files (Contents of a Mortgage Loan File)

 E-2-07, Closing Mortgage Loan File Documentation (Post-Closing Review File Submission

Documentation)

Miscellaneous Selling Guide Updates

The following miscellaneous changes have been made to the Guide:

 B2-1.2-06, Payoff of Installment Land Contract Requirements. The language pertaining to the

calculation for the LTV ratio was updated to reflect that the numerator is the new loan amount (not

the original loan amount).

 B3-3.1-09, Other Sources of Income (Capital Gains Income), and B3-3.2.1-05, Income or Loss

Reported on IRS Form 1040, Schedule D. The Selling Guide has been updated to clarify that

capital losses that are identified on IRS Form 1040, Schedule D, do not have to be considered

when calculating income or liabilities, even if the losses are recurring.

 B3-4.3-05, Gifts of Equity. This topic currently states: “The sales price for the property is at market

value.” This statement has been removed from this topic because the nature of these transactions

is such that they are non-arms-length transactions that are often sold at below market value.

 B3-6-06, Qualifying Impact of Other Real Estate Owned. In the Conversion of Current Principal

Residence to Investment Property section of this topic, the reference to the federal tax return

requirement was corrected from two years of returns to one year. This aligns with the changes

Fannie Mae announced in Announcement SEL-2012-04, Selling Guide and Other Updates.

 C2-2-05, Whole Loan Purchasing Process. Fannie Mae’s Mortgagee Number was updated to

reflect 95001099. Only the first five digits of this number should be used when submitting a

Mortgage Record Change (HUD Form 92080) via FHA Connection.

*****

Lenders who have questions about this Announcement should contact their Account Team.

John Forlines

Senior Vice President

Chief Credit Officer for Single-Family