Freddie Mac · OTC:FMCC
Freddie Mac — Technical Presentation (September 2022)
43 slides from Freddie Mac's technical presentation, Sep 22, 2022
Slide 1: “Let’s QC” Webinar Series – Community Lending
“Let’s QC” Webinar Series – Community Lending A Discussion on ADU Expansions, Additional Employed Income, and ATR/QM Rules Host: Steve Glancey Speakers: Julie Campbell, Randy Fansler, Amy Johnson, and Tia Hasnain September 22, 2022 SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family
Slide 2: Session Housekeeping
Session Housekeeping Muted Lines: All lines have been muted upon entry and will remain on mute to prevent interference. Recording: This session is being recorded and will be available on the QC Webpage. If you have any objections, please disconnect now. Questions: Please enter your questions directl
Slide 3: Welcome!
Welcome! 2022 Q3 “Let’s QC” Webinar – Community Lending Series Steve Glancey Randy Fansler Julie Campbell Amy Johnson Tia Hasnain Quality Control Director Collateral Policy Senior Credit Policy Senior Underwriting Manager Underwriting Senior Manager © Freddie Mac
Slide 4: Goal of Series
“Let’s QC” Quarterly Webinar Series – Community Lending 01 Provide training and guidance Goal of Series 02 Allow transparency and insight into our Quality Control loan review process 03 Give you useful information to incorporate into your Underwriting and QC process SENSITIVITY CLASSIFICATION: CONFI
Slide 5: Agenda
Agenda A Discussion on ADU Expansions, Additional Employed Income, and ATR/QM Rules Topic 1 Topic 2 Topic 3 ADU Expansion Additional Ability to Repay and • To support the growing popularity of ADUs and Employed Income Qualified Mortgage Rule their role in increasing • Documenting income • QM review
Slide 6: Topic 1 – ADU Expansion
Topic 1 – ADU Expansion SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 7: ADU Expansion Collateral Policy – Eligibility requirements for ADUs
ADU Expansion Collateral Policy – Eligibility requirements for ADUs New attached ADU New detached ADU or conversion of existing structure Conversion of a Freddie Mac allows one accessory dwelling unit on 1-, 2- and basement or garage 3-unit properties, not exceed 4 total units. 7 SENSITIVITY CLASSIF
Slide 8: What is an approved Accessory Dwelling Unit?
ADU Expansion Collateral Policy – What is an approved Accessory Dwelling Unit? An Accessory Dwelling Unit is an additional living area that: Contributes Independent less to the Separate Subordinate Kitchen Bathroom of primary in living area value of entrance dwelling primary dwelling Accessory Dwell
Slide 9: Manufactured Home ADU requirements
A Manufactured Home must meet the following ADU requirements • The home must be a minimum of 400 square feet • It must be legally classified as real property • The primary dwelling cannot be a Manufactured Home (except for CHOICEHome®) • The home must meet the property eligibility requirements of Gu
Slide 10: ADU Expansion Credit Policy – Rental income from an ADU
ADU Expansion Credit Policy – Rental income generated from an ADU on a subject 1-unit Primary Residence Documenting ADU rental income Purchase transactions ✓ New or Existing Lease, and ✓ Comparable Rentals “No Cash-out” Refinance transactions ✓ Federal Tax Returns with the Schedule E, or ✓ Lease and
Slide 11: Calculating ADU rental income
Calculated net ADU Income Calculating ADU rental income ✓ Documentation using a lease or ADU rental analysis will calculate 75% of the gross monthly rent or gross monthly market rent. ✓ Documentation using a Schedule E will calculate the net rental income using Form 92 Net Rental Income 1100.00 Calc
Slide 12: ADU Expansion – Appraisal considerations
ADU Expansion Appraisal considerations Description of the ADU ✓ General condition ✓ square feet of finished area ✓ total number of rooms, including bedrooms and bathrooms Zoning The ADU must be permissible by jurisdiction: ✓ Legal ✓ Legal non-conforming ✓ No zoning Comparable sales must include at l
Slide 13: Landlord education, delivery requirements and CHOICERenovation
ADU Expansion Landlord education, delivery requirements and CHOICERenovation Landlord Education At least one qualifying Borrower must participate in landlord education for Purchase transactions unless the Borrower has a minimum of one-year rental CHOICERenovation property management experience Provi
Slide 14: Questions?
Questions? SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 15: Topic 2 – Additional Employed Income
Topic 2 – Additional Employed Income Overtime, Bonus, Documentation, and Calculation SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 16: Income history and stability requirements and guidance
Additional Employed Income Income history and stability- requirements and guidance See Freddie Mac Guide Section 5303.3(b) for additional guidance Many additional employed income types are fluctuating income. The stability of fluctuating income is determined based primarily upon historical earnings,
Slide 17: Stable monthly income and documentation requirements
5303.3(d) Stable monthly income and documentation requirements Documentation requirements Income type Stable monthly income requirements Streamlined Accept and Standard Documentation Levels History of receipt: Two years, consecutive1 All the following: Continuance: Must be likely to continue for at
Slide 18: Income Documentation
Income Documentation The borrower has been employed with the same employer since June 2015 as a housekeeper W-2 Information 2020 W-2 2019 W-2 Wages, Tips, Compensation $60,826.20 $77,797.89 Social Security Wages $60,826.20 $77,797.89 Medicare Wages and tips $60,826.20 $77,797.89 18 SENSITIVITY CLASS
Slide 19: Income Documentation
Income Documentation Do we have the appropriate documentation for overtime income, per the guide requirements? SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 20: Income Documentation
Income Documentation SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 21: Hold that thought!
Hold that thought! 21 SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 22: Income Documentation – The Work Number Verification
Income Documentation – The Work Number Verification A work number verification was obtained with a complete breakdown of income from 2020 and 2021. The concern was that 2020 W2 earnings did not support overtime earnings. The breakdown of income indicates the Borrower’s base income is lower than the
Slide 23: Let’s take a Poll
Let’s take a Poll What is the required documentation for Additional Employed Income for overtime? a) Two consecutive YTD paystubs, Most Recent W2 and a 10-day pre-closing VOE b) Most Recent two-years W2s, YTD paystub and a 10-day pre-closing VOE c) Two year plus YTD Written VOE and a 10-day pre-clos
Slide 24: Let’s take a Poll
Let’s take a Poll The Correct Answer is: d) B & C SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 25: Income Verification – Income Scenario #2
Income Verification Income Scenario #2 The loan application includes $129.66 in commission income $7,063.00 W-2 Information 2020 W-2 2019 W-2 Wages, Tips, Compensation $71,769.72 $78,052.28 Social Security Wages $73,960.05 $79,179.35 Medicare Wages and tips $73,960.05 $79,179.35 25 SENSITIVITY CLASS
Slide 26: Income Verification – Income Scenario #2
Income Verification Income Scenario #2 c c 26 SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 27: Income Verification – Income Scenario #2
Income Verification Income Scenario #2 27 SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 28: Chat Feedback
Chat Feedback Can we use additional employment income based on the documentation we have? Does it matter if the income is commission or bonus? Please share your answer in the chat box SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 29: Chat Feedback
Chat Feedback The Correct Answers are: Can we use additional employment income based on the documentation we have? Yes, we have a consecutive two-year history of receipt of income. Does it matter if the income is commission or bonus? No, either income is additional employment income and the guidelin
Slide 30: Final Thoughts
Final Thoughts SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 31: Questions?
Questions? SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 32: Topic 3 – Ability to Repay and Qualified Mortgage Rule
Topic 3 – Ability to Repay and Qualified Mortgage Rule Overview of QC/QM Review Process, Timeline of ATR/QM Guide Bulletins, and Guide Section 4202.6 SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 33: Quality Control QM Reviews – Common Questions
Quality Control QM Reviews Common Questions What is the fastest way to get my Our loans were loans through the quality control QM sampled, what now? review process? Can you share tips that will facilitate Compliance with QM points and fees a quicker and better outcome with requirements is a life of
Slide 34: Quality Control QM Reviews – QM Sample
Quality Control QM Reviews QM Sample File request letters are not sent out on QM loans Quality Control relies on the seller delivered Uniform Closing Dataset (UCD) XML file delivered to LCLA for points and fees testing If data is missing, Underwriting may request missing data via the existing missin
Slide 35: Common missing QM data points
Quality Control QM Reviews Common missing QM data points Ability-to-Repay (ATR) Method Type One or more of the following APR data points are not submitted Average Prime Offer Rate (APOR) via UCD XML file to LCLA: Reg Z/QM Points & Fees Total Reg Z Total Loan Amount 35 SENSITIVITY CLASSIFICATION: CON
Slide 36: Points & fees violations
Quality Control QM Reviews Points & fees violations Incorrect Reg Z/QM Points & Incorrectly Significant Fees Total Incorrect Reg Z Missing data in Incorrect ATR mapping of outliers or calculation in Total Loan a required UCD Method Type data in the unreasonable LCLA due to Amount data field UCD XML
Slide 37: Loan files will not be requested from the Seller
It is the Seller’s responsibility to provide accurate data as Freddie Mac will not use the Closing Disclosure to Loan files will not be calculate the QM points and fees. requested from the Seller Loans with Responsible Lending deficiencies since only data is needed to are not eligible for a repurcha
Slide 38: Timeline of ATR/QM Bulletins
Timeline of ATR/QM Bulletins 2021-13, 2021-19, 2021-27 38 SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 39: Freddie Mac Guide section 4202.6
Freddie Mac Guide section 4202.6 ATR/QM Rule eligibility and compliance The ATR/QM requirements of the Guide were updated on 7/1/21 and the full details can be found in Section 4202.6 The section of the Guide specific to Points and Fees limitations is 4202.6 (c) The section of the Guide specific to
Slide 40: Key Takeaways
Key Takeaways Ability to Repay and Qualified Mortgage Rule Sellers should review and validate loan-level data. If submission is incorrect or missing 01 documents, resubmit the UCD XML file to Loan Closing Advisor® (LCLA) to address Qualified Mortgage (QM)-related issues with UCD submissions. Repurch
Slide 41: Questions?
Questions? SENSITIVITY CLASSIFICATION: CONFIDENTIAL Prepared by: Single-Family Risk Management © Freddie Mac
Slide 42: Additional Resources
Additional Resources Freddie Mac Learning Customer Contact Single-Family website Center Support Center sf.freddiemac.com sf.freddiemac.com/tools- Single-Family learning/freddie-mac- 1-800-FREDDIE Seller/Servicer Guide learning/overview guide.freddiemac.com Single-Family QC web page httpssf.freddiema
Slide 43: Thank you
Thank you “Let’s QC” Quarterly Webinar Series – A Discussion on ADU Expansions, Additional Employed Income, and ATR/QM Rules © Freddie Mac
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