CONCURRENT TRANSFERS OF SERVICING 

In our continuing effort to create operational efficiencies and streamline the Transfer of Servicing process, we are eliminating the mandatory expiration date on the CTOS Agreement, which results in Sellers no longer needing to submit a new CTOS Agreement annually. 

Effective today, the expiration date field on the CTOS Agreement is optional. CTOS Agreements where the expiration date field is left blank will remain in effect until either Freddie Mac, the Transferor Servicer (Seller), or the Transferee Servicer terminate the CTOS Agreement. 

In lieu of reviewing and approving CTOS Agreements annually, Freddie Mac will monitor the financial condition and performance of the Transferor Servicer (Seller) and the Transferee Servicer and may, in our discretion, rescind or suspend approval of the CTOS Agreement. 

The Transferor Servicer or Transferee Servicer may terminate the CTOS Agreement by first providing notice to the other (Transferor Servicer or Transferee Servicer as applicable) and then to Freddie Mac via e-mail to TOS@freddiemac.com at least five Business Days prior to the requested termination date.

In addition to making the expiration date on the CTOS Agreement optional, we are updating the form to remove the aggregate UPB field, references to Senior Subordinate Mortgages, and references to remittance types and cycles that Freddie Mac no longer supports. The terms and conditions were also updated to be consistent with the Servicing Contract. 

With the Transferee Servicer’s agreement, Freddie Mac will remove the expiration date on all CTOS Agreements currently with expiration dates of November 1, 2018 or later. To effect this change, Freddie Mac will provide the Transferee Servicer with a list of existing CTOS Agreements that they have with each Transferor Servicer (Seller) and ask the them to indicate on the list which agreements should no longer be subject to an expiration date and which agreements should remain subject to their existing expiration date. The Transferee Servicer must return the list via e-mail to TOS@freddiemac.com no later than December 14, 2018 and must copy the Transferor Servicer (Seller) on such e-mail. Freddie Mac will deem those CTOS Agreements that the Transferee Servicer indicated to be no longer to be subject to an expiration date to continue in effect until terminated by the Transferor Servicer (Seller), Transferee Servicer, or Freddie Mac in accordance with the updated Form 960. 

If the Transferee Servicer does not provide the list to Freddie Mac by the December 14, 2018 indicating that they wish to remove the expiration date of their CTOS Agreement(s), then such agreements will expire in accordance with their expiration dates. 

The Transferor Servicer’s delivery of Mortgages to Freddie Mac and CTOS of the related Servicing Rights to the Transferee Servicer after the expiration date on the related CTOS Agreement, which the Transferee Servicer has indicated should no longer be subject to an expiration date, shall be deemed to be the Transferor Servicer’s acceptance of the Freddie Mac’s and the Transferee Servicer’s removal of the expiration date. 

All other CTOS requirements in Guide Chapter 7101 remain unchanged. 

Guide impacts: Sections 7101.2, Form 960 and Directory 3 

SETTLEMENT/CLOSING DISCLOSURE STATEMENT 

Currently, the Guide permits the use of any settlement or closing disclosure required by applicable federal, State or local law. However, Freddie Mac and Fannie Mae (“GSEs”) have jointly agreed to require the Uniform Closing Dataset XML file, with the embedded PDF document of the Closing Disclosure required under the federal Truth-in-Lending Act (“TILA”), be delivered on all Mortgages with Note Dates on and after September 25, 2017. To meet this requirement, Sellers must create or obtain (in the event the Seller does not originate, but purchases the Mortgage or otherwise acquires it from a Correspondent or Mortgage Broker) the Closing Disclosure form for each Mortgage, regardless of whether another form might also be required by a State or local law. As a result, we are revising the Guide Glossary definition of “Settlement/Closing Disclosure Statement” to state: 

Settlement/Closing Disclosure Statement 

Except as provided below in connection with certain Servicing transactions, the Settlement/Closing Disclosure Statement means the closing disclosure required under the federal TILA for Mortgages subject to the TILA/Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (“TRID”) rules, whether or not the TRID rules apply to the transaction. 

With respect to an all-cash short sale or other Servicing transactions for which no settlement and/or closing disclosure is required by applicable law, the term Settlement/Closing Disclosure Statement means (i) a closing disclosure under the TRID rules, or (ii) any other settlement statement or closing disclosure that the Servicer determines would have otherwise been required by applicable State or local law should the TILA disclosure not be required. 

Several sections of the Guide require the Settlement/Closing Disclosure Statement to be provided for transactions other than the Mortgage being sold to Freddie Mac (e.g., to document closing costs paid at closing of a simultaneous secondary financing). We are updating these Guide sections to require the Settlement/Closing Disclosure Statement or an alternative form required by law, without requiring that it must be the TILA-compliant form. 

We are also specifying that any related documentation must be: 

• Provided with the Settlement/Closing Disclosure Statement in the Mortgage file submitted for Freddie Mac Quality Control (QC) review; and 

• Reviewed with the Settlement/Closing Disclosure Statement by the Seller during its post closing QC review This is intended to capture instances where: 

• Another type of closing disclosure is required by a State or local law in addition to the TILA-compliant form 

• Any other related documentation is obtained in connection with closing the Mortgage 

Additionally, we are removing the requirement that for Mortgages with Application Received Dates prior to October 3, 2015, the Mortgage file must include the estimated and final Settlement/Closing Disclosure Statements signed by all parties since such Mortgages should already have been sold to us. 

Loan Product Advisor feedback messages have been updated to reflect these changes. 

Guide impacts: Sections 2402.2, 3401.20, 3401.25, 3401.26, 3402.7, 4204.1, 4204.2, 4301.5, 4602.12, 5501.3, 5801.1, 6302.7 and Glossary R-Z 

Effective for Mortgages with Settlement Dates on and after February 1, 2019 

In Bulletin 2017-17, we announced that we were planning to retire special LTV/TLTV/HTLTV ratio requirements for a "no cash-out" refinance of a Mortgage owned or securitized by Freddie Mac due to the implementation of the Freddie Mac Enhanced Relief Refinance® Mortgage offering. 

We are now updating the Guide to remove the special LTV/TLTV/HTLTV ratio requirements for a "no cash-out" refinance of a Mortgage owned or securitized by Freddie Mac. This includes the removal of related special delivery requirements in Section 6302.16, which currently requires the delivery of ULDD Data Point, Investor Feature Identifier (IFI) (Sort ID 368) and enter the valid value of “D99.” 

Loan Selling Advisor® will be updated by February 1, 2019 to prevent the delivery of IFI D99. 

Guide impacts: Sections 4203.4, 4301.4, 5701.7, 6302.16 and Guide Exhibit 34

We have moved our corporate headquarters and updated the Guide and related forms to reflect our new address:

Fannie Mae

Midtown Center

1100 15th Street, NW

Washington, DC 20005

Condominium Projects

• Updates to our Condominium Project requirements

Income

• Revisions to our income requirements

Uniform Loan Delivery Dataset

• Updates to reflect the Uniform Loan Delivery Dataset (ULDD) Phase 3 specification addendum

Certificate of Incumbency

• Changes to our Certificate of Incumbency forms for Seller/Servicers

Investor Reporting Change Initiative

• A reminder to Sellers of the upcoming implementation of the Standard Remittance Cycle

Additional Guide updates

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

EFFECTIVE DATE

All of the changes announced in this Bulletin are effective immediately unless otherwise noted.

CONDOMINIUM PROJECTS

In response to Seller feedback, we are updating our requirements for Condominium Projects as follows:

Guide impacts: Sections 5701.1, 5701.2, 5701.5 and 5701.6

INCOME

Commission income

Following recent tax law changes, unreimbursed employee expenses of commissioned employees will no longer be documented on federal individual tax returns. Consequently, we are removing the requirements that when the Borrower's commission income is greater than or equal to 25% of the total income from the commissioned employment that the Seller:

• Obtain complete federal individual income tax returns for the most recent two-year period; and
• When calculating income, deduct unreimbursed employee expenses reflected on Schedule A and Internal Revenue Service (IRS) Form 2106 (if applicable) of the Borrower's federal individual income tax returns from the Borrower's gross commission income

As a result of this change, the documentation and income calculation requirements will be the same for all commission income, regardless of its percentage of the total income from the commissioned employment.

The applicable Loan Product Advisor® feedback messages will be updated at a later date to reflect these changes. Until then, Sellers may disregard the feedback messages requiring tax returns covering a two-year period when commission income is greater than or equal to 25% of the total income from the commissioned employment.

Guide impacts: Sections 5302.4, 5303.3 and 5303.4

Automated income assessment eligibility

Effective for submissions and resubmissions to Loan Product Advisor on and after March 24, 2019

As a result of the above changes to our requirements for commission income, all commission income, regardless of its percentage of total income from the employment, will also be eligible for automated income assessment, which is part of Loan Product Advisor asset and income modeler (AIM). This expands the income sources eligible for this capability to include commission income greater than or equal to 25% of the total income from the commissioned employment.

Guide impact: Section 5901.2

Guide Form 91, Income Calculations

We are updating Form 91 to reflect line item changes in tax documents resulting from the new tax law.

Separately, we are adding a note reminding Sellers that completion of the form does not replace the Section 5304.1(d) requirement for business review and analysis to support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower.

For more information, register for our new webinar, "Self-Employed: Beyond the Basics," which includes case studies as well as information about business review and analysis. For additional self-employed resources, access the Freddie Mac Learning Center.

Guide impact: Form 91

REMINDER ON FREDDIE MAC INVESTOR REPORTING CHANGE INITIATIVE IMPLEMENTATION

In Bulletin 2016-15, we announced our Investor Reporting Change Initiative that will convert Freddie Mac's single-family investor reporting requirements to be closer to an industry standard and change our remittance cycles. As highlighted in Bulletins 2017-4 and 2017-15, after April 30, 2019 Freddie Mac will no longer utilize the Gold remittance cycle, Accelerated Remittance Cycle (ARC), Super ARC and the First Tuesday remittance cycle. Effective with implementation of the initiative in May 2019, the Standard Remittance Cycle will apply to all Mortgages serviced for Freddie Mac.

As a reminder, for Guarantor and MultiLender Swap Contracts, Loan Selling Advisor® will be updated on March 2, 2019 to include the Standard Remittance Cycle. For Guarantor and MultiLender Swap Contracts taken out on and after March 2, 2019 with Settlement Dates on and after May 1, 2019, Sellers will be able to select only the Standard Remittance Cycle.

While Sellers will continue to select currently available remittance cycles for Cash Contracts taken out on or before April 30, 2019, Cash Contracts with Funding Dates on and after May 1, 2019 will fund with the Standard Remittance Cycle regardless of when the Cash Contract was taken out. For Cash Contracts, Loan Selling Advisor will be updated on May 1, 2019 to require the Standard Remittance Cycle.

The table below provides remittance cycle details by contract type and the date the contract is taken out:

UNIFORM LOAN DELIVERY DATASET

As announced in the November 20, 2018 Single-Family News Center article, Freddie Mac published the Uniform Loan Delivery Dataset (ULDD) specification addendum included in Appendix A – Freddie Mac XML Data Requirements V.4.2.3 ("ULDD Addendum").

We are making the following updates to Chapter 6302 to align with updates to the ULDD Addendum:

• Removing the delivery requirements and notes for ULDD Data Point Escrow Balance Amount (Sort ID 363) for all Mortgages from Section 6302.5. We continue to require the delivery of Escrow Balance Amount in the special delivery requirements for fixed-rate Mortgages sold through Cash-Released XChangeSM in Section 6302.26.
• Clarifying the notes for ULDD Data Points Special Flood Hazard Area Indicator (Sort ID 24) to provide additional guidance on delivery of flood insurance data
• Updating the notes for ULDD Data Points Closing Cost Contribution Amount (Sort ID 151) and Down Payment Amount (Sort ID 172) to remove exclusion of prepaids/escrow items
• Clarifying the notes for ULDD Data Points Counseling Confirmation Type (Sort ID 576) and Counseling Format Type (Sort ID 578) for the requirements for homeownership education
• Clarifying the notes for ULDD Data Points Attachment Type (Sort ID 50), Project Attachment Type (Sort ID 41) and Primary MI Absence Reason Type (Sort ID 429)
• Adding 27 new valid values for ULDD Data Points Escrow Item Type/Escrow Item Type Other Description (Sort IDs 364/365)

Loan Selling Advisor will be updated on March 25, 2019 to include the new valid values for ULDD Data Points Escrow Item Type/Escrow Item Type Other Description. Sellers may deliver these new valid values beginning March 25, 2019 and will be required to do so, if applicable, with the ULDD Phase 3 mandate of May 20, 2019.

The ULDD Addendum also includes additional updates announced in prior Bulletins.

Sellers should review the ULDD Addendum in its entirety to determine impacts to their systems or processes and for applicable effective dates. Sellers should visit our ULDD web page to view the ULDD Addendum and other resources and to stay abreast of ULDD Addendum updates.

Guide impacts: Sections 6302.5, 6302.8, 6302.14, 6302.20, 6302.21, 6302.26 and 6302.41

SELLER/SERVICER CERTIFICATES OF INCUMBENCY

We are updating our Certificate of Incumbency (COI) forms for Seller/Servicers' convenience as follows:

• Retitling Form 988SF-1 to Form 988SF and updating the form to expand its use to limited liability companies. With this change, we no longer require Form 988SF-2 for limited liability companies or the attorney letters, and we are deleting that form.
• Revising Forms 988SF and 989SF to make the forms easier to complete
• Enabling Seller/Servicers to identify more Authorized Users than a single Form 988SF or Form 989SF can accommodate by submitting more than one form (in lieu of the special addendum form previously required), if they:
  • Indicate on each form (in ink if convenient) that it is part of a series, such as "Form 1 of 2"
  • Deliver them simultaneously and, when delivering more than one form by e-mail, use a single PDF for them all, and
  • Acknowledge that all such Forms 988SF or 989SF so submitted constitute one and the same instrument
• For both Forms 988SF and 989SF, identifying Sellers' and Servicers' Authorized Users in one section

We are deleting Forms 988ASF and 989ASF, as they are no longer necessary. While Seller/Servicers may continue to submit the old COI forms, Freddie Mac will not make them available.

Guide impacts: Sections 2101.12, 2201.1, 2201.2, 2403.11, 2405.1, 6203.8, 6204.8, 6205.8, 6301.10, 6303.2, 6305.8 through 6305.10, 8303.3, 8303.34, 8303.35, 9102.1, Forms 988SF, 988SF-2, 988ASF, 989SF and 989ASF

ADDITIONAL GUIDE UPDATES

Super conforming Home Possible® Mortgages

In response to Seller feedback and for easier reference, we are revising the chart for maximum loan-to-value (LTV), total LTV (TLTV) and Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios for Home Possible® Mortgages in Section 4501.10 to include the LTV, TLTV and HTLTV ratio limits for super conforming Home Possible Mortgages.

Guide impact: Section 4501.10

Seller representations and warranties regarding the Mortgaged Premises

We are updating the Guide to align the language with how Loan Collateral Advisor® assesses an appraisal. We are specifying that to be eligible for appraised value representation and warranty relief, an appraisal must be submitted to the Uniform Collateral Data Portal® (UCDP®) which allows Loan Collateral Advisor to assess the appraisal for such relief. The UCDP feedback message FRE4000 (corrected from FRE0000) must be returned to the Seller to indicate eligibility for the appraised value representation and warranty relief.

We are also specifying the type of representation and warranty relief that is provided through Loan Collateral Advisor (relief for appraised value) and automated collateral evaluation (ACE) (relief for value, condition and marketability).

Guide impacts: Sections 4407.2 and 5601.9

Loan Collateral Advisor and ACE: Mortgages secured by Mortgaged Premises subject to resale restrictions

For Mortgages assessed through Loan Collateral Advisor, we are revising the list of Mortgages that are ineligible for appraised value representation and warranty relief to remove Mortgages secured by properties subject to income-based restrictions and add Mortgages secured by Mortgaged Premises subject to all resale restrictions.

We also are revising the list of Mortgages ineligible for an appraisal waiver through ACE to remove certain Mortgages secured by properties subject to income-based resale restrictions because all Mortgages secured by Mortgaged Premises subject to resale restrictions were already ineligible.

Guide impacts: Sections 4407.2 and 5601.9

Credit report inquiries

Bulletin 2018-13 announced that effective September 9, 2018, the required time frame for evaluating inquiries on a Borrower's credit report was reduced from 120 days to 90 days.

Since this change applies to requirements for a Seller's in-house quality control program, we are updating Sections 3402.5 and 3402.8 to reflect the 90-day period.

Guide impacts: Sections 3402.5 and 3402.8

Mortgaged Premises occupied by Borrower's parent or disabled child

In Bulletin 2018-15, we updated the Guide to permit a Borrower who is a parent or legal guardian of someone with a physical or developmental disability and is occupying the home as a Primary Residence to be considered an occupying Borrower.

Since the intent of this language is to include all disabilities, we are removing the terms "physical" or "developmental" from the language to reflect that intent.

Guide impact: Section 5103.8

Investment Property Mortgages

In response to Seller inquiries, we are updating Section 4201.16 for Investment Property Mortgages. Freddie Mac does not permit Borrowers of Investment Property Mortgages for newly constructed homes that are purchase transactions to be affiliated with or related to the builder, developer or property seller. We are specifying that, for these purposes, the Borrower may not have an ownership interest in or employment with the builder, developer or property seller.

Guide impact: Section 4201.16

Guide Exhibit 33, Acknowledgment Agreement Incorporated Provisions

In Bulletin 2018-26, we adopted a definition of Conveyance as set forth in Exhibit 33 and updated Section 1101.2(c) to prohibit such Conveyances without Freddie Mac's consent. Consistent with the language set forth in Section 1101.2(c) that was in effect prior to Bulletin 2018-26, we are updating the definition of Conveyance in Exhibit 33to include conveyances of the Seller/Servicer's rights and obligations under the Guide or any of the Seller/Servicer's Purchase Documents.

Guide impact: Exhibit 33

Loan Product Advisor asset and income modeler

As announced in our December 11 Single-Family News Center article, Loan Product Advisor asset and income modeler (AIM) is our solution for automating the manual processes of assessing Borrower assets and income. We are updating our Guide chapters on automated income assessment and automated asset assessment to incorporate references to AIM.

Guide impacts: Sections 5901.1 and 5902.1

Freddie Mac Loan AdvisorSM

Freddie Mac Loan Advisor Suite® is now Freddie Mac Loan AdvisorSM: a new name with a renewed focus on the value each of our tools and capabilities bring our Sellers – every day. More than ever, we are committed to providing innovation and insights and collaborating to help Sellers become more efficient and cut costs; giving them an edge – The Freddie EdgeSM. We are updating the Guide to reflect Freddie Mac Loan Advisor, where applicable.

Guide impacts: Sections 1301.11, 2402.2 and 5701.1

GUIDE UPDATES SPREADSHEET

For a detailed list of the Guide updates associated with this Bulletin and the topics with which they correspond, refer to the Bulletin 2019-4 (Selling) Guide Updates Spreadsheet available at http://www.freddiemac.com/sing....

CONCLUSION

If you have any questions about the changes announced in this Bulletin, please contact your Freddie Mac representative or call the Customer Support Contact Center at 800-FREDDIE.

Loan Quality Connect

• Lenders and Fannie Mae have been using the Quality Assurance System (QAS) to manage the post-purchase review process. 
• We have transitioned to Loan Quality Connect, a new platform that replaces QAS.
• All loan files will be transitioned to Loan Quality Connect by April 30, 2019, and QAS will be retired on that date.

Cost of Funds Index (COFI) Retirement

• We currently offer several adjustable-rate mortgage (ARM) plans that use the monthly weighted-average cost of funds index (COFI) as computed each month by the Federal Home Loan Bank of San Francisco. 
• Due to the retirement of this index scheduled to occur in January 2020, with the December 2019 COFI being the last published rate, Fannie Mae is proactively removing all references to this index and associated ARM plans (681, 682, 760, and 761) from the Selling Guide and Standard ARM Plan Matrix. 
• We are also retiring all legal documents specific to use of COFI from our website. 
•  The last issue date for negotiated MBS deliveries will be April 1, 2019. Whole loan delivery of COFI ARMs is not currently offered. 

Miscellaneous Selling Guide Updates

• Removal of Second Lien References:   Because we no longer accept delivery of second lien loans, we have removed all references to this practice from the Selling Guide. In the event second lien loans are approved for delivery in the future, we will update the Guide accordingly.

Purpose

Attached is a copy of VA Pamphlet 26-7, Lender’s Handbook, Chapter 1, Lender Approval Guidelines, which has been revised in its entirety.

Changes

Chapter 1 has been revised to provide lenders with updated information to assist them in obtaining automatic authority from VA, to encourage lenders with automatic authority to use it to the maximum extent possible and to incorporate all applicable outstanding Circulars. Key changes include:

Chapter 1, Topic 4 reflects updated acceptable qualifications for underwriters, the AMP (Accredited Mortgage Professional) and CRU (Certified Residential Underwriter) designations from the Mortgage Bankers Association (MBA).

Chapter 1, Topic 7 requires that the lender request VA recognition of any agents who are performing loan-related functions for the lender. The previous version of this handbook permitted lenders to use an agent up to four times a year without being recognized by VA. Lenders who do not have automatic authority from VA may not use the services of an agent.

Additional Copies

Additional copies may be downloaded at https://benefits.va.gov/warms/pam26_7.asp.

Rescissions

Chapters 1-9 of the Lenders Handbook cover Loan Processing topics. All outstanding Circulars have been incorporated into the revised chapters. Once all revised chapters have been released, the outstanding Circulars will be rescinded.

We have updated A1-4.2-02, Compensatory Fees for Delays in the Liquidation Process and F-2-03, Compensatory Fee Calculation Examples to reflect changes recently communicated in Announcement SVC-2018-10. The changes update our policies and processes related to assessing compensatory fees for delays in foreclosure. 

See also: Compensatory Fees – Foreclosure Time Frame Delays FAQs

3. Effective date. The rule is effective on February 15, 2019, and will apply to VA cash-out refinance loan applications taken on, or after, this date. Loan applications taken prior to the effective date that were submitted to an Automated Underwriting System (AUS) either before or after the effective date, where subsequent and/or final AUS submissions result in a Refer recommendation, require manual underwriting.

4. Action. All-VA guaranteed cash-out refinancing loans must comply with the Act and AQ42. All refinancing loan applications taken on or after the effective date that do not meet the following requirements may be subject to indemnification or the removal of the guaranty. Failure to provide initial disclosures to the Veteran within 3 business days from the initial application date and at closing may result in indemnification of the loan up to 5 years. There are three categories of refinance loans; Interest Rate Reduction Refinancing Loans (IRRRL), TYPE I Cash-Out Refinance, and TYPE II Cash-Out Refinance.

a. Definitions.

(1) An Interest Rate Reduction Refinancing Loan (IRRRL) is a refinancing loan made to refinance an existing VA-guaranteed home loan at a lower interest rate.

(2) TYPE I Cash-Out Refinance is a refinancing loan in which the loan amount (including VA funding fee) does not exceed the payoff amount of the loan being refinanced.

(3) TYPE II Cash-Out Refinance is a refinancing loan in which the loan amount (including VA funding fee) exceeds the payoff amount of the loan being refinanced.

b. Loan-to-Value (LTV). VA will no longer guaranty refinancing loans when the LTV exceeds 100 percent. Inclusion of any funding fee that is financed, in part or whole, cannot cause the loan to exceed the reasonable value of the property.

(1) LTV Calculation. Divide the total loan amount (including VA funding fee, if any) by the reasonable value of the property determined by the appraiser.

c. Net Tangible Benefit (NTB). NTB standards apply to all cash-out refinancing loans. It consists of the NTB test, Loan Comparison, and Home Equity Disclosure

(1) NTB Test. All cash-out refinancing loans must past pass the NTB test. This requirement is met if the refinancing loan satisfies at least one of the following:

(a) The new loan eliminates monthly mortgage insurance; or

(b) Loan term of the new loan is less than the loan term of the loan being refinanced; or

(c) Interest rate of the new loan is less than the interest rate of the loan being refinanced. (Note: If the loan being refinanced had an adjustable interest rate or was modified, the current interest rate must be used when determining if this requirement has been met.); or

(d) The monthly (principal and interest) payment of the new loan is less than the monthly (principal and interest) payment of the loan being refinanced; or

(e) The Veteran’s monthly residual income is higher as a result of the new loan. (residual income, including refinancing monthly PITI (principal, interest, taxes, and insurance) payment vs. current residual income, including monthly PITI payment of the loan being refinanced.) In cases where TI amounts are changing between the application date and the closing date of the refinance transaction, the new TI amount will be used in determining residual income for both the current and refinanced loan); or

(f) The new loan is used to payoff the Veteran’s interim construction loan; or

(g) The new loan LTV is equal to or less than 90 percent of the reasonable value of the home, i.e. LTV ≤ 90%; or

(h) Refinance of an adjustable-rate mortgage to a fixed-rate mortgage.

(2) Loan Comparison Disclosure. The lender must provide the Veteran a comparison of the new loan to the existing loan being refinanced. VA requires lenders to generate two loan comparison disclosures, one within 3 business days from the initial date of the loan application and at loan closing. The borrower must certify receipt of both disclosures (i.e. signature, e-signature, email from borrower certifying receipt, email read receipts, system time/date stamp where a borrow certified receipt, etc).

(a) Initial 3-Day Disclosure. Lender’s shall provide a reasonable estimate within 3 business days of loan application. Reasonably accurate estimates, may involve the use of borrower documentation, such as their mortgage statement, closing documents, their own estimation of the existing loan terms, online property valuation tools, and manual calculations. Lenders are encouraged, but not required, to continually update the disclosure as additional, and more accurate, information becomes available throughout the origination process.

(b) Final Loan Closing Disclosure. The final loan comparison disclosure provided at loan closing shall be accurate with respect to the new loan information, while the initial loan information may be a generally accurate representation of the existing loan, given that payments may be in transit, tax and insurance amounts may be pending, and payoffs may fluctuate when the final closing date has not been determined.

(c) Contents of the Initial 3-Day Disclosure and the Final Loan Closing Disclosure. VA has provided a sample disclosure in Exhibit A that includes both the loan comparison and home equity provisions stated in this Circular. The following information will be provided in the disclosures:

1. Refinancing loan amount (including VA funding fee, if financed into the loan) vs. the payoff amount (including fees, escrow shortages, and prorated interest) of the loan being refinanced.

2. Interest Rate

3. Mortgage Loan Type (i.e., fixed, adjustable)

4. Loan term of the refinancing loan vs. the remaining term of the loan being refinanced. The term may be expressed in months or years and months.

5. The total payments the Veteran will have paid after making all payments (principal and interest) as scheduled on the refinancing loan vs. the total remaining payments the Veteran will have paid after making all remaining payments of principal, interest, and mortgage insurance (if applicable) as scheduled on the loan being refinanced.

6. LTV of the refinancing loan vs. loan payoff (including fees, escrow shortages, and prorated interest) to current value of the loan being refinanced.

(3) Home Equity Disclosure. The lender must disclose the amount of home equity being removed from the home as a result of the new loan to the Veteran within 3 business days from the initial date of the loan application and at loan closing. The disclosure must also explain to the Veteran how the removal of home equity may affect the sale or refinance of the home in the future. Similar to the Loan Comparison Disclosure, the borrower must certify receipt of the Home Equity Disclosure (i.e. signature, e-signature, email from borrower certifying receipt, email read receipts, system time/date stamp where a borrow certified receipt, etc.). VA has provided a sample disclosure in Exhibit A that includes both the loan comparison and home equity provisions stated in this Circular.

(a) For the initial home equity disclosure, lenders may use estimated loan payoff or unpaid principal balance and estimated current property value to determine the home equity being removed from the home. However, the lender must use the final payoff amount (including fees, escrow shortages, and prorated interest) and the reasonable value shown on the Notice of Value (NOV) to determine the home equity being removed from the home on the home equity disclosure provided to the Veteran at loan closing.

d. Loan Seasoning. Loan seasoning applies to all cash-out refinancing loans made to refinance a VA-guaranteed home loan (VA-to-VA). A cash-out refinancing loan, Type I nor Type II, is not eligible for guaranty by VA, if the VA-guaranteed loan being refinanced has not been seasoned as of the date of closing. A loan is considered seasoned if both of the following conditions are met as of the date of loan closing:

(1) The first monthly payment of the loan being refinanced was made 210 days or more prior to the closing date of the refinancing loan; and

(2) Six monthly payments have been made on the loan being refinanced.

(3) For loans being refinanced within 1 year from the date of closing, lenders must obtain a payment history/ledger from the servicing lender documenting all payments. If the loan is selected for audit by VA, the lender must include the payment ledger/history of the loan being refinanced in the loan file for VA review.

e. Fee Recoupment. Fee recoupment applies to TYPE I cash-out refinancing loans made to refinance a VA-guaranteed home loan (VA-to-VA). To obtain a Loan Guaranty Certificate (LGC) the lender must certify that the recoupment period of fees, expenses, and closing costs (included in the loan and paid outside of closing), do not exceed 36 months from the date of the loan closing.

(1) Recoupment Calculation: The recoupment period is calculated by dividing all fees (not including VA funding fee per), expenses, and closing costs included in the loan and paid outside of closing by the reduction of monthly principal and interest (PI).

(a)  Example:

PI (VA loan being refinanced):  $654.00

PI (new VA refinancing loan): - $604.00

Reduction of monthly PI:

= $ 50.00

If the loan being refinanced loan has been modified, the reduction of monthly PI should be computed using the modified monthly PI of the loan being refinanced.

(b) Example:

Fees/expenses/closing cost: $1,436.49

Reduction of monthly PI:  ÷ $ 50.00

Fee Recoupment Period: =  29 months (28.72 months rounded)

(c) Escrow and prepaid expenses, such as, insurance, taxes, special assessments, and homeowners’ association (HOA) fees shall be excluded from the recoupment calculations.

(d) VA allowable fee as established in 38 C.F.R. § 36.4313 offset by lender credits and/or premium pricing may also be excluded from the recoupment calculation.

4. Rescission: This Circular is rescinded April 1, 2021.

This guidance applies to all FHA Title II forward mortgages and Home Equity Conversion Mortgages (HECM). 

• FHA is revising its requirements for employment, income, and asset accounts to permit the use of TPV services. 

[Please see Mortgagee Letter for complete details of all changes relating to acceptance of TPV services]

Loan Product Advisor® is being updated with changes, effective February 15, 2019. These changes will align with the new Department of Veterans Affairs (VA) policies for VA-guaranteed cash-out refinancing loans.

Read VA Circular 26-18-30 [PDF] for full details.

• Based on the way Congress structured section 3709, VA-guaranteed or insured refinance loans are now effectively grouped into three categories: (i) IRRRLs, (ii) cash-outs in which the amount of the principal for the new loan is equal to or less than the payoff amount on the refinanced loan (Type I Cash-Outs), and (iii) cash-outs in which the amount of the principal for the new loan is larger than the payoff amount of the refinanced loan (Type II Cash-Outs). (For ease of reference, VA is referring in this preamble to the types of refinancing loans as IRRRLs, Type I Cash-Outs, and Type II Cash-Outs, respectively. VA is not using these terms in the rule text.)
• VA understands subsections (a) through (c) to apply to IRRRLs and Type I Cash-Outs and subsection (d) to apply to Type II Cash-Outs
• VA is not addressing section 3709's impact on IRRRLs, but plans to do so in a separate rulemaking
• In this rule, VA is defining the parameters of the net tangible benefit test for Type I Cash-Outs. VA is also establishing a net tangible benefit test for Type II Cash-Outs to comply with section 3709(d). The net tangible benefit test for both types of cash-outs overlaps in some ways, but also differs in a few major respects. 

[Please see final rule for complete details]

Chapter 4: Chapter 4 is partially revised to update regulatory references, remove unnecessary or repetitive language and to update the lender’s reporting and oversight requirements. 

Under 4.4, replaced ‘‘RESPA’’ with ‘‘Bureau of Consumer Financial Protection (BCFPB).’’ 

Under 4.6 (A), added guidance on accessing duplicate copies of the LNG electronically. 

Under 4.8, added lender responsibility in managing counterparty and third-party providers. 

Under 4.12, changed the lenders reporting requirements from quarterly to monthly and updated the email address to the NFAOC. Minor formatting and other errors were corrected.  

1. Purpose. 

This purpose of this Circular is to announce the Department Veterans Affairs’ (VA) new policies regarding VA-guaranteed cash-out refinancing loans, including refinancing of construction loans (construction-to-permanent). 

2. Background. 

On December 17, 2018, VA published an interim final rule addressing VA guaranty requirements for cash-out refinance loans (83 FR 64459). This rule implements section 309 of Public Law 115-174, The Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act). Section 309 of the Act provides new statutory criteria to determine when VA may guarantee a refinancing loan. The Act required VA to promulgate regulations for cash-out refinancing loans, specifically refinancing loans in which the loan amount will exceed the payoff amount of the loan being refinanced. This rule amends VA regulations pertaining to all cash-out refinancing loans (38 CFR 36.4306). This includes refinancing of construction loans (construction-to-permanent loans), regardless of whether there is a change in the principal loan amount. VA is accepting public comments on the interim final rule through February 15, 2019, and encourages lenders to submit official comments and/or suggestions through the Federal Register at https://www.regulations.gov. 

3. Effective. 

The rule is effective on February 15, 2019, and will apply to VA cash-out refinance loan applications taken on, or after, this date. 

4. Action. 

a. VA-guaranteed cash-out refinancing loans must meet the requirements of the new law. VA has categorized refinancing loans as the following: 

(1) Interest Rate Reduction Refinancing Loan (IRRRL): a refinancing loan made to refinance an existing VA-guaranteed home loan at a lower interest rate. 

(2) TYPE I Cash-Out Refinance: a refinancing loan in which the loan amount (including VA funding fee) does not exceed the payoff amount of the loan being refinanced. 

(3) TYPE II Cash-Out Refinance: a refinancing loan in which the loan amount (including VA funding fee) exceeds the payoff amount of the loan being refinanced. 

b. This rule does not apply to VA regulations pertaining to IRRRLs. Updates to VA’s IRRRL regulations will be published separately from this Circular. Lenders and VA Regional Loan Center (RLC) personnel should continue to follow current IRRRL regulations and VA policy guidance shown in VA Circular 26-18-13. 

c. All cash-out refinancing loan applications taken on or after February 15, 2019, as reflected by the application date, that do not meet the following requirements will not be eligible for guaranty by VA: 

(1) Loan-to-Value (LTV). VA will no longer guaranty refinancing loans when the LTV exceeds 100 percent. If the Veteran chooses to close a loan in which the loan amount exceeds 100 percent of the reasonable value of the property, the Veteran must pay the amount which exceeds 100 percent of the property value at loan closing. 

(a) LTV Calculation. Divide the total loan amount (including VA funding fee, if applicable) by the reasonable value on the Notice of Value of the property determined by the appraiser. 

(2) Net Tangible Benefit Test (NTB). Lenders must ensure that all cash-out refinancing loans pass a NTB, which includes providing the Veteran with the following information no later than the third business day after receiving the Veteran’s loan application, and again at loan closing: 

(a) The refinancing loan satisfies at least one of the following eight NTB: 

(i) The new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance;

(ii) The term of the new loan is shorter than the term of the loan being refinanced; 

(iii) The interest rate on the new loan is lower than the interest rate on the loan being refinanced; 

(iv) The payment on the new loan is lower than the payment on the loan being refinanced; 

(v) The new loan results in an increase in the borrower’s monthly residual income; 

(vi) The new loan refinances an interim loan to construct, alter, or repair the home; 

(vii) The new loan amount is equal to or less than 90 percent of the reasonable value of the home, or; 

(viii) The new loan refinances an adjustable rate loan to a fixed rate loan. 

(b) A comparison of key loan characteristics or terms for the existing and refinancing loan, including: (i) Refinancing loan amount vs. the payoff amount of the loan being refinanced. 

(ii) Loan type (i.e., fixed, adjustable) of the refinancing loan vs. the loan being refinanced. 

(iii) Interest rate of the refinancing loan vs. the loan being refinanced. 

(iv) Loan term of the refinancing loan vs. the loan being refinanced. 

(v) The total the Veteran will have paid after making all payments (principal and interest), and mortgage insurance, as scheduled, for both the refinancing loan and the loan being refinanced. 

(vi) LTV of the refinancing loan vs. the loan being refinanced 

(c) An estimate of the home equity being removed from the home as a result of the refinance and explain how the removal of home equity may affect the Veteran. 

(3) Loan Seasoning. VA will not guarantee a refinancing loan if the loan being refinanced has not been properly seasoned. This requirement applies to TYPE I refinancing loans made to refinance an existing VA-guaranteed home loan and all TYPE II refinancing loans. A loan is considered seasoned on the later of the date that is: 

(a) 210 days after the first monthly payment is made, and 

(b) Six monthly payments have been made on the loan. 

(4) Fee Recoupment. The recoupment period of all fees, closing costs, expenses (other than taxes, escrow, insurance, and like assessments), and incurred costs must not exceed 36 months from the date of loan closing. The lender must certify the recoupment period to VA to obtain a Loan Guaranty Certificate. This requirement only applies to TYPE I cash-out refinancing loans made to refinance an existing VA-guaranteed home loan. 

(a) Recoupment Calculation. Divide all fees, closing costs, expenses, and incurred costs (excluding taxes, escrow, insurance, and like assessments), by the reduction of the monthly principal and interest payment as a result of the refinance. If the loan being refinanced has been modified, the principal and interest reduction must be computed/compared to the modified principal and interest monthly payment. 

5. Rescission: This Circular is rescinded January 1, 2020. 

• VA LTV Guaranty: VA Circular 26-18-30 specified that VA will no longer guarantee TYPE I and TYPE II Cash-Out Refinance loans when the LTV exceeds 100 percent. DU will provide a Refer recommendation on non-IRRL refinanced VA loans that exceed 100% LTV calculation.

• LTV calculation: VA Circular 26-18-30 also specified that the VA funding fee is included in the LTV calculation for TYPE I and TYPE II Cash-Out Refinance applications. All VA refinance casefiles submitted or resubmitted on or after the weekend of Feb. 16, which are not an Interest Rate Reduction Loan (IRRL), will be underwritten using an updated LTV calculation. This updated LTV calculation will include the financed portion of the funding fee. The CLTV calculation will also be impacted by this change as the LTV amount is used to calculate CLTV.
• New VA Messaging: To further accommodate this VA Circular, DU will be adding additional messaging for the LTV updates, and messaging related to seasoning, net tangible benefit and fee recoupment requirements.

• The Upset Bid standard excess fee ($75) was added to the North Carolina AAA matrix for services rendered on or after Feb. 20. 
• The Property Preservation Protective Order standard excess fee ($700) was added to the Puerto Rico AAA matrix.

Background

The issue involved situations where a foreclosure is pending and then either voluntarily withdrawn by the lender or dismissed by a court. If the lender chooses to proceed with another case after termination of a prior proceeding, and no new payments are tendered by the borrower, a question existed whether a lender was legally required to tender new Act 6 notice of intent to foreclose before commencing the second action.

Ruling

Upon termination of a foreclosure proceeding in Pennsylvania if the lender or servicer wishes to proceed with another case, and the action is governed by Pennsylvania Act 6, new notice must be tendered.  The state Supreme Court issued its Opinion on February 20, 2019, in the matter of JP Morgan Chase Bank N.A., by its successor Great Ajax Operating Partnership, LP v. Taggart, No. 6 EAP 2018 (Pa. 2019).

VA Pamphlet 26-7, Lender’s Handbook, Chapter 4, Credit Underwriting, has been revised in its entirety.

• Chapter 4 has been revised to provide updated guidance for credit underwriting, to facilitate electronic processing of loans and to incorporate all applicable outstanding Circulars. Lenders are encouraged to apply flexibility and reasonable judgement when reviewing loan applications from Veterans who are seeking to use their VA home loan benefits. Key changes include:
• Chapter 4, Topic 2 includes additional details for analyzing income derived from commissions and rental income.
• Chapter 4, Topic 2 has been updated to reflect that service providers of Verifications of Employment (VOEs) do not need to be approved by VA, as long as the VOE meets the requirements listed within this topic. A current paystub is not required with an automated employment verification service.
• Chapter 4, Topic 2 notes that VA disability income verification will be placed on the Certificate of Eligibility (COE) except in certain instances which arc listed within this topic.
• Chapter 4, Topic 7 covers additional details for analyzing the borrower’s credit history.
• Chapter 4, Topic 8 lists updated documentation required for Automated Underwriting Cases.

This change is effective 90 days from the date of approval (The date of approval is 2/22/2019; effective date is 5/23/2019).

Attached is a copy of VA Pamphlet 26-7, Lender's Handbook, Chapter 11, Appraisal Report, which has been revised in its entirety.

• Chapter 11 has been revised to provide information about VA appraisal policies, emphasizing the importance of an accurate appraisal in protecting the interests of Veterans, lenders, servicers, and VA. Key changes include:
• Chapter 11, Topic 3 includes an updated list of required appraisal report contents including photograph requirements.
• Chapter 11, Topic 4 provides guidance for determining the gross living area of a property.

This change is effective 90 days from the date of approval (The date of approval is 2/22/2019; effective date is 5/23/2019).

During the weekend of Feb. 23, EarlyCheck™ version 5.8 will introduce new and modified edits to align with existing Loan Delivery edits and upcoming Loan Delivery edit changes. EarlyCheck updates include new edits for condo project type, credit score, and MI as well as edit severity changes.

Release Notes EarlyCheck

• Sellers that sell for cash, regardless of the selected servicing option, will be able to import fixed-rate cash contract data (including the optional fields for Cash-Released XChange clients), in Loan Selling Advisor®. 
• You can access the new Import Cash Contract function from the Contracts menu to simultaneously import contracts for multiple fixed-rate mandatory or best efforts cash contracts.   
• With this capability, you can import up to 100 fixed-rate cash contracts in a single file, and then when you are ready, access the View Import Cash Contract Results screen to price and accept each contract. 
• Cash-Released XChange clients will also see four new optional fields under "Additional Servicing Released Information." Use these when requesting a Freddie Mac Price Sheet, when creating a contract using the Loan Purchase Contract Terms screen, or when using the new Import Cash Contract option.
• The new HMDA Rate Spread Percent, Loan Originator Type, Buydown Temporary Subsidy Indicator and Non-Individual Borrower Type fields will be available to accept your data, if applicable to your loans, beginning March 25. Loan Selling Advisor's Contract Details screen, Purchase Contract Confirmation, and certain export datasets have also been updated to reflect the new fields.  

For More Information

• Review the new Import Cash Contracts Specification
• Refer to the updated Implementation Guide for Loan Selling Advisor Export (ULDD Phase 3) – Sellers.
• Review the Selling Mortgages for Cash Using Loan Selling Advisor User Guide.

See also FHA INFO 18-46, dated November 19, 2018

Appraisal Logging Changes

Effective for all appraisals uploaded to the EAD portal or logged into FHA Connection on or after February 25, 2019, the Appraisal Value field on the FHA Connection Appraisal Logging screen will no longer be editable. A corrected appraisal will be required to update the field. Edits to this field submitted through the Business-to-Government (B2G) connection will also not be accepted.

For appraisal updates (Form 1004D), effective for case numbers assigned on or after February 25, 2019, the license number and name of the appraiser who completed the Form 1004D will be added to the Appraisal Logging screen. For B2G connections, changes can be submitted beginning February 25, 2019, but will not be required until April 1, 2019.

Appraisal Transfers

Also effective for case numbers assigned on or after February 25, 2019, the Case Transfer screen in FHA Connection will be modified to enable mortgagees to electronically transfer appraisals at the time of case transfer process. Additionally, the name of the Case Processing menu link will be changed from “Case Transfer” to “Case/Appraisal Transfer.”

An Appraisal Transfer field will be added to the screen. Mortgagees are not required to electronically transfer the appraisal when a case is transferred; however, a selection of “Yes” or “No” is required — the field cannot be left blank. When “Yes” is selected, and upon submission of the case transfer, all electronic appraisals submitted for that case that have been uploaded as PDFs will be visible to the new lender.

For B2G connections, appraisal transfer can be submitted with Case Transfer beginning February 25, 2019; however, the Appraisal Transfer field will not be required until April 1, 2019.

Chapter 1 of VA Manual 26-4 was revised to correct the subsequent chapter titles in section 1.05.

Chapter 2 of VA Manual 26-4 was revised to update and correct the Servicer Reports currently available in the VA Loan Electronic Interface (VALERI) application.

Chapter 4 of VA Manual 26-4 was revised to update a subsequent appendix reference.

Chapter 5 of VA Manual 26-4, section 5.01 was revised to add clarification to the Electronic Default Notification requirements for loss mitigation and alternatives to foreclosure; section 5.06 was revised to provide clarification on the document requirements for repayment plans and special forbearances, to clarify modification programs available and the corresponding requirements, including modification options available for borrowers impacted by natural disasters; and section 5.07 was added to provide guidance on VA requirements for trial payment plans.

Chapter 8 of the VA Manual 26-4 was revised to update a web reference for the State Foreclosure Process and Statutory Bid Information.

Chapter 10 of VA Manual 26-4 was revised to provide instruction on insurance policies and related refunds in section 10.07.

Chapter 14 of VA Manual 26-4 was revised to add the State Pre-Foreclosure Fee in sections 14.03 and 14.04, to clarify the policy on the payment of taxes after loan termination in section 14.04, to provide additional direction for funds received after the initial claim payment in sections 14.12, and to update a subsequent appendix and web references.

Chapter 15 of VA Manual 26-4 was revised to correct the criteria for Post Audit selection by removing the modification with no incentive paid option in section 15.01.

Chapter 21 of VA Manual 26-4 was revised to remove the modification options for borrowers impacted by a natural disaster (all modification options arc outlined in Chapter 5 of VA Manual 26-4).

Appendix B of VA Manual 26-4 was revised to update the glossary to include the definition of the Default Resolution Rate.

Appendix F of VA Manual 26-4 was revised to update the web reference for the office of jurisdiction and office of origination codes.

Appendix G of VA Manual 26-4 was revised to remove the previously included charts, transfer in the information from Appendix H and update the policy to allow winterization advances all year in states where the advance is payable.

Appendix H of VA Manual 26-4 was removed.

The following Circular has been incorporated into this revision, and is rescinded: Circular 26-17-39, Updated Disaster Modifications Guidance.