Compliance Calendar

• Income updates
  • Written income analysis updates
  • Employed income history, earnings types and income calculation specificity updates – May 1, 2024

Employed income history, earnings types and income calculation specificity

Effective for Mortgages with Settlement Dates on or after May 1, 2024, but Sellers are encouraged to implement immediately

We are expanding certain requirements and providing additional specificity and guidance related to determining the appropriate income calculation and analysis when underwriting a Borrower with employed income. These updates do not represent a tightening of our existing requirements.

Employment history requirements (primary employment – minimum 12-month history)

We are expanding the 12-month minimum employment history requirement for fluctuating hourly earnings to permit prior salaried employment in a similar industry or job type that had an income level consistent with the current income level based on the income trend analysis.

Determining the earnings type

We are providing additional specificity, including updated descriptions and examples, to aid Sellers in determining the Borrower’s earnings type so the appropriate income analysis and calculation are used to qualify the Borrower.

Employed income calculation – general requirements and guidance

We are providing additional guidance on general underwriting topics related to income calculation, including:

• Pay frequency
• Documented income breakdowns to include the purpose and verification method
• Verification of pay raises to include the purpose and verification method, as well as how and when to use the calculation method that applies the current pay rate to the average number of hours worked during the prior and current year

Fluctuating employment earnings – income calculation method and trend analysis

For income trend analysis, we are making the following updates based on the degree of income fluctuation:

• Degree of fluctuation ≤ 10%: Emphasizing that no additional analysis or documentation is required
• Degree of fluctuation > 10% – ≤ 30%: Expanding our requirements to state that no additional analysis or documentation is required when the increase is supported by the documented income breakdown and/or verification of pay raise

Guide impacts: Sections 5303.2 through 5303.4

Click the link to read the full announcement.

The purpose of this Dear Lender Letter (DLL) is to inform Lenders participating in the Section 184 Indian Housing Loan Guarantee (Section 184) program and the Section 184A Native Hawaiian Housing Loan Guarantee (Section 184A) program of the upcoming release of the second component of Native Advantage, the Loan Origination Module, and changes to the Office of Native American Programs (ONAP) business process related to this release.

The changes to the business process outlined in this DLL will be effective on May 1, 2024, in order to allow Direct Guarantee (DG) Lenders time to make adjustments prior to the release of the Native Advantage Loan Origination Module. Section 184 and Section 184A DG Lenders may elect to implement these process changes sooner than the deadline.

The Federal Housing Administration (FHA) published Mortgagee Letter (ML) 2024-02 on February 21, 2024, which introduced the new Payment Supplement loss mitigation option.

To support the implementation of ML 2024-02, FHA has updated its Claims Module for Claim Type 33 - Payment Supplement. Mortgagees must use FHA’s newly updated claims XML v1.8 for Payment Supplement bulk submissions starting May 1, 2024. Mortgagees may continue to use the current XML v1.7 for all other claims submissions.

For more information on implementing the XML v1.8 for bulk submissions in FHA Catalyst, view the FHA Catalyst: Claims Module – Single Family Forward Claims Required Fields Summary and Claims Bulk Submission XML Input File available on the FHA Catalyst: Claims Module webpage.

SUBJECT: FIRST-GENERATION HOMEBUYER MORTGAGE

Intergenerational wealth refers to the financial assets passed by one generation of a family to another. Wealth disparities among historically underserved consumers are often linked to the absence or interruption of intergenerational wealth accumulation that is primarily achieved through homeownership. First-generation homebuyers are less likely to receive financial assistance from parents to help with the Down Payment and other upfront costs when purchasing a home. To help increase homeownership rates and close gaps for historically underserved consumers, several State and local housing finance agencies have been using varying definitions of first-generation classification for Mortgage eligibility or Down Payment and Closing Costs assistance.

To establish an industry standard for first-generation classification, Freddie Mac and Fannie Mae, under the guidance of FHFA, have created an aligned definition of “First-Generation Homebuyer Mortgage.” The definition was announced in the Freddie Mac revised Equitable Housing Finance Plan and aims at fostering growth, adoption and greater utilization of first-generation programs.

First-Generation Homebuyer Mortgage definition

We have created the following definition of First-Generation Homebuyer Mortgage:

A First-Generation Homebuyer Mortgage is one in which each Borrower meets the following requirements:

• Is purchasing the Mortgaged Premises,
• Will reside in the Mortgaged Premises as a Primary Residence, and
• Has had no ownership interest (sole or joint) in another property during the last three years preceding the Note Date

One of the following must also apply:

• No parent of the Borrower has had an ownership interest (sole or joint) in a property in the last three years preceding the Note Date,
• The Borrower has aged out of foster care, or
• The Borrower has become emancipated

Optional implementation

Identification of a Mortgage as a First-Generation Homebuyer Mortgage is currently optional. However, if the Seller chooses to deliver a Mortgage as a First-Generation Homebuyer Mortgage, the completion of Guide Form 1109, First-Generation Homebuyer Certification, and delivery requirements, as described below, must be met.

Form 1109

To be considered a First-Generation Homebuyer Mortgage, each Borrower on the Mortgage must sign Form 1109 attesting to meeting the required criteria as described in the form. As part of completion of the certification, the Borrowers are required to provide their parents’ names and current addresses, when applicable. The Seller must maintain completed Form 1109 for all Borrowers in the Mortgage file.

Delivery requirements

For a Mortgage to be considered a First-Generation Homebuyer Mortgage, the Seller must deliver ULDD Data Point Investor Feature Identifier (IFI) and enter the valid value “K09.”

Guide impacts

The Glossary, Guide Chapter 6302 and Guide Exhibit 34, Investor Feature Identifiers, will be updated with a future Bulletin to incorporate the definition of First-Generation Homebuyer Mortgage and the related IFI requirement.

Additional resources

The First-Generation Homebuyer Mortgage fact sheet was developed to provide additional background information and answers to frequently asked questions related to the new definition.

Effective Date:

The provisions of this ML may be implemented immediately but must be implemented for FHA case numbers assigned on or after September 2, 2024.

All updates will be incorporated into a forthcoming update of the HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (Handbook 4000.1).

Affected Programs:

The provisions of this ML apply to FHA Single Family Title II forward and Home Equity Conversion Mortgage (HECM) programs.

Summary of Changes

This ML:
• revises appraisal material deficiencies to include potential violations of fair housing laws and professional standards related to nondiscrimination in Ordering a Second Appraisal (II.A.1.a.iii(B)(9));

• adds language about forgoing communication with an Appraiser about a material deficiency and reporting an appraisal replaced due to a material deficiency in Ordering a Second Appraisal (II.A.1.a.iii(B)(9));

• adds specific expectations regarding the underwriter’s training and identification of deficiencies in Appraisal Review (II.A.3.a.vi);

• moves ROV content from II.A.3.a.viii to its own section renamed General Reconsideration of Value Requirements (II.A.3.a.ix) and renumbers subsequent sections;

• adds Borrower-Initiated ROV processing requirements in Reconsideration of Value (II.A.3.a.ix(A));

• adds Quality Control standards (II.A.3.a.x) for the Appraisal Review and the Reconsideration of Value;

• revises appraisal material deficiencies to include potential violations of fair housing laws and professional standards related to nondiscrimination in HECM Ordering a Second Appraisal (II.B.2.a.iii(B)(10)(b));

• adds language about forgoing communication with an Appraiser about a material deficiency and reporting an appraisal replaced due to a material deficiency in HECM Ordering a Second Appraisal (II.B.2.a.iii(B)(10)(b));

• adds specific expectations regarding the underwriter’s training and identification of deficiencies in HECM Appraisal Review (II.B.4.a.ii(E));

• revises HECM General Reconsideration of Value Requirements (II.B.4.a.ii(H)) and adds Borrower-Initiated ROV processing requirements (II.B.4.a.ii(H)(1);

• adds HECM Quality Control standards (II.B.4.a.ii(I)) for the Appraisal Review and the Reconsideration of Value; and • adds Appraiser standards for responding to the DE underwriter requests (II.D.2.e).

The Selling Guide has been updated to include changes to the following:

▪ First-generation homebuyer loan: introducing a definition for a first-generation homebuyer loan

▪ Reconsideration of value: adding requirements for a borrower-initiated appeals process for appraisals

▪ Affidavit of Affixture: clarifying when an Affidavit of Affixture is required for manufactured housing loans

▪ Community land trust eligibility for manufactured housing: expanding our shared equity policy as it relates to manufactured housing in community land trust properties

▪ Registration of co-op share loans with MERS: allowing sellers/servicers to designate MERS as the nominee for the beneficiary in the security instrument

▪ Submission of the Audited Financial Statement, Form 1001, and Form 582: updating requirements for submission of financial statements and reports

▪ Trust income: adding additional details to supplement previously issued policy requirements

▪ Miscellaneous updates:

o Maintaining seller/servicer eligibility

o Nontaxable Section 8 payments

o Validation of Form 482

In addition, we published new state-specific versions of the Multistate 30-day Average SOFR ARM instruments that currently require state-specific authorized changes.

SUBJECT: SELLING UPDATES

This Guide Bulletin announces:

• Reconsideration of value (ROV) process

➢ New requirements for handling ROV requests – August 29, 2024

• Attorney opinion of title letters

➢ An expansion of the permitted use of an attorney opinion of title letter

• Credit underwriting

➢ Updates related to:

• Inquiries generated by credit reports

• Reserve requirements for concurrent Mortgage applications

• Acceptable sources of large deposits – September 30, 2024

• Loan Product Advisor® assessment

➢ The removal of the requirement that at least one Borrower on the transaction must have a usable credit score for Borrower cash flow to be considered in the credit assessment – May 5, 2024

➢ The removal of the requirement that at least one Borrower on the transaction must have a usable credit score for Borrower cash flow to be considered in the credit assessment – May 5, 2024

• Additional Guide updates

➢ Further updates as described in the Additional Guide updates section of this Bulletin

FHA Mortgagee Letter 2023-19, Extension of the Foreclosure Moratorium in Connection with the Presidentially-Declared Major Disaster in Maui County, Hawaii, extended the requirement for mortgage servicers to halt all foreclosure actions in Maui County through at least May 6, 2024.

The Single Family Housing Guaranteed Loan Program (SFHGLP) is pleased to announce upcoming revisions to technical Handbook 1-3555, Chapter 9, Income Analysis; Chapter 10, Credit Analysis; and Chapter 16, Closing the Loan and Requesting the Guarantee. These changes are expected to be implemented on May 6, 2024. Below are the highlighted revisions:

Chapter 9 – Income Analysis

• Clarified that tax transcripts not received prior to closing will not delay the loan closing, but are still required to be obtained and retained in the lender’s permanent loan file.
• Included written and email verifications as acceptable methods for verifying employment within 10 days of loan closing.
• Clarified the most recent asset information available at the time of loan application should be obtained by the lender.
• Removed “part-time income” from the Income and Documentation Matrix (Attachment 9-A) and included this type of income under “base wages.”
• Clarified repayment income guidance for “unreimbursed employee or business expenses” on the Income and Documentation Matrix (Attachment 9-A).
• Clarified that the use of social security benefits as repayment income is permissible when the income is reasonably expected to continue for at least 3 years into the mortgage.
• Added “foreign assets” to the Assets and Reserves Matrix (Attachment 9-A).
• Updated guidance on the sourcing of gift funds to eliminate the level of sensitive financial documentation requested from the gifting party.
• Updated the list of Federally Mandated Exclusions from Income (Attachment 9-D).

Chapter 10 – Credit Analysis

• Added monthly subscription services, gym memberships, etc. to the list of eligible sources of non-traditional credit.

Chapter 16 – Closing the Loan and Requesting the Guarantee

• Updated the maximum insurance deductible permitted to 5% of the total coverage amount for hazard insurance and $10,000 for flood insurance.
• Clarified that when permitting a high deductible, lenders must be mindful of the applicant’s repayment ability to ensure the deductible selected is reasonable and will not cause undue hardship on the applicant.

Attached are revisions to Chapter 9 of VA M26-4, VA Servicer Handbook and the addition of Appendix F. The updated chapter and appendix will be effective May 31, 2024.

Changes

Chapter 9 of VA Handbook 26-4 was revised to retitle the chapter from “Refunds” to “VA Purchase”.

Section 9.01 was updated with the title of VA Purchase General (formerly Refund Consideration) and the establishment of two types of VA Purchases.

Section 9.02 was updated with the title of Traditional VA Purchase (tVAP) Consideration (formerly Refund Approval) and process updates including initiating a tVAP consideration and general requirements.

Section 9.03 was added to outline the processing of traditional VA Purchase (tVAP) loans including guidance on what VA will pay in a refund, reaching out to the National Practice group and checking for government debt, the timing and necessity of the Purchase Claim and the addition of more details on set up sheets, loan boarding, VA Purchase loan modification details and Title Policy processing.

Section 9.04 was added to outline the VA Servicing Purchase (VASP) submission process, including the servicers review of qualifying loan criteria and VASP eligibility requirements.

Section 9.05 was added to outline VA Servicing (VASP) Terms for VASP submissions.

Section 9.06 was added to outline the terms of VASP with a trial payment plan.

Section 9.07 was added to outline the review and timeframes of the VASP event submission.

Section 9.08 was added to outline the VASP payment process and loan review, including the VASP loan modification process.

Section 9.09 advises where additional information on the VASP post audit process can be found.

Appendix F provides instructions to servicers regarding the VA Home Retention Waterfall.

Click the link to read the full special announcement.