Processing and Underwriting Rules

| Previous | TOC | Next |

GENERAL PROCESSING

It will be beneficial to the correspondent if submitted files are fully processed and complete.  Files submitted without all of the normal and required documentation will slow the underwriting process considerably.  Please make every effort to submit complete files with all exhibits necessary according to applicable requirements.

All submissions should be in the proper stacking order.  A stacking sheet for conventional, FHA, and VA loan types is provided at the end of this section.  Your compliance will insure expediency.

A brief processor's cover letter is requested on files to assist the underwriters in those instances where income averages, multiple sources of income, or other "judgement" areas are used.

For every mortgage, the lender should establish that:

1. The borrower has the ability to repay the loan.
2. The borrower has the willingness to repay the loan.
3. The property is sufficient security for the mortgage.

1. Stability of Income:
   
   Income must be stable, reliable and expected to continue;
   
   The lender must verify the borrower's employment for a minimum of two full years;
   
   The borrower should explain and document any lengths of gap in employment longer than 45 days;
   
   When a borrower is employed by a relative or closely held family business, in addition to the verification of employment, two years signed income tax returns with W2's, along with a letter from the employer's controller or C.P.A. are required to verify business ownership interest, if any;
   
   If the borrower has an employment history of less than two full years and was previously in school or the military, the lender must obtain a copy of their transcript, diploma or discharge papers reflecting dates consistent with the application information;
   
   A borrower who changes jobs frequently in the same line of work for advancement should receive favorable consideration;
   
   Job-hopping without advancement, or from one line of work to another, may indicate an inability to master a job and could lead to unstable  income.  However, industry-caused job changes are not generally considered derogatory.
    
2. Secondary Income:
   
   ASMC will consider various sources of additional income such as child support payments, disability, retirement payments, and special military income.  For this type of income to be considered, we require a divorce decree or award letter and the applicant must be able to demonstrate a track record of receipt.  Further, the income used for qualification purposes must be expected to continue for at least three years from the date of the note.
    
3. Commission Income:
   
   The lender must develop an average of the last two year's commissions for use in evaluating the borrower's allowable income;
   
   Commission income must be supported by signed federal tax returns for the past two years, and the applicant's most current pay stub or any other document reflecting cumulative annual earnings;
   
   Tax returns must be reviewed for any non-reimbursed business expense reported on Schedule A of the tax return.  A 24 month average of non-reimbursed business expenses will be deducted from monthly income;
   
   Fewer than two years of commission income will be acceptable ONLY if there are significant compensating factors;
   
   If commission earnings show a decline toward the current year, there must be strong offsetting factors or an acceptable explanation for the commission to be acceptable for qualification purposes.
    
4. Overtime/Bonus Income:
   
   A two year average must be established;
   
   Bonus and overtime income must be verified as continuing through written or verbal verification;
   
   Income must be verified with 2 years signed federal tax returns or
   W-2's if overtime/bonus income exceeds 25% of annual earnings.
   
   NOTE: For calculation purposes, one of two methods may be used:

 A: combine all income (base salary and overtime or bonus) and average over two years;

 B: Average overtime and/or bonus over two years and add to current base salary.  This method will generally yield a larger allowable income if the applicant has recently received a base salary increase. 

5. Part-Time Income:
   
   Part-time or second job income may be used if a two year history can be established;
   
   Seasonal part-time or second job income can be considered if the borrower has worked in the same job for the past two years and expects to be re-hired for the next "season".  Proper verification from employer must be provided;
   
   Part-time income that has been established for at least one year may be allowable as a compensating factor if sufficient documentation can be obtained demonstrating stability.
    
6. Car Allowance:
   
   Must be verified separately by employer and be a normal part of borrowers compensation package.  Special attention should be awarded to non-reimbursed expenses.  In certain instances, a car allowance may be used to offset a car payment, based on the amount of allowance vs. the amount of travel required by the job description.
    
7. Recently Discharged Veterans:
   
   If a recently discharged veteran has no prior employment history and the veteran's verification of employment shows he or she has not been on the job a sufficient time in which to become established, consideration should be given to the duties the veteran performed in the military service.  A letter from the veteran explaining duties performed in the military, which relate to current position should be included in the credit file.
    
8. Union Workers:
   
   Evidence of the applicant's history with the union along with a verification of employment from the current employer and a pay stub are required.  If the applicant works out of a "union hall" or other workers pool arrangement, we will require two years tax returns along with a year to date income/expense statement provided by the applicant.

| Previous | Top | Next |