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B3-2-07, Refer with Caution Recommendations (02/01/2023)

This topic contains information on Refer with Caution recommendations, including:

Overview of Refer with Caution Recommendations

The layering and degree of risk factors that result in a Refer with Caution recommendation represent a greater risk of serious delinquency than for those loan casefiles that receive an Approve recommendation.

Any loan casefile that receives a Refer with Caution recommendation from DU does not represent a level of risk that is acceptable to Fannie Mae for DU loans. If the data DU considered was an accurate representation of the borrower’s income, assets, liabilities, and credit profile, the loan is not eligible for sale to Fannie Mae as a DU loan.

The following table provides further information about this DU recommendation.

Refer with Caution
Eligible for Fannie Mae’s limited waiver of certain mortgage eligibility and underwriting representations and warranties? No
Satisfies Fannie Mae’s credit risk standards/assessment? No, the loan does not meet Fannie Mae's credit risk standards for DU loans.
Satisfies Fannie Mae’s mortgage eligibility criteria? No, the loan does not meet Fannie Mae's stated eligibility requirements for DU loans.
Eligible for sale to Fannie Mae?

Not as a DU loan.

The lender may manually underwrite the loan in accordance with this Selling Guide if the loan product or transaction otherwise allows for sale of manually underwritten loans. See  B3-1-01, Comprehensive Risk AssessmentB3-1-01, Comprehensive Risk Assessment and the Eligibility Matrix for appropriate eligibility requirements and considerations.

Lender Response to a Refer with Caution Recommendation

When a loan casefile receives a Refer with Caution recommendation, the lender should:

  • Review the DU loan data for accuracy and verify that all income, assets, and liabilities were accurately recorded and fully disclosed by the borrower. 

  • Determine if there is any information outside of the data submitted to DU that could have affected DU's recommendation.

  • Update the loan application data (if applicable) and resubmit the loan casefile to DU for an updated recommendation.

  • Review the credit report data to determine if the information accurately represents the applicant’s credit history. Erroneous data in the credit report, or contradicting or derogatory information, could have affected DU’s recommendation. (See  B3-2-01, General Information on DUB3-2-01, General Information on DU, for additional guidance.)

  • Investigate whether there were any extenuating circumstances that contributed to serious instances of derogatory credit.

If the loan casefile still receives a Refer with Caution recommendation, the lender may manually underwrite the loan in accordance with the requirements in the table above. 

Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements and Release Notes Issue Date
Announcement SEL-2023-01 February 01, 2023