Written By: Angelique Jackson, Op-Ed Writer
On March 29, 2016 Fannie Mae issued an updated regarding DU 10.0 and Multiple Financed Properties. Previously, we lenders had to manually calculate the reserve requirements because DU did not provide that information. Well, that will all change the weekend of June 25, 2016. DU will now calculate the number of financed properties the borrower has and calculate the reserves for both the subject property and the “Other financed properties.” But before we get into the calculations for the total number of financed properties and reserves, let’s talk about the multiple finance property rule and when it applies.
If the borrower is getting a mortgage secured by their primary residence, then there will be no limitations on the number of other properties that the borrower will have financed. If the borrower is getting a mortgage secured by a second home or an investment property, then the multiple financed property rule applies.
The financed property limit applies to:
• 1-4 unit residential properties where the borrower is personally obligated on the mortgage (accounts in the name of the borrowers business would not be included)
• The total number of properties financed, not the number of mortgages on the property or the number of mortgages, overall
• Includes the borrower’s primary residence if it is financed
• All borrowers or the loan, it is cumulative (although jointly financed properties are only counted as once)
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The following property types are not subject to the multiple financed rules, even if the borrower is personally obligated on a mortgage on the property:
• Commercial Real Estate
• Multifamily Property (more than 4 units)
• Vacant Lots (Residential or Commercial)
• Manufactured Homes not title as real estate (Chattel Liens)
If a borrower is financing a second home or investment property, the maximum number of financed properties the borrower can have is 10. If a borrower has 7-10 financed properties, the borrower must have a minimum credit score of 720. The great thing about the DU 10.0 update is that this will all be done for you now. DU will determine the number of financed properties based on the following:
• Number of financed properties field is completed
• Number of residential properties in the REO section that include a mortgage payment or that are associated with a mortgage or HELOC
• Number of mortgages and HELOC’s on the 1003
• Number of mortgages and HELOC’s disclosed on the credit report
That means if there is a mortgage that is not disclosed on the credit report but it listed on the 1003, DU will account for the undisclosed mortgage because it is disclosed on the application. DU 10.0 will add the number “1” to the number of financed properties on purchase transactions. After determining the number of financed properties, DU will use that value to assess the eligibility of the loan, including the minimum credit score requirements for 7-10 financed properties and the minimum required reserves the lender must verify. DU will issue a message informing the lender of the number of financed properties that DU used and where that information was obtained.
When calculating reserves for the subject project property, you will take 2 months PITIA for 2nd homes and 6 months PITIA for investment properties. You do not include the borrower’s principal residence in the reserve calculations. The other financed properties reserves amount must be determined by applying a specific percentage to the aggregate of the outstanding unpaid principal balance for mortgages and HELOCs on these other financed properties. The percentage of the unpaid principal balance is determined by the number of financed properties the borrowers has. If the borrower has 1-4 financed properties, you take 2% of the UPB, 5-6 financed properties, 4% and 7-10 financed properties, 6%. It is important to note that the UPB calculation does not include the mortgages and HELOCs that are on:
• Subject property
• Borrowers primary residence
• Properties that are sold or pending sale, and
• Accounts that will be paid by closing
Lastly, if the lender is processing multiple second home or investment property applications simultaneously, the same assets may be used to satisfy the reserve requirements for both mortgage applications. Reserve are not cumulative for multiple transactions. What does that mean, you ask? That means if $5000 in reserves is required for Property A and $10,000 in reserves for Property B, you do not have to verify $15,000 in reserves. You only need to verify the $5,000 for Property A and $10,000 for Property B.
Fannie Mae did provide a handy checklist to help us navigate through the muddy multiple financed property rules, and this checklist is required on DU casefiles until the release of DU 10 on June 25, 2016. Remember, just because DU will start calculating the total number of financed properties and the amount of reserves, that does not absolve the underwriter from doing their due diligence to ensure the appropriate number of properties are captured by DU. DU is only as good as the information that is inputted.
About The Author
Angelique Jackson has had a passion for the mortgage business for the last 14 years holding various positions in the industry including customer service, closing, processing, underwriting, loss mitigation, Operations Manager and VP of Compliance and Training. She has helped open operations centers and has trained over 1200 students nationwide. She currently serves as the Senior Credit Trainer for a major mortgage lender and instructor at Mortgage University. She is a bibliophile who enjoys learning about almost everything, and when not being a nerd, she loves attending Cleveland Cavaliers basketball games (she is a season ticket holder), spending time with her two goddaughters and traveling.