Chapter 12 — Further Reading

Assets, Reserves, and the Down Payment

Grouped by this book's three tiers. Tier 1 is canonical and citable. Tier 2 is real practice whose current values we have deliberately not pinned down — every item in it is a "look it up today" item. Tier 3 is constructed for teaching.

If you read only one thing

The asset chapter of the guide for the program you actually run — right now, on the current version. For a conventional file, that is the Asset Assessment material in the Fannie Mae Selling Guide (Part B3-4) or the corresponding Assets provisions of the Freddie Mac Single-Family Seller/Servicer Guide. For FHA, it is the asset sections of HUD Handbook 4000.1, under Underwriting the Borrower.

Read it end to end once, in one sitting, with a pen. It is not long, it is free, it is published online, and it is the actual authority that every condition in this chapter comes from. Then bookmark it, because the whole argument of §12.3 and §12.4 is that you should never quote a threshold, a seasoning period, a donor rule, or a discount from memory. Almost every loan officer in America has an opinion about the large-deposit rule. Very few of them have read the current paragraph.

Tier 1 — Verified canonical

Agency underwriting guides (the operative authority)

• Fannie Mae Selling Guide, Part B3-4, Asset Assessment — general asset requirements, verification of deposits and assets, acceptable sources of funds, gifts, and reserve requirements. Published free online and updated continuously; always work from the current version.
• Freddie Mac Single-Family Seller/Servicer Guide — the Assets provisions in the Series 5000 underwriting chapters. Same caution: read the current version.
• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, Section II.A (Origination through Post-Closing/Endorsement), Underwriting the Borrower — FHA's asset, gift, and cash investment requirements, including acceptable donors and the exclusion of parties with an interest in the sale.
• VA Lender's Handbook (M26-7), the credit underwriting chapter — asset and gift treatment for VA loans, including the residual-income framework that has no analogue in conventional lending.
• USDA Rural Development Handbook HB-1-3555 — asset and reserve treatment for the Single Family Housing Guaranteed Loan Program.

Forms

• Uniform Residential Loan Application (Form 1003 / URLA), Section 2, Financial Information — Assets and Liabilities, and the declarations in Section 5 addressing borrowed funds and undisclosed obligations. Chapter 9 covers the form; read Section 2 again with this chapter's eyes.
• Request for Verification of Deposit — the standard agency VOD form (Fannie Mae Form 1006 / Freddie Mac Form 90). Confirm the current form number and version before relying on it.

Statutes and regulations

• Bank Secrecy Act, 31 U.S.C. § 5311 et seq.; currency transaction reporting at 31 U.S.C. § 5313 and 31 CFR 1010.311; the prohibition on structuring at 31 U.S.C. § 5324. Administered by the Financial Crimes Enforcement Network (FinCEN). Read § 5324 itself — it is short, and reading it once is what makes §12.10's advice reflexive.
• Equal Credit Opportunity Act and Regulation B, 12 CFR Part 1002 — consistent treatment of applicants, and the framework for evaluating facially neutral policies with uneven effects. Chapter 25 develops this.
• Gramm-Leach-Bliley Act and its privacy and safeguards requirements — the obligation you owe a donor whose bank statement is in your file and who is not your customer.
• Housing and Economic Recovery Act of 2008 (HERA) — among many other things, the statute that prohibited seller-funded down-payment assistance on FHA-insured mortgages effective October 1, 2008. See Case Study 12.1.
• Internal Revenue Service, Revenue Ruling 2006-27 — when a down-payment assistance organization qualifies as tax-exempt, and why circular seller funding defeats the charitable premise. Short, and it reasons exactly the way an underwriter reasons about a gift.

Public reports

• U.S. Government Accountability Office, Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance (GAO-06-24, November 2005) — the public analysis of seller-funded down-payment assistance performance and its association with higher sales prices.
• HUD Office of Inspector General audit reports on FHA down-payment assistance programs — the audit-side record behind the same story.
• Fannie Mae and Freddie Mac mortgage fraud prevention programs and published fraud alerts — the agencies' own descriptions of undisclosed borrowed funds, silent seconds, and the asset red flags this chapter teaches you to see. Written from the detection side, which is the only side a loan officer works from. Chapter 27 goes further.

Tier 2 — Attributed, specifics unverified or perishable

Everything in this section is real, current somewhere, and wrong by the time you need it. Treat each as a question, not an answer.

• The large-deposit threshold. Commonly framed as a percentage of the borrower's monthly qualifying income, and narrowed on some programs to funds actually needed to close. The percentage, the basis, and the exceptions differ by agency and program and have been revised. Verify in the current guide for the program on the file in front of you.
• How many months of statements. Commonly two, frequently three, sometimes reduced by an automated underwriting recommendation or by an asset-validation service. Varies.
• Seasoning periods. There is no universal number. What is universal is the concept of a documentation window.
• Discounts on non-liquid assets. Retirement accounts, stocks, and other non-cash holdings are commonly counted at less than face value to allow for taxes, penalties, and market movement. The percentages differ by program and asset class.
• Reserve requirements. By program, occupancy, property type, number of financed properties, and automated versus manual underwriting. Also frequently imposed file-by-file by the automated underwriting system.
• Acceptable donors, donor sourcing, and minimum borrower contribution. All three vary and all three have been revised. The structural rules — no repayment expected, no interested parties — are stable. The details are not.
• Digital asset treatment. Where accepted at all, generally requiring liquidation into U.S. dollars in a U.S. account with a full trail. This area is actively changing and lender overlays are frequently stricter than the guides.
• 401(k) loan treatment in the debt-to-income ratio. Commonly excluded on the reasoning that the borrower repays themselves — but confirm both the guide and your lender's overlay before relying on it.
• Asset verification services and account aggregation. Third-party vendors that pull transaction data directly from the depository, sometimes with representation-and-warranty relief for the lender (Fannie Mae's validation service under Day 1 Certainty is the best-known example). Coverage, eligibility, and relief terms are program- and vendor-specific. Chapter 36 covers the technology.
• Interested-party contribution limits. The cap on seller and other interested-party credits varies by program, occupancy, and loan-to-value. Chapters 20 and 22.

Tier 3 — Illustrative and constructed

• The Linden Street file — all figures in this chapter: \$28,000.00 in two savings accounts, the \$10,000.00 gift, the \$5,000.00 earnest money, the \$4,900.00 commission deposit, \$25,376.34 cash to close, \$12,623.66 in reserves at 4.16 months. Constructed for teaching; internally consistent; not a real borrower.
• Figure 12.1, the bank statement showing the \$4,900.00 deposit, and Figure 12.2, the gift letter — constructed documents in this book's six-field format. Layouts are illustrative; real statements and gift letters vary by institution and by program.
• The Verification of Deposit comparison in §12.1, and every fee, per-diem, and escrow figure in §12.9 — constructed and internally consistent. Fees vary enormously by lender, market, and state.
• Case Study 12.2 — a labeled composite borrower with illustrative figures, attached to real statutory provisions.
• The Fulton Avenue file (self-employment) and the Harlow Street file (first-time buyer with assistance) — the book's other constructed anchors, referenced here and developed in Chapters 11, 32, and 33.