Freddie Mac Underwriting Alignment on Tax Returns, Assets, and Debt Calculations

Applies to: Freddie Mac eligible mortgage transactions involving tax return underwriting, trust assets, flood insurance, or automobile leases.

Addressed to

Pennymac correspondent sellersFrom the publisher, not quoted from the text

Investor

PennymacFrom the publisher, not quoted from the text

Affected areas

General; Flood insurance

Affected documents

Federal tax extension forms; tax returns

Applicability confidence

Needs review: some rows could not be matched to a quote from the source

Summary by AWACS. Pennymac Correspondent's guide is proprietary, so AWACS does not reproduce its text. Read the official announcement ↗ (opens in a new tab)

What to review: Review underwriting guidance on the optional exclusion of voluntary flood insurance premiums, living trust asset ownership requirements, automobile lease payoff terms for debt calculation exclusions, and revised tax return aging standards.

QC implications

• Verify that housing expense ratios include mandatory flood insurance premiums and only omit voluntary coverage.
• Sample automated income assessment files involving tax extensions to confirm filed federal extension documentation is retained.
• Audit debt ratio calculations to confirm automobile lease monthly payments are omitted only when the balance has been fully paid off.
• Confirm that living trust accounts utilized for asset repayment identify the underwritten settlor as the owner of the account.
• Test tax return documentation to ensure compliance with age standards evaluated against the note year, application date, and note date.