April 29, 2019
Bulletin #2019-10
CORRESPONDENT LENDING
April 29, 2019
Unless noted otherwise, the following sections of the Guidelines have been changed to reflect new policies and guidelines.
Conventional Products
HomeReady Fixed Rate
The guidelines have been updated in conjunction with Fannie Mae SEL 2019-03 as follows:
Topic
Old Requirements
Number of Properties Owned/Financed
There is no limit on the number of properties owned and/or financed by the borrower.
New Requirements
The occupying borrower(s) may own a total of two (2) financed residential properties, including the subject property. Financed properties owned by a non-occupant co-borrower separately from the occupant borrower(s) may be excluded from this requirement.
Boarder Income
Boarder(s) must not be
Boarder(s) must not be obligated on the mortgage loan or have any
obligated on the mortgage loan. ownership interest in the subject property.
Home Possible Fixed Rate
The guidelines have been updated in conjunction with Freddie Mac Bulletin 2019-7 as follows:
Topic
Number of Properties Owned/Financed
Old Requirements
There is no limit on the number of properties owned and/or financed by the borrower.
New Requirements
The occupying borrowers may own a total of two (2) financed residential properties, including the subject property, as of the note date.
Lenders may utilize the following guidance as announced in Freddie Mac Bulletin 2019-7:
Employment & Income ? LPA
Topic
Assets as a Basis for Qualification
Social Security ? Retirement or Disability Benefits Social Security ? Supplemental (borrower's own benefits)
Old Requirements To determine the amount used to establish the debt payment-to-income ratio, use the net eligible assets divided by 360 months, regardless of loan term.
Obtain the following:
? SSA award letter, or ? Proof of current receipt
New Requirements
To determine the amount used to establish the debt payment-to-income ratio, use the net eligible assets divided by 240 months.
Document the income and current receipt with one or more of the following, as needed:
? SSA award letter ? 1099 ? Bank statement(s)
Phone: 866-326-2677
Bulletin #2019-10
For FAMC Correspondent Customers Only
correspondent.
Page 1 of 5
CORRESPONDENT LENDING
Topic
Social Security ? Survivor Benefits Retirement/Disability (borrower is drawing from another person's account)
Old Requirements
Obtain the following: ? SSA award letter, and ? Proof of current receipt, and ? Verification/proof of three-year continuance
Documentation may include the following:
New Requirements Document the income and current receipt with one or more of the following, as needed:
? SSA award letter ? 1099 ? Bank statement(s)
Verification/proof of three-year continuance is required.
Disability Income ? Long Term
? Benefit verification letter, ? Award letter, ? Pay statement, ? 1099 or W-2, or ? Other equivalent documentation
Current receipt of income may be verified with the following:
? Bank statement, ? Pay statement, ? Benefit verification letter, ? Notice of award letter, or ? Other equivalent documentation
Document current receipt of income with one or more of the following, as needed:
? Benefit verification letter, ? Award letter, ? Pay Statement, ? 1099 or W-2, ? Bank statement(s), or ? Other equivalent documentation
The property may be rented on a short-term basis as long as:
Rental Income
Rental income from a property classified as a second home is not acceptable.
? It is not subject to any rental pools or agreements that require the borrower to rent the property, or
? A management company or entity does not have control over the occupancy of the property, or
? It does not involve revenue sharing between any owners and the developer or another party, and
? All second home requirements are met.
Occupancy/Second Home ? LPA
Old Requirement
New Requirement The property must be suitable for year-round occupancy, with the following exception:
The property must be suitable for year-round occupancy.
? A second home with seasonal limitations on year-round occupancy is eligible if the appraiser includes at least one comparable sale with similar seasonal limitations to document the marketability of the subject property.
FHA Products
Down Payment Assistance and Governmental Entities
On April 25, 2019, FHA published Mortgagee Letter 19-07, which delays the implementation of Mortgagee Letter 19-06. The requirements outlined in Bulletin #2019-09 will now be effective for FHA loans:
? With case numbers assigned on and after July 23, 2019, and ? In which a government entity is involved in providing any part of the borrower's minimum required investment
(MRI).
Phone: 866-326-2677
correspondent.
Bulletin #2019-10
For FAMC Correspondent Customers Only
Page 2 of 5
CORRESPONDENT LENDING
Handbook 4000.1 Technical Revisions
Lenders must apply the following revisions, shown in bold, to align with FHA requirements as announced in FHA INFO #19-09:
Topic
Number of FHA Loans Per Borrower: Non-Occupying Co-Borrower
Secondary Financing Documentation Requirements
Energy Efficient Mortgage (EEM) Program
Revision (bold) ? A non-occupying co-borrower on an existing FHA-insured mortgage may qualify for
an FHA-insured mortgage on a new property to be their own principal residence, or ? A borrower with an existing FHA-insured mortgage as their principal residence
may qualify as a non-occupying co-borrower on another FHA mortgage.
Revised references to "copies of loans instruments" to "copies of mortgage and note."
? Energy Package: The EEM package may include the cost of an EEM facilitator (project manager).
? Cost Effective Test: The requirements of the 2006 International Energy Conservation Code was revised to the latest energy code standard adopted by HUD through a Federal Register notice.
Tip Income
Tip income must be averaged over the previous two years to calculate effective income. If it has decreased by 20% or more from the previous year, then the current year's income must be used.
If the gift funds are in the borrower's account, obtain:
? A copy of the withdrawal document showing that the withdrawal is from the donor's account, and
? Proof of the deposit and/or bank statement showing the deposit, and ? Donor's bank statement reflecting the withdrawal is required.
Gift Transfer Documentation
If the gift funds are provided at closing in the form of a cashier's check, money order, official check, or other type of bank check, obtain:
? Withdrawal document or cancelled check for the amount of the gift, showing that the funds came from the donor's personal account, and
? Donor's bank statement reflecting the withdrawal from the donor's account is required and must support the donor had sufficient funds for the amount of the gift.
Interested Party Contributions: Inducements to Purchase
Acceptable Compensating Factors (Manual) Leasehold Estates
If the gift funds are provided at closing and in the form of an electronic wire transfer, obtain: ? Copy of incoming wire evidencing deposit into settlement agent's account on or before the day of closing and identifying the gifting entity as listed in the underwriting conditions, and ? Donor's bank statement reflecting the withdrawal of the gift funds is required and must support the donor had sufficient funds for the amount of the gift.
Interested parties may contribute up to 6% of the sales price toward the borrower's origination fees, other closing costs, prepaid items, and discount points.
Contributions exceeding the origination fee, other closing costs, prepaid items, and discount points are considered inducements to purchase.
Borrowers are eligible for stretch ratios when the property meets or exceeds the higher of: ? The latest energy code standard that has been adopted by HUD through a Federal Register notice, or ? The applicable International Energy Conservation Code (IECC) year used by the state or local building code.
Removed the following verbiage: "Sub Leasehold Estates are not eligible for FHA financing."
Phone: 866-326-2677
Bulletin #2019-10
For FAMC Correspondent Customers Only
correspondent.
Page 3 of 5
CORRESPONDENT LENDING
Topic Repair/Completion Inspections
New Construction ? Existing Less Than 1-Year Old
Revision (bold) Compliance Inspection Report (HUD-92051)
For new construction, the inspection report must be completed by one of the following International Code Council (ICC) inspectors:
? Residential Combination Inspector (RCI) ? Combination Inspector (CI) For LTV greater than 90%, obtain the following:
? Building permit and Certificate of Occupancy (or equivalent) by the local authority, or ? Final Inspection (HUD-92051) by a licensed/certified inspector that meets all HUD
requirements (appraiser may not perform the final inspection) and ? An appraisal evidencing 100% completion.
Plus, meet all of the applicable termite, health authority approval, builder certification, and 1-year warranty requirements.
For LTV less than or equal to 90%, obtain the following:
? 100% complete appraisal (with no repair or correction conditions noted by the appraiser), or ? Final Inspection (HUD-92051) that meets all HUD requirements
Plus, meet all of the applicable termite, health authority approval, and builder certification requirements. For LTV greater than 90%, obtain the following:
? Building permit and Certificate of Occupancy (or equivalent) by the local authority, or ? Final Inspection (HUD-92051) by a licensed/certified inspector or the local authority with
jurisdiction over the property that meets all HUD requirements (appraiser may not perform the final inspection).
New Construction ? Plus, meet all of the applicable termite, health authority approval, builder certification, and 1-year Under Construction warranty requirements.
For LTV less than or equal to 90%, obtain the following:
? Building permit and Certificate of Occupancy (or equivalent) by the local authority, or ? Final Inspection (HUD-92051) that meets all HUD requirements.
New Construction ? Proposed Construction
Plus, meet all of the applicable termite, health authority approval, and builder certification requirements. For LTV greater than 90%, obtain the following:
? Building permit and Certificate of Occupancy (or equivalent) by the local authority, ? Early Start Letter or HUD-92800.5B issued prior to the beginning of construction and
o 3 inspections completed by a licensed/certified inspector on Form HUD-92051 that meets all HUD requirements, or
o 3 inspections completed by the local authority with jurisdiction over the property.
Plus, meet all of the applicable termite, health authority approval, builder certification, and 1-year warranty requirements.
For LTV less than or equal to 90%, obtain the following:
? Building permit and Certificate of Occupancy (or equivalent) by the local authority ? Final Inspection (HUD-92051) by a licensed/certified inspector that meets all HUD requirements
(appraiser may not perform the final inspection)
Plus, meet all of the applicable termite, health authority approval, and builder certification requirements.
Phone: 866-326-2677
Bulletin #2019-10
For FAMC Correspondent Customers Only
correspondent.
Page 4 of 5
CORRESPONDENT LENDING
Construction-to-Permanent (One-time Close)
Old Requirement The age of documentation is measured from the date of the loan modification.
New Requirement Follow standard FHA policy for age of documentation.
Conventional Products Texas 50(a)(6)
The Urban and Rural Homestead table was removed as the acreage limitations are not applicable to the guidelines.
FHA Products Desktop Underwriter for Government Loans Release Notes ? April Release
DU for government loans was updated during the weekend of April 20, 2019 to support FHA Third Party Verification updates and included an additional message update to better align with FHA policy. Refer to the Release Notes for complete information.
Thank you for your business!
Information contained within this document is considered proprietary non-public information and is provided for internal use only to approved customers of Franklin American Mortgage Company, a division of Citizens Bank, N.A., a national banking association. It is accurate as of the date of publication and may be superseded by future publications. If you have any questions regarding any of the information contained herein, contact your Regional Sales Associate and refer to the website for additional information. Distribution of this document or communication of any of the information contained herein to third parties without the prior written consent of Franklin American Mortgage Company is strictly prohibited.
Phone: 866-326-2677
correspondent.
Bulletin #2019-10
For FAMC Correspondent Customers Only
Page 5 of 5
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