Good News! -Freddie Mac Modifies Policies on Borrower Funds, Reserves, & Contributions

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Freddie Mac has modified some of its long-standing underwriting policies that should help reduce the paperwork burden for lenders in qualifying prospective borrowers, in their Guide Bulletin 2015-20, dated December 2, 2015.

Outlined below is a summary of each of these changes:

Borrower Funds/Reserves – if a borrower’s combined value of assets derived from stocks, bonds, mutual funds, US Government securities is at least 20% greater than the amount from these assets needed for closing – Freddie Mac will no longer require evidence of liquidation of these assets.

Also, the requirement that no more than 70% of the value of a retirement account can be used as reserves in qualifying a borrower has been removed.  In addition, if a lender can properly document that a borrower has earned vested stock options – they may now be counted towards borrower funds and reserves.

Occupant Borrower Contribution – Freddie Mac has removed its requirement for a minimum 5% down payment from occupant borrower funds when the loan-to-value (LTV) ratio is greater than 80% and a non-occupying borrower is present.

Also, Section 22.16 of Freddie Mac’s Single Family Seller/Servicer Guide has been updated to state that borrower funds (including the down payment) and reserves may come from the occupant and/or the non-occupant borrower.

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The policy changes outlined above are effective for mortgages with settlement dates on or after December 14, 2015.  Loan Prospector feedback messages will be updated by this date to reflect these new policies.

About the Author

Gerry Glavey

Gerard (Gerry) Glavey is Senior Vice President / Chief Credit Officer for LoanLogics. Gerry has decades of experience working in residential mortgage credit and compliance and brings insights that few in the industry can match. In his role, he develops new services and provides support for all post close quality control and quality assurance, pre-close quality control, due diligence services, and document processing services. He spent 37 years with the US Department of Housing and Urban Development, where most recently he was the Director, Processing and Underwriting Division for the Home Ownership Center (HOC) in Philadelphia. In this capacity, Mr. Glavey was responsible for the administration of all HUD/FHA Single Family Loan Origination activities, including underwriting, appraisal and endorsement for the 16 state jurisdiction of this HOC.