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Sweeping Underwriting Changes at Chase

Bulletin addresses income, credit and appraisal updates

June 18, 2008

By staff

Chase has advised its correspondent lending customers of sweeping changes to income verifications, credit verifications and appraisal requirements. The company also outlined a number of red flags for potential mortgage fraud.

Income Express Products have been eliminated, a bulletin from Chase Correspondent Lending said Monday.

The unit also said that its Liquid Express Documentation Programs have been retired.

Both programs were available with the lender's non-agency amortizing and interest-only products.

The program changes impact Best Efforts, Standard Mandatory Trade, AOT/Direct Trade and Whole Loan Bulk delivery methods.

For all agency and non-agency loans, employees of family-owned businesses are now required to provide two years' signed personal tax returns -- even if they are not self employed. Two-years' tax returns will also be required if the borrower is employed by an interested party to the subject property sale, purchase or refinancing transaction.

In addition, Chase indicated that borrowers in these type of transactions are not eligible for reduced-income documentation, including any reduced-documentation options offered through automated underwriting.

Another revision to income verifications involves borrowers who have part-time jobs. They will now be required to provide a two-year history of income, up from the previous policy of 12 months, Chase added.

In the area of credit, Chase will require a verification of mortgage for all borrowers regardless of credit score. Previously, a VOM could be waived based on the borrower's credit score. Verifications of rent will also now be required regardless of credit score.

Applicants will now be required to provide an explanation for inquiries during the prior 90 days that did not result in a new trade line and may impact their credit scores.

The updated credit policies apply to all loans.

Among revisions to policies on secured properties, Chase has extended the minimum time elapsed since a property was listed for sale from 90 days to 180 days on cash-out refinance transactions.

Appraisals on previously listed properties for all refinances must confirm the date the listing was withdrawn or expired, that the home is not currently listed in the MLS or publicly offered for sale by the owner, and that the home is occupied. If the appraised value is not at least 10 percent less than the listing price, the a full second appraisal will be required.

The revisions to appraisal and property guidelines are also effective for agency and non-agency loans.

Chase said it has implemented a recent revision by Fannie Mae to limit tolerances on loans submitted to Desktop Underwriter to a maximum of one. Files with more than one tolerance must be updated by the underwriter and resubmitted to DU.

However, Freddie Mac has not updated any automated underwriting changes, so loans submitted to Loan Prospector are not limited to the one tolerance.

Chase reiterated that conditions related to red flags on identification documentation should never be waived because of the rising occurrences of identity theft and fraud. Among potential red flags raised during the credit-bureau review are fraud or active duty alerts; credit freezes; address discrepancies; unusual increase in number of inquires; unusual number of recently established credit relationships; material change in the use of credit, especially with respect to recently established credit relationships; and closed accounts due to cause or identified for abuse of account privileges by a financial institution or creditor.

All updates are effective Thursday, and today is the final day to lock under the old policies. Chase said it will accept loans for delivery on or before the lock or commitment expiration given that the loan is delivered in fundable condition. No lock extensions, re-locks or renegotiations will be permitted.

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