DU 9.0 Brings Significant Updates for Conventional Automated Underwriting- Part 1

Written By: Stacey Sprain

For those of you who may not yet be aware, DU is planning a major update for the weekend of October 20th which will bring forth some significant changes. Because of the amount of changes, this is being presented in 2 parts. The following is part 1 of a 2 part series covering the various updates.

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

Fannie Mae originally issued release notes for the upcoming DU update to version 9.0 back in July, updated it on August 2nd, and the updates discussed below will be effective for DU 9.0 case files assigned and submitted after the weekend of October 20, 2012. Files with case file ids assigned in the current DU version 8.3 will continue to be underwritten in DU version 8.3.

Change to Automated Credit Risk Assessment
Fannie Mae is updating the credit risk assessing capabilities within DU so the probability of future serious delinquency rather than probability of default is considered more thoroughly. However, this change in credit risk analysis is expected to have very minimal impact on the percentage of Eligible recommendations that lenders currently receive today.

Elimination of Expanded Approval Offerings
The 9.0 update will complete the elimination of DU Expanded Approval Offerings such as EA-I, EA-II, EA-III and EA-IV for all non-DU Refi Plus submissions. The former expanded approval offerings will be replaced with the recommendation of Refer with Caution. The EA-I, EA-II, and EA-III offerings will continue to fire only for DU Refi Plus files.

Lowering of Maximum LTV/CLTV/HCLTV for ARM Products
The ratios for adjustable rate mortgage products will be reduced from 97% to 90% for 1-unit, principal residence, purchase and limited cash-out refinance transactions. For all other ARM transactions, the ratios will be reduced by 10 percentage points, though the reductions will not go below 60% (Example- the ratios for a 1-unit, principal residence, cash-out refinance transaction will be reduced from 85% to 75% for ARMs).

For adjustable-rate mortgage loans that are subject to a Community Seconds® loans, the maximum CLTV will no longer be 105%. ARM loans with a Community Second will be limited to the maximum stated CLTV for the transactions (e.g., the CLTV for a 1-unit, principal residence, purchase transaction will be limited to a 90%, even when subject to a Community Second).

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

Increasing of Maximum LTV/CLTV/HCLTV for Fixed Rate Products
• Two-unit principal residence, purchase and limited cash-out refinance transactions LTV/CLTV/HCLTV being increased from 80% to 85%;

• Cooperative principal residence, purchase transactions LTV/CLTV/HCLTV being increased from 95% to 97%;

• Cooperative principal residence, limited cash-out refinance transactions LTV/CLTV/HCLTV being increased from 90% to 97%;

• Cooperative second home, limited cash-out refinance transactions LTV/CLTV/HCLTV being increased from 75% to 90%;

• HomeStyle Renovation LTV ratios being aligned with standard underwriting requirements up to a maximum ratio of 95%;

• High-balance mortgage, limited cash-out refinance transactions with a loan amount greater than $625,500 being increased from 80% to 90% (this change only impacts four counties in Hawaii; there is no increase in the high-balance loan limits); and

• Construction, principal residence, purchase and limited cash-out refinance transactions being increased from 90% to 97%.

Elimination of Exterior-Only Appraisal Documentation Offerings
The DU 9.0 update will eliminate the former exterior-only appraisal offerings for
• Form 2055 Exterior-Only Inspection Residential Appraisal Report
• Form 1075 Exterior-Only Inspection Individual Condominium Unit Appraisal Report
• Form 2095 Exterior-Only Inspection Individual Cooperative Interest Appraisal Report
• Form 2075 Desktop Underwriter Property Inspection Report

Going forward from the 9.0 update, only the following appraisal types will be offered with findings reports:
• The PIW Property Fieldwork Waiver option will continue to be offered for certain casefiles
• Form 1004 Uniform Residential Appraisal Report
• Form 1073 Individual Condominium Unit Appraisal Report
• Form 2090 Individual Cooperative Interest Appraisal Report
• Form 1004C Manufactured Home Appraisal Report
• Form 1025 Small Residential Income Property Appraisal Report

LTV Reduction for Limited Project Review Requirements
Currently DU allows for limited project reviews under certain circumstances with a maximum LTV/CLTV/HCLTV of 90%. The DU 9.0 update will only offer the limited project review option for principal residences with an LTV up to a maximum of 80%. A full project review will be required for principal residences in condominium projects when the LTV/CLTV/HCLTV is greater than 80%.

System Enhancements for DU Refi Plus Product
• Simultaneous refinance of subordinate liens The simultaneous refinancing of a subordinate lien on DU Refi Plus loan casefiles will be eligible provided that the new loan amount does not exceed the existing unpaid principal balance of the subordinate lien.
• Updated documentation requirements when removing borrowers With Announcement 2012-04 the payment history documentation requirements that were needed with the DU Refi Plus transaction when an original borrower was being removed from the loan were removed. The DU message issued when it appears a borrower is being removed with the transaction will be updated to remove those documentation requirements.
• SSN matching The SSN matching will be updated to require only an eight digit SSN match. When the SSN match does occur by only eight digits (instead of nine), the following message will be issued in order for the lender to ensure the borrower(s) on the loan casefile is the borrower(s) on the currently loan.
The Social Security numbers on the existing Fannie Mae loan associated with the subject property are one digit different when compared to those entered on the loan application. The accuracy of the SSN on the loan application must be confirmed, and if incorrect, the SSN must be updated and the loan casefile resubmitted to DU. If the SSN on the loan application is determined to be correct, the lender must represent and warrant that the borrowers on the existing Fannie Mae loan are the same borrowers that will be on the new loan. Acceptable documentation from the existing loan to confirm that the borrowers are the same on the new loan include a recent mortgage statement, the existing mortgage note or security instrument, or the most recent Form 1098.

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

Updated Documentation Requirements for Employment and Income
DU will align with manual underwriting employment and income policies to assure that adequate documentation is obtained to accurately assess and calculate qualifying income for borrowers.

• Salaried or Hourly Employees DU will require a paystub and W2 for the most recent year and DU Refi Plus will require a paystub only
• Bonus, Overtime and Commission earnings for less than 25% DU will require a paystub and W2s for the most recent two years and DU Refi Plus will require a paystub only
• Second Job, Non-Self Employed Earnings DU and DU Refi Plus will require a paystub and two years W2s
• Commissions greater than 25% DU will require a paystub, two years W2s and Two Years Tax Returns and DU Refi Plus will require only the most recent year personal tax return
• Self-Employment DU will require two years personal and business tax returns and DU Refi Plus will require only the most recent year personal tax returns
• Second Job, Self-Employed Earnings DU and DU Refi Plus will require two years personal and business tax returns
• Alimony, Child Support Earnings DU and DU Refi Plus will require a minimum of six months history of receipt of the income in order to use in qualifying

Loan Application to Include Additional Selection Options for Types of Earnings
The following types of earnings will be added as option selections to the automated 1003 loan application under the “Other Income” section so that appropriate documentation requirements will fire going forward:
• Capital Gains
• Employment-Related Assets
• Foreign Income
• Royalty Payment
• Seasonal Income
• Temporary Leave Income
• Tip Income

Updated Requirements for High-Balance Mortgage Loans
High-balance mortgage loan casefiles that are underwritten through DU will no longer be subject to the specific minimum credit score requirements for high-balance mortgage loans. High-balance mortgage loan casefiles will only be subject to the standard minimum credit score requirements applied to DU loan casefiles (620 for fully-amortizing loan casefiles, 720 for interest-only loan casefiles).

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

Updates to Data Displays on the DU Underwriting Findings Report
The following fields are being added to be displayed on 9.0 findings reports from DU:
• First Submission date for findings
• Total available assets
• Funds Required for Closing
• Reserves Required to be Verified
• Total Funds to be Verified
• Excess Available Assets, not required to be verified by DU

We will continue reviewing the DU 9.0 changes in Part 2 of this series next week.

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.