Desktop Underwriter® Training Webinar Slides

Company Confidential ©2011 Genworth Financial, Inc. All rights
reserved.
Desktop Underwriter® Training
June 2013
©2012 Genworth Financial, Inc. All rights
reserved.

Agenda
In Today’s Session
– Understanding Recommendations
– Understanding DU®
Risk Analysis
– Recent SEL Announcements
– Release Notes for Versions 9.0
– Analyzing Reports
– Credit, Income and Asset Review
– Data Integrity Reminders
– Help Tools
– Additional Training
Today’s Session Addresses Only Conventional Loans
2How to Become A Desktop Underwriter June 2013

General Lender Requirements
When underwriting loans with DU, the lender must:
– Employ prudent underwriting judgment
– Confirm the accuracy of the data it submits
– Ensure that the loan complies with all of the verification messages and approval
conditions
– Apply due diligence when reviewing the documentation in the loan file
– Review the credit report to confirm the borrower’s credit history was accurate and
complete
– Determine if there is any potentially derogatory or contradictory information
– Take action when erroneous data, contradictory or derogatory information are in
the loan file

SUMMARY: Contains “DU” Recommendation and Purchase Eligibility
POTENTIAL RED FLAGS: Indicates possible inconsistencies in the loan
application
FINDINGS SECTION: Indicates strengths in the file/loan application
VERIFICATION MESSAGE/APPROVAL CONDITIONS SECTION: Contains
minimum DU requirements for documentation
UNDERWRITING ANALYSIS REPORT: Modern 1008/Summary of the
transaction
OBSERVATIONS SECTION: Contains “FYI” for you and your lender
LENDER GUIDANCE FOR USE WITH APPLICANTS: Will appear only on
Refer/w Caution and Expanded Approval Recommendations
Analyzing Reports

Risk Factors Evaluated by DU®
DU 9.0 risk assessment considers probability of future serious
delinquency rather than default
– Credit History (serious delinquency rather than default)
– Delinquent Accounts
– Mortgage Accounts
– Revolving Credit Utilization
– Public Records, Foreclosures, and Collection Accounts
– Inquiries
– Borrower’s Equity and LTV
– Liquid Reserves (Changes requirements for certain assets and loan transactions)
– Loan Purpose
– Loan Term
– Loan Amortization Type
– Occupancy Type
– Total Expense Ratio
– Property Type-Changed Condo Risk Factor
– Co-borrowers

Recommendations in DU 9.0

Recommendations-Eligible
With DU 9.0 the Expanded Approvals (EA) have been retired and will only
be returned on DU Refi Plus loan casefiles

Recommendations-Ineligible

Recommendations-Refer with Caution
With DU 9.0 the Expanded Approvals (EA)was retired. Refer with
Caution/IV has been replaced with a Refer with Caution recommendation

DU Out of Scope Recommendation
– DU is unable to underwrite the particular product, mortgage, or borrower
described in the submission
• No credit score
• Cash Out, Purchase and construction loans with a CLTV > 105%
• Balloon Terms greater than 30 years
Mortgages that receives an Out of Scope recommendation in DU
– Must be manually underwritten per the Seller Guide; or
– Not delivered to Fannie Mae
Recommendations- Out of Scope

SEL- 2012-04
Selling Guide Updates
– Applies to DU and manually
underwritten loans
– Updates to DU Refi Plus & Refi Plus
– Employment & Income Policy Changes
– Updated Eligibility Matrix
– Updated Standard ARM Plan Matrix
– Let’s look at some of the highlights…

DO/DU 9.0
Changes
– Updated credit risk engine
– Retirement of the EA levels
– Updates (lowers) maximum LTV/CLTV/HCLTV ratios for ARMS (most now at 90%LTV/CLTV Max)
– Removes streamlined appraisal form options
– Condo project “Limited Review” Change
– Updates income documentation requirements
– Added sources of income to online loan application
– Updates high-balance mortgage credit score requirements (subject to 620 for FRM 720 for IO loans)
– Updates the DU Findings Report
– Reserves for 2-4 Unit Principal residence transactions
– Manual reserve calculation for specific transactions
– Disputed Tradeline message update
– Additional Out of Scope transactions
– New Estimated Value Appraisal Message
– Verification of funds for 30-day accounts
– Retirement of Fannie Mae Neighbors™
– Updates the 2012 AMI limits
– Retires 8.2

Eligibility Matrix- October 2012
https://www.fanniemae.com/singlefamily/originating-underwriting

DO/DU Release Notes
Weekend of October 20, 2012
– DU 9.0 implemented for newly created
casefiles
– SEL-2012-04 updates will be effective for
DU loan casefiles.
• See next slide for the changes
https://www.efanniemae.com/sf/guides/duguides/dureleasenotes/

DO/DU 9.0 Supplement
Weekend of October 20, 2012
– DU 9.0 used 2012 AMI or Area Median
Income to determine eligibility for
MyCommunityMortgage loan casefiles.
– Casefiles originally submitted to 8.3 and
resubmitted to 9.0 will be underwritten
using the new 2012 limits
– Retires the FannieNeighbors Option
https://www.efanniemae.com/sf/guides/duguides/dureleasenotes/

DU Version 9.0 May Update

SEL 2013-04
17
Announced May 28, 2013
– DU will be updated with a future
release
– Lenders may manually apply the
updated income and documentation
requirements and can disregard any
DU messages that contradict those
updates
– Lenders must implement for
applications on or after September 1,
2013
How to Become A Desktop Underwriter June 2013

2013-04
Changes
– Credit documents must be no more than four months old on the date the note is signed
– Existing and new construction will have the same document expiration requirements
– Social security received by a dependent or disabled dependent require 3 year continuance to be
verified
– Timing of Tax Returns, Tax Return Signature alternatives, Use of IRS Tax Transcripts.
• Guidance on allowable age of federal tax returns
• Definition of “most recent year’s tax return
• Clarification of borrower signatures and allowable alternatives to obtaining a borrower’s signature
• How IRS tax return transcripts that result from Form 4506-T may or may not be used to verify income
– Requirements for other types of income such as royalty contracts, trust income or parsonage income
and checking/savings accounts that can be used as employment-related assets has been
updated/clarified
– Single entity ownership in a project requires lenders to include any units owned by the
developer/sponsor that are subject to a lease or lease/purchase arrangement must be included in the
calculation of “10%” max; Units owned by the developer/sponsor that are vacant and being marketed
for sale are NOT included.
– Updates on calculation of real estate taxes for housing expense including situations with a short-term
abatement or new construction to ensure taxes are not underestimated
– Various waiting period policy changes including use of credit report date and/or disbursement date
(depending on the policy) instead of application date
– Updates to further address identification of significant derogatory credit events that may or may not
appear on the credit report

2013-04
Credit Document Expiration Dates

2013-04
4506-T Policy Highlights

2013-04
Most Recent Tax Returns

2013-04
Several Updates to Chapter B3-3 Employment Documentation

2013-04
Several Updates to Chapter B3-3.19 Other Sources of Income

2013-04
4506-T Policy Highlights

2013-04
Condo Project Review-Additional “Ineligible reasons”

2013-04
Updated Waiting Periods for Significant Derogatory Events

2013-04

Qualifying Ratio in DU

Potential Red Flag Messages
8.0 has moved these messages from the “Potential Red Flag Section” to
Verification section

https://www.efanniemae.com/sf/technology/ou/du/pdf/dupotentialredflagmessagematrix.p

Findings
DU indicates strengths in the loan
2013-04 Document expiration will be updated to be stated in months rather
than days and will be four months for both new and existing construction

Findings- Minimum MI Coverage Levels

Credit Requirements
https://www.efanniemae.com/sf/technology/ou/du/pdf/ducreditscoremodel.p

Minimum Credit Score Requirements
Fannie Mae Selling Guide Section B3-5.1-01, General Requirements for Credit Scores (11/13/2012)
Genworth requirement for minimum credit score must be meet when
Genworth Mi is needed and may be higher than stated Fannie Mae scores

Significant Derogatory Credit Events
B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-
establishing Credit (05/28/2013)
Bankruptcy (Chapter 7 or Chapter 11)
– A four-year waiting period is required, measured from the discharge or dismissal
date of the bankruptcy action
– Exceptions for Extenuating Circumstances
– A two-year waiting period is permitted if extenuating circumstances can be
documented, and is measured from the discharge or dismissal date of the
bankruptcy action
Time period for waiting is established by the credit report date not
application date for DU loans

Multiple Bankruptcy Filings
– A borrower with more than one bankruptcy filing within the past seven years, a
five-year waiting period is required, measured from the most recent dismissal or
discharge date
Exceptions for Extenuating Circumstances
– A three-year waiting period is permitted if extenuating circumstances can be
documented, and is measured from the most recent bankruptcy discharge or
dismissal date. The most recent bankruptcy filing must have been the result of
extenuating circumstances

Foreclosure
– A seven-year waiting period is required, and is measured from the completion
date of the foreclosure action as reported on the credit report or other foreclosure
documents provided by the borrower
– Exceptions for Extenuating Circumstances
– A three-year waiting period is permitted if extenuating circumstances can be
documented, and is measured from the completion date of the foreclosure
action. Additional requirements apply between three and seven years, which
include:
• Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV,
CLTV, or HCLTV ratios for the transaction per the Matrix
• The purchase of a principal residence only is permitted
• Limited cash-out refinances are permitted for all occupancy types pursuant to the
eligibility requirements in effect at that time
Note: The purchase of second homes or investment properties and cash-out refinances (any occupancy type) are not permitted until a
seven-year waiting period has elapsed.

Deed-in-Lieu of Foreclosure and Pre-foreclosure Sale
– These transaction types are completed as alternatives to foreclosure. A deed-in-
lieu of foreclosure is a transaction in which the deed to the real property is
transferred back to the servicer. A pre-foreclosure sale or short sale is the sale of
a property in lieu of a foreclosure resulting in a payoff of less than the total
amount owed, which was pre-approved by the servicer.
– The following waiting period requirements apply:
• Two years 80% maximum LTV ratios1
• Four years 90% maximum LTV ratios1
• Seven years LTV ratios per the Matrix
1 The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.

Time period for waiting is established by the credit report date not
application date for DU loans

DU Credit Processing
Credit Processing Continued..
– Authorized User Accounts: DU considers authorized user accounts in it’s credit risk
assessment. FICO scores may be impacted but DU’s risk engine looks at the trade lines
and makes a credit recommendation.
– Lenders typically should underwrite without the benefit of these trade lines unless your
borrower is the authorized user and you have confirmed they have been making the
payments on the account.
Accounts Paid off at Closing
– Revolving debt paid off at closing must be included in the DTI unless the account is paid off
and closed. Funds must be verified to pay off the account in addition to the amount DU
requires and underwriters must use discretion and include a payment even if the account is
being closed out.

DU Credit Processing
Credit Processing Continued…
– Judgments, Garnishments and Liens:
• Must always be paid
• Underwriters must verify sufficient funds to do so in addition to the funds DU required
• DU does NOT automatically add these to the required funds for closing.
– Mortgage Delinquencies:
• Credit reports that contain a mortgage that was reported within the last six months and was 60 or
more days past due when it last reported, will receive a “Refer w/Caution” recommendation
• If the mortgage was not 60 days or more past due when the account was last reported, but has been
60 days or more past due in the last 12 months, the loan will receive an “Ineligible” recommendation
– Collections, Charge offs:
• Do NOT need to be paid off
• Check with your investor or your internal policies they may differ

Maximum DTI in DU
For loan casefiles underwritten through DU
– DU determines the maximum allowable debt-to income ratio based on the overall risk
assessment of the loan casefile
– DU will apply a maximum allowable total expense ratio of 45%, with flexibilities offered up
to 50% for certain loan casefiles with strong compensating factors

The total monthly obligation is the sum of the following:
– Monthly housing expense (PITI)
– Monthly payments on installment debts and other mortgage debts that extend
beyond ten months (including deferred installment loans);
– Monthly payments on revolving debts (unless payoff and closing out);
– 30 Day charge accounts -monthly balance will not be calculated in the DTI but
included as reserves in the “required funds to be verified” with DU 9.0
• Do not Omit or mark paid by close
• Verify MOP is “O” on credit report and mapped correctly into DU
– Monthly payments on lease agreements, regardless of the expiration date of the
lease;
– Any net loss from a rental property
– Any deferred student loans. If no payment listed, lenders may use 2% of the
UPB or obtain documentation of what the actual payment will be
– Any debit that significantly impacts the borrower’s ability to pay their monthly
obligations must be counted (such as revolving debt even when being paid off
and closed out)
Liabilities Calculated in DU

The total monthly obligation is the sum of the following:
– Monthly alimony, child support, or maintenance payments that extend beyond ten
months
– Unreimbursed Employee Expenses (when a 24 month average can not be
calculated the monthly expenses is used in the DTI and NOT used to reduce
monthly income)
– Business debt in the borrower’s name unless-
• the account in question does not have a history of delinquency,
• the business provides acceptable evidence that the obligation was paid out of company
funds (such as 12 months of canceled company checks), and
• the lender’s cash flow analysis of the business took payment of the obligation into
consideration.
Liabilities Calculated in DU
Be familiar with your or your investor’s policy on the treatment of
unreimbursed business expenses

Updated Logic for Disputed Trade lines with 9.0
– IF DU doesn’t issue the disputed trade line message, the lender is not required
to further investigate
• Lenders must include the payment, if any in the borrower’s DTI
2013-04
– Follow Seller Guide B3-6-03 for instructions for tax amounts when payment
abatement exists or the property is new construction.
– Calculations must be based of the land and improvements
Liabilities in DU

DU 9.0 May Update

DU 9.0 Updated Income Assessment

•
General Levels of Documentation: Other Income
– With DU 9.0 the following income types will be added to the online application:
– Capital Gains
– Employment-Related Assets
– Foreign Income
– Royalty Income
– Season Income
– Temporary Leave
– Tip Income
Analyzing Reports Employment & Income

Fannie Mae Seller Guide
Continuance of Income
2013-04 provides guidance for several “other types” of income. Refer
to the Fannie Mae Selling Guide for more information.

Sample Non Salary Income Messages

Income Trending
– After the monthly year-to-date income amount is calculated, it must be compared to prior
years’ earnings using the borrower’s W-2’s or signed federal income tax returns (or a
standard Verification of Employment completed by the lender or third-party employment
verification vendor)
• If the trend in the amount of income is stable or increasing, the income amount should be averaged
• If the trend was declining, but has since stabilized and there is no reason to believe that 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
DU 9.0 Updated message for Employment

Pay Stub
– The paystub must be dated no earlier than 30 days prior to the initial loan application date
and it must include all year-to-date earnings
– Additionally, the paystub must include sufficient information to calculate the income
W-2’s
– If a W-2 is required, lenders must obtain W-2’s for all jobs held in the prior year
VOE/Form 1005
– VOE with year-to-date income may be substituted for the paystub or for the paystub and
W-2
– The VOE must contain the prior year’s earnings if it is a substitute for the W-2

Verbal VOE (VVOE)
– Lenders must independently obtain a phone number and, if possible, an address for the
borrower's employer
– Lenders must contact the employer verbally and confirm the borrower's current
employment status within *10 business days prior to the note date
Document the conversation with all of following:
– name and title of the person who confirmed the employment for the lender
– name and title of the person who completed the verification,
– date of the call
– the source of the phone number
– See additional guidelines for borrowers in the military, on temporary leave and when using
a third party vendor
*As per SEL-2012-04 Lenders may obtain VVOE after closing but
prior to delivery of the loan to Fannie Mae

Most recent two years tax returns required when the borrower:
– Earns 25% or more of his or her income from commissions;
– Is employed by family members;
– Is employed by interested parties to the property sale or purchase;
– Receives rental income from an investment property (only one year of tax returns is
required unless the borrower meets one or more of the other conditions in this list);
– Owns 5-10 financed properties and the subject of your loan is a second home or
investment transaction
– Receives income from temporary or periodic employment (or unemployment) or
employment that is subject to time limits, such as a contract employee or a tradesman
– Receives income from capital gains, royalties, real estate, or other miscellaneous non-
employment earnings reported on IRS Form 1099;
– Receives income that cannot otherwise be verified by an independent and knowledgeable
source;
– Uses foreign income to qualify;
– Uses interest and dividend income to qualify; or
– Receives income from sole proprietorships, limited liability companies, partnerships, or
corporations, or any other type of business structure in which the borrower has a 25% or
greater ownership interest.

Form 4506-T, Form 4506 or Form 8821
Form must be signed only once during the application process
– The timing is at the lender’s discretion but it must be signed on or before the closing of the
mortgage loan
– The Lender must document the requirement to obtain an executed IRS Form 4506-T with
the IRS in their written quality control (QC) plan
When completing lenders must
– Fill in as the recipient of the tax documents — either its name or the name of the servicer, if
servicing will be transferred within 120 days of the taxpayer signing the form;
– Indicate that the request is for documentation concerning the year or years for which the
borrower’s income was or will be used in underwriting the loan; and
– Date the form with the date on which the borrower signs the form (or ascertain that the
borrower dates the form when he or she signs it)
NOTE: IRS Forms 4506-T and 4506 are valid for 120 days after completion (including signature) by the borrower. IRS Form 8821 is valid for 60 days
after completion. I

•
General Levels of Documentation: Base Earnings
– Recent pay stub dated within 30 days of application and the previous one or two
years W-2
– Verbal verification of employment within 10 business days of closing or after closing
but prior to loan delivery
– Or a written verification of employment (Written VOE 1005) can be used in place of
either of the above documentation as long as it contains applicable info

•
General Levels of Documentation: Bonus and Overtime
– Recent pay stub dated within 30 days of application and W-2’s for past two years and
a verbal verification of employment
– Or a written verification of employment (Written VOE 1005) can be used in place of
either of the above documentation as long as it contains applicable info
– See additional requirements for “Variable” income in the Fannie Mae 2012 Selling
Guide Section B3-3.1, Employment and Other Sources of Income
Two or more years of receipt of a particular type of variable income is recommended; however, variable income that
has been received for 12 to 24 months may be considered as acceptable income, as long as the borrower’s loan
application demonstrates that there are positive factors that reasonably offset the shorter income history.

Commission income less than 25% of borrower’s total annual
employment income
– One recent pay stub, or
– recent pay stub and the previous two years W-2
– Or a written verification of employment (Written VOE 1005) can be used in place of either
of the above documentation as long as it contains applicable info
See DO/DU Release Notes DU Version 9.0 for complete list of
updates
Commission income ≥ 25% of borrower’s total annual employment
income
– Pay stub, W-2’s and most recent signed federal tax returns for two years (per Fannie
Mae Seller Guide policies); Lenders must review for unreimbursed business
expenses
– If more than 60 days from the last filed tax return has passed current income must
be confirmed

•
General Levels of Documentation: Self-Employment
– Most recent (per the Fannie Mae Seller Guide Policies) two years personal and two
years federal business tax returns
– If applicant’s filed an extension, provide most recently filed two years federal tax
returns, plus a copy of IRS form 4868.
– Lenders must then review the total tax liability reported on the IRS form 4868
and compare it with the borrower’s tax liability from the previous two years as a
measure of income source stability and continuance.
– An estimated tax liability that is inconsistent with the previous years may make
it necessary for the lender to require the current tax returns in order to proceed
– Profit and loss statement may be required by your investors or on a case by case
basis
– Verbal VOE required to verify existence of a business within 30 days of closing or
after closing but prior to loan delivery for all self employed borrowers.
Policy above reflect 2013-04 requirements effective September 1,
2013

•
General Levels of Documentation: Self-Employment
– Business returns can be waived if certain requirements are met
– Borrower has been self employed in the same business for at least five years
– Borrower’s individual tax returns show an increase in self-employment income
over the last two years; and
– The borrower is paying the down payment and closing costs with his or her
own funds, and is not using any funds from the business account
Lenders may still need to obtain business returns even when the above criteria has
been met

•
General Levels of Documentation: Second Job, Self Employed
– Personal & Business tax returns covering most recent two year period per Fannie
Mae Seller Guide policies, along with a verbal verification of employment
•
General Levels of Documentation: Second Job, not Self Employed
– One recent pay stub and W-2’s for most recent two year period along with a verbal
verification of employment

•
General Levels of Documentation: Retirement Income
– If a monthly distribution is received from 401(k), IRA, SEP or Keogh account the borrower
must have unrestricted access too the accounts without penalty
– When funds are drawn from assets, stocks, bonds or mutual funds, you must factor
potential volatility of the income stream
Review Announcement SEL-2012-04 and Fannie Mae 2012 Selling
Guide section B3-3.1-09 for complete details on Other Sources of
Income.

DU Income Review
•
General Underwriting Requirements
– Lenders must review the “type” of income earned and entered in DU; income used
for qualifying must be reasonably stable and likely to continue at the current levels.
RED FLAG: Declining income
– Bonus and Overtime must be annualized or not used at all.
– Commission Income must be entered as “commission” and any unreimbursed
expenses from the IRS form 2106 should be subtracted
– Employment by a relative requires applicant to provide tax returns regardless of the
DU income documentation message
– Second Job must have a minimum typically of a two year history
– Enter self employed income in “base” income field & sure to mark the self
employment box
– Non taxable sources of income can typically be grossed up 25% if evidence that it is
non taxable is provided (Tax Returns)
– Handwritten pay stubs are typically not acceptable nor “stale dated stubs”
Reminder! 2012-04 has significant changes to underwriting policy

Findings-Funds Section (Assets and Reserves)
DU 9.0 includes new updated & modified fields. This helps to determine if a
resubmission into DU is required. A tolerance for assets will be announced in the
future.

•
Types of Assets used for closing/reserves
– Checking/Savings: Amount held in applicant’s account as of
application.
– Gift Deposited*: Amount of Gift received from a acceptable donor
(Exclude this amount from the account balances previously listed).
– Gift Not yet Deposited*: This amount should be equal to the verified
assets from the acceptable donor.
– Money Market Funds: Amount held in applicant’s account as of
application date.
– Certificate of Deposits (CD):
– Equity/Sale Proceeds from an Existing Home: The net proceeds that will
be received prior to closing as evidenced by the HUD I closing
statement.
– Other Liquid Assets (If properly verified): Cash Value of Life Insurance,
Trust Funds, Funds to be Saved or Tax Refund
– Sale of an Asset: Boat, Car, stamp collection.
*Gift funds alone typically cannot be used for reserves and Sale of personal property typically cannot be
used for the full amount of required borrowers down payment

•
Types of Assets used for closing/reserves
– Stocks, Mutual Funds: Number of shares, value or recent statement
– Vested Interest in Retirement Funds: Includes funds in pension and
401K and IRA accounts.
– Gift Funds: Must be from an acceptable donor. See the seller guide for
acceptable donors.

•
DU 8.2 Updates
– DU updated to allow for personal gifts, and in some cases gift s or grants from an
entity, employer assistance, and Community Seconds as minimum borrower
contribution for certain transactions
– Gift funds are never allowed on Investment transactions and DU will provide
eligibility messages if data entered correctly on 1003
– Gift letters will be required for all loans when gift funds are being used.
Borrower Minimum Contribution
Fannie Mae SEL 2010-13 changes the gift letter requirements and
borrower minimum contribution requirements

Borrower Minimum Contribution
Fannie Mae Sel Announcement 2010-13 changes the gift letter
requirements and borrower minimum contribution requirements

Findings-Assets and Reserves
Monthly bank statements must be dated within 45 days of the initial
loan application date and be the most recent
•
General Levels of Documentation: Asset Assessment
– Most recent one month bank statements
– Most recent two months consecutive bank statements
– Be sure to read also read how much you need to verify
– Proof of liquidation of assets used for closing

Reserve Requirements
– For loan casefiles underwritten with DU, DU will determine the reserve requirements based
on the overall risk assessment of the loan casefile and the minimum reserves that may be
required for the transaction
– Reserves may be considered a compensating factor in DU's risk analysis, and may serve
to improve the underwriting recommendation
– Manual reserve overlays may apply to certain transactions

Selling Guide Announcement SEL-2012-04 and DU 9.0 Reserve
Updates
– Updates reserve requirement in DU for 2-4 unit principal residence transactions
to require a minimum of six months reserves regardless of the use of rental
income
– Certain casefiles DU is unable to determine the reserve requirement. Lenders
must perform a manual calculation of the required minimum reserves for the
transaction.
• Lenders must add to the amount of “Total Funds to be Verified” the minimum reserve
requirements specified in the Fannie Mae Selling Guide for the following scenarios:
– Principal residence transaction where the current principal residence is pending sale, converting
to a second home, or converting to an investment property; and
– Second home and investment transactions for borrowers who will have 1-10 financed properties
– The total amount of assets to be verified, per the guidance above, must be
reflected in the Asset section of the loan application.

Stocks, bonds and mutual funds for reserves
– 70% of the value may be used (reduced from 100%)
Stock Options and non-vested restricted stock
– These assets are no longer eligible for use as reserves
Asset Assesment

Retirement accounts (401k or IRA)
– 60% of the vested amount may be used for reserves
– If these assets are needed to support the amount of funds required for closing and
reserves, the available account balance must be documented with a recent depository or
brokerage account statement as well as the conditions under which the funds may be
withdrawn
– If funds needed for closing, proof of liquidation and deposit/receipt is required
– Retirement accounts allow for withdrawals only in connection with the borrower’s
employment termination, retirement, or death, the retirement account asset should not be
entered
Asset Assessment

Assets
Fannie Mae Selling Guide
Announcement SEL 2012-13
– Updates reserve requirements
– Guidance for large deposits

Fannie Mae SEL Announcement 2012-13
Retirement Assets Used for Reserves
– If the retirement assets are in the form of stocks, bonds, or mutual funds, in order to be
considered for reserves, the account must be discounted by 30% to account for market
volatility
– In addition, if the borrower is not of retirement age (typically 59 ½) and will be assessed an
early withdrawal penalty, that penalty (10% unless confirmed otherwise) must be added to
the discount for a total discount of 40%
– If the borrower is at or above retirement age, the additional 10% penalty does not need to
be applied
– In order to be considered as effective reserves, retirement accounts must be vested and
allow for withdrawals regardless of current employment status
DU was updated in May 2013 to reflect these changes
Seller Guide Chapter B3-4.3-03 Retirement Accounts

Fannie Mae SEL Announcement 2012-13
Indications of Borrowed Funds
– Lenders must obtain borrower’s written explanation and documentation of the source of
large deposits that are reflected on bank statements
– Large deposits are defined as a single deposit that exceeds 25% of the total monthly
qualifying income for the loan
– 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
– If the source of the 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.
Seller Guide has been updated
– B3-4.2-01 Verification of Deposits and Assets
– B3-4.2-02 Depository Assets

Reserves-Second Home or Investment Transactions
•
Borrowers with five to ten financed properties
•
Underwriting Requirements- Five to Ten Financed Properties
– No bankruptcy or foreclosure in past seven years nor any delinquencies within the past 12 months on any
mortgage loans.
– DU also cannot verify how many properties a borrower owns-look for a new findings message reminding the
lender to verify this requirement
– Borrower must have reserves for the subject and for other properties currently owned in accordance with new
Reserve Requirements for Multiple Financed Properties
– Lender must execute 4506T & review tax transcripts
– Guidelines do NOT apply to DU Refi Plus™ mortgages

Reserves-Second Home, Investment & Multiple
Financed Properties
•
Amount of Reserves varies as per guidelines below
•
Definition of Reserves-Based on Each Property Owned
– 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-Second Home or Investment Transactions
•
Underwriting Requirements-Five to Ten Financed Properties. DU
cannot identify how many financed properties your borrower owns-
When it’s five to ten financed properties:
– Rental Income from other properties must be supported by two years tax returns
regardless of DU findings message when borrowers own five to ten financed
properties.
– DU also cannot verify how many properties a borrower owns-look for a new findings
message below reminding the lender to verify the many requirements for multiple
financed properties

Selling Guide Announcement SEL-2012-04 Reserve Updates
1

Primary Residence Conversion
Primary Residence Conversions require additional reserves
regardless if manually underwritten or submitted to DU 9.0

Second Home or Investment Properties
Mortgages for Second Home or Investment properties require
additional reserves regardless if manually underwritten or submitted
to DU 9.0

Interested Party Contributions & 8.3
Interested Party Contributions
– Optional field on the on line 1003
– IPC message when IPCs are in excess of the standard guidelines allowed
– DU will calculate an “adjusted LTV/CLTV” when this field is completed
– Sample of the message is listed below
DU 9.0 May Update

www.efanniemae.com, Announcement SEL-2010-09
Appraisal Requirements
•
Fannie Mae Announcement 2010-09
updated the appraisal requirements.
– When and interior/exterior appraisal report
is required, interior photos are required.
– If the last transaction of the subject was an
REO or foreclosure sale a full
interior/exterior appraisal report is required
– MC1004 is required in all cases
– Many other clarifications and updates can
be found in the announcement relating to
appraisal and appraiser requirements

Updated Appraisal Documentation Recommendations
A full interior/exterior appraisal is always required regardless of the DU
appraisal option when the last sale was an REO or foreclosure sale

Updated Project Review Requirements DU 9.0
– DU will require a full project review on principle residences located in condominium
projects when the LTV/CLTV/HCLTV is greater than 80%
• Limited review will no longer be permitted
DU 9.0 May Update

When You Change Data…
Be sure to review findings report after any changes?
– Do you still have a property fieldwork waiver?
– Do you now need tax returns?
– Do you only need one month bank statement?
– Is loan “Eligible” or “Ineligible” due to cash back to borrower?
• Review details of transaction for payoff, closing cost, prepaids
• DURP loans have special requirements to remain eligible
– Shipping/Closing: Review final HUD I with findings report
• Do you still have enough to close? Review DU findings report and bank statements to confirm
• Review reserve requirements as well

Findings - Observation Section
Contains “FYI” Information for You and Your Lender

Findings - Validate All Information

Data Integrity Reminders
•
Lenders are responsible for integrity of the data submitted to Desktop
Underwriter
– Do you have all pages to the bank statement and are all large deposits
addressed and sourced?
– Is the correct percentage used when using stocks, bonds or retirement funds
for reserves? Did you subtract any outstanding loans and is applicant fully
vested?
– Paying off a second mortgage? Verify it was used to purchase the property or
treat the loan as a cash out. Also verify seasoning requirements for ownership
and taking cash out.
– Is the property currently offered for sale or has it been offered for sale in the
past six months?
– Is Property type entered correctly (condo, PUD, manufactured home)
– Are the HOA dues, flood insurance or MI payments included in the housing
payment, if applicable? Do you have written support?
– Does the occupancy make sense? Are the “Potential Red Flags” cleared as per
the DU findings report?
– Are all the assets per DU verified plus any additional that are needed to payoff
a judgment or collection? Evidence of liquidation if needed? Additional
reserves?

Data Integrity Reminders
•
Lenders are responsible for integrity of the data submitted to Desktop
Underwriter
– Deferred loans must always be included in the debt ratio
– Lease Payments must always be included in the debit ratio regardless of number of
payments remaining
– Installment/lease debt without a payment on the credit report, you must obtain
documentation to verify the actual monthly payment amount (Exception: Deferred
Student loans as per policy in SEL 2011-04)
– DU 8.2 will require all revolving debt to be included in the DTI regardless of months
remaining to pay and 8.3 will provide updated message reminding lender to include
the revolving debt being paid off UNLESS the account will be closed out
– Income should NOT be averaged from the W-2s and lumped into “Base”
– Do names, addresses and social security numbers match from document to
document?

Remember
Additional Guideline Overlays
– Fico Score
– Appraisal Form
– DTI
– Funds to payoff items
– Reserves
– Always check MI guidelines when applicable
DU provides minimum documentation requirements. In some cases more
information may be needed to make a credit decision

http://fanniemae.com/portal/index.html
Fannie Mae Website

Fannie Mae Website

Fannie Mae Website
https://www.fanniemae.com/singlefamily/originating-underwriting

Genworth Guidelines for Credit Unions
http://www.mortgageinsurance.genworth.com/cu
How to Become A Desktop Underwriter June 2013 99

Additional Resources
GENWORTH RESOURCES
Action Center: 800 444-5664
Your Local Genworth Underwriting Manager
Your Genworth Account Executive or Manager

101
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.
How to Become A Desktop Underwriter June 2013
®
Desktop Originator/Desktop Underwriter (DO ®
/DU ® )
are registered trademarks of Fannie Mae.
®Loan Prospector is a Registered Trademark of Freddie Mac

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