Written By: Angelique Jackson
On March 9, 2016 the final rule published in the Federal Register in February is now in effect. We have been working under the interim final rule since December 1, 2014. There are a few new items in the handbook along with the restructuring of the handbook similar to FHA’s 4000.1 where all information is gathered in one single source and divided in sections for Manual Underwriting and GUS Accept. Chapters 5-16 were updated with new guidance and/or clarifications to old guidance. I am not going to go over all of the changes but I will talk about some of the more pertinent changes and clarifications that were done.
One of the new changes they made was with regards to flood insurance, for new construction an existing homes in a flood zone, there is no need to consider alternatives, you just obtain the flood insurance policy, making sure it meets the requirements of 42 U.S.C. 4012a(b)(1)(A). Another new feature that will be a great benefit to applicants is the removal of the requirement that only low income applicants can finance discount points. Discount points may be financed for all applicants now. Manufactured homes are now eligible for the single close construction loans, and while condominiums are ineligible, site condominiums, are eligible for the program.
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In Chapter 5: Origination and Underwriting Overview, a clarification reiterated throughout the handbook is that supplemental credit reports pulled outside of GUS cannot be uploaded into GUS. You cannot use a credit supplement to dispute or remove an account (a full credit report is needed), however, credit supplements can be utilized to confirm accounts listed in GUS marked “To be paid” have in fact been paid in full.USDA prefers loan documents be submitted electronically through the Agency’s automated system of receiving documents, they are so adamant about being paperless that they have deleted the list of USDA State general email boxes from the USDA LINC. New guidance was issued regarding expired GUS credit reports, if the report in GUS exceeds 120 days at closing, but a new report shows no changes to the credit, no resubmission or revision is required, the final issued conditional commitment is still valid.
USDA revised and simplified their asset calculations to using the lessor of the two month average balance or the actual balance on the most recent statements. Another common theme reiterated throughout the handbook is that assets are not required to be entered on the 1003 or in GUS. There has been a new change with regards to omitting liabilities in GUS. Liabilities marked “Omit” on the “Asset and Liabilities” GUS application page must have the “Notes” data field completed with an explanation to support excluding that debt. (i.e. medical collection).The income worksheet is now part of the Form RD 3555-21, so you will no longer see a specific reference to the income worksheet.
In Chapter 8: Applicant Characteristics, much to my delight (and I am sure to military applicants as well), the military applicant occupancy requirement for them to be discharged from the military within one year has been removed. I never thought that rule made sense, we are giving a military applicant a 30 year mortgage yet we want them to be out of the military within a year?
Chapter 9:Income Analysis probably has the most changes because this is the where they took income from Attachment 9-C and relocated it to Chapter 9. I recommend reviewing this chapter especially, Section 9.3 Annual Income, A. Income That Is Never Counted, as it has added new sources of income such as deferred payments from social Security, reverse mortgage payments, and funds from the SNAP program and the Workforce Investment Act (WIA) to name a few. USDA did provide new guidance when considering annual income for a household member. Documented increases to income for an adult household member that will occur on or before loan closing must be included in the annual income calculation.One of the big questions that has plagued us all with regards to the continuance of Social Security benefits has finally been answered. USDA has provided new guidance stating that unless the SSA benefit letter specifically states that benefits will expire, lenders can treat that income as likely to continue. So there you have it folks, no expiration date = likely to continue.
Lastly, Chapter 10: Credit Analysis, is the other chapter I recommend you familiarize yourself with, this section has more clarifications than anything else however there is new guidance in this chapter as well. Probably the biggest change in this chapter is them lowering the tradeline requirements from three to two eligible tradelines required to validate the credit score. Authorized user accounts may be considered as an eligible tradeline if the applicant has made the payments for the previous 12 months. This chapter breaks out guidance individually for manually underwritten and GUS loans similar to the layout in the FHA 4000.1 handbook, this chapter also includes examples of when a GUS Accept needs to be downgraded.
Overall I feel the updates to the HB-1-3555 will make researching and navigating through the handbook easier, with all the information found in one area as oppose to going on fishing expedition hoping you are in the right spot. Also the clarifications and individual guidance for manually underwritten loans and GUS loans will help reduce confusion on what documentation needs to be obtained between the two types.
This is by no means an all-inclusive list of things that have changed in the 3555, I have chosen to highlight items I felt were most important to summarize. I encourage everyone, if you haven’t done so already, to review the new handbook.
About The Author
Angelique Jackson has had a passion for the mortgage business for the last 14 years holding various positions in the industry including customer service, closing, processing, underwriting, loss mitigation, Operations Manager and VP of Compliance and Training. She has helped open operations centers and has trained over 1200 students nationwide. She currently serves as the Senior Credit Trainer for a major mortgage lender and instructor at Mortgage University. She is a bibliophile who enjoys learning about almost everything, and when not being a nerd, she loves attending Cleveland Cavaliers basketball games (she is a season ticket holder), spending time with her two goddaughters and traveling.
