On the weekend of July 29, 2017, Fannie Mae implemented Desktop Underwriter (DU) Version 10.1, which included several enhancements to their existing offering. Since the updates only apply when using DU 10.1, if the loan was run previously though DU, the loan will need to be rerun with a new DU case number. It is important to note that DU will continue to run the loan using the existing version (in this case DU 10.0) unless you go in and trigger it to run the new version. For PRMG’s FastTrac 360 system, it requires the user to remove the old DU case number from the system and then resubmit the loan to DU. Removing the existing DU case number will return findings for the loan using the new DU version 10.1.
Fannie Mae has reported that the changes that were included in the DU 10.1 release include:
- DU Risk Assessment
- Maximum Allowable DTI
- Disputed Tradelines
- ARM LTV Ratios
- Self-employment Income Documentation
- DU Validation Service
- Property Inspection Waiver
- Updates to Align with the Selling Guide
- Retirement of DU Version 9.3
DU Risk Assessment
Fannie Mae, as part of their normal business operations, regularly reviews DU to make adjustments to their risk analysis based on new data and loan performance information. DU 10.1 includes an update to the DU credit risk assessment and eligibility requirements. Fannie Mae has indicated this change is expected to increase the percentage of Approve/Eligible recommendations lenders receive, specifically those with debt-to-income ratios between 45% and 50%. The risk factors currently evaluated in DU Version 10.0 are not changing with the new version, but the way the system assesses them is changing.
Maximum Allowable DTI
Previously Fannie Mae allowed up to 50% DTI as long as there were compensating factors (as determined by DU) for any DTI above 45%. With DU 10.1 DTIs above 45% and up to 50% will no longer require those additional compensating factors. However, 50% is still the max DTI for their standard products.
Another significant enhancement with DU 10.1 includes how the system will allow the lender to handle disputed tradelines. DU will first consider the loan by including the tradelines reported as disputed by the borrower in its evaluation. So, the system assumes those tradelines belong to the borrower and the information that is disputed is accurate. If it is still able to return an Approve recommendation using the disputed tradelines, then no further documentation of the disputed tradeline will be needed and the loan can simply proceed.
However, if DU evaluates the loan using the disputed information and is not able to provide an Approve recommendation, then a message will be issued indicating the lender must determine if the disputed account belongs to the borrower and confirm the accuracy and completeness of the information on the tradeline. If the borrower is not responsible for the account or the information on the tradeline does not accurately and completely report the account, no further action is necessary regarding the disputed tradeline. If the borrower is responsible for the account and the tradeline information accurately and completely reports the account, then the loan will not be eligible with PRMG, as we require an AUS approval.
Fannie Mae has also indicated tradelines reported as medical debt will continue to be excluded from the disputed tradeline identification as lenders are not required to investigate the disputed medical tradelines.
ARM LTV Ratios
As rates rise, adjustable-rate mortgages (ARM) surge in popularity and with DU 10.1 the maximum allowable LTV, CLTV, and HCLTV ratios (LTV ratios) for ARMs will be aligned with fixed-rate mortgage LTV ratios for all transaction, occupancy, and property types, up to a maximum of 95%.
Self-Employment Income Documentation
With DU 10.1, the criteria that determines the documentation required to verify a self-employed borrower’s income will be updated so that the number of loans eligible for the one year of personal and business tax return documentation requirements will increase. PRMG allows for use of one year personal and business tax return documentation when offered by the DU findings.
DU Validation Service
In the new version of DU, there were changes made to DU Validation services that will now validate income and employment for a borrower that has both self-employment income that can be validated using tax transcript information and base, bonus, overtime, and/or commission income that can be validated using an income report. This service is used in conjunction with Day 1 Certainty.
Property Inspection Waiver
When the Property Inspection Wavier (PIW) offer was enhanced in December 2016, DO users would only see the offer on loan casefiles underwritten using a sponsoring lender. With DU Version 10.1, DO loan casefiles underwritten using Preliminary Findings will now be eligible for the PIW offer. Additionally, there was a PIW message update to include a statement reminding lenders that DU is not able to identify all criteria that would cause a loan to be ineligible for the PIW.
Updates to Align with the Selling Guide
There were several changes made to update DU to align with the selling guide. This includes providing a message regarding the Student Loan Cash-out Refinance, which offers a waiver of the cash out loan level price adjustment (LLPA) when paying off student loans with the refinance (specific requirements will apply when using this option). At the time of publication, PRMG is not offering this option, but will be doing so soon.
Additionally, a message was added regarding Employment Contracts (PRMG offers employment contracts on the Agency DU Portfolio product). Messaging regarding multiple financed properties was updated and the requirement for a project review for Site Condos was removed. The update also includes a change to always consider timeshare loans as installment debt even if they are reported in the credit report data as mortgage-related. The homebuyer education messages now take into account information provided in the Homebuyer Education Completion Indicator. The DO/DU user interface was updated to support the new and amended borrower demographic information for the upcoming HMDA changes and finally, various DU messages were updated to provide clarity and consistency with Fannie Mae’s Selling Guide
Retirement of DU Version 9.3
With the release of DU Version 10.1, DU Version 9.3 will be retired. Loans using DU 9.3 would have been created in DU prior to September 24, 2016 and, as such, would have been underwritten at least ten months prior to the retirement of DU Version 9.3.
PRMG is pleased to have aligned with Fannie Mae on these changes, including the increase of the ARM LTV ratios and acceptance of the higher DTI options, as well as use of the one-year self-employed documentation.