Common sense may be dead and gone when it comes to underwriting a loan – but it helps to understand some of the reasons why some of the mortgage rules were implemented in the first place. That’s what we try to do when answering your questions. Keep up to date on some of the rule changes regularly posted on Facebook.com/MortgageCurrentcy.
Fannie Condo Project Approvals: I am trying to get a condo project approved and the lender said I had to run it through the CPM program. What is CPM and are there any forms I need to submit?
First, CPM stands for “condo project manager,” and it is a system related to the concept of automated underwriting for a borrower – but this is an automated underwriting system for condominiums. Just like DU for borrowers, the CPM system reviews the strengths and weaknesses of a particular project, and Fannie may approve a condo project using the Condo Project Manager system that would not normally be approved by FNMA because it does not meet FNMA’s requirements.
There is not much that you can do other than to send the lender running the CPM system for you a completed HOA questionnaire that has been accurately completed by the HOA or management company. The lender will use this data to plug into the CPM system, and then it will either approve or decline the project. If it approves it, then you are good to go. If it declines the project, that does not mean you have to give up, it just means that you will have to meet all of the FNMA requirements.
Fannie/Freddie Disputed Accounts: I have a client whose credit score is 739. They have four disputed accounts, which they paid off years ago. U/W is saying DU is requiring these accounts to come out of "dispute" status, and that a new report has to be run through DU without the disputes. Is there any way around this?
Answer: Unfortunately there is no way around this, and yes, it is accurate. If DU recognizes a dispute and provides a feedback message regarding the disputed account, the underwriter and lender are bound by these messages and must follow each message specifically.
You might ask: What is the big deal?… Well, most ‘credit repair’ companies dispute all derogatory accounts, even the legitimate ones, hoping that the creditor will not respond or validate the debt within 30 days. If creditors don’t respond to the dispute within 30 days, the credit bureaus, Experian, Transunion, and Equifax, are required to drop these accounts from the consumer’s credit file … which may raise the consumer’s FICO credit score.
The problem is when the mortgage lender runs the borrower’s loan application through Fannie Mae or Freddie Mac’s automated software loan approval system, it doesn’t read it or ‘grade’ the disputed derogatory account in the credit report. This will cause the automated approval engine to give a ‘false positive’ approval. This results in an approval with less than the full credit profile … a big no-no in the secondary market where mortgages are sold to investors for servicing rights.
It took a while, but Fannie Mae & Freddie Mac are onto this ‘scheme.’ Fannie & Freddie require ALL borrowers to have ALL disputes reported as ‘resolved’ on the credit report. Once the dispute is removed or resolved at the bureau level, the credit report must go through the automated re-run to see if it still approves the loan.
USDA EEM: Does USDA have an Energy Efficient Mortgage Program?
RD allows for the rolling-in of the costs of energy-efficient improvements as long as the home appraises for costs to be rolled in. For example, if the sales price was $95,000 and the home appraised for $100,000, then you could add $5,000 of energy-saving features.
Eligible Repairs/Rehabilitation can added to the loan amount and completed after closing with the set-up of a repair escrow account. RD allows funds to be set aside (escrowed) for any repairs/rehabilitation that cannot be completed prior to closing, weather-related or not, subject to individual lender escrow requirements.
WHAT CAN BE ESCROWED FOR?
RD will allow those repairs required to meet HUD Handbooks 4150.2 and 4905.1. Optional repairs/rehabilitation items a borrower wishes to do beyond those required to meet HUD Handbooks 4150.2 and 4905.1 cannot be escrowed for, other than those listed below.
The loan may also include (subject to lender guidelines):
- Funds for the purchase and installation of necessary appliances (new appliances):
- Energy-saving measures including but not limited to:
- High-efficiency HVAC
- Weather stripping
- Storm windows and doors
- Programmable thermostats
- Storm cellars
- Water and/or sewage facilities including reasonable connection fees for utilities which the buyer is required to pay.
- USDA will finance special design features or equipment necessary to accommodate a physically disabled member of the household including but not limited to:
- Wheelchair ramp
- Door replacement
- Grab bars
Note: New carpet/flooring is possible if a waiver is requested from RD.
Mortgage Talking Points™ Article: USDA & Energy Efficient Mortgages: How Homebuyers Can Save Big Money on Utility Bills!
FHA Streamline Rental Homes: Can we streamline an FHA loan which is now an investment property?
Yes. You can FHA streamline an investment property but restrictions apply:
1. Not eligible for streamline refi to an ARM
2. Only streamline WITHOUT an appraisal allowed
3. Outstanding principal balance only may be refinanced – no interest may be added in
Did you know that I can do a FHA streamline refinance on homes that are now rental properties? This will help clients reduce their monthly payments.
VA Non-Borrowing Spouse Credit: Are there any VA rules about a non-borrowing spouse who has filed bankruptcy but will not be on the loan?
Two points to share on non-purchasing spouses in community property states from Chapter 4 of the VA Manual. While VA only considers debt (not credit history) of the non-borrowing spouse, they also do not require CAIVRS.
Chapter 4 – “If a married veteran wants to obtain the loan in his or her name only, the veteran may do so without regard to the spouse’s debts and obligations in a non-community property state. However, in community property states, the spouse’s debts and obligations must be considered even if the veteran wishes to obtain the loan in his or her name only.”
Chapter 4 – “Lenders must perform a CAIVRS screening on all obligors on the loan (including IRRRL loans). The one exception to this policy is that CAIVRS is not required for non-purchasing spouses in community property states.”
Written and contributed by Karen Deis of Mortgagecurrentcy.com. Provided monthly by interpreting the Rules and Regulation Changes for loan officers, processors, underwriters, and owners/managers. Mortgage Talking Points TM, charts and checklists included.