Wholesale ALERT – Florida Temporary Market Stabilization & Freddie Mac Updates

The Florida Office of Insurance Regulation (FLOIR) established a temporary reinsurance arrangement for homeowner’s insurance providers, known as the Temporary Market Stabilization Arrangement (TMSA), through Citizens Property Insurance Corp (Citizens). In the event certain insurers doing business in Florida suffer a financial rating downgrade that would place them below the acceptable Fannie Mae and Freddie Mac financial rating requirements, the insurer may qualify for participation in the arrangement.

For ALL Fannie Mae, Freddie Mac, Arc Access, Arc Elite, Conventional Investment Property, FNMA/FHLMC Second Home & Investment, Jumbo Express, Jumbo Prime, or Super Jumbo transaction, homeowner’s insurance provided by a TMSA participating insurer is NOT acceptable. The insurance policy must meet ALL requirements of the applicable program.

Arc Home will align with the guidance provided by Freddie Mac in Bulletin 2022-25 regarding the topics outlined below. Unless otherwise noted, the guideline changes are effective for all Freddie Mac loans in the pipeline, as well as new registrations.

Assigned Debt

The Freddie Mac guidelines have been enhanced to allow unsecured assigned debts to be excluded from the monthly Debt to Income (DTI) ratio when the obligation to make the payments has been assigned to another party by a documented court order, such as a divorce decree.

Cash-Out Refinance Transactions

Freddie Mac revised the guidelines to specify new seasoning requirements when proceeds of a cash-out refinance are used to pay off a first lien mortgage. Effective for all Freddie Mac loans registered with Arc Home on or after December 27, 2022, the first lien mortgage must be seasoned for at least 12 months (measured from Note Date of mortgage being refinanced to Note Date of new cash-out refinance mortgage), as documented in the loan file. The seasoning requirement does NOT apply when:

·         The transaction is a special purpose cash-out refinance that meets the requirements in Freddie Mac Selling Guide Section 4301.6, or

·         The first lien being refinanced is a Home Equity Line of Credit (HELOC)

Important Note: If the existing first lien mortgage was modified and the modification resulted in a new Note Date, the required seasoning starts from the new Note Date.

Contingent Liability

Freddie Mac expanded the guidelines for contingent liabilities to allow exclusion of property-related expenses (e.g., taxes, insurance, homeowners association dues, etc.) from the Debt to Income (DTI) ratio. The loan file must include supporting documentation to confirm that a party other than the borrower has been making timely payments for the most recent 12 months. Additionally, the party making the payments may not be an interested party to the subject real estate or mortgage transaction.

Gift Donors

The Freddie Mac guidelines have been enhanced to allow a trust established by a related person and an estate of a related person as eligible donors for gift funds and gifts of equity. The gift letter must be signed by the trustee or authorized representative of the estate, indicate the gift funds or gift of equity were provided by a trust established by a related person or an estate of a related person, and include the mailing address and telephone number of the trustee or authorized representative, as applicable.