effective loan application interviewing... · “borrower” don’t assume. –use the...

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Effective Loan Application

Interviewing

June 2017

Effective Loan Application Interviewing

Objective‏

– Provide originators with best practices for taking quality loan applications

Agenda‏

– Questions to ask

– Purpose of loan fields – 1003 Starting with Property Section

– Contract Review

– IPC, Sales and financing concessions

– Employment and Income

– Assets

– Liabilities

– Declarations

– REO Section

– Resources

– Genworth Website

– Questions

Effective Loan Application Interviewing 2

Questions to Ask from the beginning

Pre-loan application questions‏

– Condominium?

• Project Approval will be required

• HOA dues documented and included in ratio?

– Parcel Size, Income producing?

• Horses??? Barns?? Significant Outbuildings? Typical for the area

– Manufactured home (make sure you know the definition)

– Applicant Self Employed? What is the mortgage industry definition of self-

employed?

– Status of any other property owned?

• Documentation owned free and clear; Taxes and insurance amounts verified?

• Occupancy? Does it make sense?

– 4506/4506T will be executed? Let’s look at the next slide

– Can income be documented? (rental reported on tax returns?

– Credit Score – Mortgage Model vs Consumer Model

– Serious derogatory events-Waiting Period- Re-established credit, we will talk

about

3Effective Loan Application Interviewing

IRS Form 4506-t

IRS 4506-t or similar forms‏

–Used to obtain tax transcripts

from the IRS or W-2 transcripts

–Form good for 120 days once

signed by taxpayer

–What is your policy on this form?

– Inform applicant if it will be

executed to obtain full disclosure

– Issues:• Amended returns

• Rental properties not disclosed

• 2106 expenses

• Addresses not matching up

• Borrower never filed returns

www.irs.gov


http://www.irs.gov/

Questions to Ask and Info to Disclose

Pre-loan application questions and disclosure‏

– Parcel Size Income producing or subject to any crop sharing

– Condo, Attached PUD

• Project Approval will be required

• HOA dues must be included and documented

– Manufactured home (make sure you know the definition)

– Is the Applicant Self Employed? Do they own 25% or more of a business?

– Status of any other property owned by purchasers

• Documentation owned free and clear; Taxes and insurance amounts verified?

– 4506/4506T will be executed? Let’s look at the next slide

– Can income be documented? (rental income reported on tax returns?

– Credit Score – Mortgage Model vs Consumer Model

– Serious derogatory events-Waiting Period- Re-established credit, we will talk

about


Discuss With Borrower And Be Clear Any Changes To Income, Employment, Changes

In Liabilities, DownPayment Sources Needs To Be Disclosed To You As Soon As

Possible!!

— B3-5.3-07, Significant Derogatory Credit Events‏ Waiting Periods and Re-

establishing Credit (07/28/2014)*

Significant Derogatory Credit Events


*Use disbursement date and count back to event

Significant Derogatory Credit Events


Property Information and Purpose of Loan

All data fields should be correctly completed‏

– Show correct USPS address; Legal address should be listed on page 5 of 1003

– Refinance: Does address match up to W-2/bank statement mailing address?

– Refinance: How long have they owned property? Complete year acquired,

original cost, existing liens, purpose of refinance.

– Currently offered or listed for sale in most recent six months and want cash out?

– Sources of down payment; Should be specific so underwriters can condition

loans properly


Notes and Explanations

Page Five of the 1003‏

– Make sure page five is signed

Notepad or Conversation Log‏

– Use to address verbal conversations

or follow up items

– Notes to the underwriter are helpful

– Guidelines screen captures or

research from a website


Things to Look For‏

– Review the purchase agreement for disclosure of non-arms length

• Family member or partner, realtor, employer is the seller?

• Borrower, seller and/or realtor have same last names

• Lenders can do non-arms length just require more scruteny

– Borrower added to contract later and original purchaser removed-ask why and

document

– Do you have all pages, addendums, exhibits and attachments to the agreement

– Did you review for any seller concessions or allowances?

– Is the property located in a PUD and HOA dues required?


Purchase and Sale Agreement

10

Purchase Transaction Timelines


Can you Meet the Contract Deadlines? Set realistic‏

expectations for all – Buyers and Realtors!–Loan Application

–Appraisal

–Loan Denial/Approval

–Settlement

11

Property Condition

?”Will the property appraise “Subject To” or “As Is‏

– Ask questions about the subject property condition

– Review contract for stated or agreed upon repair work on the contract

– Will investor accept the property’s current condition?

• Safety, soundness, structural issues are problematic

– Investors often restrict delivery of C5-C6 (see next slide for description) condition

properties


Interested Party Contributions

IPCs are either financing or sales concessions‏

– Financing concessions are allowed but have restrictions on the amounts that can

be applied to the transaction

– Sales concessions are amounts that exceed the allowable financing concessions

(or are non-realty items) and the value must be subtracted from the sales price

when calculating LTV

– IPCs cannot be used to make the borrower’s down payment, meet financial

reserve requirements or meet minimum borrower contributions


Fannie Mae Seller Guide B3-4.1-02, Interested Party Contributions (IPCs) (06/24/2014)

13

Financing Concessions

Closing costs typically paid by the borrower are considered‏

“contributions” or “financing concessions” when paid by an

interested party

– Financing concessions are limited by LTV and calculated based on sales price

for Fannie Mae and Freddie Mac.

– Maximum contribution guidelines typically allowed to be paid by an interested

party for conventional conforming loans are outlined in the table below.

– All sales concessions/contributions (amounts in excess of the allowable

financing concessions or non-realty items such as a decorator allowance) must

be valued and subtracted form the sales price before calculating the LTV.

90.01-95% CLTV 75. 01 to 90% CLTV 75% and Less

Primary Residence 3% 6% 9%

Second Home 3% 6% 9%

Investor Property 2%** 2%** 2%


*DU 9.0 May 2013 Release Notes updates Fannie Mae policy for DU loans to base sales concessions off of sales price only

14

Occupancy

When will the borrower take occupancy?


Occupancy


Occupancy must make sense‏

– Fannie Mae and Freddie Mac continue to see occupancy misrepresentation

• Do they own other properties and what is the status of other properties

• Distance from employer

• To be considered owner occupied one of the applicant’s must occupy the subject

property within 60 days of closing

16

Property Occupancy

Owner Occupied A 1-4 unit property that is the borrower’s primary residence

A primary residence is:

o Residential property physically occupied by the owner for the major portion

of the year

o In a location relatively convenient to the owner’s employment

o The address of record for tax reporting and voter registration

Second Home Use A single family property that the borrower occupies in addition to his or her

principal residence

Property may not be used for rental purposes Investor may require that it be a

“vacation” use

May be limited to 1 vacation home maximum

May be limited to a 1 unit/single family property

Investment Property A property owned to generate income and the borrower does not intend to

occupy the property

OCCUPANCY CATEGORIES


Investment Properties?Can rental income be used in the transaction‏

– Fannie Mae allows use of market rents from appraiser

– Freddie Mac allows use of market rents but also requires an executed lease

– No history of owning or managing rental properties is required by Fannie Mae or

Freddie Mac…but check you guidelines


Second Home and Investment Properties

Things to Consider‏

– How many other second home or residential investment properties do they own

that applicant’s are personally obligated on?

• Depending on how many “other” properties the applicant is personally obligated on,

additional reserves will be required, check guidelines

– Is there a restriction on how many they can own?

• Fannie Mae allows up to 10

• Freddie Mac allows up to 6

• Private investors may have a different restriction

– Is there a current tenant? Can you obtain a copy of the current lease?

– Gift funds can NOT be used for Investment transactions



Borrower Information

•Each borrower is listed separately –ASK who wants to be the

“Borrower” don’t assume.

– Use the borrower’s complete, legal name.

– Verify SS # with other supporting documents in the loan file such as the W-2

– Put DOB in the correct format: MM/DD/YYYY.

– Married, unmarried, and separated?

– Provide a full TWO year residence history; cross reference it with other loan

documents you have in the file

20


Employment Information

.Spell out the full, complete business name and address‏

– Does the borrower work from home and has a corporate office somewhere else?

• Use conversation log in your LOS/loan file to keep a written record of this information.

• Employment information should be compared to credit report

• Full two year history should be completed

:Correctly identify self employment‏

– If the borrower owns 25% or more of the business, they are considered self-

employed for loan qualification purposes

– A borrower may be self-employed and get a W2 from that business

– Borrowers typically must be self-employed for two years, although

documentation allows for only one year to be documented

21


Borrower Information

:Ask questions to determine if you will need tax returns‏

– Does your borrower own 25% or more of a business?

– Does your borrower receive commission as 25% or more of the income?

– Does your borrower work for a relative?

– Are there other income times or situations that may be best documented by the

tax returns:

• Interest or Dividend.

• Capital Gain/Loss.

• Unrembursed Employment Expenses.

• Rental or Other Property Income, Loss or Expenses.

• Farm Income/Loss.

– On job full two years? Any gaps? Any time off? Any pay change?

Remember, some professions may or may not indicate self‏

employment:

– Realtors, Loan Originators, Consultants, etc.

22

Does Your Policy Require You Always Obtain Tax Returns? Does Your Policy

Allow You To Document To the AUS Results?


Monthly Income

Income Section Reminders:

– Income must be broken down by specific type.

– “Other” is a last resort in income identification.

– Income trends must be stable or increasing and likely to continue in the future

for you to use as a qualifying source of income…..let’s look at the

requirements.

23

Fannie Mae Seller Guide

Chapter B3-3, Income Assessment of the Selling Guide‏

– Income Trends must be determined by calculating the monthly year to date

earnings and compare it with prior year’s earnings

• W-2’s or

• Signed federal tax returns or

• Written VOE

– If trend is stable or increasing, income amount should be averaged

– If the trend was declining, but has since stabilized and there is no reason to

believe the borrower will not continue to be employed at the current level, the

current lower amount of variable income must be used.

– If the trend is declining, the income may not be stable.

• Additional analysis must be conducted to determine if any variable income should be

used, but in NO instance may it be averaged over the period when the declination

occurred.


Best Practice Is To Review The Document When It Is Received; Don’t Just Place

In The File For Later

Fannie Mae Seller Guide

Continuance of Income‏


Assets

List all Assets‏

– Breakdown by type of asset

– Ask applicant which account or

accounts or “source” of funds will

be used for the transaction

– Collect two months assets

statement

– Know what is considered a large

deposit

– Explain any change source of

funds must be communicated to

you (i.e. borrower was to get a gift

but now liquidating their 401k)

– Does borrower have access to

retirement accounts without

restriction?

– Proof of liquidation?


When reviewing bank statements look for the following:– Proof the bank statement is the borrower’s (name, address consistent with 1003)?

– Verify statement includes an account number.

– Earnest money cleared?

– Do you have all pages?

– Any alternations?

– Did the applicant provide the most recent one or two months statements?

– All large deposits must be explained and sourced?

– Review also for:

Regular payroll deposits should be verified against pay statements

Automatic loan payment withdrawals

If a purchase transaction, review to see if the earnest money check has cleared

Evidence of alterations, cutting and pasting, white-out, deletions or cross-outs

Evidence ALL pages of the statement have been provided

The time period covered in the statement, does it cover 30 days worth of transactions?

Are there overdrafts or insufficient funds?

Asset Documentation Requirements


Large Deposits

…Indications of Borrowed Funds‏– Fannie Mae and Freddie Mac have the same definition of a “large deposit”.

– A large deposit and any deposit that is 50% or more of the total qualifying income being

used to qualify

– If using the funds, lenders must obtain borrower’s written explanation and documentation

of the source of large deposits that are reflected on bank statements

– If the source of a large deposit is readily identifiable on the account statement, such as

direct deposits where the source of the deposit is printed on the statement, lenders do not

need to obtain further explanation or documentation deposit is printed on the statement,

but the lender still has questions as to whether the funds may have been borrowed, the

lender should obtain additional documentation

– Lenders must investigate accounts opened within 90 days of the application date and

account balances that are considerably greater than the average balance reflected on the

Verification of Deposit Form 1006.

– Asset statements that are older than 45 days from application, lenders should request an

updated statement

– Use of business assets is acceptable but lenders must perform a cash flow analysis to

determine if any withdrawal will have a negative impact on the business


Additional Guidance on Large Deposits


Gift Funds- Documentation Requirement

30

Gifts must be evidenced by a letter signed by the donor, called a gift‏

letter. The gift letter must:

– specify the dollar amount of the gift;

– specify the date the funds were transferred;

– include the donor’s statement that no repayment is expected; and

– indicate the donor’s name, address, and relationship to the borrower.

Documentation of donor ability/transfer and proof of receipt of the gift‏

will be required prior to or at closing.


Look for indication that the account is an IRA or retirement account-

borrowers do not always tell you– Many investment accounts can be retirement accounts so carefully review for evidence of

the account type

– If less than 100% vested you can use only the vested portion

– Look for any loans taken out again the account as you must subtract those when

determining available assets

– Borrowers must have access to the account and it must allow for withdrawals regardless of

current employment status

Assets IRA or Retirement Funds



:Reserves are defined as (regardless if escrowed for or not)‏– Principal and Interest

– Hazard, flood and/or mortgage insurance premiums (as applicable)

– Real Estate Taxes

– Ground rent and/or special assessments

– Owner’s association dues or monthly coop corporation fees

– Any subordinate financing payments

Reserves

32


Liabilities

33


Liabilities

:Liability Section Tips‏

– Most monthly obligations must be considered

– Generally, if it appears on the credit report, it must be included in the liabilities.

– Installment debts with 10 or fewer remaining payments:

• Typically not be included in debt ratio.

• Must be listed with the other liabilities.

– Any known liability not showing on the credit report must still be listed on the

application.

• Examples: Child Support, Tax Repayment, Alimony, Employer Loan.

– Deferred loans typically require a payment to be included in DTI

• Use payment from credit report (some cases the payment may be zero for IBR) loan or

• No payment listed use 1% of the unpaid balance (Both Fannie and Freddie now allow)

or Obtain documentation of what the proposed payment will be

– All leases must be included regardless of term remaining

– Revolving use stated payment from credit report or obtain documentation of a

lower payment

• If no payment listed or statement provided, use 5% of unpaid balance

– Open or 30 day accounts typically verify funds sufficient to payoff

34

Schedule of Real Estate Owned


Schedule of Real Estate Owned

Schedule of Real Estate Owned Tips‏

– All residential properties owned must be listed (Not properties owned through a

business)

– Correctly identify those properties

• (PS) Pending Sale OR (S) Sold.(technically should not be listed; It may be listed to

address source of large deposit)

• (R) Rental or (SH) Second Home

– Mortgage payments must be listed in the liabilities section of the application

– For investment properties match them up to the schedule e rentals,

discrepancies? Get explanatoins

– Verify the full PITIA payment

• Mortgage statement, copies of insurance and tax bills and association dues if any

• Properties owned free and clear: Document evidence owned free and clear and

insurance and tax payment verification typically required

– Condo, PUD or Coop Dues Included

• Unit # is a red flag property might be a condo

– Include payments in debt ratio (or match and offset the payment with rental

income, if applicable)


A new field “Number of Financed Properties” field has been be added‏

to additional data screen for DU/DO. It captures the number of 1-4 unit

financed properties the borrower is personally obligated on

– If that field is not completed, DU uses the number of properties in the REO

Section that include a mortgage payment that are tagged to a mortgage in the

liabilities section

– If neither of the Number of Financed Properties field or the REO section has

been completed, DU uses the liabilities section to determine the number of

financed properties

– If neither of the Number of Financed Properties field or the REO section has

been completed, DU will use the liabilities section to determine the number of

financed propertie

Borrowers with Multiple Financed Properties


DU Will Issue A Message Informing The Lender What Number Was Used As The

Number Of Financed Properties And Where That Information Was Obtained.

DU will use the number of financed properties to apply the following‏

eligibility guidelines:

– A minimum credit score of 720 is required for borrowers with 7-10 financed

properties

– Borrowers are limited to a maximum of 10 financed properties



DU will also determine the reserves required for the other residential

financed properties (excluding the borrower’s principal residence and

the subject property). The reserve amount will be determined by

applying a specific percentage to the aggregate of the outstanding

unpaid principal balance (UPB) for all *mortgages & HELOC’s

disclosed on the application. The percentage is based on the number

of financed properties.


– Reserve Requirements


*If marked paid by close, omit or if associated with subject property, not included.

Reserves


$$$$$$

Freddie Mac Multiple Financed Properties– Taken from Freddie Mac Rental Income Matrix


Property Types Investors traditionally only purchase mortgages secured by‏

residential properties.

Single Family or One Unit

Dwelling – Acknowledge

between Attached and Detached

Designed for occupancy of one family.

PUD (Planned Unit

Development)

A project or subdivision that consists of common

property & improvements that are owned &

maintained by an owners’ association. The Association

must require automatic, nonseverable membership for

each individual unit owner.

Multifamily Dwelling A house divided into two to four dwelling units with

separate living facilities.

Condominium Property ownership that separates property into

individual ownership and common ownership.

Cooperatives Property ownership in which individuals own shares of

a corporation that in turn owns the real estate.

Manufactured A one-unit dwelling built on a permanent chassis in

accordance with the National Manufactured

Construction and Safety Standards Act as promulgated

by the Department of Housing and Urban

Development (HUD) and affixed to a permanent

foundation.

Modular Prefabricated, panelized or sectional housing units are

considered and classified as single family.


Condo, PUD or Coop Projects

Project itself must meet investor guidelines‏

– Obtain project questionnaire up front from managing association

– If possible, obtain current budget for the association

Different requirements apply based on type of review-Ask questions‏

up front either from the applicant or realtor/association

– Investor concentration

– More than 10% of the units owned by one entity

– Commercial space in excess of 20%

– New or newly converted or an “existing” project

– Pre-sale

– Percent of current owners delinquent on HOA dues?

– Budget provides for capital improvements and reserves?

– Condo hotel/motel or time share?

Project eligibility is key, understand the impact and your condo‏

project review options



Declarations

44

:Other common issues‏

– Be sure to go through the declarations carefully with your borrowers

– Have any “yes” answers explained completely

– Remember guidelines concerning previous bankruptcy and/or foreclosure

requires waiting periods and re-establishment of credit

• Each Lender, Investor and MI Company may have rules that are stricter than the GSE

guidelines (i.e. NO extenuating circumstances allowed)

Acknowledgement and Agreement

45

.Signatures required…make sure applicants read the fine print‏


Government Monitoring Section

46

Signatures, Identifier Numbers required, Government Monitoring must‏

be completed at initial application. Even if borrower does NOT wish to

furnish, originators indicate based on visual and surname.


Best Practices

Expedite the Loan Process‏

– Ask questions and get explanations from the start

– Document, and review documents collected

– Use LOS notepad or conversation logs, notes to underwriters

– Know your Investor guidelines

• Income, Collateral types, DTI

– Qualify “Worst Case”

– Review the purchase contract in it’s entirety

– Set realistic expectations

– Use websites/resources

• USPS.com

• Public records

• Realtor.com

• Fannie Mae or Freddie Mac or Internal Website

• Mi.Genworth.com

• My Fico

– Communication is Key; Stay in Touch with The Applicant & Realtor if Permitted



http://fanniemae.com/portal/index.html

48

http://fanniemae.com/portal/index.html

Selling Guide



http://www.freddiemac.com/

50

http://www.freddiemac.com/

Documentation and Rental Matrix– Assists with documenting files

http://www.freddiemac.com/learn/qr.html



– Loan Product Advisor “Total Funds to

be Verified”





mi.genworth.com

http://mi.genworth.com/


mi.genworth.com/LenderServices/Underwriting

http://mortgageinsurance.genworth.com/LenderServices/Underwriting.aspx

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Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive‏

for accuracy, we also know that any discussion of laws and their application to particular facts is

subject to individual interpretation, change, and other uncertainties. Our training is not intended as

legal advice, and is not a substitute for advice of counsel. You should always check with your own

legal advisors for interpretations of legal and compliance principles applicable to your business.

,GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED‏

INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A

PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN

NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE,

OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING

AND THE MATERIALS.

Genworth Mortgage Insurance Offers A Comprehensive Suite Of Training

Opportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve Your

Borrowers Better. Visit mi.genworth.com To Learn More.

Collateral Underwriter®

or CUTM, Home Ready®

and Desktop Underwriter®

or DU are registered Trademarks of Fannie Mae

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Loan Product AdvisorSM and Loan Collateral AdvisorSM are registered Service Marks of Freddie Mac

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effective loan application interviewing... · “borrower” don’t assume. –use the...

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