LPA BasicUnderwriting Presentation 0619

Loan Product Advisor®
Part I, The Basics

June 2019
Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved.
Agenda
Loan Product Advisor®
– What is Loan Product Advisor
– What is Risk
– Reviewing the Feedback Certificate
– Data Integrity Reminders
– Resources
– Genworth
Today’s Session Covers Conventional Loans Only
Loan Product Advisor 2

FreddieMac.com

What is Loan Product Advisor?
– Loan Product Advisor is
Freddie Mac’s automated
underwriting system
– It gives users access to
Freddie Mac’s credit
requirements, allowing you
to easily identify the overall
underwriting risk
– It replaces Loan Prospector®
http://www.freddiemac.com/singlefamily/pdf/Loan_Product_Advisor_Fact_Sheet.pdf

Loan Product Advisor is Part of the Loan
Advisor Suite

What is Risk?
Risk analysis is the backbone of mortgage lending:
‫‏‬
– The lender is deciding whether to give a sizeable loan to the applicant

– The lender will make an informed decision based on the risk in the loan
– By looking at how loans have performed in the past, lenders are able to identify
factors that appear to increase or decrease the risk in a particular loan
An important point about the information used in the AUS evaluation:
‫‏‬
– The systems can only work if the information entered is:

• Accurate
• Truthful
• Complete
• Supportable
An automated system gives you a risk RECOMMENDATION
‫‏‬
– The AUS does not decision a file
How Loan Risk is Analyzed 6

What Risk Factors is Loan Product Advisor
Looking at?

Credit Reputation
Credit Score
‫‏‬
Freddie Mac’s Loan Product AdvisorSM (LPA)

‫‏‬
A tri-merge Credit Report or 3 In-File Reports are required

‫‏‬
FICO scores must be requested for each borrower

‫‏‬
Identifying the Underwriting Score is achieved by;

‫‏‬
– If the borrower has two scores select the lowest

– If three scores have been returned use the middle score
– When the file has more than one borrower use the lowest of the individual
underwriting scores
– http://www.freddiemac.com/learn/pdfs/uw/credit_scores.pdf
Credit Reports & Credit Scoring 8

Credit Reputation
Credit Score
‫‏‬
For an Accept Mortgage and an A-minus Mortgage, Loan Product

‫‏‬
Advisor has determined that the Borrower's credit reputation is

acceptable
– In all other Mortgages, the Seller must thoroughly evaluate the Borrower's credit
reputation in accordance with the requirements set forth in this section and
document in the Mortgage file the Seller's conclusion the reputation is acceptable

Credit Reputation
Foreclosures, bankruptcies, liens and/or judgements
‫‏‬

Credit Reputation
Mortgage delinquencies
‫‏‬

Credit Reputation
Credit delinquencies, repossessions, collections, or charge-offs
‫‏‬

Credit Reputation
Credit accounts: type, age, limits, usage and status of revolving
‫‏‬
accounts

Credit Reputation
Borrower’s request for new credit in last 12 months
‫‏‬
Inquires
‫‏‬
– Inquires may indicate the borrower has additional debt.

• When the credit report indicates that a creditor has made an inquiry within the
previous 90-day period, the Seller must determine whether additional credit was
granted. If additional credit was granted, the Seller must obtain verification of the debt
and must consider the debt when qualifying the Borrower subject to the requirements
in Section 5401.2, Monthly debt payment-to-income ratio.

Credit Reputation
Authorized User Accounts
– The Lender must disregard the FICO scores based on significant inaccuracies
which include tradelines for accounts in which the borrower is not the primary
account holder, but is listed as the authorized user. The lender does not have to
disregard the FICO score if evidence in the file proves
• Another borrower on the file owns the tradeline in question
• The tradeline is owned by the borrower’s spouse, or
• The borrower has been making payments on the account for the past 12 months

Capacity
Debt ratios: Qualifying monthly housing expense–to-income ratio
‫‏‬
• The percent of the borrower’s gross monthly income that will go towards paying housing
debt and the borrower’s established long term consumer debt and certain other debt
obligations.
– The lower the ratio, the lower the risk
– High ratio loans are more adversely impacted when other risk factors are present
Example - Joe has applied for a mortgage loan:

His gross monthly income is $5,000
Principal and interest payments on the mortgage would be $750
Taxes and insurance would be escrowed, and total $250 a month
Joe’s credit report shows he has two credit cards, with minimum monthly payments of $150
and $200, a car lease with a $500 monthly payment, and he is required to pay child support
in the amount of $750 a month
Joe’s Housing Ratio is 20% ($1,000 PITI/ $5,000 Monthly Income)
Joe’s Debt Ratio is 50% ($2,500 PITI & Consumer Debt/ $5,000 Monthly Income)
How Loan Risk is Analyzed 16

Capacity
Salaried versus self-employed borrower
‫‏‬

Capacity
Cash reserves
‫‏‬
Liquid Reserves = The liquid assets remaining after the loan closes
‫‏‬
– To calculate reserves you typically divide the remaining liquid assets by the
proposed PITIA of the subject property
• Based on the use of the subject property, additional reserves may be required on
other properties already owned
– The monthly PITIA includes
• Principal and Interest
• Hazard, flood and/or mortgage insurance premiums (as applicable)
• Real Estate Taxes
• Ground rent and/or special assessments
• Owner’s association dues or monthly coop corporation fees
• Any subordinate financing payments
– The lack of any reserves will be considered a risk factor

Capacity
Number of Borrowers
‫‏‬
Co-borrower’s are considered in the evaluation of a mortgage loan

‫‏‬
application.
– Generally, the presence of more than one borrower with good traditional credit
helps to reduce risk
– Research has shown that mortgages that have more than one borrower, tend
to have lower delinquency rate than mortgages with one borrower

Capacity
Loan Characteristics:
‫‏‬
– Product: a 15, 20 and 30-year fixed rate, an adjustable rate

– Purpose of Loan: purchase or refinance (cash-out or no cash out)
Why the money is being borrowed can influence the risk

‫‏‬
– Purchase
– Refinance
• No cash-out/limited cash-out/rate and term
• Cash-out
– Purchase transactions continue to represent less risk than refinances
– Limited cash-out refinance transactions represent less risk than cash-out
– Cash-out refinance transactions represent higher risk

Collateral
Borrower’s total equity or down payment
‫‏‬
– The relationship between:

• The amount of money borrowed= Loan Amount
• The lesser of the Sales Price or Appraised Value of the property
• Refinance the LTV is calculated off the Appraised Value
– Example:
• Mortgage: $100,000
• Appraised value: $80,000
• LTV: 80%
Value
- $80,000
=
Mortgage Loan $100,000 Negative Equity ($20,000)

Collateral
Property Type: a 1-unit or 2 to 4 unit detached property, Condominium
‫‏‬
Unit or Manufactured Home
The number of units and property type can influence loan risk:
‫‏‬
– One-unit properties, not in a co-op nor attached condos, are the benchmark
– Two- Three- and Four- unit properties significantly increase risk
– Condos, Co-Ops and PUDs must be reviewed for acceptability
– Manufactured homes represents the most risk
• Program restrictions may apply

Collateral
Property Use: Primary Residence, Second Home or Investment use
‫‏‬

Loan Product Advisor
Loan Product Advisor Returns a “Response File”:
‫‏‬
– Documentation Checklist: Used to help you process/document your file

– Credit report: Loan Product Advisor allows for several options for credit reports.
In-file credit reports or Tri-Merged credit reports (If you opted to order a tri-
merged credit report, there is an additional charge).
– Full Feedback Certificate
• Provides information used in determining Final Approval Requirements as well as
Documentation Requirements.
• Remember: The Feedback Certificate is a “Recommendation” not an Approval!
Be Familiar With Your Loan Origination System And Any Mapping Issues
Your Interface May Have With Loan Product Advisor

Loan Product Advisor...The Process Continued
– For validation, you may use in-file credit reports pulled either inside or outside
Loan Product Advisor. (In-file credit reports are the default in Loan Product
Advisor) Three must be requested for each borrower.
– You may select to order a tri-merged credit report either through Loan Product
Advisor or through your LOS or credit vendor.
– For validation, you may use either of these tri-merged credit reports. (verify your
investor requirements if it’s other than Freddie Mac). There is an additional
charge for merged reports issued through Loan Product Advisor.
– All credit reports must be in the closed loan package, even the Loan Product
Advisor in-file reports that may not have been used for underwriting purposes.
Check With Your Investor - Many Require Use Of Tri-Merged Reports Only

Loan Product Advisor Feedback Certificate

Freddie Mac Purchase Eligibility
• Review the Feedback Certificate for Purchase Eligibility Messages
– Freddie Mac Eligible
– Freddie Mac Ineligible (Not eligible for sale to Freddie Mac/Investor)
– Freddie Mac 500 A-minus Offering
Many Lenders Do NOT Allow For A-Minus Loans To Be Delivered Or

Insured. Always Check Investor Requirements

Feedback Certificate- “Risk Class”
Risk Classes for:
•Conventional / Conforming Loans
– ACCEPT
– CAUTION

Feedback Certificate-Loan Data
Loan Data Fields
– Borrower name
– Appraisal Identifier, AUS Key #, Application #
– Property Address and Mortgage Type
Documentation Levels for Conventional Conforming Loans
– Streamlined Accept (Generally the Rule of One…).
– Standard (Generally the Rule of Two) But Investor Product/Program
Requirements may apply

Feedback Certificate-Results
Appraisal Type
‫‏‬
http://www.freddiemac.com/help/lpa_tool/feedback_certificate_page.html

Feedback Certificate- Credit Report
Information

Feedback Certificate- Mortgage Information



Required ARM Detail

Feedback Certificate- Asset Information

Feedback Certificate- Calculated Values

Feedback Certificate- Borrower Information
Validate Liabilities From Your LOS To Loan Product Advisor; Do Ratios

Match? What Liabilities Must Be Included?

Feedback Certificate- Transaction
Information

Feedback Certificate- Feedback Summary

Feedback Certificate- Employment &
Income
Documentation “Level” determines the documentation required
•
– Note: Many messages say “if”, so they apply only “if”….


Reserves
• Read All Messages

Reserves
• Read All Messages

Feedback Certificate- Credit and Liabilities
Read!! Guidance when no payment is listed or liability is not on the
credit report; option to verify funds to pay off open ended accounts;

Feedback Certificate- Property and
Appraisal

Feedback Certificate- General Messages

Feedback Certificate- General Messages

The Checklist - Use It!!

Property Eligibility Requirements
Page 30 and 31 of matrix

http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf

Common Errors
Double Check Your Data
‫‏‬
– Address information wrong

– Property Type entered incorrectly (condo, but entered as single family)
– HOA, Condo or PUD dues not included in DTI
– Liabilities omitted without supporting documentation
– Inquires not cleared as either a new account opened or no credit granted
– Credit report or credit documents expired
– Funds required for closing/reserves changed, but not resubmitted
– MI required but MI guidelines not followed
Data Submitted Must Be True, Correct And Accurate And Supported By

Proper Documentation Or Explanations

Always Remember
A Few Reminders:
‫‏‬
– Use FULL vested value of the borrower’s 401k, IRA, KEOGH, 403b or other IRS
qualified plan as reserves IF borrower has access to the funds currently without
restriction; Ensure loans taken are subtracted from the value of the asset
account and that applicant is fully vested.
– Loan Product Advisor does not validate if the maximum seller paid fees have
been exceeded. You must validate this based off the TLTV.
– Address items that Loan Product Advisor cannot see, such as missing pages to
bank statement or unrealistic commute.
– All assets should be entered based on type i.e. CD, 401k, checking, gifts.
– Collections are not required to be paid off by Freddie Mac, but may be a
requirement of the lender.
– Tax Liens and judgments must be paid and funds must be verified, in addition to
the funds required to close.

Always Remember
A Few Reminders:
‫‏‬
– If a revolving debt, open-ended accounts or deferred non-student loan do not

show a payment on the credit report, you are required to use 5% of the balance,
or obtain a copy of a statement evidencing lower payment.
– For open-ended debt (AmEx O type accounts), verify funds to pay the current
balance over and above funds needed for closing + reserves, or include the full
payment in ratios.
• Evidence borrower is reimbursed by employer is also acceptable
– For all properties owned free and clear, evidence of tax and insurance payments
and amounts should be included in the DTI ratio.
– Investment transactions/rental income - refer to the Freddie Mac Rental Income
guidelines
– Follow the updated student loan policies for payment amounts
See Loan Product Advisor Documentation Matrix Dated September 2018

FAQ’s
http://www.freddiemac.com/loanadvisorsuite/faq/loanproductadvisor.html

Loan Product Advisor Functionality Guide
– Updated June 2019
– Assists with data entry
– Error messages
– Correcting errors
– Assigning a loan
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/fun_guide.pdf

Freddie Mac Seller/Servicer Guide

Resources & Learning

Freddie Mac Training Resources
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/lpa_resources.pdf

Borrower’s Without Credit Scores
https://sf.freddiemac.com/content/_assets/resources/pdf/requirements/mtges4borr_nocreditscores.pdf

Selection and Use of Credit Scores
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/credit_scores.pdf

Feedback Message Cause and Resolution
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/lpfm_cr.pdf

Determination of Reserve Requirements
https://sf.freddiemac.com/content/_assets/resources/pdf/requirements/reserves.pdf

Determination of Total Funds to Be Verified
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/cashtoclose.pdf

Determination of Total Monthly Debt
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/conv_lp_liabilities.pdf

Loan Product Advisor Documentation
Matrix
Tool to help document files
‫‏‬
http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf

Freddie Mac Rental Income Matrix
Tool to help document files
‫‏‬
http://www.freddiemac.com/learn/pdfs/uw/rental.pdf

Automated Income Assessment
http://www.freddiemac.com/learn/pdfs/uw/auto_inc_assess_employer.pdf

Automated Asset Assessment
http://www.freddiemac.com/learn/pdfs/uw/auto_asset_assess.pdf

AIM for Self Employment
http://www.freddiemac.com/learn/pdfs/uw/auto_assess_tax_return_data.pdf

Collateral Representation and Warranty
Relief
https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/crwr_prod.pdf

Automated Collateral Evaluation (ACE)
– Must receive “feedback message
transaction is eligible for appraisal waiver”
and be “Accept/Eligible” for LPA
– Transaction must be:
– 1 unit primary or second home including
condos
– LTV/TLTV 80% or less
– No cash-out refinance
– Feedback must indicate eligible for
appraisal waiver
– Final submission to Selling System® must
indicate collateral representation and
warranty relief status is “Y” or “Yes”
– Waiver is good for 120 days
– Visit Collateral Representation and
Warranty Relief page on the Freddie Mac
Learning Center for resources

Automated Collateral Evaluation
https://sf.freddiemac.com/content/_assets/resources/pdf/requirements/ace.pdf

Loan Collateral Advisor®

Loan Collateral Advisor®
Simplified Risk Scoring System
‫‏‬
– Scale of 1-5 provided in .5

increments, with one representing the
lowest valuation risk score. This
score is found in Loan Collateral
Advisor and does not print on the
feedback certificate
– Eligible Mortgages with
LTV/TLTV/HTLTV ratios < or = to
95% that have an appraisal with a
Loan Collateral Advisor risk score of
2.5 or less will receive representation
and warranty relief.
– Review your Loan Product Advisor
Feedback certificate for eligibility

HVE Point Value Estimate
http://www.freddiemac.com/hve/hve.html

HVE FAQ’s
http://www.freddiemac.com/hve/faq.html

Genworth Underwriting Guidelines

Genworth Rate Express®

LOS Connections

Training Tools and Information

Training Tools and Information

Additional MI Site Information

Your Genworth Resources
 ActionCenter®: 800 444.5664
 Your Local Genworth
Regional Underwriter
 Your Genworth Sales
Representative

Legal Disclaimer
Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for
‫‏‬
accuracy, we also know that any discussion of laws and their application to particular facts is subject to
individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is
not a substitute for advice of counsel. You should always check with your own legal advisors for
interpretations of legal and compliance principles applicable to your business.
GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED,

‫‏‬
INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A

PARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN
NO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR
CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING AND
THE MATERIALS.
Collateral Underwriter®, Home Ready® and Desktop Underwriter® or DU® are registered trademarks of Fannie Mae
Loan Product Advisor®, Home Possible®, Loan Collateral Advisor® and Home Value Explorer® (HVE®) are registered trademarks of Freddie Mac
ActionCenter®, Homebuyer Privileges® and Rate Express® are registered trademarks of Genworth Mortgage Insurance
Simply UnderwriteSM is a registered service mark of Genworth Mortgage Insurance
Genworth Mortgage Insurance Offers A Comprehensive Suite Of Training

Opportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve Your
Borrowers Better. Visit mi.genworth.com To Learn More.

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Loan Product Advisor®

Part I, The Basics

Today’s Session Covers Conventional Loans Only

Loan Product Advisor 2

Loan Product Advisor 3

Loan Product Advisor 4

Loan Product Advisor 5

– The lender is deciding whether to give a sizeable loan to the applicant

– The systems can only work if the information entered is:

– The AUS does not decision a file

How Loan Risk is Analyzed 6

Loan Product Advisor 7

Freddie Mac’s Loan Product AdvisorSM (LPA)

A tri-merge Credit Report or 3 In-File Reports are required

FICO scores must be requested for each borrower

Identifying the Underwriting Score is achieved by;

– If the borrower has two scores select the lowest

Credit Reports & Credit Scoring 8

For an Accept Mortgage and an A-minus Mortgage, Loan Product

Advisor has determined that the Borrower's credit reputation is

Credit Reports & Credit Scoring 9

Loan Product Advisor 10

Loan Product Advisor 11

Loan Product Advisor 12

Loan Product Advisor 13

– Inquires may indicate the borrower has additional debt.

Loan Product Advisor 14

Credit Reports & Credit Scoring 15

Example - Joe has applied for a mortgage loan:

How Loan Risk is Analyzed 16

Loan Product Advisor 17

Loan Product Advisor 18

Co-borrower’s are considered in the evaluation of a mortgage loan

Loan Product Advisor 19

– Product: a 15, 20 and 30-year fixed rate, an adjustable rate

Why the money is being borrowed can influence the risk

Loan Product Advisor 20

– The relationship between:

Loan Product Advisor 21

Unit or Manufactured Home

Loan Product Advisor 22

Loan Product Advisor 23

– Documentation Checklist: Used to help you process/document your file

Loan Product Advisor 24

Loan Product Advisor 25

Loan Product Advisor 26

Many Lenders Do NOT Allow For A-Minus Loans To Be Delivered Or

Loan Product Advisor 27

Loan Product Advisor 28

Loan Product Advisor 29

Loan Product Advisor 30

Loan Product Advisor 31

Loan Product Advisor 32

Loan Product Advisor 33

Loan Product Advisor 34

Loan Product Advisor 35

Loan Product Advisor 36

Loan Product Advisor 37

Validate Liabilities From Your LOS To Loan Product Advisor; Do Ratios

Loan Product Advisor 38

Loan Product Advisor 39

Loan Product Advisor 40

– Note: Many messages say “if”, so they apply only “if”….