B3-2-01, General Information on DU (05/05/2021)

Fannie Mae’s underwriting policies include an evaluation of the borrower’s (or spouse’s to the extent required by applicable law) equity investment, credit history, liquid reserves, reliable and recurring income, and the cumulative effect that these and other risk factors have on mortgage loan performance. Fannie Mae’s underwriting policies enable the lender to consider various scenarios in evaluating a borrower’s willingness and capacity to repay the mortgage loan. The lender must confirm that information provided by the borrower during the loan application process is accurate and complete; include documentation in the loan file that supports the lender’s assessment of the borrower’s credit history, employment and income, assets, and other financial information used for qualifying; conduct a comprehensive risk assessment of each mortgage loan application; and render a decision to either approve or decline the mortgage loan application.

Fannie Mae offers lenders two options for conducting a comprehensive risk assessment–automated underwriting through DU or manual underwriting. Both methods include an evaluation of the borrower’s equity investment, credit history, liquid reserves, reliable and recurring income, and the cumulative effect that these and other risk factors have on mortgage loan performance.

DU evaluates mortgage delinquency risk and arrives at an underwriting recommendation by relying on a comprehensive examination of the primary and contributory risk factors in a mortgage application. (See B3-2-03, Risk Factors Evaluated by DUB3-2-03, Risk Factors Evaluated by DU ) It analyzes the information in the loan casefile to reach an overall credit risk assessment to determine eligibility for delivery to Fannie Mae.

No one factor determines a borrower’s ability or willingness to make their mortgage payments. DU identifies low-risk factors that can offset high-risk factors. When several high-risk factors are present in a loan casefile without sufficient offsets, the likelihood of serious delinquency increases.

DU conducts its analysis uniformly, and without regard to race, gender, or other prohibited factors. DU uses validated, statistically significant variables that have been shown to be predictive of mortgage delinquency across all groups.

DU does not evaluate a loan’s compliance with federal and state laws and regulations including, without limitation, a loan’s potential status as a qualified mortgage under applicable laws and regulations. Lenders bear sole responsibility for complying with applicable laws and regulations, and these compliance obligations may not be imposed upon or shared by Fannie Mae.

Underwriting with DU

Lenders must enter loan data (including data from the Form 1003) in their loan origination system or in the DU user interface before submitting for underwriting. A credit report must also be obtained. Loans may be submitted to DU before or after the closing of the mortgage loan; however, the first submission to DU for underwriting purposes must occur before closing of the mortgage loan.

When the mortgage loan or borrower information changes and it no longer matches the information used when the loan casefile was last underwritten with DU, the lender must update the data and resubmit the loan casefile to DU. Exceptions are specified in B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit ReportB3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report .

When the loan casefile is resubmitted to DU after closing and prior to delivery to Fannie Mae, the lender is responsible for ensuring that:

• all information provided in the final submission to DU matches the terms of the closed loan;
• the loan complies with the requirements specified in A2-2-04, Limited Waiver and Enforcement Relief of Representations and WarrantiesA2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties ;
• the loan delivery data matches both the closed loan and the final data submitted to DU; and
• the loan casefile receives an eligible recommendation from DU on the final submission.

The lender may request a new credit report after closing when the loan casefile is resubmitted and, as with all loan casefiles, must comply with the Fair Credit Reporting Act with regard to the purpose and nature of the inquiry. If the new credit report contains information that is different than the information used to prepare the final loan application that was signed by the borrower at closing, the loan application must be updated. (Borrower signature(s) are not required due to the update occurring post-closing.) The lender must include both the final signed and the updated unsigned loan applications in the loan file.

Note: The credit report must meet the allowable age of documents as of the note date. If the credit report expired prior to the note date and the loan casefile is being resubmitted to DU, a new credit report must be requested.

In certain instances, the lender may not be able to access the original DU loan casefile for resubmission purposes. Lenders may create a new loan casefile in DU after closing to ensure that all information in the final DU submission matches the terms of the closed loan, provided all of the following conditions are met:

• the above lender responsibilities are met, including the updating of the final loan application, if applicable;
• the loan has not yet been delivered to Fannie Mae;
• the loan has the same information (for example, the same borrower(s) and property) as had previously been underwritten through DU prior to closing using another loan casefile, and that loan casefile received an eligible recommendation from DU;
• the lender retains the DU Underwriting Findings Report from the original loan casefile ID in the loan file;
• the DU submission using the new loan casefile occurs no more than 60 days after closing (based on the note date) or 12 months after initial closing for single-closing construction-to-permanent loans (described in B5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing TransactionsB5-3.1-02, Conversion of Construction-to-Permanent Financing: Single-Closing Transactions ); and
• as stated above, when a new credit report is requested, the lender complies with the Fair Credit Reporting Act.

If the resubmission to DU results in an “ineligible” recommendation, the mortgage loan may not be delivered to Fannie Mae.

Note: If the quality control function is performed before delivery, the above requirements apply. If quality control is performed after delivery, see D1-3-03, Lender Post-Closing Quality Control Review of Data IntegrityD1-3-03, Lender Post-Closing Quality Control Review of Data Integrity .

DU Underwriting Reports

DU issues two types of reports:

• The DU Underwriting Findings report summarizes the overall underwriting recommendation and lists the steps necessary for the lender to complete the processing of the loan file. This is typically the first report viewed by an underwriter or a loan officer after the loan casefile has been underwritten with DU. This report is described in B3-2-11, DU Underwriting Findings ReportB3-2-11, DU Underwriting Findings Report .
• The Underwriting Analysis report contains much of the same information requested on the Uniform Underwriting and Transmittal Summary ( Form 1008 ).

Each time a loan casefile is resubmitted to DU, the information in these reports is updated with information from the most recent submission. The date and time of each submission are recorded on each report, along with the unique loan casefile ID.

Loan Casefile Archival Policy

DU loan casefiles are archived and no longer retained in DU from the earlier of

• 270 days from the date on which the loan casefile was last updated, or
• 540 days from the date on which the loan casefile was created.

These time frames are intended to ensure that the total volume of loans in the system is at a manageable level, reducing the time required by DU to search for and retrieve loan casefiles

After a loan casefile is archived from DU, it cannot be restored. If a loan casefile that has been archived must be re-underwritten, a new loan casefile must be created and submitted to DU. The loan casefile will be subject to the policies in effect for the current version of DU. Fannie Mae is not responsible for retaining loan casefiles for the lender.

DU Underwriting Recommendations

The following topics describe the underwriting recommendations returned by DU:

• B3-2-05, Approve/Eligible RecommendationsB3-2-05, Approve/Eligible Recommendations .
• B3-2-06, Approve/Ineligible RecommendationsB3-2-06, Approve/Ineligible Recommendations .
• B3-2-07, Refer with Caution RecommendationsB3-2-07, Refer with Caution Recommendations .
• B3-2-08, Out of Scope RecommendationsB3-2-08, Out of Scope Recommendations .

General Requirements for Lenders

When underwriting loans with DU, the lender must:

• employ prudent underwriting judgment in assessing whether a loan casefile should be approved and delivered to Fannie Mae;
• confirm the accuracy of the data it submits, making sure that it did not fail to submit any data that might have affected the DU recommendation had it been known;
• ensure that the loan complies with all of the verification messages and approval conditions specified in the DU Underwriting Findings report;
• apply due diligence when reviewing the documentation in the loan file;
• review the credit report to confirm that the data that DU evaluated with respect to the borrower’s credit history was accurate and complete;
• determine if there is any potentially derogatory or contradictory information that is not part of the data analyzed by DU; and
• take action when erroneous data in the credit report or contradictory or derogatory information in the loan file would justify additional investigation or would provide grounds for a decision that is different from the recommendation that DU delivered.

For example, if a foreclosure was reported in the credit report but was not detected by DU (that is, it was not referenced in any verification messages), the lender must determine if the loan complies with the applicable guidelines (see B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing CreditB3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit ).

The table below provides references to recently issued Announcements that are related to this topic.