TIP OF THE DAY- FREDDIE REQUIRED RESERVES

TIP OF THE DAY- FREDDIE REQUIRED RESERVES

 

5501.2: Reserves (08/20/18)

(a) Calculation of reserves Reserves are Borrower's assets remaining after the Mortgage closing. The source of funds used for reserves, when needed to qualify the Borrower for the Mortgage transaction, must meet the eligibility and documentation requirements in Section 5501.3. Reserves are measured by the number of months of the monthly payment amount for the property. The monthly payment amount is the sum of the following monthly charges:

·         Principal and interest payments on the Mortgage

·         Property hazard insurance premiums

·         Real estate taxes

·         When applicable:

o   Mortgage insurance premiums

o   Leasehold payments

o   Homeowners association dues (excluding unit utility charges)

o   Payments on secondary financing

When calculating reserves for the subject property, the principal and interest payment of the monthly payment amount must be based, at a minimum, on the Note Rate. When calculating reserves for other properties, the monthly payment amount for the property must be no less than the current monthly payment amount.

The minimum reserves requirements, as described below, must be met.

(b) Minimum required reserves For Loan Product Advisor® Mortgages, the Seller must verify all reserves required by Loan Product Advisor, as stated on the Feedback Certificate. For Manually Underwritten Mortgages, the verified reserves must equal or exceed the following reserves requirements:

Subject property

Required reserves

Primary Residence - 1-unit

None

Primary Residence - 2- to 4-unit

Six months for the subject property

Second home

Two months for the subject property

Investment Property

Six months for the subject property

Mortgages secured by second homes and Investment Properties require the following additional reserves:

Number of financed properties

Additional required reserves for second home or Investment Property Mortgages

Loan Product Advisor Mortgages

Manually Underwritten Mortgages

When each Borrower individually, and all Borrowers collectively, are obligated on one to six financed properties, including the subject property and the Borrower's Primary Residence

Two months of the monthly payment amount (as described in Section 5501.2(a)) on each additional second home and/or 1- to 4-unit Investment Property that is financed and on which the Borrower is obligated.

When each Borrower individually, and all Borrowers collectively, are obligated on seven to 10 financed properties, including the subject property and the Borrower's Primary Residence

Eight months of the monthly payment amount (as described in Section 5501.2(a)) on each additional second home and/or 1- to 4-unit Investment Property that is financed and on which the Borrower is obligated

Not permitted

For Loan Product Advisor Mortgages, the additional required reserves stated in the chart above are included in the amount of reserves required to be verified on the Feedback Certificate.

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