B ULLETIN
July 9, 2015
Subject:
# 15-038
Fannie Mae Announcement SEL-2015-07
On June 30, 2015 Fannie Mae issued Selling Guide Announcement SEL-2015-07 to
notify lenders of significant changes that will directly impact a borrower’s ability to
qualify. The Fannie Mae Selling Guide changes are effective immediately; however, the
investors have been slow to update their individual guidelines. AFN may NOT follow
the updated Fannie Mae guidance until investor guidelines are updated.
Fannie Mae’s announcement is attached, and highlights of it are outlined below.
Conversion of Principal Residence Requirements No Longer Apply
Prior to this announcement, Underwriters were required to manually apply FNMA
guidelines to ensure borrowers met capacity and reserve requirements. With this
announcement, Underwriters may follow the standard rental income and financial
reserve requirements. Although these changes apply now, DU will not be updated
until the weekend of August 15 to reflect the changes.
Stocks, Bonds and Mutual Funds
Prior to this announcement, Underwriters were required to reduce the value of
vested stocks, bonds, mutual funds and retirement accounts when used for down
payment, closing costs or reserves. This announcement removes that requirement.
Instead of applying the standard reduction, the Underwriter may use 100% of the
asset value when used for reserves. In addition, if the value of the asset is 20% or
more than the funds required for the down payment and closing costs, no
documentation of liquidation is required. If the additional 20% is not documented,
proof of liquidation is required. NOTE: As a reminder, on-vested assets are not
eligible for down payment, closing costs, or reserves.
Unreimbursed Employee Business Expenses (2106 Expenses)
2106 expenses found on a borrower’s tax returns (1040s) are applied to the
calculated income, thus reducing the amount of qualifying income. With this
announcement, Fannie Mae significantly changes the Underwriter’s application of
this rule. If a borrower is qualified using base pay, bonus, overtime or commission
income that is less than 25% of the borrower’s annual employment income, 2106
expenses are not required to be analyzed, deducted from the borrower’s qualifying
income, or added to monthly liabilities. This rule applies even if we identify 2106
expenses on the borrower’s tax returns or tax transcripts. In addition union dues
and other voluntary deductions on a borrower’s paycheck stub do not need to be
deducted fro the borrower’s income or treated as a liability. Last, if commission
income is 25% or more of the borrower’s total annual income, 2106 expenses must
be considered and deducted from the qualifying income, regardless of the length of
time the 2016 expenses were reported on their tax returns.
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B ULLETIN
Tip Income
When borrowers earn tip income, Fannie Mae allows tip income to be included in
qualifying income if the most recent two years’ receipt of tips is verified. In some
cases, the full amount of the tip income earned by the borrower may not be
reported on the VOE, paycheck stubs and W2s. Some borrowers report additional
tip income when filing tax returns. Fannie Mae will allow this tip income to be used
in qualifying if it is documented with the tax returns for the most recent two years.
Use of IRS W2 Transcripts in Lieu of W2s
In this announcement, Fannie Mae clarified that we MAY use W2 transcripts in lieu
of requiring the borrower’s W2s! AFN will continue to follow our guidelines outlined
for the W2 Transcripts Only Program (as discussed in AFN Bulletin 14-031).
Optional Data Fields on Verification of Employment
A Verification of Employment (VOE) is required for all employed borrowers. In most
cases, a written VOE is required, as opposed to a verbal VOE. When a VOE Form is
necessary, employers are expected to complete all fields on the form. Some
employers will not complete the VOE in its entirety because it is against company
policy to divulge certain requested information, which results in an incomplete VOE.
Other employers subscribe to automated verification services that do not supply all
information requested on our VOE form, again resulting in an incomplete VOE.
With this announcement, Fannie Mae eases VOE requirements. Fannie Mae no
longer expects a VOE to be completed in its entirety and lists “optional” fields to be
completed. These fields include:
 Probability of Continued Employment
 If Overtime or Bonus is applicable, is it likely to continue?
 Date of applicant’s next pay increase
 Date of applicant’s last pay increase
 Amount of last pay increase
 Reason for leaving (Part III – Verification of Previous Employment)
All other fields on the form are required and applicable to each borrower. For
example, the overtime fields may be left blank for a borrower in a position that
does not pay overtime.
Please remember, AFN will apply these changes only AFTER our investors
implement them and update their guidelines. We will further update you
when our guidelines are updated to mirror Fannie Mae’s, as discussed in
this bulletin. The Conventional Overlay matrix will also be amended to
reflect investor application of these changes.
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