Selling Guide

Published August 29, 2017

  • Selling Guide: Main Page
    • Part B: Origination Through Closing
      • B5: Unique Eligibility and Underwriting Considerations
        • B5-5: Community Seconds, Community Land Trusts, DU Refi Plus and Refi Plus, and Loans with Resale Restrictions
          • B5-5.2: DU Refi Plus and Refi Plus Mortgage Loans
            • B5-5.2-02: DU Refi Plus and Refi Plus Underwriting Considerations (07/25/2017)

Borrower Benefit Requirement

By selling a DU Refi Plus or Refi Plus mortgage loan to Fannie Mae, the lender represents and warrants that the borrower is receiving a benefit in the form of at least one of the following:

  • a reduced monthly mortgage principal and interest payment,

  • a more stable mortgage product,

  • a reduction in the interest rate, or

  • a reduction in the amortization term.

The following table provides scenarios that meet the borrower benefit provision:

The borrower benefit provision is met if...
The amortization term is extended (for example, from 15 to 30 years) resulting in a reduction in the principal and interest payment.

Note: An extension of the amortization term is not considered movement to a more stable product.

The mortgage loan type changes from a fixed-rate to an ARM provided there is a reduction in the principal and interest payment.

Note: Movement from a fixed-rate mortgage to an ARM is not considered a movement to a more stable mortgage product. Lenders are encouraged to provide fixed-rate mortgages to borrowers whenever possible. Fixed-rate mortgages are required if the LTV ratio exceeds 105%.

The principal and interest payment is staying the same or increasing provided the borrower is moving to a shorter term mortgage or more stable mortgage product.

Note: DU does not make the determination that the DU Refi Plus transaction will benefit the borrower. The lender must determine this outside of DU.

Underwriting and Documentation Requirements — DU Refi Plus

The following table provides underwriting and documentation requirements applicable to DU Refi Plus mortgage loans:

Underwriting and Documentation Requirements — DU Refi Plus
Type of Underwriting

Mortgage loans originated under DU Refi Plus must be underwritten through DU, and are not eligible for underwriting through any other automated underwriting system.

When a loan is delivered as a DU Refi Plus loan, the DU Refi Plus message must be issued on the final submission to DU.

In addition, the DU Underwriting Findings report will clearly indicate that the recommendation received was for DU Refi Plus.

A DU Refi Plus loan may be re-underwritten manually and delivered as a Refi Plus loan. See Converting DU Refi Plus to Refi Plus below.
Loan Application A new executed Form 1003 or Form 1003(S) is required from the borrower(s) with all information completed including borrower income, employment, and assets.
Accurate Property Addresses An accurate property address is critical to determining if the subject property address on the loan casefile matches a subject property address for an existing Fannie Mae loan. Incomplete or inaccurate property address data may prevent a loan casefile from being underwritten according to the DU Refi Plus underwriting flexibilities.
If DU is unable to match the subject property address on the loan casefile with an existing eligible Fannie Mae loan, the DU Underwriting Findings report will issue one or more messages, and the loan casefile will be underwritten according to the standard DU eligibility guidelines and documentation requirements. See Converting DU Refi Plus to Refi Plus below.
DU Risk Assessment

DU performs its standard credit risk assessment for DU Refi Plus loans, which includes a comprehensive review of the borrower's credit and mortgage payment history.

Payment History of the Existing Mortgage The borrower must meet DU's mortgage delinquency policy. See B3-5.3-09, DU Credit Report Analysis.
Credit Score and Credit Report Requirements

A new merged credit report with the borrower's credit score is required.

No minimum credit score is required to establish eligibility. The representative credit score will be used for pricing purposes.

Higher-Priced Loan Requirements

Because DU is unable to determine if a DU Refi Plus loan casefile is either a higher-priced mortgage loan or a higher-priced covered transaction under Regulation Z, the lender must make this determination. If the lender does determine that the loan casefile is either a higher-priced mortgage loan or a higher-priced covered transaction, the loan casefile must have a representative credit score of 620 or more and a debt-to-income ratio of 50% or less in order to be eligible for delivery to Fannie Mae.

Lenders are not relieved of complying with Regulation Z by only adhering to the stricter representative credit score and debt-to-income ratio. The mortgage loan must comply in all respects with Regulation Z requirements for higher-priced mortgage loans and higher-priced covered transactions, including the underwriting and consumer protection requirements.

Significant Derogatory Credit Events

Lenders are not required to comply with the waiting period and re-establishment of credit requirements for significant derogatory credit events for DU Refi Plus loans. DU will issue a message when a significant derogatory credit event is identified that indicates the loan is eligible for delivery regardless of when the event occurred. DU will not require the payoff or satisfaction of a judgment shown on the credit report.

In addition, DU will not require Form 1003 (or 1003 (S)) VIII, Declarations a through f to be reviewed or DU will not consider them in the underwriting evaluation.

Mortgage Modifications A borrower who has applied for or received a loan modification is eligible to refinance under DU Refi Plus. Note the following:
  • The borrower benefit provision (described above) must be met. The terms of the modified loan (trial or permanent) must be used for this comparison. If the borrower was previously in a trial period plan, but denied a permanent modification, the current terms of the loan must be used for this purpose.

  • The borrower must meet DU's mortgage delinquency policy.

DTI Ratio DU Refi Plus loan casefiles are subject to the maximum allowable debt-to-income ratio (DTI) currently applied to DU Refi Plus loan casefiles. DU Refi Plus loan casefiles that exceed the maximum allowable debt-to-income ratio will receive an Ineligible recommendation.
Verification of Income

Income must be verified in accordance with the Income Documentation Requirements table below. Lenders are not required to verify or assess the borrower’s history or receipt of income or the anticipated continuity of the income.

Verification of Assets

The amount of assets (which may include reserves) must be verified to the extent that the DU Underwriting Findings report requires such verification.

Assets must be verified in accordance with the Asset Documentation Requirements table below. Lenders are not required to investigate large deposits that appear on account statements. Proof of liquidation of assets is not required even if those assets are used by the borrower to pay closing costs. Furthermore, Fannie Mae's standard policy regarding “discounting” of certain assets applies if the assets are required to satisfy DU reserve requirements.

Multiple Financed Properties for the Same Borrower There are no limits on the number of financed properties the borrower may own. The additional eligibility requirements for borrowers with multiple financed properties in B2-2-03, Multiple Financed Properties for the Same Borrower, do not apply. Special Feature Code 150 must not be delivered even if the Refi Plus mortgage loan otherwise meets the requirements of SFC 150.
Property Listing Requirements The lender does not need to confirm the subject property is not currently listed for sale.
Request for Transcript of Tax Return (IRS Form 4506–T)

Each borrower must complete and sign a separate IRS Form 4506–T at or before closing.

See B3-3.1-06, Requirements and Uses of IRS Request for Transcript of Tax Return Form 4506-T, for additional information.

Mortgage Note, Security Instrument

A new mortgage note, security instrument, and applicable riders and addenda are required.

Except as otherwise expressly provided under DU Refi Plus described herein, all other loan documentation requirements contained in this Selling Guide applicable to newly-originated mortgages apply.

Underwriting and Documentation Requirements — Refi Plus

The following table provides underwriting and documentation requirements applicable to Refi Plus mortgage loans. Note that some of the requirements vary based on whether the borrower's principal and interest payment is changing from the current contractually obligated payment under the note.

  • Payment change less than or equal to 20%: The borrower's principal and interest payment is either decreasing, staying the same, or increasing by less than 20%; or

  • Payment increase greater than 20%: The borrower's principal and interest payment is increasing by more than 20%.

Underwriting and Documentation Requirements — Refi Plus
Type of Underwriting

All new mortgage loans originated under Refi Plus must be manually underwritten.

A DU Refi Plus loan casefile may be converted to a manually underwritten Refi Plus mortgage loan. See Converting DU Refi Plus to Refi Plus below.
Loan Application A new executed Form 1003 or Form 1003(S) is required from the borrower(s) with all information completed including borrower income, employment, and assets.
Payment History of the Existing Mortgage The existing mortgage must be current.
The lender must determine that the borrower has not had any 30–day mortgage delinquencies on the existing mortgage in the most recent six-month period, and no more than one 30–day delinquency in months 7–12.
The loan file for the new mortgage must contain documented proof from the lender's servicing system (printed after the date of the borrower's new mortgage application and prior to the date of the new mortgage note) that evidences the payment history requirements have been met for the required 12–month period.
Credit Score and Credit Report Requirements

Payment change ≤ 20%: no minimum credit score required. Lenders do not need to obtain a new merged credit report, but must obtain the representative credit score for pricing purposes.

Payment increase > 20%: minimum representative credit score of 620. A new merged credit report with credit scores is required. The representative credit score will be used for pricing purposes and to determine eligibility.

Higher-Priced Loan Requirements

If the lender does determine that under Regulation Z the loan is either a higher-priced mortgage loan or a higher-priced covered transaction, the loan must have a representative credit score of 620 or more and a debt-to-income ratio of 45% or less in order to be eligible for delivery to Fannie Mae.

Lenders are not relieved of complying with Regulation Z by only adhering to the stricter representative credit score and debt-to-income ratio. The mortgage loan must comply in all respects with Regulation Z requirements for higher-priced mortgage loans and higher-priced covered transactions, including the underwriting and consumer protection requirements.

Significant Derogatory Credit Events

Lenders are not required to comply with the waiting period and re-establishment of credit requirements for significant derogatory credit events for Refi Plus loans or the payoff or satisfaction of a judgment identified on the credit report.

In addition, Form 1003 or (1003(S)) VIII, Declarations a through f are not required to be reviewed or considered in the underwriting evaluation.

Mortgage Modifications A borrower who has applied for or received a loan modification is eligible to refinance under Refi Plus. Note the following:
  • The borrower benefit provision (described above) must be met. The terms of the modified loan (trial or permanent) must be used for this comparison. If the borrower was previously in a trial period plan, but denied a permanent modification, the current terms of the loan must be used for this purpose.

  • The borrower must meet the mortgage payment history requirements for Refi Plus measured by either contractual or modified payments, as applicable.

DTI Ratio

Payment change ≤ 20%: lenders are not required to calculate a DTI ratio.

Payment increase > 20%: maximum DTI ratio of 45%.

Verification of Income or Reserve Alternative

Payment change ≤ 20%: the lender must verify one source of income or use the reserve alternative option.

Income source: at least one borrower must have a source of income from an eligible source, per the “Eligible Income Sources” listed in the Income Documentation Requirements table below. Verification of the borrower's employment or self-employment can be completed with a verbal VOE, or an other (non-employment) income source must be documented (at the lender's discretion). Verification of the amount of income, history of receipt, or anticipated continuity of the income are not required.

Reserve alternative: Verification of liquid financial reserves equal to 12 months of the new mortgage payment (PITIA) on the subject property. These reserves must be documented with at least one recent statement (monthly, quarterly, or annual) and are limited to the following types of liquid assets:

  • checking or savings accounts, certificates of deposits, and money market funds;

  • investments in stocks, bonds, mutual funds; and

  • the amount vested in a retirement savings account (that is available to the borrower).

Lenders are not required to investigate large deposits that appear on the statements. However, certain assets must be “discounted” when used for reserves. Refer to the applicable asset type in Chapter B3–4, Asset Assessment, for additional information.

Payment increase > 20%: verification of all income sources and amounts in accordance with the Income Documentation Requirements table below. Lenders are not required to verify or assess the borrower's history or receipt of income or the anticipated continuity of the income.

Verification of Assets

Payment change ≤ 20%: verification of assets required to close is not required. The only assets that must be verified are those required to satisfy the reserve alternative option (described above).

Payment increase > 20%: verification of assets to close if the borrower is required to bring funds to closing. The assets must be verified in accordance with the Asset Documentation Requirements table below. Lenders are not required to investigate large deposits that appear on account statements. Proof of liquidation of assets is not required even if those assets are used by the borrower to pay closing costs.

Multiple Financed Properties for the Same Borrower There are no limits on the number of financed properties the borrower may own. The additional eligibility requirements for borrowers with multiple financed properties in B2-2-03, Multiple Financed Properties for the Same Borrower, do not apply. Special Feature Code 150 must not be delivered even if the Refi Plus mortgage loan otherwise meets the requirements of SFC 150.
Property Listing Requirements The lender does not need to confirm the subject property is not currently listed for sale.
Request for Transcript of Tax Return (IRS Form 4506–T)

Payment change ≤ 20%: borrowers are not required to complete and sign an IRS Form 4506–T.

Payment change > 20%: each borrower (regardless of income source) must complete and sign a separate IRS Form 4506–T at or before closing.

See B3-3.1-06, Requirements and Uses of IRS Request for Transcript of Tax Return Form 4506-T, for additional information.

Mortgage Note, Security Instrument

A new mortgage note, security instrument, and applicable riders and addenda are required.

Except as otherwise expressly provided under DU Refi Plus described herein, all other loan documentation requirements contained in this Selling Guide applicable to newly-originated mortgages apply.

Income Documentation Requirements

All DU Refi Plus Loans, Refi Plus Loans with Payment Increases > 20%, and Refi Plus Higher-Priced Loans

Income Type/Eligible Income Sources Documentation Requirement
All Employment Income

Verbal verification of employment

See B3-3.1-07, Verbal Verification of Employment, for additional requirements.

Base Pay (salary or hourly)

Bonus and Overtime Income

One paystub

Applies to primary employment, secondary employment (second job and multiple jobs), and seasonal income.

Commission Income

One paystub or one year personal tax return.

Applies without regard to the percentage of commission earnings.

Self-Employment

One year personal tax return

Applies to primary and secondary self-employment.

Alimony or Child Support Copy of divorce decree, separation agreement, court order or equivalent documentation, and one month documentation of receipt.
Employment-Related Assets as Qualifying Income Lender must obtain standard documentation for this type of income as described in B3-3.1-09, Other Sources of Income. The maximum LTV, CLTV, HCLTV ratio and minimum credit score requirements are not applicable to DU Refi Plus or Refi Plus transactions.
Rental Income

Lease or one year personal tax return (Form 1007 is not required).

Applies to rental income from subject property or from other properties owned by the borrower.

Retirement and Pension One of the following: award letter, one year personal tax return, W-2 or 1099 form, or one month bank statement reflecting direct deposit.
Social Security One of the following: award letter, one year personal tax return, Form SSA-1099, or one month bank statement reflecting direct deposit.
Temporary Leave Income

Lender must receive:

  • the borrower’s written confirmation of his or her intent to return to work, and

  • no evidence or information from the borrower's employer indicating that the borrower does not have the right to return to work after the leave period.

Regardless of the date of return, the amount of the “regular employment income” the borrower received prior to the temporary leave must be used to qualify.

All Other Income Types

  • Automobile Allowance

  • Boarder Income

  • Capital Gains Income

  • Disability Income – Long-Term

  • Foreign Income

  • Foster-Care Income

  • Interest and Dividends Income

  • Mortgage Credit Certificates

  • Mortgage Differential Payments Income

  • Notes Receivable Income

  • Public Assistance Income

  • Royalty Payment Income

  • Tip Income

  • Trust Income

  • Unemployment Benefits (seasonal or non-seasonal in nature)

  • VA Benefits Income

Lender must determine appropriate documentation.

Examples include (but are not limited to): an award letter or equivalent documentation or agreement, one paystub or equivalent documentation, one year personal tax return, IRS 1099 Form, or one month bank statement reflecting direct deposit.

Note: The income types/eligible sources of income shown in the table above also apply to Refi Plus mortgage loans with payment changes less than or equal to 20% where the borrower is documenting a source of income.

Asset Documentation Requirements

DU Refi Plus Loans and Refi Plus Loans with Payment Increases > 20%

Asset Type Documentation Requirement
  • Checking Accounts

  • Savings Accounts

  • Certificates of Deposit

  • Money Mark Accounts

  • Stocks, Bonds, Mutual Funds

  • Retirement Accounts

  • Trust Accounts

  • Secured Borrowed Funds

  • Donations from Entities (Hardest Hit Fund)

  • Gifts

One recent statement (monthly, quarterly, or annual) showing asset balance

Converting DU Refi Plus to Refi Plus

A lender may convert a DU loan casefile to a manually underwritten Refi Plus mortgage loan after submission to DU provided that the mortgage loan meets all Refi Plus requirements, including the requirement that the lender be the current servicer of the existing mortgage loan. Originations by a different servicer or third party are not permitted. In addition, if the existing mortgage loan is subject to full recourse, the lender must comply with the requirements for new recourse applicable to Refi Plus mortgage loans. Lenders must follow all other requirements for Refi Plus as described here and in B5-5.2-01, DU Refi Plus and Refi Plus Eligibility, B5-5.2-03, DU Refi Plus and Refi Plus Property Valuation and Project Standards, and B5-5.2-04, DU Refi Plus and Refi Plus Closing, Pricing, and Delivery. Special Feature Code 288 is required at delivery.

DU Refi Plus-Eligible — Opting to Underwrite as Standard Limited Cash-Out Refinances

Lenders may instruct DU to underwrite a DU Refi Plus-eligible loan casefile as a standard limited cash-out refinance by entering the phrase “Standard LCOR” in the Product Description field prior to underwriting.

Loan casefiles with no value entered in the Product Description field, or a value entered other than “Standard LCOR,” will be underwritten as a DU Refi Plus if the loan is matched to an existing eligible Fannie Mae loan and the loan meets the eligibility criteria required for a DU Refi Plus transaction.

Mortgage Insurance Requirements

For DU Refi Plus and Refi Plus new refinance transactions with LTV ratios exceeding 80%, mortgage insurance may or may not be required depending on the current mortgage insurance coverage on the existing loan. New refinance transactions with an LTV ratio less than 80% do not require mortgage insurance. The following additional mortgage insurance requirements apply:

Original LTV of Existing Loan MI In Force on Existing Loan? Refi Plus:

MI Required for New Refinance Loan?

DU Refi Plus

MI Required for New Refinance Loan?

≤ 80% No No No
> 80%

No

Mortgage Insurance previously canceled or terminated per Selling Guide and Servicing Guide requirements.

No

DU will require the lender to determine that the existing loan does not have mortgage insurance.

If the lender determines the existing loan

  • does not have mortgage insurance, no mortgage insurance is required.

  • has mortgage insurance, the lender may either obtain the existing amount of mortgage insurance coverage in effect on the loan or obtain standard mortgage insurance.

> 80% Yes

Yes

Lenders may either obtain the level of mortgage insurance coverage in force on the existing mortgage loan or the standard mortgage insurance coverage required in accordance with the provisions in Mortgage Insurance/Loan Guaranty Overview.

Lenders are encouraged to use their best efforts to obtain mortgage insurance coverage that provides the lowest cost option available to the borrower. Lenders are required to fully comply with all requirements of the mortgage insurance provider regardless of those established by Fannie Mae.

For DU Refi Plus, if mortgage insurance is currently in effect on the existing Fannie Mae loan, the lender must confirm the amount of mortgage insurance coverage in effect prior to

  • obtaining new mortgage insurance at that specified level of coverage, or

  • modifying the existing mortgage insurance certificate.

Lender-Purchased Mortgage Insurance

New lender-purchased mortgage insurance coverage may be obtained on new DU Refi Plus and Refi Plus mortgage loans, and continuation of existing lender-purchased mortgage insurance coverage on the new loan is also permitted.

Financed Mortgage Insurance

Existing loans with financed mortgage insurance are eligible for DU Refi Plus and Refi Plus. There should be no difference in how coverage is continued on the refinance of such loans versus existing loans that do not have financed mortgage insurance. The existing coverage can be continued on the new loan regardless of whether the financed premium on the existing loan was paid as a single premium or a split premium. Lenders should check with the mortgage insurer for specific requirements.

Mortgage Insurance Coverage Terms

For DU Refi Plus and Refi Plus, mortgage insurance coverage must extend for the life of the new loan, or until cancellation or termination of coverage as required by law or Fannie Mae guidelines, whether the mortgage insurance company modifies the existing mortgage insurance certificate or issues a new one. For example, even if a 15-year loan that is 3 years old is refinanced into a 30-year loan, the mortgage insurance coverage should be extended for the full life of the new loan. See Mortgage Insurance/Loan Guaranty Overview.

Transfer of the Mortgage Insurance Certificate and Existing Mortgage Insurance Coverage

Fannie Mae does not object to a mortgage insurance company charging a reasonable fee to transfer the certificate, and will allow such cost to be rolled into the unpaid balance of the new loan as a closing cost as long as the loan will still comply with Fannie Mae's and the mortgage insurance company's guidelines.

Lenders must work closely with their mortgage insurance providers to either continue existing coverage or obtain new coverage on new DU Refi Plus and Refi Plus mortgage loans and not allow erroneous cancellation of coverage when existing loans pay off. The lender that originates the refinance will be held responsible if the mortgage insurance coverage on the existing loan is not successfully continued on the new loan, either by modification of the existing mortgage insurance certificate or by issuance of a new mortgage insurance certificate.

Expiration of Mortgage Insurance Flexibilities

All of the mortgage insurance flexibilities available for DU Refi Plus and Refi Plus apply only to mortgage loans with application dates on or before September 30, 2017, and whole loans that are purchased by Fannie Mae no later than June 30, 2018, or in an MBS pool with an issue date no later than June 1, 2018.

Related Announcements

The table below provides references to the Announcements and Release Notes that have been issued that are related to this topic.

Announcements and Release Notes Issue Date
Announcement SEL-2017-06 July 25, 2017
Announcement SEL-2016–08 October 24, 2016
Announcement SEL-2015–10 September 29, 2015
Announcement SEL-2015–06 May 26, 2015
Announcement SEL-2015–01 January 27, 2015
Announcement SEL-2014–06 May 27, 2014
Announcement SEL-2014–03 April 15, 2014
Announcement SEL-2013–07 September 24, 2013
Announcement SEL-2013–06 August 20, 2013
Announcement SEL-2013–05 July 30, 2013
Announcement SEL-2012–14 December 18, 2012
Announcement SEL-2012–10 October 2, 2012
Announcement SEL-2012–04 May 15, 2012
Announcement SEL-2011–13 December 20, 2011
Announcement SEL-2011–12 November 15, 2011
Announcement SEL-2011–06 July 26, 2011
Announcement SEL-2011–03 March 31, 2011
Announcement SEL-2010–16 December 1, 2010
Announcement SEL-2010–06 April 30, 2010
Announcement SEL-2010–04 March 29, 2010
DU Version 8.0 April Update February 26, 2010
Announcement 09–37 December 30, 2009
Announcement 09-32 October 30, 2009
Announcement 09-26 July 24, 2009
DU 7.1 September Update July 24, 2009
Announcement 09-23 July 1, 2009
Announcement 09-20 June 25, 2009
DU 7.1 June Update June 5, 2009
Announcement 09-13 May 11, 2009
DU 7.1 May Update April 20, 2009
Announcement 09-04 March 4, 2009
DU 7.1 April Update March 4, 2009