DU Updates for Government Loans- Expected Weekend of July 21, 2012

Written By: Stacey Sprain

DU for government loans is updating during the weekend of July 21st to accommodate a number of messaging changes on topics such as bankruptcy and foreclosure for VA lending, 3-4 unit property reserve calculations for FHA lending. A summary of the changes follows below.

Bankruptcy and Foreclosure Messaging for VA Loans
The verbiage of the messaging issued when bankruptcy or foreclosure is present in the borrower’s credit background will be updated although the logic for the messages will remain unchanged.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

The updated text for the bankruptcy message is as follows:
This loan case file has been referred due to the presence of a bankruptcy on the credit report which appears to have occurred within the last 2 years. The lender must review the credit report and bankruptcy documentation to verify that the loan meets VA requirements.

The updated text for the foreclosure message is as follows:
This loan case file has been referred due to the presence of a foreclosure on the credit report which appears to have occurred within the last 2 years. The lender must review the credit report and foreclosure documentation to verify that the loan meets VA requirements.

FHA Income Documentation for Self-Employed Borrowers
As was announced in Mortgagee Letter 2012-03, profit and loss information along with a balance sheet is required for self-employed borrowers when more than one calendar quarter has passed since the filing of the business owner’s last tax return. Loan case files submitted after the weekend of July 21 will receive the following updated messaging:

is self-employed. Profit and Loss (P&L) Statements and Balance Sheets are required if more than one calendar quarter has elapsed since the filing date of the most recent tax return. Additionally, if income used to qualify the borrower exceeds that of the two-year average based on tax returns, an audited P&L statement or signed quarterly tax returns obtained from the IRS are required to support the greater income stream.

FHA Handling of Disputed Credit Accounts
As was announced in Mortgagee Letter 2012-03 and effective date announced to be extended by HUD, the text of disputed account messaging will reflect as follows:

If the credit report reveals that the borrower is disputing any trade lines (accounts or collections), the mortgage loan application must be referred to a DE underwriter for review and the file must be documented according to current FHA guidelines, unless the following two conditions have been met:
1) the total outstanding balance of all disputed trade lines (accounts and collections) is less than $1000;and
2) the disputed trade lines (accounts and collections) are aged at least two years from date of last activity as indicated in the credit report.

FHA Reserve Calculations for 3-4 Unit Properties
Since gift funds are not an eligible source of reserve funds required for 3-4 unit property types, DU will be updated to no longer include any gift funds entered in the Assets section of the loan application in the reserves listed in the Underwriting Analysis section of the DU Underwriting Findings Report on 3 to 4 unit properties. Also, DU will no longer include gift funds entered in the Assets section in the Reserves data element sent to the FHA TOTAL Mortgage Scorecard on 3 to 4 unit properties. New messaging will be as follows:

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

NOTE: The gift funds amount should be entered in both the Source of Down payment and Assets sections of the loan application to ensure calculations are performed correctly by DU, and correct information is sent to the FHA TOTAL Mortgage Scorecard.

Gift Funds for FHA Loans
The FHA TOTAL Mortgage Scorecard is currently able to receive only one Gift Source and Gift Amount per submission. Because it is possible to enter multiple Gift Sources in the available Source of Downpayment fields, DU will send the Gift Letter Source to the FHA TOTAL Mortgage Scorecard that corresponds with the highest Gift Letter Amount entered. If multiple Gift Letter Sources have the same dollar amount, DU will apply the hierarchy detailed below to determine which Gift Source to send to the FHA TOTAL Mortgage Scorecard:
1. Nonprofit/Religious/Community - Seller Funded
2. Nonprofit/Religious/Community - Non-Seller Funded
3. Relative
4. Employer
5. Government Assistance
6. N/A (includes “Gift Funds” option)

In a scenario where multiple Gift Sources are entered, but some do not have a corresponding dollar amount entered, only the Gift Sources with a dollar amount greater than $0 will be used in determining which Gift Source will be sent to the FHA TOTAL Mortgage Scorecard. DU will total the dollar amounts for all Gift Sources (including Seller Funded gifts) and provide this amount (rounded up to the nearest whole dollar) to the FHA TOTAL Mortgage Scorecard as the Gift Letter Amount.

The “Gift Funds” option will still be available in the Source of Downpayment field. If this option is selected, DU will send a Gift Source of “N/A” to the FHA TOTAL Mortgage Scorecard. The Gift Source of N/A will also be provided to the FHA TOTAL Mortgage Scorecard when no other Gift Source with a corresponding dollar amount greater than $0 is entered in the loan application.

Required Investment for FHA Loans
DU does not currently send this data element to the FHA TOTAL Mortgage Scorecard, but will do so starting with this release. This data element is defined by HUD as the amount from line p. Cash From/To Borrower from the Details of Transaction screen.

Seller Concessions for FHA Loans
There is an existing field in the Residential Loan Data (RLD) Format 1003 Version 3.2 and MISMO Automated Underwriting Specification (AUS) Version 2.3.1 that captures the seller concessions. However, based on FHA’s definition of the data element, DU for government loans will add together the amounts from line k. Closing Costs Paid By Seller on the Details of Transaction; All Seller Credits entered in the Other Credit section of the Details of Transaction; and any amount entered in the Seller Concessions field in the Government Information screen (shown in the following two screenshots). DU does not currently send this data element to the FHA TOTAL Mortgage Scorecard, but will do so after this release.

Condominium Indicator for FHA Loans
If Condominium, Detached Condo, or High Rise Condo is selected as the Subject Property Type in the Additional Data section in DU, then DU will send a “Y” to the FHA TOTAL Mortgage Scorecard to indicate the property is a condominium. For all other property types, DU will send an “N” to the FHA TOTAL Mortgage Scorecard to indicate the property is not a condominium. DU for government loans does not currently send this data element to the FHA TOTAL Mortgage Scorecard, but will do so starting with this release.

Property County Code and County Loan Limits for FHA Loans
With this release, DU will start sending the Property County Code to the FHA TOTAL Mortgage Scorecard and start receiving the County Loan Limit information in return. This update will mean that there will be less of a lag time for the correct amounts to be reflected in DU when adjustments are made to the FHA county loan limits. To make this possible, customers will need to enter both the Property State and Zip Code on the Types, Terms and Property screen (shown below) for all FHA submissions to allow the Property GeoCoder to determine the correct county. If the Zip Code is not entered, or the Property GeoCoder is not able to determine a county, the statutory state minimum will be used in DU.

NOTE: If for any reason the County Loan Limit displayed in DU is inaccurate, the customer should document the file by printing out the correct loan limit information from the FHA Mortgage Limits lookup tool, which is located at the following URL:https://entp.hud.gov/idapp/html/hicostlook.cfm

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

Refer Reason Rules
HUD is incorporating four new Review Rules in the FHA TOTAL Mortgage Scorecard. DU is adding two new corresponding messages as well as updating two existing messages. The following two messages are new with this release:
? This loan casefile has been referred because the current housing expense is greater than the total
monthly income.
? This loan casefile has been referred because the amount being contributed by the seller exceeds 6 percent of the sales price.

The following two messages are being updated with this release:
? This loan casefile has been referred due to the presence of one or more 30-day late mortgage payments showing on the credit report that occurred within the last 12 months, and the transaction type is a cash-out refinance.
? This loan casefile has been referred because at least one borrower does not have a credit score.

To read Fannie Mae’s DU for Government Loans Release Notes in its entirety, go tohttps://www.efanniemae.com/sf/guides/duguides/pdf/current/rndug712.pdf.


About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.