Freddie Mac Single-Family Seller/Servicer Guide 5301.1 — General requirements for all stable monthly income

This section contains information and guidance related to: ■ Overview of stable monthly income ■ General requirements for all stable monthly income ■ Income stability and history requirements ■ Income continuance requirements ■ Alimony payments

(a) Overview of stable monthly income Topic 5300 provides requirements and guidance for the determination of stable monthly income. The Seller must determine when additional analysis and documentation is needed to support the determination of stable and consistent monthly income.

(b) General requirements for all stable monthly income Stable monthly income: Stable monthly income is the Borrower’s verified gross monthly income from all acceptable and verifiable sources that can reasonably be expected to continue for at least the next three years. For each income source used to qualify the Borrower, the Seller must determine that both the source and the amount of the income are stable, with a consistent level of earnings. The income used to qualify the Borrower (whether or not specifically addressed as an income source or type in Topic 5300) and the documentation in the Mortgage file must be evaluated for stable monthly income qualification requirements and must meet the requirements of Topic 5300. Income that does not meet these requirements or is not calculated correctly may invalidate the Loan Product Advisor® Risk Class on the Feedback Certificate. Cryptocurrency: Income that is paid to the Borrower in cryptocurrency may not be used for qualification. Mortgage file documentation: All documentation used to establish stable monthly income must be retained in the Mortgage file.

(c) Income stability and history requirements The Seller must consider the length of history of the income and whether the earnings have been consistent. When evaluating stability of income based upon historical receipt, additional layering of risk may be present depending upon the degree of income fluctuation. As a result, the Seller must determine when additional documentation (e.g., an additional year of earnings history) is necessary to support income stability. In most instances, a two-year history of receiving a consistent level of income is required for the income to be considered stable and used for qualifying. While the source of income may vary, the Borrower must have a consistent level of income despite changes in the sources of income.

(d) Income continuance requirements For all income used to qualify the Borrower, the Seller must determine whether the income is reasonably expected to continue. This determination must focus on the Borrower’s past employment/self-employment history, history of receipt of other income and the probability of continued consistent receipt of the income used to qualify the Borrower. At a minimum, the Seller must base the determination on the requirements of Topic 5300 and any other documentation contained in the Mortgage file. Additional documentation may be required, as described in Section 5302.1. The Seller must not consider income for qualifying the Borrower if the Seller has knowledge, information or documentation that contradicts a reasonable expectation of continuance or probability of consistent receipt over at least the next three years. Income continuance categories and tables Continuance of income is categorized as follows: ■ Income and earnings types typically without documentable continuance (likely to continue) (Table A) ■ Income types with documentable continuance (Table B) ■ Income types that may or may not have documentable continuance, depending upon the source (e.g., government program, private insurer) and terms of the specific income type (e.g., retirement, long-term disability) (Table C) (i) Income and earnings types typically without documentable continuance (likely to continue) Table A: Income and earnings types typically without documentable continuance Earnings types and income types Continuance requirements Employed income ■ Base employment earnings ■ Military earnings (base, entitlements, Reserve, National Guard) ■ Bonus, commission, overtime and tip earnings ■ Restricted stock (RS) and restricted stock units (RSU) subject to performance-based vesting provisions ■ Recurring RS and RSU awards subject to timebased vesting provisions ■ Automobile allowance ■ Unemployment (associated with seasonal employment) Income must be likely to continue for at least the next three years. The Seller is not required to obtain documentation to verify income continuance, absent any knowledge, information or documentation that the income is no longer being received or is likely to cease. When the Seller has knowledge or information that the income may not be reasonably expected to continue, the Seller must conduct additional evaluation and/or obtain documentation in order to determine if the income can be used. Example (Seller knowledge): If a Borrower has been receiving overtime or bonuses, but the Seller has information or documentation evidencing that the income is already discontinued or will be discontinued due to the completion of a project or termination of a bonus program, the “likely to continue” requirement would not be met, and the income cannot be used for qualification purposes. Rental income Self-employment income Table A: Income and earnings types typically without documentable continuance Other income ■ Foster-care income ■ Housing or parsonage allowance ■ Mortgage Credit Certificate ■ Royalty payments (twoyear history) ■ Tax-exempt income (ii) Income types with documentable continuance For income types with documentable continuance, the documentation requirements for each individual income type listed within Topic 5300 provide the minimum documentation required in order for the Seller to verify income continuance for at least three years. Table B: Income types with documentable continuance Income types Continuance requirement highlights1 Mortgage differential Document duration of payments (Refer to Sections 5303.1 and 5305.1) Notes receivable Royalty payments (one-year history) Nonrecurring RS and RSU awards subject to time-based vesting provisions Trust income (fixed payment) Alimony, child support and/or separate maintenance Document duration of obligation (Refer to Section 5305.1) Table B: Income types with documentable continuance Homeownership Voucher Program (HOV) Document duration of HOV term limit for assistance (Refer to Section 5305.1) Capital gains Document sufficient assets (Refer to Section 5305.1) Dividend and interest Retirement account distributions as income Trust income (fluctuating payments) 1 Highlights of the requirements from the individual income types are provided for illustrative purposes only. Refer to the sections shown above for complete requirements. (iii) Income types that may or may not have documentable continuance Table C: Income types that may or may not have documentable continuance Certain income types are associated with multiple income sources, each of which may have specific requirements with respect to continuance, whether defined or undefined. For this reason, this grouping of income types may or may not have documentable continuance. Example: ■ If the source of retirement income is Social Security retirement benefits, no additional documentation of continuance is required ■ If the source is a retirement annuity from an insurance company, there will generally be a defined term in which case continuance must be documented Table C: Income types that may or may not have documentable continuance Income types Continuance requirement highlights1 Retirement income (e.g., social security, defined benefit pension, annuity, other similar benefits) Sellers must be knowledgeable about the source of the specific income type in order to determine whether or not documentable continuance is applicable. This includes, but is not limited to, knowledge of factors with respect to whether the payments are received pursuant to a written agreement, government program, law and/or regulation, as well as the applicable eligibility criteria governing the continued receipt of the income. Refer to Section 5305.1 for requirements for these income types. For long-term disability and SSI income types: Pending or current re-evaluation of medical eligibility for insurance and/or benefit payments is not considered an indication that the insurance and/or benefit payment will not continue. Survivor and dependent benefits (e.g., Social Security Survivor Benefits, Survivors’ VA benefits, other similar benefits) Long-term disability income (e.g., Social Security disability benefits, VA disability compensation, worker’s compensation, private disability insurance) Social Security Supplemental Security Income (SSI) Public assistance income (e.g., Temporary Assistance for Needy Families) 1 Highlights of the requirements from the individual income types are provided for illustrative purposes only. Refer to the sections shown above for complete requirements.

(e) Alimony payments The amount of the monthly alimony payment must be deducted from the stable monthly income if both of the following apply: 1. The Borrower is obligated to pay alimony 2. There are more than 10 months of payments remaining Note: See Section 5401.2(b)(3) for additional information.