Question:

I have a borrower who is married but does not live with his wife. The borrower and his wife are both on the mortgage tied to the property that she lives in, but she makes the mortgage payment every month. The borrower wants to purchase a primary residence for himself using Freddie Mac’s Home Possible Program.

I have provided the underwriter with cancelled checks written from a bank account owned solely by the wife for the last twelve months to document that the mortgage debt is not paid by the borrower. The underwriter is insisting that the debt has to be included in my borrower’s DTI regardless of the fact that it is paid by someone else. I resubmitted the loan with the debt included (the DTI is now at 41%) and now the underwriter is saying that my borrower has to switch loan programs to qualify, because the Home Possible guidelines do not allow the borrower to own other properties.

At this point I feel like the underwriter is just looking for excuses to deny the loan! Can the borrower qualify for a Home Possible Mortgage if they own multiple properties?! And do I really need to include monthly mortgage debt paid by others in his DTI?!  

Answer:

I am pretty sure that either –

  1. You did something to upset your underwriter, that has nothing to do with this file; or,
  2. Your underwriter is having a bad week and taking it out on you; or,
  3. Your company has its own internal overlays and is not underwriting straight to Freddie’s guidelines.

Because under the Home Possible program Freddie allows the borrower to have ownership interest in other properties and to exclude mortgage debt paid by others…

Here are the Freddie Mac Selling Guide sections that you can use to get this loan file approve:

4501.7: Eligible Borrowers for Home Possible® Mortgages (11/15/17)

(b) Ownership of Other Residential Property:

The Borrower must not have an ownership interest in any other residential property as of the Note Date, or the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages, except as stated below.

The Borrower may have an ownership interest in a residential property other than the Mortgaged Premises if the Borrower does not occupy the property, and the Seller documents the following in the Mortgage file:

  • The Borrower inherited their ownership interest in the property and shares ownership with another party, or
  • The Borrower owns the property with another party and the debt associated with the property was assigned to the other party by a court order (e.g., a divorce decree), or
  • The Borrower is a cosigner/guarantor on the related Mortgage debt and someone other than the Borrower has made payments on the debt associated with the property for the most recent 12 months, as documented with copies of canceled checks or a statement from the lender.

See Section 5401.2(b)(i) for requirements for excluding liabilities, including Mortgage debt, from the monthly debt payment-to-income ratio.

In your borrower’s situation the guidelines do allow ownership interest in other residential properties and you have already provided required documentation!

Here is what Freddie has to say about excluding contingent mortgage liabilities…

5401.2: Monthly debt payment-to-income ratio (01/18/18)

(b) Liabilities that may be excluded from the monthly debt payment-to-income ratio

(i) Contingent liabilities: A contingent liability may be excluded from the monthly debt payment-to-income ratio when meeting the requirements below:  

Mortgage

Documentation in the Mortgage file must indicate the following:

  • A party other than the Borrower has been making timely payments for the most recent 12 months

  • The party making the payments is obligated on the Note for the Mortgage that is being excluded

  • The Borrower is not on the title for the mortgaged property

  • The party making the payments is not an interested party to the subject real estate or Mortgage transaction*

You can exclude the monthly mortgage debt paid by your borrower’s wife as long as he is not on title for that property. You can have him taken off title and exclude the debt if you need to lower his DTI in order to qualify for the loan. But, if he qualifies without excluding the debt, save everyone the hassle and leave it in his DTI.