Yes, both Fannie and Freddie now prohibit lenders from considering prorated real estate tax credits when determining the funds required for a mortgage transaction. These prohibitions apply only to mortgages that will be sold to Freddie Mac or Fannie Mae or that are otherwise subject to their selling standards.

Freddie Mac’s updated Single-Family Seller/Servicer Guide states that effective for mortgages with settlement dates on or after August 5, 2021, prorated tax credits cannot be considered when determining if the Borrower has sufficient funds for the mortgage transaction. Fannie Mae’s Selling Guide was also recently updated with a similar prohibition.

Note that Regulation Z also prohibits the consideration of some prorated real estate tax credits in calculating cash to close — if the borrower will be responsible for real estate taxes that are not due until more than sixty days after the closing date, we believe you must leave the seller credit for the taxes off of the Loan Estimate. For more information on accounting for prorated real estate tax credits on the LE, see our guidance on CQ 2021-170.

For resources related to our guidance, please see:

• Freddie Mac, Bulletin 2021-16 (May 5, 2021) (“Effective for Mortgages with Settlement Dates on or after August 5, 2021 . . . We are updating our Guide requirements related to the treatment of prorated real estate tax credits contributed by the property seller in areas where real estate taxes are paid in arrears: . . . Prorated tax credits cannot be considered when determining if the Borrower has sufficient funds for the Mortgage transaction.”)

• Freddie Mac Single-Family Seller/Servicer Guide, Funds required for the Mortgage transaction (August 5, 2021) (“Prorated real estate tax credits contributed by the property seller in areas where real estate taxes are paid in arrears may not be considered when determining the funds required for the Mortgage transaction.”)

• Fannie Mae Selling Guide Announcement (SEL-2020-07), page 4 (December 16, 2020) (“We have clarified that pro-rated real estate tax credits provided by the seller at closing in places where real estate taxes are paid in arrears cannot be considered when determining if the borrower has enough funds for the transaction. The lender must continue to verify that the borrower has sufficient assets from the list of eligible sources contained in our Guide. In addition, we clarified that a pro-rated tax credit is not an interested party contribution.”)

• Fannie Mae Selling Guide, B2-1.3-01, Purchase Transactions (December 16, 2020) (“Note: . . . A pro-rated real estate tax credit is not an interested party contribution, and it cannot be considered when determining if the borrower has sufficient assets for the transaction.”)

• Freddie Mac Single-Family Seller/Servicer Guide, Legal effect of the Guide and other Purchase Documents (December 7, 2020) (“The Guide governs the business relationship between a Seller/Servicer and Freddie Mac relating to the sale and Servicing of Mortgages. . . . In connection with the sale of Mortgages to Freddie Mac, the Seller/Servicer agrees that each transaction is governed by the Guide, the applicable Purchase Contract and all other Purchase Documents.”)

• Fannie Mae Selling Guide, A2-1-01, Contractual Obligations for Sellers/Servicers (August 5, 2020) (“After Fannie Mae approves a seller or servicer or seller/servicer, both parties execute the Mortgage Selling and Servicing Contract (MSSC) and any other relevant agreements. The continuation of that relationship depends on both parties honoring the mutual promises in the Lender Contract. The MSSC establishes the basic legal relationship between a seller, servicer or seller/servicer and Fannie Mae and . . . incorporates by reference the Selling Guide, the Servicing Guide, the Requirements for Document Custodians, Software Subscription Agreement, Manuals, Announcements, Lender Letters, Release Notes, Notices, directives and other documents which may be incorporated by reference into the Guides, all as amended or supplemented from time to time.”)

• Regulation Z, 12 CFR 1026.37(g)(2)(iv), Loan Estimate (“Prepaids. Under the subheading ‘Prepaids,’ an itemization of the amounts to be paid by the consumer in advance of the first scheduled payment, and the subtotal of all such amounts, as follows: . . . (iv) On the fourth line, the number of months for which property taxes are to be paid by the consumer at consummation and the total dollar amount to be paid by the consumer at consummation for such taxes, labeled ‘Property Taxes ( __ months).’”)

• Regulation Z, Official Interpretations, Paragraph 37(g)(2), Comment 1 (“. . . . Examples of periodic charges that are disclosed pursuant to § 1026.37(g)(2) include: i. Real estate property taxes due within 60 days after consummation of the transaction