HomeBridge is updating its Freddie Mac guidelines to align with Freddie Mac Bulletin 2017-23 issued October 18, 2017 which announced changes to student loans and contingent liabilities policies.
Student Loans
Freddie Mac updated student loan debt guidance to divide it into three categories as detailed below; DTI calculations are determined by category.
Student Loans in Repayment (Borrower Currently Making Payments)
The following applies to both fully amortizing payments and income-based payments:
- Calculate the monthly DTI using the greater of:
- The monthly payment amount reported on the credit report, OR
- 5% of the original loan balance or the outstanding balance as reported on the credit report, whichever is greater.
Loan Payment is Deferred or in Forbearance
Calculate the monthly DTI using the greater of:
- The monthly payment amount reported on the credit report, OR
- 1% of the original loan balance or the outstanding balance as reported on the credit report, whichever is greater
Loan is in Forgiveness, Cancellation, Discharge or is Employment Contingent
A loan in one of these categories may be excluded from the DTI if documentation is provided that indicates the following:
- The loan has 10 months or less of payments remaining until the full balance of the loan is forgiven, cancelled, discharged or, if employment-contingent, paid, OR
- The monthly payment is deferred or in forbearance and the full balance of the student loan will be forgiven, cancelled , discharged, or, if employment-contingent, paid at the end of the deferment or forbearance period, AND
- The borrower currently meets the requirements for the student loan forgiveness, cancellation, discharge or employment-contingent repayment program
Contingent Liabilities
The following applies when the borrower is legally obligated for a debt but another party has been making the payments.
Non-Mortgage Installment Debt, Revolving Debt and Lease Payments
When the borrower is obligated on non-mortgage debt but is not making the monthly payment, the debt may be excluded from the DTI as follows:
- The other party has been paying the entire monthly payment for a minimum of 12 months (the party making the payments is not required to be obligated on the debt), and
- Twelve (12) months cancelled checks or bank statements from the party making the payments are required to document the 12 months’ pay history, and
- The party paying the debt is not an interested party to the subject transaction
Mortgage Debt
Co-signed mortgage debt is not required to be included in the borrower’s DTI calculation if all of the following requirements are met:
- The debt is current and the other party has been making the entire payment for the most recent 12 months, and
- The party making the payments is obligated on the Note for the mortgage, and
- The borrower is not on the title of the mortgaged property, and
- Twelve (12) months most recent consecutive cancelled checks are provided documenting the primary party obligated on the debt has been making the payments (the checks cannot be from an account co-owned with the borrower), and
- The party making the payment is not an interested party to the subject transaction.
If the above requirements are not met, the payment must be included in the borrower’s DTI.
Freddie Mac also included updated guidance on the following topics:
Assumed Mortgage Debt
The monthly payment may be excluded from the DTI calculation if there is evidence the borrower no longer owns the property and a copy of the fully executed assumption agreement is provided
Court Ordered Assignment of Debt
Debt that has been assigned by order of the court is not required to be included in the borrower’s DTI calculations as follows:
- Evidence of the transfer of title, and
- A copy of the court order is provided
The above guidance is applicable to loans in the pipeline and to new submissions.
HomeBridge has updated the Freddie Mac guidelines and posted them on the HomeBridge website at www.HomeBridgeWholesale.com
If you have any questions, please contact your Account Executive.
