The intent of the following article is to provide an overview of mortgage industry loan occupancy and property usage types and demonstrate methods that mortgage industry investors use to track and report loan occupancy and property usage type statistics for loans in their servicing portfolio for risk management and seller performance monitoring purposes.
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In underwriting a mortgage loan it is necessary to determine the borrower’s ability and willingness to repay a loan in accordance with its terms and to determine if the subject property provides and maintains sufficient value to recover the investment should a loan default occur. Occupancy and Property Usage types, in conjunction with other risk factors, serve as indicators of the loan’s likelihood for profitable servicing. In the interest of mitigating portfolio risk, investors perform analysis to determine the distribution of occupancy and property usage types for loans in their servicing portfolio.
A mortgage loan’s occupancy type indicates the occupancy status of the mortgaged property. The following occupancy types are defined in the MISMO eMortgage Specifications, recognized throughout the mortgage industry and represent various levels of lending risk.
- Adverse Occupied
- Owner Occupied
- Removed or Destroyed
- Tennant Occupied
Property Usage Type
Investors and lenders throughout the mortgage industry commonly list property usage type description as the occupancy type in their product guides, rate sheets and on their online loan applications. A mortgage loan’s property usage type indicates the borrower’s intended use of the mortgaged property. The following propety usage types are defined in the MISMO eMortgage Specifications, recognized throughout the mortgage industry and represent various levels of lending risk.
- Investment – Indicates that the borrower does not maintain the property for personal use and most likely offers the property for rental. Investment properties represent the highest level of lending risk and as a result have more stringent underwriting and loan to value requirements.
- Primary Residence – Indicates that the borrower occupies the subject property. A property usage type of primary residence represents the lowest level of lending risk.
- Second Home – Indicates that the borrower maintains the property for personal use and does not offer the property for rental. Because the property is not the borrower’s Primary Residence and is only used on an occasional basis, this property usage type is also commonly known and referred to in the mortgage industry as a vacation home or property.
A property usage type of Second Home represents a higher level of lending risk, compared to Primary Residence, and as a result there are often additional and more stringent underwriting and loan to value requirements associated with Second Homes.
The “Reporting Mortgage Loan Occupancy and Property Usage Types” section of this article details steps for creating a report that an investor may use to track and report the distribution of occupancy and property usage types for loans that a seller has delivered to the investor. The Sample Mortgage Loan Occupancy and Property Usage Type Report in this article can be used as a model for a stand alone report or incorporated into a comprehensive Seller Scorecard report.
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