Ask The Experts: Question of the Week
Fannie Mae & Freddie Mac – Minimum Requirements for Using RSU [Restricted Stock Unit] Income
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Question:
For RSU income, what if the stock is recently public and hasn’t been public long enough to have a 200-day moving average? Would underwriting take the stock’s lowest value since the IPO?
Answer:
Unfortunately, the minimum history would not be sufficient and would be the controlling factor in the use of RSU income. They need at least 12 months of history for time-based rewards, and the selling guide recommends a two-year history for performance-based awards, but also allows lenders to support 12-24 months.
There is no option to use RSU income before the minimum history requirement is met.
Any history prior to the stock going public does not count toward the history requirements. Only a publicly traded receipt would be acceptable to build the history.
Summary/conclusion:
If the borrower does not have a 12- or 24-month history of receipt, RSU income cannot be used. If they do have the history, you must then use the 200-day moving average to value the shares they received during that period.
If the stock has not been public for 200 days, you face a secondary hurdle: the required calculation metric does not exist, which would likely require an underwriter to seek a formal exception from Fannie or Freddie (if one is even available).
MortgageGuidelines.com subscribers have access to our Income Analyzer on Restricted Stock Units, which is found under “Guideline References” under the “Income Analyzer” tab.
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