Freddie Mac Single-Family Seller/Servicer Guide Section 5102.2 — Methods of underwriting

Freddie Mac Single-Family Seller/Servicer Guide Section 5102.2 — Methods of underwriting

5102.2: Methods of underwriting (03/01/26) The section contains information related to: ■ Loan Product Advisor® Mortgages ■ Manually Underwritten Mortgages (a) Loan Product Advisor Mortgages In many cases, submitting the Mortgage to Loan Product Advisor is the most effective way to assess Borrower creditworthiness and identify excessive layering of risk. Loan Product Advisor assesses the Mortgage based on the data submitted to Loan Product Advisor and provided by the consumer reporting agencies and returns a Risk Class of either Accept or Caution on the Feedback Certificate. Note: See Chapter 5101 for additional requirements for Loan Product Advisor Mortgages. (i) Accept Mortgages For Mortgages with a Risk Class of Accept on the Last Feedback Certificate, the Seller is eligible for relief from representations and warranties for creditworthiness and layering of risk when the requirements in Section 5101.2(a) are met. (ii) Caution Mortgages For Mortgages with a Risk Class of Caution on the Last Feedback Certificate to be eligible for sale to Freddie Mac, the Seller must manually underwrite the Mortgage in accordance with Section 5102.2(b) below. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5102 As of 03/01/26 Page 5102-3 (b) Manually Underwritten Mortgages Manually Underwritten Mortgages are those for which the Seller evaluates the Mortgage information and data, makes the final determination regarding Borrower creditworthiness and layering of risk and complies with the requirements of this Section 5102.2(b). To be eligible for sale to Freddie Mac, manual underwriting is required for all Mortgages that did not receive a Risk Class of Accept on the Last Feedback Certificate, including Mortgages never submitted to Loan Product Advisor. (i) Borrower creditworthiness The Seller’s conclusion that the Borrower is creditworthy and has the ability to meet all current obligations, including the new Mortgage, must be based on the documentation included in the Mortgage file and described on Form 1077, Uniform Underwriting and Transmittal Summary, or another document in the Mortgage file. To determine that the Borrower is creditworthy, the Seller must manually underwrite the Mortgage as required in Topics 5100 through 5500 for the Mortgage to be eligible for sale to Freddie Mac. The Seller must determine that the Borrower has an acceptable credit reputation in accordance with requirements in Chapter 5202 and confirm that the Mortgage meets the minimum Indicator Score requirements, if applicable, stated in Exhibit 25, Mortgages with Risk Class and/or Minimum Indicator Score Requirements. The Seller must determine the Borrower’s capacity to repay the Mortgage and other monthly obligations by analyzing file documentation for the following factors: ■ Stable monthly income. Note: The Freddie Mac Income Calculator may be used to assess the Borrower’s stable monthly income and will determine whether the Seller is eligible for relief from enforcement of certain income representations and warranties. The results are reflected on the Freddie Mac Income Calculator Certificate. For Freddie Mac Income Calculator requirements, see the following Guide sections: Income calculator requirements Topic Guide section(s) Automated income assessment for employed income Section 5303.4 Automated income assessment for self-employed income Section 5304.2 Freddie Mac Single-Family Seller/Servicer Guide Chapter 5102 As of 03/01/26 Page 5102-4 Automated income assessment for rental income from the subject 2- to 4-unit Primary Residence or non-subject investment property Section 5306.2 ■ Monthly housing expense-to-income ratio ■ Monthly debt payment-to-income (DTI) ratio ■ Reserves ■ Information about how the Borrower has paid obligations in the past For Non-Loan Product Advisor Mortgages, the Seller must presume the Borrower’s capacity to repay is not acceptable when all of the following apply: ■ The transaction is a cash-out refinance ■ The monthly DTI ratio exceeds 42% ■ Any Borrower has an Underwriting Score less than 700 ■ The total loan-to-value (TLTV) ratio is greater than 75% A Borrower who increases debt and then periodically uses refinance or debt consolidation to reduce payments to a manageable level presents a higher degree of risk. The Seller should consider the Borrower’s short- and long-term capacity to repay the Mortgage. (ii) Layering of risk For all Manually Underwritten Mortgages, the Seller is responsible for determining that the Mortgage is eligible for sale to Freddie Mac by performing an assessment of layering of risk. Multiple characteristics that increase risk without sufficient risk-offsetting factors are likely to result in excessive risk layering. An offsetting factor does not need to be established for each risk factor if the overall risk is balanced. However, when multiple risk factors are present, more conservative underwriting is required to assess if the Mortgage is acceptable for sale to Freddie Mac. The following Mortgage characteristics may introduce an additional layer of risk that must be considered in evaluating capacity: ■ The payoff of a junior lien from the proceeds of a refinance Mortgage ■ A cash-out refinance Mortgage ■ A Borrower with low or no reserves Freddie Mac Single-Family Seller/Servicer Guide Chapter 5102 As of 03/01/26 Page 5102-5 The Seller must determine that each component (credit reputation, capacity and collateral) is acceptable and that the overall layering of risk is not excessive. A conclusion that the Mortgage is acceptable cannot be reached by looking only at a single underwriting component or by placing the most weight on a single component but may result from balancing the weakness of one component against the strength of the other two components. Example: A Mortgage where the Borrower has weak capacity may be found to be acceptable because of strong collateral and credit reputation, but a Mortgage where the Borrower has weak capacity and weak credit reputation is not acceptable because only collateral is strong. Even when each of the three components is acceptable, layered risk may make a Mortgage unacceptable. Mortgage characteristics (e.g., Mortgage Product, purpose of the Mortgage, property type) may add layers of risk that must be considered. The following table provides examples of Mortgage characteristics that increase risk. This list does not identify all possible risk factors or combinations of risks for the Mortgage, nor is it intended to imply that an individual characteristic is unacceptable. Read vertically, this table shows how risk may be layered within a component; read horizontally, it shows how risk may be layered across components. Examples of Mortgage characteristics that increase risk Credit reputation Capacity Collateral Adverse or derogatory credit information A housing payment-to- income ratio in excess of guidelines Low equity/Down Payment High balances-to- limits A DTI ratio in excess of guidelines Maximum financing High overall utilization of revolving credit A DTI ratio in excess of guidelines Cooperative Interest Credit history of short duration Cash-out refinance 2- to 4-unit property Freddie Mac Single-Family Seller/Servicer Guide Chapter 5102 As of 03/01/26 Page 5102-6 Examples of Mortgage characteristics that increase risk Credit reputation Capacity Collateral A significant change in the Borrower’s credit history No reserves Manufactured Home Several inquiries ARM Condominium Unit The Seller’s analysis of layering of risk must be documented in the Mortgage file and at a minimum include: ■ The identified risk factors ■ The identified risk offsetting factors ■ Documentation of the risk offsetting factors ■ A written conclusion that the Mortgage does not exhibit excessive layering of risks (iii) Additional requirements for Caution Mortgages For all Caution Mortgages, there is a strong indication that the layering of risk is excessive and that acceptability and compliance with Freddie Mac requirements is unlikely. The Seller must analyze all risk factors present in the Mortgage file, including those identified in the Feedback Certificate, and document satisfactory offsetting factors in the Mortgage file to ensure that the Mortgage is acceptable. The offsets used must provide information not considered by Loan Product Advisor. The Seller may not use information already considered by Loan Product Advisor to determine that the capacity is acceptable when the Feedback Certificate contains credit risk comments related to capacity. Factors not considered by Loan Product Advisor, such as the existence of verified income that is not included in the submission or energy savings from an energy-efficient property (see Section 5401.1), may be used by the Seller in making a case that capacity is acceptable. The following factors must not be used by the Seller to conclude that excessive layering of risk is not present because Loan Product Advisor has already considered them: ■ Loan-to-value (LTV) or TLTV ratio below the maximum allowable financing Freddie Mac Single-Family Seller/Servicer Guide Chapter 5102 As of 03/01/26 Page 5102-7 ■ Qualifying monthly housing expense-to-income ratio or monthly DTI ratio below Freddie Mac’s guidelines ■ The level of reserves ■ The type of Mortgage Product and/or offering ■ The type of property securing the Mortgage ■ FICO® score, or ■ Any combination of these factors The Seller must presume the Borrower’s capacity to repay is not acceptable when the Caution Mortgage is a cash-out refinance transaction and at least one credit risk message related to the monthly DTI ratio is returned on the Feedback Certificate. 5102.3: General requirements for verification documents (08/06/25) The section contains requirements related to: ■ Verification documents ■ Documents of foreign origin and documents in a foreign language (a) Verification documents (i) Verifications obtained directly by the originator Verification documents must meet all of the following requirements: ■ Standard verification forms, which include the following, must be sent directly from the originator to the Borrower’s employer, financial institution, creditor or landlord, and the completed verification must be returned directly to the originator: • Verification of employment (VOE) • Verification of deposit (VOD) • Direct verification of Tradelines and Noncredit Payment References, including Mortgage payment history and verification of rental payments Freddie Mac Single-Family Seller/Servicer Guide Chapter 5102 As of 03/01/26 Page 5102-8 ■ Original documents must not contain any alterations, erasures, correction fluid or correction tape The Seller must retain legible copies of the originals, including verifications obtained electronically or via facsimile transmission, in the Mortgage file (ii) Verifications provided by the Borrower The Borrower may provide verification of income, employment and assets in the form of a photocopy (including a picture of a document), facsimile or electronic verification, which include online bank statements, investment account statements, employment and/or income statements. The copies must have been made by the originator or the Borrower directly from the originals. Copies provided by any other party, such as the real estate agent or builder, are not acceptable. If the Borrower has provided electronic verifications, photocopies or facsimiles of other verifications where the originator did not view and copy the original documents directly, the Seller is strongly encouraged to reverify the information through the quality control process. (b) Documents of foreign origin and documents in a foreign language All documents in the Mortgage file must be in English or translated into English in accordance with the requirements in Section 1201.9. All foreign currency amounts must be converted to U.S. dollars. See Section 5501.3 for requirements when the source of funds needed for Closing Costs is, or otherwise originates from, asset(s) located outside the United States and its territories.

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