The 3 Cs of Underwriting Factors Used in Loan Prospector's Assessment

Credit reputation, capacity and collateral are often called the "three Cs" of underwriting. If one of these components is not acceptable or if there is excessive layering of risk across components, the mortgage may not be acceptable for sale to Freddie Mac.

Credit Reputation

  • Credit Score
  • Foreclosures, bankruptcies, liens and/or judgments
  • Mortgage delinquencies
  • Credit delinquencies, repossessions, collections, or charge-offs
  • Credit accounts: type, age, limits, usage and status of revolving accounts
  • Borrower's request for new credit in last 12 months

Capacity

  • Debt ratios: Qualifying monthly housing expense-to-income ratio, debt-to-housing gap ratio or monthly debt payment-to-income ratio
  • Salaried versus self-employed borrower
  • Cash reserves
  • Number of borrowers
  • Loan Characteristics:
    • Product: a 15, 20, 30, or 40-year fixed rate, a balloon/reset mortgage, an adjustable rate mortgages, an Initial InterestSM Mortgage
    • Purpose of Loan: purchase or refinance (cash-out or no cash-out)

Collateral

  • Borrower's total equity or down payment
  • Property type: a 1-unit or 2- to 4- unit detached property, Condominium Unit or Manufactured Home
  • Property use: Primary Residence, Second Home or Investment Property

Refer to the Freddie Mac Single-Family Seller/Servicer Guide for more information.


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