Fannie and Freddie Announce Selling Guide Updates
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae and Freddie Mac both announced updates to their Seller Guides last week.
Fannie Mae’s key change involves lender-funded grants. The company will now buy mortgage loans with lender-funded grants that provide all or part of the down payment, closing costs, financial reserves, and certain energy-related improvements.
The lender-funded grant must meet all the following criteria:
The subject property must be a principal residence.
The transaction must be a HomeReady loan used for a purchase.
The lender must have a documented program that provides grants to low to moderate-income borrowers for community development, supports equitable housing initiatives or similar special initiatives.
The terms and conditions of the grant must be specified in writing and kept as part of the loan file.
The borrower must make at least a 3 percent contribution from their own funds or other eligible sources.
The grant cannot be funded in any way through the loan, such as through premium pricing.
Another change to Fannie’s underwriting guidelines involves verbal verification of employment alternative.
Its previous policy required a verbal verification of employment (verbal VOE), written verification, or a third-party verification report within 10 business days prior to closing to verify employment for borrowers who are not self-employed.
Fannie updated the Selling Guide to add an alternative to satisfy the verbal VOE requirement for non-DU validation service loans. With this updated requirement, lenders may use an email exchange with the borrower’s employer within 10 business days prior to closing to verify employment.
Lenders must conduct due diligence to confirm the email address for the employer is accurate; and must ensure the email is from the employer’s work email address and includes the borrower’s name; name, title, and work email address of the individual contacted at the employer; date of contact; and borrower’s current employment status.
Lenders can implement both policy changes immediately. Fannie’s Desktop Underwriter will be updated the weekend of Aug. 20, 2022.
Freddie Mac’s Selling Guide updates include changes to:
Properties with age-based resale restrictions
Partial income representation and warranty relief
Fidelity insurance requirements
Freddie’s requirements have been updated so that properties with age-based resale restrictions are now eligible for ACE appraisal waivers, as well as appraised value representation and warranty relief provided by Loan Collateral Advisor.
Properties with income-based resale restrictions remain ineligible for ACE, and an appraisal is required.
Freddie also updated its guide to define and highlight partial income representation and warranty relief. Charts detailing income representation and warranty relief eligibility descriptions and requirements found in Sections 5901.5(a), 5903.5(a) and 5904.5(a) have been updated.
Partial income representation and warranty relief (formerly referred to as source level representation and warranty relief) is granted when multiple income sources are submitted through Loan Product Advisor and one or more of the income sources receive income representation and warranty relief, but additional sources of income are required. In these instances, the income that is not granted representation and warranty relief must be documented in accordance with the Guide.
Freddie has also changed the calculation of the required fidelity insurance coverage amount. It will now be calculated based upon the mortgages serviced by the Seller/Servicer. Subservicers will no longer be required to obtain fidelity insurance coverage for mortgages that they subservice for others or mortgages owned by other investors.
Freddie’s policy updates are effective immediately.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
