IBMConnection: Top 3 Questions From the Underwriting Help Desk

Underwriting Questions

Your Top 3 Questions From the Help Desk

Welcome to the first edition of IBMConnection, Iowa Bankers Mortgage Corporation's new redesigned newsletter formerly known as IBMC Update. In this issue, we offer a look at the top three underwriting questions received by IBMC's Underwriting Help Desk the last few months.

Q: Has the minimum credit score for conventional loans changed?

A: Fannie Mae recently changed the way it analyzes credit scores for loan eligibility. Fannie will now use the average of each borrower’s median score to determine if the borrower meets the minimum 620 credit score requirement. It’s important to note that the actual representative credit score will continue to be used for the following:

Pricing out the interest rate.
Applications with one borrower.
RefiNow loans.
Manually underwritten loans.
Government loans.
Other policies in DO/DU that have minimum credit score criteria (such as multiple financed properties).
Loan delivery on all loans.

Additionally, if the loan requires mortgage insurance, the preferred mortgage insurance company must also be consulted to confirm eligibility and pricing.

Additional information can be found in the source links below.

Source: Fannie Mae Credit Score eligibility in Desktop Underwriter (DU) for multiple borrowers

Fannie Mae Selling Guide Announcement (SEL-2021-08)

Q: When are tax transcripts required to be a part of an underwriting package?

A: The requirement for tax transcripts varies based on the loan channel you're using.

Core and Alliance: Tax transcripts are required on all USDA RD loans. For all other loan types, tax transcripts are NOT required on every file. Transcripts MUST be ordered and included with the underwriting package on any file that requires tax returns for income verification (when submitting Alliance loans, IBMC will order transcripts on behalf of the bank). You only need to order transcripts for what returns are required. For example, if personal returns are required, then order transcripts for personal returns. If both personal and business returns are required, then you must order transcripts for both sets of returns. Finally, if transcripts are required for the file but cannot be obtained, Fannie Mae requires that the borrower sign and date the signature page of the personal and business returns (as applicable).
Heritage: Tax transcripts are required on all USDA Rural Development loans and all Iowa Finance Authority loans. For all other loan types, tax transcripts are NOT required on every file. Transcripts MUST be ordered and included with the underwriting package on any file that requires tax returns for income verification. Tax transcripts will be ordered only for what returns are required. For example, if personal returns are required, then IBMC will order transcripts for personal returns. If both personal and business returns are required, then IBMC must order transcripts for both sets of return. Finally, if transcripts are required for the file but cannot be obtained, Fannie Mae requires that the borrower sign and date the signature page of the personal and business returns (as applicable).

Note: The 4506-C is still required to be signed at application and closing for all transactions regardless of whether it will be executed for the tax transcripts.

Q: How is income analyzed when an applicant is employed in a job that is currently on strike?

A: If an employee is participating in a strike, any income from that job is unable to be counted toward repayment income. This is because a Verification of Employment (verbal or written) will indicate that the employee is not currently working. The employee will be required to wait until the strike is over and they have returned to work before their income is eligible to be included in the repayment calculation. They must also be able to provide a paystub within 120 days of the note date that shows no material change that would affect loan eligibility. Additionally, if the income was already variable in nature, it would still be required to be averaged.

If the loan does not need the applicant’s income to qualify, you can remove their employment and income and proceed without it in the file.