Selling Guide

Published October 2, 2019

B5-7-02: High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan (08/07/2018)

This topic contains information about underwriting requirements for the high LTV refinance option, including:

  • Underwriting Methods

  • Underwriting Requirements

  • Employment, Income, and Asset Verification

  • Valuation Requirements

Underwriting Methods

Except for loans subject to the Alternative Qualification Path (which must be manually underwritten), high LTV refinance loans may be underwritten using DU or manually. See B5-7-03, High LTV Refinance Alternative Qualification Path.

Loans Underwritten in DU

When a limited cash-out refinance loan casefile that meets the minimum LTV requirement for a high LTV refinance loan is underwritten in DU, internal data will be used to determine if Fannie Mae owns the loan on the property, and if that loan is eligible to be refinanced using the high LTV refinance option.

When DU finds a loan for the subject property address using either the address provided on the DU loan application or the standardized address, DU will then confirm that the Social Security number(s) for the borrower(s) on the new loan casefile match those on the existing loan. The result of the Social Security number matching will be specified in a DU message.

When none of the borrower Social Security numbers match, the loan casefile will not be underwritten as a high LTV refinance loan. DU will issue a message informing the lender that the Social Security number(s) does not match and remind the lender to confirm the property address.

When there is a Social Security number match, DU will underwrite the loan casefile as a high LTV refinance loan. If the Social Security number for any of the borrowers on the loan casefile do not match using all nine digits, DU will advise the lender.

  • When a borrower Social Security number is matched using 7 or 8 digits of the 9-digit Social Security number, the DU message will specify that the Social Security numbers are one or two digits different and will require the lender to confirm the borrowers on the existing loan are the same borrowers that will be on the new loan.

  • When there are two borrowers on the new loan and two borrowers on the existing loan, but only one borrower’s Social Security number matches, the DU message will specify that not all of the borrower Social Security numbers match and will require that the lender confirm the borrowers on the existing loan are the same borrowers that will be on the new loan.

  • When one borrower is on the new loan casefile but more than one borrower is on the existing loan, the DU message will state that it appears that a borrower is being removed with transaction and refer the lender to the Selling Guide for additional requirements on removing a borrower with a high LTV refinance transaction.

  • When there is more than one borrower on the new loan casefile but there is only one on the existing loan, the DU message will state that it appears that a borrower is being added with the high LTV refinance transaction, and if that is the case, the high LTV refinance loan is not eligible for delivery.

Manually Underwritten Loans

The lender must determine that all eligibility requirements are met for manually underwritten loans.

Underwriting Requirements

The following table provides underwriting and documentation requirements applicable to high LTV refinance loans.

Underwriting and Documentation Requirements
Payment History To be eligible for the high LTV refinance option, the payment history for the existing loan for the most recent 12 months must reflect
  • no delinquencies in the most recent 6 months, and

  • in months 7-12, no more than one, 30-day delinquency and no delinquency greater than 30 days.

DTI Ratio There are no maximum DTI ratio requirements except for loans underwritten under the Alternative Qualification Path.
Credit Score There is no minimum credit score requirement except for loans underwritten under the Alternative Qualification Path.

Lenders must obtain and review a merged credit report in accordance with standard Selling Guide policies for payment history and pricing purposes. However, lenders are not required to comply with the waiting period and re-establishment of credit requirements for significant derogatory credit events or the payoff or satisfaction of a judgment identified on the credit report. Also, lenders are not required to review or consider Form 1003 (or 1003(S)) VIII, Declarations (a through f) in the underwriting evaluation.

Property Status The lender does not need to confirm the subject property is not currently listed for sale.
Request for Transcript of Tax Return 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.
Higher-Priced Loan Requirements If the loan is a higher-priced mortgage loan or a higher-priced covered transaction under Regulation Z, the loan must comply with the Alternative Qualification Path requirements. DU is unable to determine if a loan casefile is a higher-priced mortgage loan or a higher-priced covered transaction under Regulation Z. The lender must make this determination. Lenders are not relieved of complying with Regulation Z by only adhering to the stricter representative credit score and DTI ratio. The loan must comply in all respects with Regulation Z requirements for such loans, including the underwriting and consumer protection requirements.

Employment, Income, and Asset Verification

The lender must obtain one of the following for the new loan:

  • a verbal verification of employment for employment or self-employment income for at least one borrower,

  • documentation of a non-employment income source, or

  • documentation of liquid financial reserves equal to 12 months of the new monthly housing payment.

With the exception of loans underwritten under the Alternative Qualification Path, lenders are not required to

  • assess continuity of income,

  • verify income,

  • verify assets, or

  • calculate the DTI ratio.

Valuation Requirements

For certain loan casefiles, DU will offer an appraisal waiver - an option to deliver the loan to Fannie Mae without an appraisal. Otherwise, an appraisal with an interior and exterior inspection is required. If an appraisal is obtained, it must be used for valuation even if a waiver is offered by DU.

A lender may only exercise the high LTV refinance appraisal waiver if

  • the final submission of the loan casefile to DU resulted in an appraisal waiver offer,

  • an appraisal is not obtained for the transaction, and

  • the appraisal waiver offer is not more than four months old on the date of the note and the mortgage.

Lenders exercising the high LTV refinance appraisal waiver must deliver Special Feature Code 807.

When the lender is required by law to obtain an appraisal, the lender must comply with such requirements, but may still exercise the appraisal waiver.

For manually underwritten loans, an appraisal with an interior and exterior inspection is required.

Repairs to a property damaged as the result of a disaster (as defined by this Selling Guide) are not required prior to delivery as long as the loan meets the applicable property insurance requirements. The lender is not required to perform an additional inspection and/or new appraisal of the property after a disaster.

Related Announcements

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

Announcements Issue Date
Announcement SEL-2018-06 August 07, 2018