On April 3, 2018, Fannie Mae announced an update to its Single Family Selling Guide allowing lenders to contribute to borrower-paid closing costs and prepaid fees under specified conditions, and lenders can take advantage of this change regarding lender contributions immediately.
The update to the Selling Guide clarifies that lenders may contribute to fund closing costs and prepaid fees, which are usually the responsibility of the borrower, under certain circumstances. This lender-sourced contribution may be provided to the borrower in instances in which the lender credit is: (1) derived from premium pricing as permitted under the Selling Guide; and (2) sourced directly from lender funds. However, it must not be: (1) used to fund any portion of the down payment or financial reserve requirements; (2) subject to requirements for repayment or financial obligation apart from the subject mortgage; or (3) passed to the lender from a third party for the purpose of providing a lender credit. In addition, the amount of the lender contribution generally is unlimited so long as it does not exceed the amount of borrower-paid closing costs and prepaid fees. The update further provides that any excess lender credits that must be returned to the borrower in accordance with applicable regulatory requirements constitute an overpayment of fees and charges, and this excess may be applied as a principal curtailment or returned in cash to the borrower, as provided for in the Selling Guide.
However, Fannie Mae clarifies that this updated policy does not apply to a lender who is an interested party to a purchase transaction as defined in the Selling Guide under the “Interested Party Contributions” section (see B3-4.1-02 and B3-4.1-03). The policy for interested party contributions remains unchanged and is subject to certain limits even if the amount of interested party contribution does not exceed the amount of borrower-paid closing costs and prepaid fees (i.e., if the lender is an interested party to a purchase transaction, any amount of lender contribution not derived from premium pricing must be considered as an interested party contribution when calculating the maximum such limit for eligibility purposes).
This change in policy regarding lender contributions is reflected in three sections of the Selling Guide, namely: (1) the “Minimum Reserve Requirements” section, which states that lender contributions cannot be counted as part of a borrower’s liquid financial reserves; (2) the “Donations from Entities” section, which includes the new “Lender Contributions” policy (described above) that now permits lenders to make contributions to borrower-paid closing costs and prepaid fees in certain instances; and (3) the “Glossary of Fannie Mae Terms: C” section, in which the definition of “closing costs” adds the phrase “…and any discount points paid.”
Also, to briefly summarize the other updates made to the Selling Guide in this announcement, the following addresses these additional changes:
- Lenders will soon have a new option to use full-service certification custodians for certain loans after obtaining specific approvals from Fannie Mae.
- The distinction between treating a single-closing construction-to-permanent transaction as either a purchase or a refinance transaction is clarified to be based on lot ownership at the time of the first advance of interim construction financing.
- Payee codes are now available in the Loan Delivery application after the lender submits Form 482 (Seller’s Designation of Wire Transfer Instructions) and the form is processed.
- Lenders will no longer receive monthly Out of Compliance reports regarding data on housing goals because such data is now collected upfront at loan delivery.
- Under the “Asset Verification” section, the reference to principal residence conversions as a transaction that requires the verification of additional assets beyond the amount required by Desktop Underwriter has been removed because the policy was previously eliminated as it was no longer applicable.
The Fannie Mae Selling Guide Announcement, SEL-2018-03, is available here.