Enact Holdings, Inc. · NASDAQ:ACT
Enact — Investor Presentation (June 2019)
99 slides from Enact's investor presentation, June 2019
Slide 1: Desktop Underwriter Training Part I, The Basics
® Desktop Underwriter Training Part I, The Basics June 2019 Genworth Mortgage Insurance Corporation ©2019 Genworth Financial, Inc. All rights reserved.
Slide 2: Agenda
Agenda In Today’s Session – Fannie Mae Website – What is Desktop Underwriter – What is Risk – Risk Factors Evaluated by Desktop Underwriter – Sample Findings Report – Data Integrity Reminders and Fannie Mae Updates – Genworth Website Today’s Session Addresses Only Conventional Loans Desktop Unde
Slide 3: Fannie Mae Website
Fannie Mae Website http://fanniemae.com/portal/index.html Desktop Underwriter 3
Slide 4: Desktop Underwriter
Desktop Underwriter Desktop Underwriter 4
Slide 5: What is Risk?
What is Risk? Risk analysis is the backbone of mortgage lending: – The lender is deciding whether to give a sizeable loan to the applicant – The lender will make an informed decision based on the risk in the loan – By looking at how loans have performed in the past, lenders are able to identify
Slide 6: DU Findings Report and Credit Report
DU Findings Report and Credit Report 6
Slide 7: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Risk Factors Evaluated by DU 10.3: – Credit Factors – Non Credit Risk Factors • Credit History • Equity in the Property/LTV • Installment Accounts • Liquid Financial Reserves • Delinquent Accounts • Loan Purpose • Trended Credit Data • Loan Term • Public Records, For
Slide 8: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU DU performs a comprehensive evaluation of these factors, weighing each factor based on the amount of risk it represents and its importance to the recommendation. DU analyzes the results of this evaluation along with the evaluation of the borrower’s credit profile to
Slide 9: Credit- Risk Factors Evaluated by DU
Credit- Risk Factors Evaluated by DU Credit History A borrower’s credit history is an account of how well the borrower has handled credit, both now and in the past. An older, established history— even though the accounts may have zero balances—will have a more positive impact on the borrower
Slide 10: Credit- Risk Factors Evaluated by DU
Credit- Risk Factors Evaluated by DU Delinquent Accounts Payment history is a significant factor in the evaluation of the borrower’s credit. DU considers the severity of the delinquencies (30, 60, 90, or more days late), the length of time since the delinquencies, and the number and type of
Slide 11: Credit- Risk Factors Evaluated by DU
Credit- Risk Factors Evaluated by DU Installment Loans DU evaluates how well a borrower manages debt for all types of installment loans such as mortgage, auto, unsecured, and student loans. Research has shown that borrowers with no active installment accounts represent a higher risk than bor
Slide 12: Credit- Risk Factors Evaluated by DU
Credit- Risk Factors Evaluated by DU Revolving Credit Utilization The establishment, use, and amount of revolving credit a borrower has available are important. Trended credit data is used to evaluate the borrower’s ability to manage revolving accounts. A borrower who uses revolving accounts
Slide 13: Credit- How FICO Scores Are Calculated
Credit- How FICO Scores Are Calculated https://www.myfico.com/credit-education/whats-in-your-credit-score 13 Cr ed
Slide 14: Credit Freeze
Credit Freeze Borrowers with Credit Freeze – DU will underwrite if only one repository is frozen • A warning message will be issued by DU reminding lenders of their responsibility – If two repositories are frozen DU will issue an error message – If no credit score is generated by the two repositorie
Slide 15: Trended Credit
Trended Credit https://www.fanniemae.com/content/guide/selling/b3/2/03.html Desktop Underwriter 15
Slide 16: Trended Credit
Trended Credit Trended Credit* *DU Version 10.2 will include the use of trended credit for all three of the repositories https://www.fanniemae.com/content/guide/selling/b3/2/03.html Desktop Underwriter 16
Slide 17: Credit- Risk Factors Evaluated by DU
Credit- Risk Factors Evaluated by DU Public Records, Foreclosures and Collection Accounts A credit history that includes any significant derogatory credit event is considered high risk. Significant derogatory credit events include bankruptcy filings, foreclosures, deeds-in-lieu of foreclosur
Slide 18: Credit- Risk Factors Evaluated by DU
Credit- Risk Factors Evaluated by DU Inquires DU evaluates inquiries made within the most recent 12 months of the credit report date. Research has shown that a high number of inquiries can indicate a higher degree of risk. https://www.fanniemae.com/content/guide/selling/b3/2/03.html Desktop
Slide 19: Credit Score- Which FICO Models Do We Use In The Mortgage Industry?
Credit Score- Which FICO Models Do We Use In The Mortgage Industry? Currently there are many FICO Score versions. www.MyFICO.com The chart below illustrates the many versions available. 19
Slide 20: Credit Score
Credit Score ® Fannie Mae’s Desktop Underwriter (DU) A tri-merge Credit Report is required FICO scores must be requested for each borrower – If one or two of the credit repositories do not contain any credit information for the borrowers who have traditional credit the credit report is s
Slide 21: Credit Score
Credit Score A Representative Score must be determined for Underwriting and Delivery of the mortgage file. Follow these steps. – Fannie Mae recommends obtaining at least two credit scores for each borrower – Select a single applicable score for underwriting each borrower • When two scores are ob
Slide 22: Credit Report and Credit Score
Credit Report and Credit Score Desktop Underwriter 22
Slide 23: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Borrower’s Equity and LTV The amount of equity in the property is a very important component of the risk analysis. Research has shown that a borrower who makes a large down payment or who has considerable equity in his or her property is less likely to become del
Slide 24: Borrower’s Equity and LTV
Borrower’s Equity and LTV Loan to Value (LTV) – The relationship between: • The amount of money borrowed= Loan Amount • The lesser of the Sales Price or Appraised Value of the property • Refinance the LTV is calculated off the Appraised Value – Example: • Mortgage: $100,000 • Appraised value: $8
Slide 25: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Liquid Reserves Liquid reserves are those financial assets that are available to a borrower after a loan closes. Reserves are calculated as the total amount of liquid assets remaining after the loan transaction closes divided by the qualifying payment amount. DU
Slide 26: DU Risk Assessment Information
DU Risk Assessment Information Liquid Reserves = The liquid assets remaining after the loan closes – To calculate reserves you typically divide the remaining liquid assets by the proposed PITIA of the subject property • Based on the use of the subject property, additional reserves may be require
Slide 27: How to Calculate Reserves - 1003 Fields
How to Calculate Reserves - 1003 Fields $132,615 Liquid Assets - $19,093 Cash to Close = $113,522 Remaining Assets $113,522 Assets / $2,749 Proposed PITI = 41 months in Reserves Desktop Underwriter 27
Slide 28: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Loan Purpose There is a certain level of risk associated with every transaction, whether it is a purchase or a refinance. Purchase transactions represent less risk than refinance transactions. When evaluating refinance transactions, a limited cash-out refinance t
Slide 29: Loan Purpose
Loan Purpose Why the money is being borrowed can influence the risk – Purchase – Refinance • No cash-out/limited cash-out/rate and term • Cash-out – Purchase transactions continue to represent less risk than refinances – Limited cash-out refinance transactions represent less risk than cash-out –
Slide 30: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Loan Term Research has shown that mortgages to borrowers who choose to finance their mortgages over shorter terms and build up equity in their properties faster generally tend to perform better than mortgages with longer amortization periods. https://www.fanniema
Slide 31: Loan Term
Loan Term Loan Term – The number of months until the loan is repaid in full • 30 year loan is 360 months • 15 year loan is 180 months – Shorter term - Equity builds faster – See Amortization Schedules, Next Slides Desktop Underwriter 31
Slide 32: Loan Term- 30 Year Amortization Schedule
Loan Term- 30 Year Amortization Schedule $165,000 - $159,316 = $5,684 $836.03 x 24 monthly payments = $20,064 Desktop Underwriter 32
Slide 33: Loan Term- 15 Year Amortization Schedule
Loan Term- 15 Year Amortization Schedule $165,000 - $147,860 = $17,140 $1,241.26 x 24 monthly payments = $29,790 $11,456 lower balance - $9,726 more payments = more Equity! Desktop Underwriter 33
Slide 34: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Loan Amortization Term Research has shown that there is a difference in loan performance based on the manner in which the mortgage amortizes. Fixed-rate mortgages will be viewed as representing less risk than adjustable-rate mortgages. The process by which monthl
Slide 35: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Occupancy Type Performance statistics on investor loans are notably worse than those of owner-occupied or second home loans. Owner-occupied transactions represent the least risk, followed by second home transactions, and investment property transactions having th
Slide 36: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Debt to Income In DU’s evaluation, generally, the lower the borrower’s debt-to-income ratio (DTI ratio), the lower the associated risk. As the ratio increases, the level of risk also tends to increase; and a high ratio will have the greatest adverse impact on the
Slide 37: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Housing Expense Ratio Borrowers with lower housing expense ratios are considered lower risk, while those with higher housing expense ratios are considered higher risk. Research has shown that borrowers whose total monthly expenses are composed primarily of their
Slide 38: Housing Expense Ratio
Housing Expense Ratio For loan casefiles underwritten through DU – DU determines the maximum allowable debt-to income ratio based on the overall risk assessment of the loan casefile – DU will apply a maximum allowable total expense ratio of 50% for non-HARP loans Desktop Underwriter 38
Slide 39: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Property Type Another important factor that DU considers in the risk analysis is the collateral or property type. DU differentiates the risk based on the number of units, and in some cases the property type (e.g., manufactured home). The level of risk associated
Slide 40: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Co-Borrowers DU considers the number of borrowers (who have traditional credit) on a mortgage application in its evaluation because, generally, the presence of more than one borrower helps to reduce risk. Research has shown that mortgages that have more than one
Slide 41: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Self Employment Self-employment income can vary from year-to-year and because of the increased chance of uneven cash flows, self-employment adds a layer of risk that is not present with salaried borrowers. Research has shown that self-employed borrowers tend to b
Slide 42: Risk Factors Evaluated by DU
Risk Factors Evaluated by DU Risk Factors For Loans Where No Borrower Has a Score DU will consider the following factors when evaluating the overall credit risk of the loan when no borrower on the loan casefile has traditional credit and a credit score: borrower’s equity and LTV ratio, l
Slide 43: No Borrower Has A Score
No Borrower Has A Score For loan files where no borrowers have established traditional credit, DU will apply the following additional guidelines: – Principal residence where all the borrowers will occupy the property – One-unit property (not a manufactured home) – Purchase or limited cash-out tr
Slide 44: General Lender Requirements
General Lender Requirements When underwriting loans with DU, the lender must: – Employ prudent underwriting judgment – Confirm the accuracy of the data it submits – Ensure that the loan complies with all of the verification messages and approval conditions – Apply due diligence when reviewing th
Slide 45: Sample Messages
Sample Messages New Enhanced Coloring of Messages Added, Changed or Removed Desktop Underwriter 45
Slide 46: Sample Messages
Sample Messages Filtering Options of Messages New Enhanced Coloring of Messages Added, Changed or Removed Desktop Underwriter 46
Slide 47: Analyzing Reports
Analyzing Reports SUMMARY: Contains “DU” Recommendation and Purchase Eligibility DAY 1 CERTAINTY MESSAGES: Day 1 certainty or Enforcement relief on property value) RISK AND ELIGIBILITY: Provides details on risk recommendation and why loan is NOT eligible for delivery and possible data entry errors F
Slide 48: Sample DU Findings Report
Sample DU Findings Report Summary Section –Contains “Recommendation Desktop Underwriter 48
Slide 49: Recommendations
Recommendations Approve/Eligible Approve/Ineligible Refer with Caution Out of Scope Error Desktop Underwriter 49
Slide 50: Sample DU Findings Report
Sample DU Findings Report Summary of Findings –Review for Accuracy Desktop Underwriter 50
Slide 51: Sample DU Findings Report
Sample DU Findings Report Risk/Eligibility – Why NOT eligible – How underwritten (specific product/program) – Potential inaccuracies Desktop Underwriter 51
Slide 52: Sample DU Findings Report
Sample DU Findings Report Findings – Strengths in the loan application Desktop Underwriter 52
Slide 53: Sample DU Findings Report
Sample DU Findings Report Verification Messages Broken out by Topic: –General messages •Potential Red Flag Messages •Document Expiration date •MI requirements –Credit and Liabilities •Bankruptcy, foreclosures, charge offs •Late pays, payoff of accounts, omitted liabilities –Employment and Income
Slide 54: Sample DU Findings Report
Sample DU Findings Report Verification Message/Approval Conditions – “Heart “of the Findings Report – Provides minimum documentation – Refer to the Selling Guide for more information – Follow specific investor overlays, if applicable – Genworth MI Simply Underwrite for your DU Approve/Eligible l
Slide 55: Sample DU Findings Report
Sample DU Findings Report Summary Section –Fixed or ARM? Desktop Underwriter 55
Slide 56: ARM Qualifying Rate
ARM Qualifying Rate Always Enter The Index And Margin On ARM Loans Desktop Underwriter 56
Slide 57: Sample DU Findings Report
Sample DU Findings Report Verification Messages Broken out by Topic: –Sample Potential Red Flag message •Social Security Alerts Desktop Underwriter 57
Slide 58: Sample DU Findings Report
Sample DU Findings Report Verification Messages Broken out by Topic: –Sample general messages Desktop Underwriter 58
Slide 59: Sample DU Findings Report
Sample DU Findings Report Verification Messages Broken out by Topic: –Sample general messages •Maximum LTV/CLTV/HCLTV •When MI is needed coverage requirements are provided and a reminder to verify proper premium is included on the loan application Desktop Underwriter 59
Slide 60: Sample DU Findings Report
Sample DU Findings Report • General Levels of Documentation: Base Earnings – Recent pay stub dated within 30 days of application and previous one or two years W-2s – Verbal verification of employment within 10 business days of closing or after closing but prior to loan delivery – Or a written verifi
Slide 61: Sample DU Findings Report
Sample DU Findings Report • General Levels of Documentation: Self-Employment – Most recent one year personal and federal business tax returns (Only one year required for certain cases but borrowers still must be self-employed for two years) OR – Most recent two years personal and two years federal b
Slide 62: Income and Employment
Income and Employment • General Underwriting Requirements – Lenders must review the “type” of income earned and entered in DU; income used for qualifying must be reasonably stable and likely to continue at the current levels. RED FLAG: Declining income – Bonus and Overtime must be annualized or not
Slide 63: Sample DU Findings Report
Sample DU Findings Report Observation Section Lists Total Assets Entered By Type; Underwriting Analysis Report Lists Total Funds Required Including Any Reserves Assets Entered By Type Total Funds Required Additional Reserves May Need To Be Verified If Paying Down Accounts, Paying Off Collections Or
Slide 64: Sample DU Findings Report
Sample DU Findings Report Verification Messages Broken out by Topic: –Assets and Reserves •Amount to verify, liquidation, discounting of value, documentation requirements •Access requirements Desktop Underwriter 64
Slide 65: Sample DU Findings Report
Sample DU Findings Report Observations Desktop Underwriter 65
Slide 66: Sample DU Findings Report
Sample DU Findings Report Underwriting Analysis Desktop Underwriter 66
Slide 67: Reminders
Reminders • Lenders are responsible for integrity of the data submitted to DU – Do you have all pages to the bank statement and are all large deposits addressed and sourced? – Retirement accounts? Access verified if required? Fully vested? Did you subtract any outstanding loans and is applicant full
Slide 68: Reminders & Updates From Fannie Mae
Reminders & Updates From Fannie Mae • Lenders are responsible for integrity of the data submitted to DU – Deferred loans must always be included in the debt ratio; Use amount on credit report, 1% of unpaid balance or actual verified payment – Student loans in repayment use actual payment per credit
Slide 69: Reminders & Updates From Fannie Mae
Reminders & Updates From Fannie Mae • Lenders are responsible for integrity of the data submitted to DU – Loans in process where an appraisal as been ordered and submitted and the property is in a designated disaster area, property will become eligible for a PIW on a future transaction if it meets r
Slide 70: Reminders & Updates From Fannie Mae
Reminders & Updates From Fannie Mae • Lenders are responsible for integrity of the data submitted to DU – DU casefile or the Doc File ID may not be used more than once and a new error message will appear if a lender attempts to do so – DU loan casefile archival policy is extended from 270 days (9 mo
Slide 71: Reminders & Updates From Fannie Mae
Reminders & Updates From Fannie Mae • Lenders are responsible for integrity of the data submitted to DU – An appraisal waiver is not eligible for investment properties if you are using rental income from the subject property – Appraisal waiver is not eligible if an appraisal has been uploaded throug
Slide 72: Fannie Mae Communications
Fannie Mae Communications Desktop Underwriter 72
Slide 73: www.FannieMae.com
www.FannieMae.com Desktop Underwriter 73
Slide 74: Selling Guide
Selling Guide https://www.fanniemae.com/content/guide/selling/index.html Desktop Underwriter 74
Slide 75: DU Credit-related Error Codes Job Aid
DU Credit-related Error Codes Job Aid https://www.fanniemae.com/content/job_aid/desktop-underwriter-credit-related-error-codes-job-aids.pdf Desktop Underwriter 75
Slide 76: Day 1 Certainty®
Day 1 Certainty® With Day 1 Certainty®, you get freedom from reps and warrants and greater speed and simplicity. With the DU Validation Service, you can validate loan application data upfront. Desktop Underwriter 76
Slide 77: Day 1 Certainty
Day 1 Certainty TM https://www.fanniemae.com/singlefamily/desktop-underwriter-validation-service Desktop Underwriter 77
Slide 78: DU Validation Service
DU Validation Service Optional Service via DU – Lenders Must Activate to use – Execute contract with vendor(s), then execute contract/agreements with Fannie Mae – Validation Options for Income, Assets and Employment verified by Third Party Data Vendor (i.e. The Work Number® from Equifax®) – Tax
Slide 79: DU Validation Service
DU Validation Service – Lenders obtain borrower consent then orders the “verification report(s)” – Lender reviews report for any discrepancies with borrower – Lender enters details into DU and submits – DU obtains a “duplicate” report from the vendor using loan number or reference number. (Lender lo
Slide 80: How It Works-Income Example
How It Works-Income Example Desktop Underwriter 80
Slide 81: Job Aids for Functionality
Job Aids for Functionality https://www.fanniemae.com/content/job-aid/desktop-underwriter/topic/du_welcome.htm Desktop Underwriter 81
Slide 82: DU Job Aid
DU Job Aid https://www.fanniemae.com/content/job_aid/desktop-underwriter-dti-ratio-job-aid.pdf Desktop Underwriter 82
Slide 83: Desktop Underwriter Potential Red Flag Messages - Updated
Desktop Underwriter Potential Red Flag Messages - Updated Messages Must Be Cleared –Provides message text –Why message appeared –Possible ways to clear or resolve https://www.fanniemae.com/content/tool/du-potential-red-flag-message-matrix.pdf Desktop Underwriter 83
Slide 84: FAQs
FAQs Appraisal Waivers Appraisal and Property-Related Desktop Underwriter 84
Slide 85: Appraisal Updates
Appraisal Updates 2018-09 Modular Home Updates – On-frame modular homes that comply with local building codes, attached to a permanent foundation, and are built using the same materials as comparable stick-built homes are now an eligible property type. – These homes will follow the same eligibil
Slide 86: DU 10.3 Updates Appraisal Waivers
DU 10.3 Updates Appraisal Waivers Effective December 8, Rural High-Needs Appraisal Waiver Available Desktop Underwriter 86
Slide 87: Appraisal Waiver Updates
Appraisal Waiver Updates Available for Certain Purchase and Refinance DU Casefiles – When a casefile is eligible for an appraisal waiver, Fannie Mae accepts the “submitted” value estimate as the market value. – Fannie Mae provides relief of reps and warranties on the value, condition and marketa
Slide 88: Appraisal Waivers-Ineligible Transactions
Appraisal Waivers-Ineligible Transactions Desktop Underwriter 88
Slide 89: Property Value Enforcement Relief
Property Value Enforcement Relief Fannie offers enforcement relief on reps/warranties related to property value on certain loan casefiles when: – Appraisal received a CU Risk Score of 2.5 or below, and – Property type is a one-unit detached, attached or condominium property The following fields
Slide 90: Property and Appraisal-Condos
Property and Appraisal-Condos If Property Type Condominium, Project Review Type Message Will Appear: 2018-01 detached condos no longer require project approval (excluded manufactured homes) Desktop Underwriter 90
Slide 91: Condo Project Manager 8.2 Release Notes
Condo Project Manager 8.2 Release Notes On Aug. 18th Condo Project Manager™ (CPM™) was updated to align with the changes related to condo policies communicated in Selling Guide Announcement SEL- 2018-05. Desktop Underwriter 91
Slide 92: Genworth Underwriting Guidelines
Genworth Underwriting Guidelines Desktop Underwriter
Slide 93: Genworth Rate Express®
Genworth Rate Express® Desktop Underwriter
Slide 94: LOS Connections
LOS Connections Desktop Underwriter
Slide 95: Training Tools and Information
Training Tools and Information Desktop Underwriter
Slide 96: Training Tools and Information
Training Tools and Information Desktop Underwriter 96
Slide 97: Additional MI Site Information
Additional MI Site Information Desktop Underwriter
Slide 98: Your Genworth Resources
Your Genworth Resources ActionCenter®: 800 444.5664 Your Local Genworth Regional Underwriter Your Genworth Sales Representative Desktop Underwriter
Slide 99: Legal Disclaimer
Legal Disclaimer Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our train