FHLMC Single-Family Seller/Servicer Guide Chapter 5401 — Evaluation of Monthly Obligations

fhlmc-5401

FHLMC Single-Family Guide §5401.1 governs Monthly Housing Expense- to-Income ratio calculation: mandatory file documentation of monthly housing expense; primary-residence components (P&I, hazard insurance, real estate taxes, MI, flood, leasehold, HOA, etc.); new-construction estimated tax based on improvements + land value; tax abatement/exemption 5-year continuance documentation rule; HELOC payment inclusion when outstanding balance exists; 1.5% imputed monthly payment for HELOCs lacking credit-report payment.

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source:
  type: regulation
  id: fhlmc-5401
  authority: FHLMC Single-Family Seller/Servicer Guide Chapter 5401 — Evaluation of Monthly Obligations
  description: |
    FHLMC Single-Family Guide §5401.1 governs Monthly Housing Expense-
    to-Income ratio calculation: mandatory file documentation of
    monthly housing expense; primary-residence components (P&I, hazard
    insurance, real estate taxes, MI, flood, leasehold, HOA, etc.);
    new-construction estimated tax based on improvements + land value;
    tax abatement/exemption 5-year continuance documentation rule;
    HELOC payment inclusion when outstanding balance exists; 1.5%
    imputed monthly payment for HELOCs lacking credit-report payment.
obligations:
  - id: fhlmc-5401-document-monthly-housing-expense-in-file
    canonical_id: fhlmc-5401-document-monthly-housing-expense-in-file
    section: FHLMC Single-Family Guide §5401.1 — Document monthly housing expense in Mortgage file
    description: |
      [LENDER] (Seller) shall document the monthly housing expense in
      the Mortgage file and establish it as described in §5401.1. The
      monthly housing expense documentation is foundational to the
      housing expense-to-income ratio calculation used in qualifying.
    type: do
    audit_question: For every Mortgage, can [LENDER] produce documentation of the monthly housing expense in the Mortgage file, with established components per §5401.1?
    program_review: Does the program ensure the monthly housing expense is documented in every Mortgage file with components established per §5401.1?
    file_review: Confirm the file documents the monthly housing expense with §5401.1 components.
    judgment: false
    feeds: []
    workflow_phase: loan_origination
    owner_role: underwriting_manager
    secondary_owner_role: loan_processor
    cadence: per-loan
    consequence: Missing or undocumented monthly housing expense is a Selling Guide breach + R&W exposure.
    tags:
      - round-d
      - regulator-direct
      - fhlmc
      - selling-guide
      - qualifying-ratios
      - monthly-housing-expense
      - documentation
      - promoted
    primary_source:
      tier: 1
      authority: FHLMC Single-Family Guide §5401.1 — Monthly housing expense-to-income ratio
      source_class: fhlmc-guide
      source_url: https://guide.freddiemac.com/app/guide/
      snapshot_id: fbba421721d90cb1
      fetched_at: '2026-05-25T14:09:48Z'
      content_hash: sha256:placeholder-snapshot-content-hash-from-source-json
      paragraph_quote: |
        The monthly housing expense must be documented in the Mortgage file and established as described below.
      drafter_attestation: |
        Copied verbatim from snapshot fbba421721d90cb1. §5401.1 document-
        monthly-housing-expense operative requirement.
    promoted_at: '2026-05-25T20:16:41+00:00'
    promoted_from: fhlmc-5401-roundd-v1.yaml
  - id: fhlmc-5401-new-construction-tax-based-on-improvements-and-land
    canonical_id: fhlmc-5401-new-construction-tax-based-on-improvements-and-land
    section: 'FHLMC Single-Family Guide §5401.1(a) — New construction: tax based on improvements + land value when actual not available'
    description: |
      For new construction Mortgages, when the actual real estate tax
      amount is not yet available, [LENDER] (Seller) shall ensure the
      real estate tax amount included in the monthly housing expense is
      based on the value of the improvements and the land. The
      improvements-plus-land basis prevents under-stating future tax
      burden for the Borrower's qualifying ratio.
    type: do
    audit_question: For every new construction Mortgage where actual real estate tax was not yet available at the time of qualifying, can [LENDER] evidence (a) the tax estimate was based on improvements + land value AND (b) the methodology used to derive the estimate?
    program_review: Does the program account for new-construction loans where actual tax is unavailable — requiring the real estate tax in housing expense to be based on improvements + land value?
    file_review: For new-construction files lacking actual tax, confirm the tax estimate used improvements + land value and review the derivation methodology.
    judgment: false
    feeds: []
    workflow_phase: loan_origination
    owner_role: underwriting_manager
    secondary_owner_role: loan_processor
    cadence: per-new-construction-loan
    consequence: Under-estimating real estate tax for new construction understates DTI; reps-and-warranties breach risk.
    tags:
      - round-d
      - regulator-direct
      - fhlmc
      - selling-guide
      - qualifying-ratios
      - new-construction
      - estimated-tax
      - promoted
    primary_source:
      tier: 1
      authority: FHLMC Single-Family Guide §5401.1(a) — Establishing the monthly housing expense for Mortgages secured by Primary Residences
      source_class: fhlmc-guide
      source_url: https://guide.freddiemac.com/app/guide/
      snapshot_id: fbba421721d90cb1
      fetched_at: '2026-05-25T14:09:48Z'
      content_hash: sha256:placeholder-snapshot-content-hash-from-source-json
      paragraph_quote: |
        the real estate tax amount included in the monthly housing expense must be based on the value of the improvements and the land
      drafter_attestation: |
        Copied verbatim from snapshot fbba421721d90cb1. §5401.1(a) new-
        construction-tax-improvements-plus-land operative requirement.
    promoted_at: '2026-05-25T20:16:41+00:00'
    promoted_from: fhlmc-5401-roundd-v1.yaml
  - id: fhlmc-5401-tax-abatement-5-year-continuance
    canonical_id: fhlmc-5401-tax-abatement-5-year-continuance
    section: FHLMC Single-Family Guide §5401.1(a) — Tax abatement requires 5-year continuance evidence
    description: |
      For [LENDER] (Seller) to reduce or exclude real estate taxes from
      monthly housing expense based on a tax abatement, the Mortgage
      file must contain (1) evidence to support the reduced real
      estate tax amount, (2) evidence of continuance for at least five
      years after the Note Date, AND (3) if the Borrower is not
      currently receiving the abatement, evidence the Borrower and/or
      property is eligible. All three documentation prongs are
      required to qualify the abatement-reduced housing expense.
    type: do
    audit_question: 'For every Mortgage where [LENDER] used a tax abatement to reduce housing expense, can [LENDER] produce all three documentation prongs: (a) reduced-amount support, (b) 5-year continuance evidence, (c) Borrower/property eligibility if not currently receiving abatement?'
    program_review: Does the program ensure any abatement-reduced housing expense carries all three prongs — reduced-amount support, 5-year continuance evidence, and Borrower/property eligibility if not currently receiving the abatement?
    file_review: For abatement files, confirm all three documentation prongs are present.
    judgment: false
    feeds: []
    workflow_phase: loan_origination
    owner_role: underwriting_manager
    secondary_owner_role: chief_credit_officer
    cadence: per-tax-abatement-loan
    consequence: Tax abatement applied without 5-year continuance evidence is a Selling Guide breach; risk of post-Note-Date tax increase invalidating qualifying ratios.
    tags:
      - round-d
      - regulator-direct
      - fhlmc
      - selling-guide
      - qualifying-ratios
      - tax-abatement
      - 5-year-continuance
      - promoted
    primary_source:
      tier: 1
      authority: FHLMC Single-Family Guide §5401.1(a) — Tax abatements
      source_class: fhlmc-guide
      source_url: https://guide.freddiemac.com/app/guide/
      snapshot_id: fbba421721d90cb1
      fetched_at: '2026-05-25T14:09:48Z'
      content_hash: sha256:placeholder-snapshot-content-hash-from-source-json
      paragraph_quote: |
        Evidence of continuance for at least five years after the Note Date
      drafter_attestation: |
        Copied verbatim from snapshot fbba421721d90cb1. §5401.1(a) 5-year-
        continuance-evidence operative requirement for tax-abatement
        reduction. Three-prong documentation rule (reduced-amount support,
        continuance evidence, Borrower eligibility) paraphrased in
        description.
    promoted_at: '2026-05-25T20:16:42+00:00'
    promoted_from: fhlmc-5401-roundd-v1.yaml
  - id: fhlmc-5401-heloc-payment-when-outstanding-balance
    canonical_id: fhlmc-5401-heloc-payment-when-outstanding-balance
    section: FHLMC Single-Family Guide §5401.1(a) — HELOC payments included when outstanding balance exists
    description: |
      [LENDER] (Seller) shall include HELOC (Home Equity Line of
      Credit) payments in the monthly housing expense when there is an
      outstanding balance on the account. Zero-balance HELOCs are
      excluded from the housing-expense calculation, but any
      outstanding balance triggers payment inclusion.
    type: do
    audit_question: For every Mortgage with a Borrower HELOC, can [LENDER] evidence (a) HELOC outstanding-balance check and (b) inclusion of HELOC payment in monthly housing expense if any outstanding balance exists?
    program_review: Does the program ensure HELOC payments are included in housing expense whenever an outstanding balance exists (zero-balance excluded)?
    file_review: For files with a Borrower HELOC, confirm the outstanding-balance check and inclusion of the HELOC payment when a balance exists.
    judgment: false
    feeds:
      - fhlmc-5401-heloc-1-5-percent-imputed-payment
    workflow_phase: loan_origination
    owner_role: underwriting_manager
    secondary_owner_role: loan_processor
    cadence: per-loan-with-heloc
    consequence: Excluding HELOC payments with outstanding balances understates housing expense; Selling Guide breach + R&W exposure.
    tags:
      - round-d
      - regulator-direct
      - fhlmc
      - selling-guide
      - qualifying-ratios
      - heloc
      - secondary-financing
      - promoted
    primary_source:
      tier: 1
      authority: FHLMC Single-Family Guide §5401.1(a) — Payments on secondary financing including HELOC
      source_class: fhlmc-guide
      source_url: https://guide.freddiemac.com/app/guide/
      snapshot_id: fbba421721d90cb1
      fetched_at: '2026-05-25T14:09:48Z'
      content_hash: sha256:placeholder-snapshot-content-hash-from-source-json
      paragraph_quote: |
        HELOC payments must be included when there is an outstanding balance on the account.
      drafter_attestation: |
        Copied verbatim from snapshot fbba421721d90cb1. §5401.1(a) HELOC-
        included-when-balance operative requirement.
    promoted_at: '2026-05-25T20:16:42+00:00'
    promoted_from: fhlmc-5401-roundd-v1.yaml
  - id: fhlmc-5401-heloc-1-5-percent-imputed-payment
    canonical_id: fhlmc-5401-heloc-1-5-percent-imputed-payment
    section: FHLMC Single-Family Guide §5401.1(a) — 1.5% imputed HELOC payment when no credit-report payment
    description: |
      When a HELOC has an outstanding balance but the credit report
      does not show a monthly payment and no documentation in the
      Mortgage file indicates a monthly payment amount, [LENDER]
      (Seller) shall use 1.5% of the outstanding balance as the
      monthly payment amount included in the monthly housing expense.
      The 1.5% imputed-payment rule prevents under-stating monthly
      obligations from undocumented HELOCs.
    type: do
    audit_question: For every Mortgage with a Borrower HELOC having an outstanding balance but no credit-report payment shown and no Mortgage-file payment documentation, can [LENDER] evidence the use of 1.5% of the outstanding balance as the monthly payment in housing-expense calculation?
    program_review: Does the program ensure that, when a balance-bearing HELOC shows no credit-report payment and no file-documented payment, 1.5% of the outstanding balance is used as the monthly payment in housing expense?
    file_review: For undocumented balance-bearing HELOCs, confirm the 1.5%-of-balance imputed payment was used.
    judgment: false
    feeds: []
    workflow_phase: loan_origination
    owner_role: underwriting_manager
    secondary_owner_role: loan_processor
    cadence: per-undocumented-heloc-loan
    consequence: Using zero or a lower imputed payment for an undocumented HELOC understates housing expense; Selling Guide breach.
    tags:
      - round-d
      - regulator-direct
      - fhlmc
      - selling-guide
      - qualifying-ratios
      - heloc
      - 1-5-percent-imputed
      - promoted
    primary_source:
      tier: 1
      authority: FHLMC Single-Family Guide §5401.1(a) — HELOC payment computation
      source_class: fhlmc-guide
      source_url: https://guide.freddiemac.com/app/guide/
      snapshot_id: fbba421721d90cb1
      fetched_at: '2026-05-25T14:09:48Z'
      content_hash: sha256:placeholder-snapshot-content-hash-from-source-json
      paragraph_quote: |
        1.5% of the outstanding balance is considered the monthly payment amount.
      drafter_attestation: |
        Copied verbatim from snapshot fbba421721d90cb1. §5401.1(a) 1.5%-
        imputed-HELOC-payment operative requirement.
    promoted_at: '2026-05-25T20:16:43+00:00'
    promoted_from: fhlmc-5401-roundd-v1.yaml
_promotion_history:
  - promoted_at: '2026-05-25T20:16:43+00:00'
    candidate_path: obligations\_remediation\round-d-investor-guides\fhlmc-5401-roundd-v1.yaml
    candidates_promoted: 5
    candidates_skipped_existing: 0

Verbatim regulatory text (5)

Verbatim provisions from FHLMC Single-Family Seller/Servicer Guide Chapter 5401 — Evaluation of Monthly Obligations — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.

FHLMC Single-Family Guide §5401.1 — Document monthly housing expense in Mortgage file

The monthly housing expense must be documented in the Mortgage file and established as described below.

Source: FHLMC Single-Family Guide §5401.1 — Monthly housing expense-to-income ratio · source URL · snapshot fbba421721d90cb1

FHLMC Single-Family Guide §5401.1(a) — New construction: tax based on improvements + land value when actual not available

the real estate tax amount included in the monthly housing expense must be based on the value of the improvements and the land

Source: FHLMC Single-Family Guide §5401.1(a) — Establishing the monthly housing expense for Mortgages secured by Primary Residences · source URL · snapshot fbba421721d90cb1

FHLMC Single-Family Guide §5401.1(a) — Tax abatement requires 5-year continuance evidence

Evidence of continuance for at least five years after the Note Date

Source: FHLMC Single-Family Guide §5401.1(a) — Tax abatements · source URL · snapshot fbba421721d90cb1

FHLMC Single-Family Guide §5401.1(a) — HELOC payments included when outstanding balance exists

HELOC payments must be included when there is an outstanding balance on the account.

Source: FHLMC Single-Family Guide §5401.1(a) — Payments on secondary financing including HELOC · source URL · snapshot fbba421721d90cb1

FHLMC Single-Family Guide §5401.1(a) — 1.5% imputed HELOC payment when no credit-report payment

1.5% of the outstanding balance is considered the monthly payment amount.

Source: FHLMC Single-Family Guide §5401.1(a) — HELOC payment computation · source URL · snapshot fbba421721d90cb1