In a recent bulletin, Freddie Mac outlined several impending changes to its student loan debt calculation requirements, which will become effective for mortgages with settlement dates on or after January 18, 2018.
Student Loans in Repayment:
Freddie’s impending changes for calculating the monthly DTI will require sellers to use the greater of either the monthly payment amount reported on the credit report, or 0.5% of the original loan balance or outstanding balance as reported on the credit report (whichever is greater).
Student Loans in Deferment of Forbearance:
Freddie Mac will soon require sellers to use the greater of either the monthly payment amount reported on the credit report, or 1% of the original loan balance or outstanding balance as reported on the credit report (whichever is greater).
Student Loan Forgiveness, Cancelation, Discharge, and Employment-Contingent Repayment Programs:
The GSE has created new requirements regarding forgiveness programs, where the student loan payment may be excluded from the monthly DTI ratio provided the mortgage file contains documentation that indicates the following:
- The student loan has 10 or less monthly payments remaining until the full balance is forgiven, canceled, discharged, or paid.
- The monthly payment on a student loan is deferred or is in forbearance and the full balance of the student loan will be forgiven, canceled, discharged, or paid at the end of the deferment or forbearance period.
In addition, the borrower must meet the requirements for the student loan forgiveness, cancelation, discharge, or employment-contingent repayment program (as applicable). The seller must also not be aware of any circumstances that will make the borrower ineligible in the future.
Freddie’s updated requirements will allow installment, revolving, and lease payments to be excluded from the monthly DTI ratio when a party other than the borrower has been making timely payments on the debt for the most recent 12-months, and certain other requirements are met.
The GSE will also exclude mortgage debt from the monthly DTI ratio when a party other than the borrower has been making timely payments for the most recent 12 months. The borrower will no longer be required to be a cosigner or guarantor on the excluded debt.
For more information on these impending changes, check out Freddie Mac’s bulletin.
Freddie Mac – freddiemac.com