October 30, 2013
Credit Union Announcement CAU 2013-12: Credit Union Underwriting Requirement Changes (DU/LP) and New Credit Union Underwriting Guide - Effective November 4, 2013

Effective with mortgage insurance applications received on or after November 4, 2013, United Guaranty has expanded its credit union underwriting requirements for loans that receive certain Desktop Underwriter (DU) or Loan Prospector (LP) recommendations. These new requirements are reflected in our new Credit Union Underwriting Guide (the Guide).

The new underwriting requirements and Guide are applicable to mortgage insurance (MI) applications submitted by lenders (the Insured) that are designated as a credit union or credit union service organizations (CUSOs). They are not applicable to MI applications for which a credit union lender is a third-party originator (TPO) of the loan.

All United Guaranty systems that process new mortgage insurance submissions and rate quote requests will reflect these changes effective November 4, 2013.

New Underwriting Requirements for Loans Underwritten with DU or LP

United Guaranty has developed a unique set of underwriting requirements (detailed on the following pages) for loans receiving one of the valid DU or LP recommendations listed below. Loans meeting these requirements may be submitted either by Reporting Acceptance Program® (RAP® ) or full-file.

United Guaranty does not approve applications for mortgage insurance based solely on the Agency automated underwriting system (AUS) decision. Regardless of the DU or LP recommendation, prudent underwriting and risk assessment should be performed by the lender on each loan. Due diligence is expected when reviewing loan documentation to detect any potentially derogatory or contradictory information which must be addressed.

Loans that do not receive one of the valid recommendations listed above, or do not meet the new requirements, must meet the requirements in Section 3 of the new Guide, Underwriting Requirements for Manually Underwritten Loans. Please refer to page 3 of this announcement for an overview of the new Guide.

Loan Amount, LTV, Credit Score, and DTI Requirements

The underwriting requirements below represent general eligibility limits, used in combination with United Guaranty's automated risk evaluation, Performance Premium®, to determine MI eligibility for each loan. Layering of risk attributes may affect the eligibility of loans meeting the general requirements.

Eligible Loan Instruments:Fixed-Rate/Fixed Payment, ARMs and Buydowns offered by Fannie Mae or Freddie Mac.

Occupancy Transaction Type Property Type Maximum LTV/CLTV Maximum Loan Amount Minimum Credit Score Maximum DTI

Primary Residence

Purchase & Rate/ Term Refinance

1 unit, SFD/SFA, Co-ops, Condos 97% $417,000 680 45%
95% $625,500 620
2 – 4 unit 95% $625,500 620
Cash-out Refinance 1 unit, SFD/SFA, Co-ops, Condos 95% $625,500 620
Second Home Purchase & Rate/Term Refinance 1 unit, SFD/SFA, Co-ops, Condos 90% $417,000 620
Investment Property Purchase & Rate/Term Refinance

1 unit, SFD/SFA, Co-ops, Condos

85% $417,000 620

Additional Underwriting Requirements

Category Underwriting Requirement
DU & LP Response
  • The final valid DU Findings or LP Feedback must be included in the loan file.
    • All conditions identified within the DU Findings or LP Feedback must be satisfied.
    • The loan must close according to the terms and conditions of the DU Findings or LP Feedback.
    • The DU or LP recommendation must be based on accurate data from the lender. The Agency's resubmission tolerances are permitted for determining if DU or LP must be rerun, however all data supplied to United Guaranty must be the final accurate data.
    • The DU or LP recommendation must be based on the Agency's published requirements. Agency variances or waivers issued to a lender are ineligible without prior approval by United Guaranty.
  • The Agencies' automated underwriting systems are not able to underwrite certain aspects of the file. For aspects unable to be evaluated by DU or LP, the lender is responsible to ensure the Agency's standard requirements, as listed in its Selling Guide, are met. Some examples of items not able to be evaluated by DU or LP are listed below (not all inclusive);
    • Appraisal, property, employment, income stability and continuance, large asset deposits, and reserves for specific scenarios (for example, borrower retaining current residence).
Minimum Borrower Contribution
  • 1-2 unit Primary Residence: 3% (or the Agency requirement if greater than 3%).
    • Gifts/Grants may be considered the borrower's own funds when certain requirements are met. See section 3.11.01.02.01 of the Guide for complete details. No other requirements in Section 3 of this Guide apply. The loan must be submitted full-file.
    • Gifts/Grants may be considered the borrowers own funds for an HFA loan. See section 3.06.02 of the Guide for complete details. No other requirements in Section 3 of this Guide apply. The loan may be submitted either RAP or Full File.
  • 3-4 unit primary residence: 5%
  • Second homes: 5%
  • Investment property: 15%
Borrower
  • All borrowers without a Social Security number (SSN) are ineligible.
  • Borrowers who already have the maximum number of loans insured with United Guaranty (see section 3.09.01.03 of the Guide) are ineligible.
Credit
  • All borrowers must have a valid credit score (per the Agency's requirement).
  • Borrowers with non-traditional credit or no credit are ineligible.
  • A Borrower who was a debtor on a loan for which United Guaranty paid a claim is ineligible.
Credit Report
  • Non-traditional credit reports are ineligible.
  • Foreign credit reports are ineligible.
Documentation
  • A full Uniform Residential Appraisal Report (URAR), with interior and exterior inspections, is required.
  • A Verbal Verification of Employment (VVOE) is required prior to closing (see section 3.04.03 of the Guide for details).
  • All other DU or LP documentation requirements may be followed.
Property
  • Manufactured housing is ineligible (see section 3.14.01 of the Guide for definition).
  • Any property type ineligible for sale to the Agencies is ineligible.
  • Properties located outside the 50 United States and the District of Columbia (including Puerto Rico, Guam, and the Virgin Islands) are ineligible.
Ineligible Transactions
  • New subordinate financing is ineligible. [New subordinate financing is allowed for Housing Financing Agency loans when all requirements for manually underwritten loans are met (see section 3.06.02 of the Guide for complete details)].
  • Fannie Mae DU Refi Plus and Freddie Mac Relief Refinance Mortgage loans are ineligible.
  • Seasoned loans are ineligible. See section 3.08.06 of the Guide for definition.
Other
  • Affordable Housing: See section 3.04.05 of the Guide for definition and identification requirements.
  • Financed MI: See section 3.05.03 of the Guide for financed MI requirements.
  • Combined Loan-to-Value (CLTV): See section 3.05.04 of the Guide for definition.
  • Corporate Relocation Loans: See section 3.08.04 of the Guide for the definition and documentation requirements.
  • Third-Party Originations (TPO): See section 3.08.05 of the Guide for TPO and Broker TPO definition.

Additional Changes for Manually Underwritten Loans

Additional changes to credit union underwriting requirements for manually underwritten loans, effective November 4, 2013, follow.

Category Underwriting Requirement
Balloon Mortgages
  • Eligible Loan Instrument: Fixed-rate/fixed payment only.
  • Maximum LTV: 95%.
  • Maximum Loan Amount: $625,500.
  • Minimum Balloon Term: 5 years.
ARM: Interest Rate Adjustment Periods The minimum initial fixed-rate period or any subsequent interest rate adjustment period is 6 months. There are no maximum interest rate adjustment periods.
Maximum ARM Caps An ARM Cap is defined as the amount the interest rate may change in a specified period of time.
  • Initial Cap
    • Maximum 1% for an ARM with initial fixed rate period < 1 year.
    • Maximum 2% for an ARM with initial fixed rate period from 1 year to < 3 years.
    • Maximum 3% for an ARM with initial fixed rate period from 3 years to < 5 years.
    • Maximum 6% for an ARM with an initial fixed rate period for 5 years or greater.
  • Periodic Cap
    • Maximum 1% when the time period is < 1 year.
    • Maximum 2% when the time period is from 1 year to < 3 years.
    • Maximum 3% when the time period is from 3 years to < 5 years.
    • Maximum 6% when the time period is for 5 years or greater.
  • Lifetime Cap: Maximum 6%.
Biweekly Mortgages A biweekly mortgage is a mortgage for which a biweekly payment is mandatory per the Note or Rider and will continue throughout the life of the loan. Biweekly mortgages are eligible for insurance with United Guaranty.
  • Term: The term used should be the term as defined in the Note and/or Rider incorporating the biweekly payment.
  • Monthly Principal and Interest (P&I) Payment: The monthly P&I payment used to calculate the DTI should be the biweekly P&I, converted to a monthly P&I (monthly P&I = biweekly P&I x 26/12).

New Credit Union Underwriting Requirements Guide

The new Guide includes requirements for both full-file and RAP submissions. There are longer two separate Guides for credit unions. Most of the requirements for full-file and RAP are the same; however when they differ, it is clearly identified. The Guide applies to all pricing methods.

The Guide has three main sections:

Rate Runner® Quotes for Credit Union Lenders

These changes require enhancement of Rate Runner® —United Guaranty's online rate calculator—to indicate when your loan has been underwritten by DU or LP. This enhancement is underway and will be available soon. When the DU and LP information can be provided in Rate Runner, your loan will be evaluated using the applicable underwriting requirements.

In the meantime, you may receive a message providing general guidance for determining underwriting requirements and eligible MI submission methods. These messages will appear in the same location as they do today. Example messages include the following:

If you have questions, please contact your United Guaranty Sales Team.

CAU2013-12

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