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Increasing Transparency Into Loan Prospector Liabilities

August 26, 2014

We are committed to providing you with greater certainty that the loans you sell to us meet our requirements. The enhancements we're making to Loan Prospector® on October 19, 2014, provide transparency for liabilities that are excluded by Loan Prospector in the calculation of total debt, which enables you to reconcile to the DTI calculation and ensure its' accuracy. The enhancements to liabilities will provide you with more information, improved feedback, and increased control over what is included in the debt calculations.

These changes are part of the series of Loan Prospector enhancements we started making more than 18 months ago. In response to your feedback, all of the improvements we make to our tools are designed to make it easier for you to do business with Freddie Mac.

What you can expect from October's Loan Prospector release:

  • Refined total debt calculations for all loan types, including conventional, Federal Housing Administration (FHA), and Department of Veterans Affairs (VA).
  • Clearer feedback messages regarding debts excluded from the DTI ratio.
  • Additional and updated feedback messages to provide more useful and loan-specific information.
  • Removed generic messages that are returned on all submissions.
  • Consolidated credit and liabilities feedback messages on the Loan Prospector Feedback Certificate.
  • Modifications to the required fields in the Loan Prospector browser access method (LoanProspector.com) to help you enter correct and complete data that could impact the accuracy of the total debt.

Please refer to the For More Information section below for details on the changes that may impact your loan submissions.

Total Debt Calculation

We are modifying the total debt calculation on all new conventional, FHA, and VA loan submissions. Here is an overview of the updates:

What's Changing
Conventional LoansFHA and VA Loans
  • Modifying the calculation of total debt such as leveraging the pay off and exclusion indicators you provide for all liability types.
  • Using data provided in these fields to determine if the liability is included in the total debt:
    • Paid off at or Before Closing
    • Excluded
    • Months Left to Pay
  • Revising the total debt calculation in the following areas:
    • FHA/VA loan debt use of remaining months.
      Loan Prospector will no longer automatically omit debts for FHA/VA loans based on remaining months. Instead, if the FHA/VA debt qualifies to be omitted from the debt calculation, you must report it as excluded for Loan Prospector to omit (assuming it was not paid off).
    • Mortgage debt associated with pending sale.
      Any mortgage debt (including Home Equity Line of Credit), associated with a property pending sale must be marked as paid off or excluded in order for it be omitted from the debt (Loan Prospector no longer automatically omits it for a pending loan sale).
    • Adding liabilities types that will be included in the debt if reported (child care, job-related expense, and other.

Check out the job aids in the For More Information section below for details on understanding Loan Prospector's determination of total monthly debt as well as examples and tips for submitting debts in Loan Prospector by loan type.

New Feedback Messages

New feedback messages will provide you with more details on liabilities that Loan Prospector excludes in the total debt calculation. Here are examples of the new feedback messages providing transparency regarding the total debt:

CategoryExample of Feedback Messages
Paid Off/Excluded Debt The following debt(s) was submitted as paid off and/or excluded and is therefore omitted from the debt-to-income (DTI) ratio; include evidence to support omission in the mortgage file. Creditor: ABC, Acct: ***1234, Bal: $8,125; Creditor: XYZ, Acct: ***1111, Bal: $10,099.
Remaining Months The following debt(s) was omitted from the debt-to-income (DTI) ratio due to 10 months or fewer payments remaining. Confirm the number of months remaining, and if the payment will continue for more than 10 months, resubmit the loan to LP:  Installment, Bal: $800,  Pymt:  $91, Rem mos: 9.
Sold Property One or more properties were submitted with a property disposition of Sold on the Schedule of REO and the associated payments were omitted from the debt-to-income (DTI) ratio. Include evidence to support omission in the mortgage file.

Revised Feedback Messages

We are updating liability feedback messages to provide clearer, loan-specific feedback and include references to Single-Family Seller/Servicer Guide requirements. Here are some examples of messages related to junior liens and liabilities where no payment was provided:

CategoryExample of Feedback Messages
Jr. Lien No Cash-Out Documentation is required to evidence that any existing junior lien paid off from the proceeds of a no cash-out refinance must have been used in its entirety to acquire the subject property. If an existing junior lien is not being paid off at closing, then the lien must be resubordinated and the file must contain evidence of the subordination.
Installment Missing Payment One or more installment debts were submitted with no payment. Include the required payment and resubmit to LP, as applicable. If the credit report does not show the payment or it is deferred, obtain documentation such as an installment loan agreement to support the required payment. If the debt is a student loan that is deferred or in forbearance, obtain documentation to verify the payment or use a minimum of 2% of the outstanding balance as the required monthly payment.
Revolving and Open-ended Accounts Missing Payment One or more revolving or open-end accounts were submitted with no payment. Include the required payment and resubmit to LP as applicable. In the absence of a monthly payment on the credit report or direct verification, use 5% of the outstanding balance as the required monthly payment, regardless of the balance. For open-end accounts, if the Borrower has sufficient verified funds to pay off the outstanding account balance, the payment may be excluded from the monthly debt.

We are also removing generic feedback messages currently returned on all loan submissions. Review the October Release – Enhanced Liabilities Message document available in the For More Information section below for a complete list of the Loan Prospector October feedback messages.

Additional Updates

Loan Prospector Feedback Certificate
The new and updated liabilities feedback messages will be reorganized and displayed on the Loan Prospector Feedback Certificate titled “Credit and Liabilities.”

Updates to LoanProspector.com
For users of the Loan Prospector browser access method, you may continue to enter the total debt instead of the details via the browser. For detailed liability or schedule of REO data entered through the Liability and REO Breakdown screens, the required fields will be modified to ensure the necessary data for an accurate total debt calculation is entered.

Loan Prospector Training Resources
Review the job aids on Understanding Loan Prospector's Determination of Total Monthly Debt to help you understand the upcoming changes to Loan Prospector and how they impact the assessment of conventional and FHA/VA loans. Visit the Learning Center for additional underwriting resources.

Note: There are no new data specifications, style sheet changes, or Guide requirement changes required for these Loan Prospector enhancements. Changes to the determination of the total debt and related messages apply to all new Loan Prospector submissions on or after implementation. Changes to existing and deleted messages apply to all submissions following the release.

As always, we'll continue to work with you to help you integrate all Loan Prospector enhancements into your current business processes.

For More Information

For additional details on the release, please review:

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