B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan (03/01/2023)

High LTV refinance loans may be underwritten using DU or manually, with the exception of loans subject to the Alternative Qualification Path (which must be manually underwritten). Loans secured by a second home or an investment property must be underwritten in DU and receive an Approve/Eligible recommendation, unless they are required to be underwritten in accordance with the Alternative Qualification Path (see B5-7-03, High LTV Refinance Alternative Qualification PathB5-7-03, High LTV Refinance Alternative Qualification Path).

Loans Underwritten in DU

When a limited cash-out refinance loan casefile that meets the minimum LTV requirement for a high LTV refinance loan is underwritten in DU, internal data will be used to determine if Fannie Mae owns the loan on the property, and if that loan is eligible to be refinanced using the high LTV refinance option.

When DU finds a loan for the subject property address using either the address provided on the DU loan application or the standardized address, DU will then confirm that the Social Security number(s) for the borrower(s) on the new loan casefile match those on the existing loan. The result of the Social Security number matching will be specified in a DU message.

When none of the borrower Social Security numbers match, the loan casefile will not be underwritten as a high LTV refinance loan. DU will issue a message informing the lender that the Social Security number(s) does not match and remind the lender to confirm the property address.

When there is a Social Security number match, DU will underwrite the loan casefile as a high LTV refinance loan. If the Social Security number for any of the borrowers on the loan casefile do not match using all nine digits, DU will advise the lender.

• When a borrower Social Security number is matched using 7 or 8 digits of the 9-digit Social Security number, the DU message will specify that the Social Security numbers are one or two digits different and will require the lender to confirm the borrowers on the existing loan are the same borrowers that will be on the new loan.

• When there are two borrowers on the new loan and two borrowers on the existing loan, but only one borrower’s Social Security number matches, the DU message will specify that not all of the borrower Social Security numbers match and will require that the lender confirm the borrowers on the existing loan are the same borrowers that will be on the new loan.

• When one borrower is on the new loan casefile but more than one borrower is on the existing loan, the DU message will state that it appears that a borrower is being removed with transaction and refer the lender to the Selling Guide for additional requirements on removing a borrower with a high LTV refinance transaction.

• When there is more than one borrower on the new loan casefile but there is only one on the existing loan, the DU message will state that it appears that a borrower is being added with the high LTV refinance transaction, and if that is the case, the high LTV refinance loan is not eligible for delivery.

Manually Underwritten Loans

The lender must determine that all eligibility requirements are met for manually underwritten loans.

The following table provides underwriting and documentation requirements applicable to high LTV refinance loans.

The lender must obtain one of the following for the new loan:

• a verbal verification of employment for employment or self-employment income for at least one borrower,

• documentation of a non-employment income source, or

• documentation of liquid financial reserves equal to 12 months of the new monthly housing payment.

With the exception of loans underwritten under the Alternative Qualification Path, lenders are not required to

• assess continuity of income,

• verify income,

• verify assets, or

• calculate the DTI ratio.

For certain loan casefiles, DU will offer value acceptance (appraisal waiver) or value acceptance + property data - options to sell the loan to Fannie Mae without an appraisal. Otherwise, an appraisal with an interior and exterior inspection is required. If an appraisal is obtained, it must be used for valuation even if a waiver is offered by DU.

A lender may only exercise the high LTV refinance value acceptance (appraisal waiver) or value acceptance + property data offer if

• the final submission of the loan casefile to DU resulted in an offer,

• an appraisal is not obtained for the transaction, and

• the offer is not more than four months old on the date of the note and the mortgage.

Lenders exercising the high LTV refinance value acceptance (appraisal waiver) must deliver Special Feature Code 807 or 774 for value acceptance + property data.

When the lender is required by law to obtain an appraisal, the lender must comply with such requirements, but may still exercise the offer.

For manually underwritten loans, an appraisal with an interior and exterior inspection is required.

Repairs to a property damaged as the result of a disaster (as defined by this Selling Guide) are not required prior to loan sale as long as the loan meets the applicable property insurance requirements. The lender is not required to perform an additional inspection and/or new appraisal of the property after a disaster.