Calculating the Borrower’s Current Monthly Debt-to-Income Ratio When the Mortgage Loan is Current or Less than 31 Days Delinquent

The servicer must evaluate the borrower for a Fannie Mae Short Sale in accordance with Evaluating a Borrower Whose Mortgage Loan Is Current or Less Than 31 Days Delinquent in D2-3.3-01, Fannie Mae Short Sale.

To calculate the borrower’s current monthly debt-to-income ratio, which is the ratio of the borrower's current monthly expenses divided by the borrower's current monthly income, the servicer must take the actions listed in the following table.

When calculating the borrower’s current monthly debt-to-income ratio, the servicer must...

Obtain a credit report for each borrower or a joint credit report for a married couple who are co-borrowers to

  • verify and validate monthly installment debt, other liens and other qualifying expenses; and

  • review for new credit lines or liens obtained during the term of the hardship. If there are new credit lines or liens, other than for an allowed new mortgage loan (see Evaluating the Credit Report for New Mortgage Loans Obtained in D2-3.3-01, Fannie Mae Short Sale), which cause the borrower’s total monthly debt ratio to go above 55%, the servicer must use good business judgment to determine if those expenses are reasonable and should be included in the qualifying expenses.

Determine the borrower's monthly gross income based on income documentation provided by the borrower.

Qualifying expenses equal the sum of the monthly charges described in the following table, as applicable.

Type of Monthly Expense Additional Information

The current monthly mortgage loan payment

The servicer must include any MIPs, taxes, property insurance, HOA or condo association fee payments, and assessments related to the property (whether or not they are included in the current mortgage loan payment).

If T&I premiums are not known, the servicer must estimate the borrower’s monthly taxes and property insurance payments.

Monthly payments on all closed-end subordinate lien mortgage loans

The servicer must exclude the subordinate lien payments for the subject property.

Monthly payments on all installment debts with more than 10 months of payments remaining

This includes debts that are in a period of either deferment or forbearance.

When payments on an installment debt are listed as deferred, the servicer must obtain documentation to support the payment amount included in the monthly debt payment.

If no monthly payment is reported on a student loan that is deferred or is in forbearance, the servicer must obtain documentation verifying the proposed monthly payment amount, or use a minimum of 1.5% of the balance.

Monthly payments on revolving or open-end accounts, regardless of the balance

In the absence of a stated payment, the payment is calculated by multiplying the outstanding balance by 3%.

Monthly payments on an existing HELOC

This must be included using the minimum monthly payment reported on the credit report.

If the HELOC has a balance but no monthly payment is reported, the servicer must obtain documentation verifying the payment amount, or use a minimum of 1% of the balance.

Alimony, child support, and separate maintenance payments

Include if there are more than 10 months of payments remaining, and only if supplied by the borrower.

Car lease payments

Include regardless of the number of payments remaining.

Aggregate negative net rental income from all investment

None.

Monthly mortgage loan payment for a second home

Include PITI and, when applicable, MI, leasehold payments, HOA dues, and condo unit or co-op unit maintenance fees (excluding unit utility charges).

Monthly gross income is based on income documentation provided by the borrower (see Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package before any payroll deductions and equals the sum of the following items, as applicable:

  • wages and salaries, overtime pay, commissions, fees, tips, bonuses, housing allowances, or other compensation for personal services;

  • Social Security payments, including Social Security received by adults on behalf of minors or by minors intended for their own support;

  • monthly income from annuities, insurance policies, retirement funds, or pensions;

  • disability or death benefits;

  • positive net rental income; and

  • other income such as adoption assistance.

Note: The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to unemployment, such as severance payments, as part of the monthly gross income for mortgage loans being evaluated for a short sale.

Obtaining and Reviewing the Borrower’s Credit Score

The servicer must evaluate the borrower to determine if he or she qualifies for streamlined documentation in accordance with Determining if a Borrower Qualifies for Streamlined Documentation in D2-3.3-01, Fannie Mae Short Sale.

The classic FICO is produced from software developed by Fair Isaac Corporation and is available from the three major credit repositories. Fannie Mae approves the use of the following versions of the classic FICO score:

  • Equifax Beacon 5.0;

  • Experian/Fair Isaac Risk Model V2SM; and

  • TransUnion FICO Risk Score, Classic 04.

If the servicer obtains multiple credit scores for a single borrower, the servicer must select a representative credit score using the lower of two or the middle of three credit scores.

If there are multiple borrowers, the servicer must determine the representative score for each borrower and enter the lowest representative score as the credit score for the mortgage loan.

Evaluating the Borrower’s Ability to Make a Contribution

The servicer must evaluate the borrower for his or her ability to make a contribution in accordance with Evaluating a Borrower’s Ability to Make a Contribution in D2-3.3-01, Fannie Mae Short Sale. The servicer should seek to arrive at a mutually agreeable contribution amount in order to facilitate the short sale and is authorized to use its judgment in determining which option to use or to combine options.

Borrower Cash Contribution Test:

The servicer must evaluate a borrower for a cash contribution if the borrower’s cash reserves, including assets such as cash, savings, money market funds, marketable stocks or bonds (excluding retirement accounts), as stated on the Mortgage Assistance Application (Form 710) are in excess of the greater of

  • $10,000; or

  • six times the contractual monthly mortgage loan payment including PITI. If the servicer does not escrow for T&I, it must estimate the borrower’s monthly tax and insurance premium amounts.

If the borrower has non-retirement cash reserves greater than $50,000, the servicer must include the specific amount in its recommendation to Fannie Mae for review.

If the servicer determines that the borrower has the capacity to make a cash contribution, it must request a contribution of 20% of the borrower’s cash reserves, not to exceed the amount of the deficiency. The following table provides the servicer’s requirements when a borrower is either unwilling or unable to contribute 20% of their cash reserves depending upon the delinquency status of the mortgage loan.

If a borrower is either unwilling or unable to contribute 20% of their cash reserves and the mortgage loan is... Then the servicer...

current or less than 31 days delinquent

must request approval from Fannie Mae to accept less than a contribution of 20% of the borrower’s cash reserves.

Note: If the borrower’s hardship is death of the primary wage earner, the servicer is authorized to negotiate a cash contribution of less than 20% of the borrower’s cash reserves, but must document its explanation in the mortgage loan servicing file of the specific circumstances that limited the borrower’s ability to make a contribution of 20% of the borrower’s cash reserves.

greater than 30 days delinquent

is authorized to negotiate a lower contribution or agree that circumstances warrant no contribution.

Note: The fact that the borrower is unwilling to contribute the amount requested by the servicer is not a sufficient rationale for accepting a contribution amount lower than that requested by the servicer. If the borrower is not willing to make a contribution that the servicer deems the borrower can reasonably make, the servicer must submit its recommendation for the contribution amount to Fannie Mae for review.

When a cash contribution is required, the minimum amount is $500.

Promissory Note Test:

The servicer must evaluate a borrower for a promissory note if the borrower’s future debt-to-income ratio is less than 55%, calculated as described below.

If the servicer determines that the borrower has the capacity to make a promissory note contribution, the servicer must calculate the promissory note payment and promissory note balance to request from the borrower, which is described in the following table.

Step Steps to determine the promissory note terms
1

Calculate the monthly promissory note payment:

(55% - borrower’s future debt-to-income ratio)/2 X Gross Monthly Income

Note: The monthly promissory note payment must be rounded to the nearest dollar.

2

Determine the term of the promissory note:

The servicer is authorized to consider a 5- or 10-year term for the promissory note.

3

Calculate the promissory note balance:

Monthly promissory note payment X promissory note term.

Note: If the servicer determines that the promissory note balance will be less than $5,000, the servicer is not required to request a promissory note.

The promissory note must have a note rate of 0%. The resulting promissory note payment must be affordable and result in a future debt-to-income ratio of less than 55%.

The following table provides an example of how to calculate the promissory note terms.

Example: Determining the Promissory Note Terms

Calculate the monthly promissory note payment

(55% – 49%)/2 X $4,000 = $120

Calculate the promissory note balance

$120 X 60 months = $7,200

If the borrower is unable to contribute the initial amount requested, the servicer is authorized to negotiate a lower contribution or agree that circumstances warrant no contribution.

Note: The fact that the borrower is unwilling to contribute the amount requested by the servicer is not a sufficient rationale for accepting a contribution amount lower than that requested by the servicer. If the borrower is not willing to make a contribution that the servicer deems the borrower can reasonably make, the servicer must submit its recommendation for the contribution amount to Fannie Mae for review.

A Promissory Note Model Form (Form 190) is available on Fannie Mae's website. Use of Form 190 is optional; however, it reflects the minimum level of information that the servicer must include. If the servicer elects to use Form 190, it must revise it as necessary to comply with applicable law.

Calculating the Borrower’s Future Monthly Debt-to-Income Ratio to Evaluate the Borrower for a Promissory Note Contribution:

For the servicer to calculate the borrower’s future monthly debt-to-income ratio for purposes of evaluating the borrower for a promissory note contribution, the servicer must take the actions listed in the following table.

When calculating the borrower’s future monthly debt-to-income ratio for purposes of evaluating the borrower for a promissory note contribution, the servicer must...

Determine the borrower’s monthly debt and other qualifying expenses, including an actual or estimated future housing payment.

Obtain a credit report for each borrower or a joint credit report for a married couple who are co-borrowers to

  • verify and validate installment debt, other liens and other qualifying expenses; and

  • review for new credit lines or liens obtained during the term of the hardship. If there are new credit lines or liens, other than for an allowed new mortgage loan (see Evaluating the Credit Report for New Mortgage Loans Obtained in D2-3.3-01, Fannie Mae Short Sale), which cause the borrower’s total monthly debt ratio to go above 55%, the servicer must use good business judgment to determine if those expenses are reasonable and should be included in the qualifying expenses.

Determine the borrower's monthly gross income based on income documentation provided by the borrower.

Qualifying expenses equal the sum of the monthly charges described in the following table, as applicable.

Type of Monthly Expense Additional Information

The monthly actual future housing payment, if known

If unknown, the servicer must use 75% of the current monthly mortgage loan payment, including any MIPs, taxes, property insurance, HOA or condo association fee payments, and assessments related to the property (whether or not they are included in the current monthly payment).

If T&I premiums are not known, the servicer must estimate the borrower’s monthly taxes and property insurance payments.

Monthly payments on all closed-end subordinate lien mortgage loans

The servicer must exclude the subordinate lien payments for the subject property.

Monthly payments on all installment debts with more than 10 months of payments remaining

This includes debts that are in a period of either deferment or forbearance.

When payments on an installment debt are listed as deferred, the servicer must obtain documentation to support the payment amount included in the monthly debt payment.

If no monthly payment is reported on a student loan that is deferred or is in forbearance, the servicer must obtain documentation verifying the proposed monthly payment amount, or use a minimum of 1.5% of the balance.

Monthly payments on revolving or open-end accounts, regardless of the balance

In the absence of a stated payment, the payment is calculated by multiplying the outstanding balance by 3%.

Monthly payments on an existing HELOC

This must be included using the minimum monthly payment reported on the credit report.

If the HELOC has a balance but no monthly payment is reported, the servicer must obtain documentation verifying the payment amount, or use a minimum of 1% of the balance.

The servicer must exclude the monthly HELOC payment if the HELOC is a lien against the subject property.

Alimony, child support, and separate maintenance payments

Include if there are more than 10 months of payments remaining, and only if supplied by the borrower.

Car lease payments

Include regardless of the number of payments remaining.

Aggregate negative net rental income from all investment

Do not include negative net rental income if it is on the subject property.

Monthly mortgage loan payment for a second home

Include PITI and, when applicable, MI, leasehold payments, HOA dues, and condo unit or co-op unit maintenance fees (excluding unit utility charges).

The servicer must exclude the monthly mortgage loan payment if the second home is the subject property.

Monthly gross income is based on income documentation provided by the borrower (see Determining Whether a Borrower Response Package is Complete in D2-2-05, Receiving a Borrower Response Package before any payroll deductions and equals the sum of the following items, as applicable:

  • wages and salaries, overtime pay, commissions, fees, tips, bonuses, housing allowances, or other compensation for personal services;

  • Social Security payments, including Social Security received by adults on behalf of minors or by minors intended for their own support;

  • monthly income from annuities, insurance policies, retirement funds, or pensions;

  • disability or death benefits;

  • positive net rental income; and

  • other income such as adoption assistance.

Note: If the subject property is an investment property, the servicer must exclude all investment property related income from the borrower’s total monthly income.

The servicer must not consider unemployment insurance benefits or any other temporary sources of income related to unemployment, such as severance payments, as part of the monthly gross income for mortgage loans being evaluated for a short sale.

Obtaining a Property Valuation

The servicer must obtain a property valuation in accordance with Obtaining a Property Valuation in D2-3.3-01, Fannie Mae Short Sale. The property valuation must be dated or have been refreshed by Fannie Mae within 90 calendar days of the short sale approval.

The following table provides additional requirements for all property valuations for a short sale.

The servicer must…

Submit property valuation orders using the VMS application and the VMS Valuation Order Template.

Note: To obtain access to the VMS application, the servicer must complete a VMS User Setup Template and submit it to valuation_operations@fanniemae.com.

Include the cost of the property value order in the MI claim.

The results of the property value will be available through Fannie Mae’s servicing solutions system within seven to ten calendar days from the date the servicer submits the order.

Announcement Issue Date
Announcement SVC-2017-05 June 21, 2017