Servion Mortgage Newsletter - September 2021

SEPTEMBER 2021

In This Issue Partner Updates FHA Changes Student Loan Calculation in Attempt to Boost Homeownership How to Avoid the Headache of Undisclosed Liabilities Servion Creates New Position Focused on Mortgage Processor Training Fannie Mae Now Incorporates Rental Payment History Into Mortgage Applications HUD Plan Aims to Increase Black Homeownership The Buzz: Recent Feedback

PARTNER UPDATES

Many people were able to get out and enjoy a summer vacation this year, but the housing market definitely didn’t take a break. Our partners were busy and we were there to support them, and that includes supporting the newest institutions to join Servion Mortgage. Here are the amazing institutions that became partners in July and August!

New Retail Lending Partners Bourns Employees Federal Credit Union Riverside, CA Central Wisconsin Credit Union Plover, WI North Star Community Credit Union Maddock, ND Heights Auto Workers Credit Union Burnham, IL

New Correspondent Lending Partners DuPage Credit Union Naperville, IL United Credit Union Tyler, TX

Relationship Expansions Heartland Credit Union Inver Grove Heights, MN -Now utilizing USDA sponsored agent service TruStar Federal Credit Union Park Rapids, MN -Now utilizing quality control services

LEARN ABOUT OUR PRODUCTS & PARTNERSHIP OPPORTUNITIES

FHA Changes Student Loan Calculation in Attempt to Boost Homeownership The Federal Housing Administration has updated the way it assesses student loan debt in an attempt to allow more people to qualify for FHA-backed mortgages. The move comes as part of an effort to help more Americans become homeowners and narrow the racial gap in homeownership.

Differences Between the Old Calculation and the New One Under the old calculation, FHA assumed that many borrowers were making monthly payments equal to 1% of their unpaid student loan balances, including loans that were in forbearance, deferment or in incomebased repayment (IBR) programs that only require small payments.

This 1% approach tended to inflate an applicant’s DTI and disqualified many otherwise solid borrowers from obtaining FHA financing.

The new calculation removes the 1% assumption and allows lenders to use the applicant’s actual monthly loan payments, making it easier for the applicant to get approved.

All lenders were required to implement the changes for FHA case numbers assigned on or after August 16, 2021.

A press release from the Department of Housing and Urban Development, the parent agency of the FHA, said, “This announcement enhances FHA’s ability to serve one of its core

demographics—first-time homebuyers. Over 80 percent of FHA-insured mortgages are for first-time homebuyers on average each year. FHA estimates that more than 45 percent of these borrowers also have student loan debt, with much of this debt impacting people of color.”

An Example of the Difference the Change Will Make Imagine an FHA applicant who has $100,000 in student loan debt and is paying $250 a month under an IBR plan.

• Under the old 1% rule, FHA would assume the borrower’s monthly student loan payment was $1,000. This could easily throw off the DTI and disqualify the applicant.

• Under the new calculation, the borrower’s actual $250 monthly student loan payment is what gets factored in.

The changes should give recent graduates, many of whom are burdened with heavy student loan debt because of rising education costs, a better opportunity to buy a home, said David Stevens, a former head of FHA. The new calculation removes the 1% assumption and

allows lenders to use the applicant’s actual monthly loan payments, making it easier for the applicant to get approved.

“Homeownership is the cornerstone of the American Dream, and the best way to build generational wealth. I am proud that FHA is taking action to make it easier for borrowers with student loan debt to qualify for a federally insured mortgage,” said HUD Secretary Marcia L. Fudge in a statement.

Sources: https://www.wsj.com/articles/hudaims-to-boost-homeownership-for-buyers-withhigher-student-debt-11624008602 https://www.businessinsider.com/student-loandebt-homeowner-mortgage-hud-fha-marciafudge-2021-6 https://www.forbes.com/sites/adamminsky/2021/06/21/biden-administration-will-makeit-easier-for-student-loan-borrowers-to-get-amortgage/?sh=386d94041314 https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_103

HOW TO AVOID THE HEADACHE OF UNDISCLOSED LIABILITIES

By Brock Miller, Quality Control Manager Assessing a borrower’s ability to repay their loan is key to accurately evaluating the risk of any mortgage loan. The debtto-income calculation that helps lenders evaluate a borrower’s overall ability to repay is rendered inaccurate when a borrower doesn’t disclose all their existing liabilities, including new debts opened after application, for consideration in qualification. This can cause a headache for both you and your borrower during the loan process or even after the loan has closed and funded.

Undisclosed debts are defined by Fannie Mae as “any loan or liability (e.g., auto, revolving, installment, mortgage, or lease) that exists at the time the borrower closes on the subject loan and is not disclosed by the borrower during origination.” We’ve added the emphasis on the phrase “exists at the time the borrower closes” because it’s a good reminder that we must be aware of any new debts or liabilities that the

borrower may incur all the way through closing.

Borrowers can, and do with frequency, incur new debts after submitting the initial loan application and/or after an initial credit report has been pulled, but prior to consummation.

Without proper borrower education by knowledgeable mortgage personnel this type of headache can start to become more of a recurring migraine for your institution.

These undisclosed debts are not factored into the borrower’s qualification and final approval, which raises the prospect of violating an investor’s underwriting requirements.

By educating your borrowers and mortgage personnel on the risks of undisclosed liabilities, you can protect your borrower’s loan approval as well as your institution’s mortgage income; avoiding a potential headache for all parties involved.

Non-compliance with secondary market

investor requirements is clearly not desirable due to the potential for repurchases, indemnifications or, even worse, the suspension and/or termination of selling arrangements (which can occur with repeat breaches of your lender contract with your investor).

To put it simply, investors require that all debts and liabilities, whether opened prior to or during the loan origination process, be factored into the final approval of a mortgage loan. Proper and complete analysis of a borrower’s ability to repay is crucial in accurately assessing the risk of any mortgage loan.

This also ultimately helps predict the performance of any mortgage loan and therefore the overall suitability of a loan for sale on the secondary market. Below we have listed some potential solutions that your institution can easily implement in order to avoid landing in this type of predicament.

Simple Solutions to Avoid the Undisclosed Liability Headache

1

Educate Borrowers

2

Loan officers and processors should consult with each borrower and educate them on the importance of reporting all debts and avoiding incurring new debt during the mortgage process.

Encourage Mortgage Staff to Communicate the Importance of Accurate Income and Debt Disclosure

Everyone who interacts with a mortgage borrower should stress the importance of complete transparency when it comes to income and debt disclosure. Don’t be shy about explaining how new loans, such as an auto loan, could cause their debt-toincome ratio to increase to a level that makes them ineligible for their loan program.

3

Multiple Check-Ins

4

Regularly check in with borrowers throughout the origination process and ask if there have been any changes to their financial situation since the last time you spoke.

Additional Solutions

• Soft pull a credit report one week prior to the scheduled closing date and review it for any changes in the borrower’s debts and liabilities.

• Highlight the legal obligations referenced in Section 6 of the new URLA when borrowers sign the final loan application at closing.

• Track this deficiency in QC in order to identify trends and administer a feedback loop to mortgage origination staff.

For more tips on preventing undisclosed debts and liabilities, check out the July edition of Fannie Mae’s Quality Insider publication.

We Help Partners Protect Their Mortgage Income Servion Quality Control provides quality control solutions tailored to the unique needs of our credit union partners. Visit the QC section of our website for more information or to get in touch with us.

SERVION CREATES NEW POSITION FOCUSED ON MORTGAGE PROCESSOR TRAINING Responsible for an assortment of important tasks such as compiling loan documents, analyzing credit reports, tracking deadlines, and delivering files to underwriting there is no doubt that the role of a mortgage loan processor is crucial. Efficient, accurate loan processing helps mortgage borrowers have the great experiences they deserve when making one of the biggest financial decisions of their lives.

With purchase and refinance demand at near-record levels for nearly two years now, Servion Mortgage has brought on many new loan processors to help keep things moving for everyone.

Hiring in this field has been a challenge though, as there are few incentives for experienced processors to switch jobs when it seems like every mortgage company has plenty of work to do.

Our hiring strategy has been to be open to hiring processors who may have less experience and then providing them with rigorous, in-depth training. To provide this training, we created an exciting new managerial role designed to ensure topnotch, on-the-job education and support for processors.

Mortgage Training Manager Role Focuses on Loan Processing Excellence

Amber Breidel became mortgage training manager in May, bringing with her a wealth of experience to help new processors be the best they can be.

What Does the Training Role Entail?

Amber has been with Servion Mortgage since 2017 as a contract processor, a role in which she worked with numerous Servion partners on more than 1,500 files. Before joining Servion, she worked at a credit union that did 100 percent of its mortgage business with Servion. As a result, Amber has a full-picture view of what the mortgage process is like for Servion partners and within Servion itself. She began her financial services career as a teller at the age of 16, and over the years held many different roles in the areas of consumer lending, indirect lending, and mortgage.

“Doing mortgages is the most rewarding thing I’ve ever done,” Amber says. “And training is something that comes naturally to me. This role has quickly become my dream job.”

Amber trains new processors on both our retail and contract processing teams.

She sits with new processors and goes through their files with them, doublechecking everything before moving the file along to underwriting and then providing feedback afterward. Then, once the file comes out of underwriting, she works with the new processors on any conditions that come from the underwriters.

Depending on the individual needs of each processor and the complexity of the loans, the intensive part of the training can last anywhere from three to six months. After that, Amber always remains available to help.

The Goal is Consistent Experiences for Partners Servion Mortgage has seen significant growth over the last couple of years, and we are now in the fortunate position of supporting more financial institutions and borrowers than ever. We want to ensure that we’re delivering consistently excellent service to every partner, and we believe having strong training for processors will help accomplish that goal. Additionally, getting clean files from processing helps underwriters move quicker, which can help improve turnaround times.

In mortgage, every step matters, and we believe the creation of the mortgage training manager position will make the processing step a little easier to climb.

FANNIE MAE NOW INCORPORATES RENTAL PAYMENT HISTORY INTO MORTGAGE APPLICATIONS On August 11, Fannie Mae announced that, for the first time, it will allow on-time rental payments to factor in to underwriting calculations.

The announcement comes as the wealth gap widens and purchasing a home has become increasingly difficult for many Americans.

The change went into effect immediately through a change in DU. While not every mortgage originator was positioned to provide this to borrowers on launch day, the ability to incorporate rental history will become more widely available in the coming weeks.

MAKING IT EASIER FOR RENTERS TO BECOME HOMEOWNERS The Federal Housing Finance Agency’s acting director, Sandra Thompson, said that including rent payments will pave the way for more renters to own homes.

“For many households, rent is the single largest monthly expense. There is absolutely no reason timely payment of monthly housing expenses shouldn’t be included in underwriting calculations,” said Thompson. “With this update, Fannie Mae is taking another step toward understanding how rental payments can more broadly be included in a credit assessment, providing an additional opportunity for renters to achieve the dream of sustainable homeownership.”

HOW IT WORKS

Lenders will submit the mortgage application through DU, as usual. If DU finds the loan is not eligible for sale to Fannie Mae, the system will now check, for all first-time homebuyers, whether a 12-month history of on-time rental payments would change the outcome. If the loan is not eligible as submitted, but 12 months of on-time rental payments would make the loan eligible, Fannie Mae will notify the lender. The lender can then ask the borrower to give permission for Fannie Mae to access their bank statements.

Assuming the borrower agrees to grant access, the lender will order an asset report from a Fannie Mae–approved vendor. The vendor will contact the borrower, who must consent to the vendor accessing the data. The vendor will then access the data and send the data to the lender and DU. DU will automatically assess whether the rental history exists and is consistent with the rental payment amounts on the initial application. If so, the loan will be deemed eligible for sale to Fannie Mae. Lenders cannot request the bank statements directly. They must order the bank statements through a Fannie Mae–approved vendor.

EXPECTED IMPACT The change could have a significant impact in helping more people qualify. In a study of recent unfavorable recommendations from DU, Fannie Mae found that 17 percent of those would have been approved if their rental history been considered.

Taking rental history into account is particularly important for the 20 percent of the U.S. population — disproportionately Black and Hispanic consumers — that have little established credit history.

Sources: https://www.urban.org/urban-wire/fannie-maes-decision-incorporate-rental-payments-mortgage-origination-process-will-expand-access-homeownership-over-time https://www.housingwire.com/articles/on-time-rent-now-counts-in-fannie-mae-underwriting/

HUD Plan Aims to Increase Black Homeownership The Department of Housing and Urban Development (HUD) and a coalition of civil rights organizations and leaders have launched a 7-point plan designed to create 3 million new Black homeowners by 2030.

Announced in late June, the 3by30 initiative identifies seven “tangible, actionable and scalable steps” that will make it possible. The seven points, which are to be addressed simultaneously, are:

• Homeownership counseling • Down payment assistance • Housing production • Credit and lending • Civil and consumer rights • Homeownership sustainability • Marketing and outreach

The plan is supported not only by HUD, but by a new coalition called The Black Homeownership Collaborative. The new Collaborative is led by a steering committee featuring executives from the Mortgage Bankers Association, NAACP, National Association of REALTORS, National Fair Housing Alliance, National Urban Institution and the Urban League.

The Black homeownership rate in the U.S. is currently 42.3 percent, according to Urban Institute. That significantly lags the white homeownership rate of 72.2 percent and the national average of 64.1 percent. In fact, the 42.3 percent Black homeownership rate is the lowest since segregation in housing was legal.

“With the current Black homeownership rate being lower than when housing discrimination was legal in our country, a bold and collective effort is needed to rectify this national tragedy,” said David Dworkin, president and CEO of the National Housing Conference.

“The 7-point plan of the 3by30 initiative marks a monumental step in doing this, and NHC is proud to help co-lead a broad group of housing and civil rights organizations who are committed to moving our nation forward on closing the racial homeownership gap.”

In addition to helping create more new Black homeowners, the 3by30 plan will seek to ensure current Black homeowners are not as vulnerable to foreclosure. The coalition will use early intervention, counseling and homeownership assistance to help achieve this goal.

Sources: https://www.housingwire.com/articles/hud-unveils-plan-to-increase-black-homeownership https://nationalfairhousing.org/2021/06/18/housing-and-civil-rights-leaders-announce-national-initiative-to-increase-black-homeownership

Tired of Real Estate Agents Sending Your Borrowers to Other Lenders?

We developed the Go2Source Realtor Referral Network to address this “steering” problem. The network includes hand-picked agents who are committed to keeping borrowers with you, not sending them elsewhere. Your borrowers should remain yours, and Go2Source helps make that happen.

Benefits for Both Retail and Correspondent Partners Go2Source agents help your borrowers search, buy, sell and save on their transactions.

Go2Source agents are local to your area and carefully vetted for professionalism and service attributes.

Go2Source agents never steer the borrower to any other financial institution.

For just $30/year, we can help you get the word out about Go2Source with customizable print and digital materials.

What To Do Next Want more information?

Contact your Servion Account Executive.

Ready to connect a lead with a Go2Source Realtor®?

Visit: myservion.com/Go2Source

The Go2Source Realtor® Referral Network is managed by The Servion Group, which locates, vets and recommends real estate agents in cities across the country who then become part of the Go2Source-branded network.

COMMERCIAL LENDING. Simplified.

Ready to grow your lending portfolio?

Few things help a financial institution grow better than commercial lending.

The Answer: The Question:

How do you overcome costs like infrastructure and talent and make your commercial lending program successful?

By taking advantage of Servion’s full suite of Commercial Loan Resources.

Full Portfolio Servicing ALLL Development Loan Policy Review and Development Risk Rating Assessment MBL Portfolio Auditing Tailored Portfolio Servicing Documentation Services A La Carte Services

Grow your credit union or community bank.

Serve your local business community. A true win-win. Visit myservion.com/CLR or contact our dedicated CLR account executive, Brian Mielke, at bmielke@myservion.com.

I can’t tell you how thankful I am to be working you all! Thank you for your constantly efficient processes and for always looking out for our members!

I have bragged and bragged at how amazing Servion has been with the two loans I have initiated directly through you guys. You have this down to a perfect science!

THE

BUZZ

Hear what our partners are saying about us!

Your staff is great to work with. They are respectful and kind. Just the coolest employees, nice, thoughtful and intelligent with how they ask questions.

We love working with them!

Thank you for the swift, professional attention to this file. You obviously genuinely care that we understood all aspects of the situation.

SERVICE. SOLUTIONS. SUCCESS. 651-631-3111 • myservion.com Servion Mortgage is a DBA of Servion, Inc. NMLS #1037. Equal Housing Lender.