Fannie Mae Guidelines: DU Data Accuracy and Tolerance Requirements

Why Desktop Underwriter Data Accuracy Matters

Desktop Underwriter makes its approval decision based on the loan details you and your lender submit. But things can change between your initial application and closing. Your income might be verified at a different amount. Your interest rate might drop. Your loan amount might shift slightly.

Fannie Mae requires that the final closed loan match what was submitted to DU, or fall within specific tolerance ranges. This prevents situations where DU approves a loan based on one set of facts, but you actually close on something materially different.

Say DU approved your loan with a 40% debt-to-income ratio, but when your lender verifies your actual income, your DTI recalculates to 46%. That 6-point jump crosses DU's tolerance threshold and requires resubmission. DU needs to re-evaluate whether you still qualify at the higher DTI.

When Changes Require DU Resubmission

The most common trigger for resubmission involves debt-to-income ratio changes. If your verified income or debts cause your DTI to increase by more than 2 percentage points, your lender must resubmit the loan to DU.

Here's how the DTI tolerance works: If DU originally calculated your DTI at 35% but verification shows it's actually 40%, that's a 5-point increase requiring resubmission. However, if your original DTI was 46% and it increases to 48%, that's only a 2-point change and stays within tolerance.

Interest rate changes also matter. If your rate decreases due to a permanent buydown (where you pay points to reduce the rate), DU must re-evaluate the loan. Regular rate decreases from market conditions don't require resubmission.

Income verification can trigger resubmission for certain loan programs. If you're getting a HomeReady loan with income limits, and your verified income exceeds what you reported on the application, the loan must go back to DU to confirm you still meet the program requirements.

Refinance Loan Amount Tolerances

Refinance transactions get more flexibility with loan amount changes. Your final loan amount can increase by up to $500 or 1% of the original amount, whichever is less. It can also decrease by up to 5% without requiring DU resubmission.

These tolerances only apply if the loan-to-value ratio change doesn't affect other loan terms. If increasing the loan amount pushes your LTV high enough to require different mortgage insurance coverage or triggers different pricing adjustments, you'll need resubmission regardless of the dollar amount.

Consider a $100,000 refinance loan on a $120,000 home (83.3% LTV). You could increase the loan to $100,500 (83.75% LTV) without resubmission. But if your original loan was $108,000 (90% LTV), any increase would push you over 90% LTV, requiring different mortgage insurance and triggering resubmission requirements.

Asset and Reserve Requirements

Changes in your closing costs can affect whether resubmission is needed. If your actual funds required to close exceed what DU calculated, your lender must verify you have sufficient liquid assets to cover the difference. If you do, no resubmission is required.

Reserve requirements work similarly but with a 10% buffer. If DU required you to have $10,000 in reserves after closing, but changes in closing costs mean you'll only have $9,200, that's still acceptable since it's more than 90% of the required amount.

Your lender must document these asset verifications carefully. Bank statements, investment account statements, and other asset documentation must show you can cover any increases in funds needed to close.

Credit Report Errors and Missed Information

Sometimes credit reports contain errors, or DU fails to recognize derogatory information that should affect your loan approval. Your lender has a responsibility to catch these issues and take action.

If your credit report shows a previous foreclosure but DU's findings report doesn't mention it, a data transfer error likely occurred. DU didn't consider the foreclosure in its risk analysis, which could have changed your approval outcome.

Your lender must identify these discrepancies and ensure DU considers all relevant credit information. This might mean correcting the credit report data and resubmitting your loan, or it could mean declining the loan if the missed information would have resulted in a different DU recommendation.

Non-applicant accounts present another challenge. Sometimes credit reports include accounts that may belong to someone else with a similar name or address. DU includes these in its analysis, so your lender needs to determine whether they actually belong to you and should count toward your debt-to-income ratio per B3-6-05: Monthly Debt Obligations.

What Documents Your Lender Reviews

Your lender must compare all verification documents against the data submitted to DU. This includes employment verification forms, pay stubs, tax returns, bank statements, and credit reports.

Income verification documents like W-2s, tax returns, and pay stubs get scrutinized against the income amounts used in DU. Asset verification through bank statements and investment account statements must support the asset amounts DU considered.

The final loan terms at closing must match DU's analysis. Your lender reviews the closing disclosure, promissory note, and deed of trust to ensure the interest rate, loan amount, occupancy type, and property details align with what DU approved.

Common Situations That Cause Problems

Income verification often reveals discrepancies from the initial application. Self-employed borrowers frequently see changes when tax returns show different income than initially reported. Commission-based workers might have their income calculated differently once the lender analyzes their complete earnings history.

Property appraisals can create issues if the appraised value differs significantly from the estimated value used in DU. A lower appraisal increases your loan-to-value ratio, potentially requiring different mortgage insurance or pricing.

Last-minute changes to loan terms cause frequent resubmission requirements. Switching from a fixed-rate to adjustable-rate mortgage, changing the loan term from 30 to 15 years, or modifying the occupancy from primary residence to investment property all require DU re-evaluation.

Credit report updates between application and closing can reveal new information. A new credit inquiry, a recently reported late payment, or a change in credit score might affect your approval status.

References

For the official guidelines, see B3-2-10: Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report in the Fannie Mae Selling Guide.