DU 9.0 Brings Significant Updates for Conventional Automated Underwriting- Part 2

Written By: Stacey Sprain

The following is part 2 of a multi-part article covering the upcoming changes that will be applied in DU over the weekend of October 20th when Fannie Mae completed an update.

One correction to last week’s article: In the beginning paragraphs I incorrectly referenced DU version 8.3 instead of the correct version DU 8.2. I apologize for that oversight. Data has been corrected accordingly below.

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With the release of DU Version 9.0, DU Version 8.2, which went into production the weekend of December 11, 2010, will be retired. Therefore, effective the weekend of October 20, 2012, customers will no longer be able to resubmit loan casefiles to DU Version 8.2; however, customers will continue to be able to view online loan applications and DU Underwriting Findings Reports that were created under DU Version 8.2. To obtain an updated underwriting recommendation after the weekend of October 20, customers must create a new loan casefile and submit it to DU.

As continued from Part 1 of the article published last week:

Construction-to-Permanent Updates

In Fannie Mae’s Announcement SEL-2012-01 terminology was changed for construction to permanent transactions to use the new terms “single closing” and two closing” to describe the two types of construction to permanent financing options. DU’s update to version 9.0 also incorporates several other revisions that were announced in regards to construction to permanent financing in the earlier Selling Announcement issued earlier this year which include:

• For construction-to-permanent transactions that are processed as refinances, the LTV will be calculated based on the as-completed appraised value instead of the lesser of cost or appraised value. The length of time the borrower has owned the lot is no longer a factor in calculating the LTV ratios.

• Single-closing transactions can only be processed as a purchase or limited cash-out refinance. (cash-out refinances are no longer permitted)

• Two-closing transactions can only be processed as a limited cash-out or cash-out refinance.

• For single-closing transactions, when the credit and appraisal documents are over four months old but less than eighteen months old at the time of conversion to permanent financing, Fannie Mae has implemented a minimum representative credit score of 700. This requirement is in addition to the existing requirements that include limitation of the LTV ratios to 70% and the requirement for a DU Approve/Eligible recommendation.

DU Version 9.0 will fire appropriate messaging to incorporate the new guidelines involved with construction to permanent lending.

Verification of Funds for 30-Day Charge Accounts

Credit reports often show 30-day charge accounts with an outstanding balance yet with no minimum monthly payment reflected. Effective with the 9.0 update, messaging will fire to require lenders to document that the borrower has sufficient funds to cover the unpaid balance of any 30-day charge account on the credit report. DU will be updated to include the balance of all 30-day charge accounts in the Total Funds to be Verified, as shown on the DU Underwriting Findings Report.

Important Note: You should never manually mark an account to be omitted from DU credit analysis because in doing so, 30 day accounts will not be included in the funds needed to be verified and therefore you will not receive accurate DU messaging.

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Reserve Requirements for 2-4 Unit Principal Residence Transactions

DU will fire messaging that a minimum of six months of reserves will be required for 2-4 unit principal residence transactions. The amount of required reserves will be reflected in the Total Funds to be Verified, as shown on the DU Underwriting Findings report. Note that these reserve requirements will not apply to DU Refi Plus transactions.

Manual Reserve Calculations for Specific Transactions

In certain cases, DU is unable to determine the reserve requirements for the transaction. With DU Version 9.0 loan casefiles, on those transactions where DU is unable to determine the reserve requirements, lenders must perform a manual calculation of the required minimum reserves for the transaction. To determine the total amount of assets to be verified for the transaction, lenders will be required to add the amount of Total Funds to be Verified (as specified on the DU Underwriting Findings report) to the minimum reserve requirements specified in the Fannie Mae Selling Guide for the following scenarios:

• Principal residence transactions where the current principal residence is pending sale, converting to a second home, or converting to an investment property; and

• second home and investment property transactions for borrowers who will have 1-10 financed properties.

The total amount of assets to be verified, per the guidance above, must be reflected in the Asset section of the loan application.
Disputed Tradeline Message Update
The logic that issues disputed tradeline messaging will be updated so that the message will be issued on a smaller number of loan casefiles in DU Version 9.0. This will serve a great news since we see so much of this messaging currently when tradelines on credit reports, even when closed or with zero balances, fire messaging that requires the borrowers to jump through unnecessary hoops to try and get their accounts updated through the major bureaus.

As a reminder, if DU does not issue the disputed tradeline message, the lender is not required to further investigate the disputed tradeline on the credit report, obtain an updated credit report (with the tradeline no longer disputed), or manually underwrite the loan. However, the lender is required to ensure that the payment for the tradeline, if any, is included in the total expense ratio if the account does belong to the borrower. If DU does issue disputed tradeline messaging, the requirements of the messaging must be met in order to satisfy AUS requirements.
Out of Scope Transaction Types Added With DU Version 9.0, purchase, construction, and cash-out refinance transactions with a CLTV over 105%; and balloon transactions with a loan amortization term exceeding 30 years will receive an Out of Scope recommendation since these combinations will not be eligible.
Removal of Project Classification Codes T-PUD and T-CO-OP Project Classification Codes will no longer be considered valid with the 9.0 update.

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

New Estimated Value Appraisal Message
A new message will be issued to remind users to enter the appraised value when an appraisal is obtained. This message will be issued when the user indicates in the Additional Data section of the online loan application that the appraised value
is estimated.

Based on the Actual vs. Estimated Appraised Value Indicator on the online loan application, the loan casefile was underwritten using an estimated value. When an appraisal for the transaction is obtained (if applicable), the appraised value on the online loan application must be updated with the value from the appraisal, and the loan casefile resubmitted to DU.

Removal of Subordinate Financing Special Feature Codes
The following SPCs are being removed permanently from Fannie Mae’s required SPC list:

• 187: Mortgage Subject to 80-10-10 Subordinate Financing
• 338: Mortgage Subject to 80-15-5 or 90-5-5 Subordinate Financing
• 339: Mortgage Subject to 75-20-5 Subordinate Financing

These codes have not been actively in use since March of 2012.

Continuity of Obligation Messaging Added for Refinances
The messages that are issued on cash-out and limited cash-out refinance transactions will be updated to state that continuity of obligation, if applicable, must be met, and to refer to the Fannie Mae Selling Guide for additional information.

Document Expiration Messages
The document expiration messages will be updated in order to reference the note date, instead of the closing date.
DU 9.0 Live Training from Fannie Mae

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

Be sure to check out Fannie Mae’s live training calendar to register for an upcoming session about the DU Version 9.0 Release! Go tohttps://fanniemae.webex.com/mw0306lc/mywebex/default.do?siteurl=fanniema... to view the list of available sessions and registration options.


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.