Version: 1.0 | Status: Implementation-Ready — Gear 1
Scope: Applies lender overlays, state-specific requirements, seasoning constraints, and borrower-specific compliance flags on top of GSE/program qualification results. Bridges theoretical eligibility to real-world closability. Adjusts confidence scores and surfaces flags that downstream lender selection must address.
Confidential: PreFi, Inc. / Purpose Technology, Inc. d/b/a Purlend
GSE guidelines (Fannie Mae, FHA HUD 4000.1, VA Lenders Handbook) define the floor — individual lenders layer on additional requirements called overlays. A borrower can be DU APPROVE/ELIGIBLE and still be declined by a lender whose overlay requires a 680 minimum score when DU allows 620. The Overlay Skill catches these real-world gaps before the borrower encounters them at a lender.
This skill does NOT re-run qualification logic. It receives the RankedProgramList and applies overlay adjustments to:
Inputs required:
RankedProgramList (from Ranking Skill)BorrowerProfile (property state, credit, derogatory history)PropertyContext (state, property type, HOA status)Outputs produced:
OverlayAdjustedResult — RankedProgramList with overlay-adjusted confidence scoresOverlayFlags — specific overlay risks and requirementsLenderGuidance — program-specific notes for lender selectionComplianceFlags — fair lending, HMDA, and state-specific notices
Stage 1 — Validate inputs
Stage 2 — Apply lender credit overlays
Stage 3 — Apply lender DTI overlays
Stage 4 — Apply seasoning and waiting period checks
Stage 5 — Apply state-specific requirements
Stage 6 — Apply property type and condo overlays
Stage 7 — Apply fair lending and compliance flags
Stage 8 — Adjust confidence scores
Stage 9 — Generate LenderGuidance notes
Stage 10 — Emit OverlayAdjustedResult
GSE guidelines set minimums; lenders routinely set higher floors.
CONVENTIONAL CREDIT OVERLAYS (market consensus):
GSE minimum: 620
Common lender overlays:
620–639: OVERLAY_RISK_HIGH — fewer than 30% of conventional lenders accept
640–659: OVERLAY_RISK_MODERATE — ~60% of conventional lenders accept
660–679: OVERLAY_RISK_LOW — most conventional lenders accept
680+: OVERLAY_CLEAN — near-universal acceptance
IF qualifying_credit_score < 640 AND program = CONVENTIONAL:
flag CONV_CREDIT_OVERLAY_HIGH_RISK
confidence_adjustment: −0.10
note: "Score [X] below 640 common overlay floor. Lender selection critical."
FHA CREDIT OVERLAYS:
HUD minimum: 500 (10% down), 580 (3.5% down)
Common lender overlays:
500–579: Most lenders decline — "manual underwrite tier" rarely accepted
580–619: Many lenders overlay to 620
620–639: Standard FHA lender floor for most
640+: Universal FHA acceptance
IF qualifying_credit_score < 620 AND program = FHA:
flag FHA_CREDIT_OVERLAY_RISK
confidence_adjustment: −0.10
note: "Score [X] below 620 common FHA overlay floor. Limited lender pool."
IF qualifying_credit_score < 580 AND program = FHA:
flag FHA_SCORE_BELOW_MOST_LENDER_MINIMUMS
confidence_adjustment: −0.20
note: "Score [X] below 580. Most FHA lenders will decline — manual UW only."
VA CREDIT OVERLAYS:
VA: no minimum (residual income governs)
Common lender overlays: 580–620 minimum
IF qualifying_credit_score < 580 AND program = VA:
flag VA_CREDIT_OVERLAY_RISK
confidence_adjustment: −0.08
note: "Score [X] below 580 common VA lender overlay."
DSCR CREDIT OVERLAYS:
Standard DSCR minimum: 640 (already enforced in DSCR Skill Gate 3)
Some lenders: 660+ for best pricing, 680+ for max LTV
IF qualifying_credit_score < 660 AND program = DSCR:
flag DSCR_CREDIT_SUBOPTIMAL_PRICING
note: "Score [X] < 660 may result in higher DSCR rate or additional reserves."
DTI overlays are common — lenders frequently set limits below DU/LP/TOTAL maximums.
CONVENTIONAL DTI OVERLAYS:
DU maximum: 50% back-end
Common lender overlays:
> 45%: OVERLAY_RISK_MODERATE — many lenders cap at 45%
> 50%: OVERLAY_RISK_HIGH — only specialized lenders at DU max
IF back_end_dti > 45% AND program = CONVENTIONAL:
flag CONV_DTI_OVERLAY_RISK
confidence_adjustment: −0.05
note: "Back DTI [X]% above 45% common lender cap. Lender selection required."
FHA DTI OVERLAYS:
TOTAL Scorecard maximum: 57% back-end
Common lender overlays:
> 50%: Many lenders cap at 50% even with TOTAL ACCEPT
> 55%: Very limited lender pool
IF back_end_dti > 50% AND program = FHA:
flag FHA_DTI_OVERLAY_RISK
confidence_adjustment: −0.05
note: "Back DTI [X]% above 50% common FHA overlay. Limited lenders at 50–57%."
VA DTI OVERLAYS:
VA does not set a DTI limit — residual income governs.
Common lender overlay: 41–55% back-end (advisory)
IF back_end_dti > 55% AND program = VA:
flag VA_DTI_ADVISORY
confidence_adjustment: −0.03
note: "Back DTI [X]% above 55%. VA residual income is the primary test, but
some lenders apply advisory DTI caps. Verify with specific lender."
Derogatory event waiting periods — enforced strictly by underwriters.
These are hard program requirements, not overlays.
BANKRUPTCY CHAPTER 7:
Conventional: 4 years from discharge (2 years with extenuating circumstances)
FHA: 2 years from discharge
VA: 2 years from discharge
DSCR: 2–4 years (lender-specific)
BANKRUPTCY CHAPTER 13:
Conventional: 2 years from discharge; 4 years from dismissal
FHA: 1 year of payment plan with court approval; 2 years from discharge
VA: 1 year (with court approval and documentation)
DSCR: 2 years from discharge (lender-specific)
FORECLOSURE:
Conventional: 7 years (3 years with extenuating circumstances, 90% LTV cap)
FHA: 3 years
VA: 2 years
DSCR: 3–5 years (lender-specific)
SHORT SALE / DEED-IN-LIEU:
Conventional: 4 years (2 years with extenuating circumstances, 80% LTV cap)
FHA: 3 years
VA: no mandatory waiting period (must re-establish credit)
DSCR: 2–3 years (lender-specific)
COMPUTATION:
IF any derogatory event exists in BorrowerProfile:
For each event:
eligible_date = event_date + waiting_period_months
months_remaining = MAX(0, (eligible_date - today_date) / 30)
IF months_remaining > 0:
flag WAITING_PERIOD_ACTIVE
program_block = [programs where months_remaining > 0]
note: "Eligible for [program] on [eligible_date] ([N] months remaining)"
IF months_remaining = 0:
flag WAITING_PERIOD_MET
note: "Waiting period met as of [eligible_date]"
IF extenuating_circumstances_documented = true:
Apply shortened waiting periods per program rules
flag EXTENUATING_CIRCUMSTANCES_APPLIED
COMMUNITY PROPERTY STATES:
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin
IF property_state IN community_property_states:
ALL PROGRAMS: Non-borrowing spouse debt obligations must be counted in DTI
(even if spouse is not on the loan)
flag COMMUNITY_PROPERTY_STATE
flag NON_BORROWING_SPOUSE_DEBT_REVIEW
note: "Community property state. Non-borrowing spouse debts counted in DTI per GSE rules."
NEW YORK:
Transfer tax: 1.425% (NYC) or 0.4% (statewide) of purchase price
Mansion tax: 1.0% if purchase price ≥ $1,000,000
Attorney required at closing
IF property_state = NY:
flag NY_TRANSFER_TAX
flag NY_ATTORNEY_REQUIRED
estimated_transfer_tax = purchase_price × 0.004 (statewide; NYC rate higher)
note: "NY transfer tax adds ~0.4–1.425% to closing costs"
FLORIDA:
Documentary stamp tax: 0.35% of loan amount (non-purchase mortgage)
Intangible tax: 0.002 × loan amount
Homestead exemption — reduces property tax (primary only)
IF property_state = FL:
flag FL_DOC_STAMP_TAX
estimated_doc_stamp = loan_amount × 0.0035
note: "FL documentary stamp and intangible taxes add ~0.55% to loan amount"
TEXAS:
No income tax — no SITW deduction impact on GMI verification
Home equity: 80% LTV cap on cash-out (Texas Section 50(a)(6))
IF property_state = TX AND loan_purpose = CASH_OUT_REFI:
flag TX_HOME_EQUITY_LTV_CAP
IF ltv > 0.80: add BLOCKING constraint
CALIFORNIA:
Mello-Roos and special assessments — may appear as additional taxes
Prop 13 limits: tax rate ≈ 1.1% of purchase price (not assessed value for resales)
IF property_state = CA:
flag CA_PROP_13_TAX_ESTIMATE
estimated_annual_tax = purchase_price × 0.011
note: "CA: tax estimate uses 1.1% of purchase price per Prop 13 basis"
CONDO WARRANTABILITY (Conventional / FHA only):
Condo projects must be approved/warrantable for Conventional and FHA financing.
Non-warrantable condos can only be financed as portfolio loans (DSCR or jumbo).
IF property_type = CONDO:
flag CONDO_WARRANTABILITY_REVIEW_REQUIRED
note: "Confirm condo project warrantability with lender before proceeding.
Non-warrantable condos cannot close on Conventional or FHA."
Common non-warrantable flags:
- Investor concentration > 50% (Fannie Mae: > 35%)
- Pending or active litigation
- Single entity owns > 10% of units
- Commercial space > 35% of project
- Delinquent HOA dues > 15% of units
MANUFACTURED HOME:
FHA: eligible — specific appraisal requirements, must be on permanent foundation
Conventional: eligible with restrictions — Fannie Mae MH Advantage
VA: eligible — must be permanently affixed, permanent foundation
DSCR: most lenders do not accept manufactured
IF property_type = MANUFACTURED:
flag MANUFACTURED_HOME_PROGRAM_RESTRICTIONS
note: "Manufactured home has program-specific requirements. Verify lender acceptance."
RURAL PROPERTY:
Large acreage may affect appraisal comparables
Wells and septic: must meet local/FHA requirements
USDA: may be eligible — not a Clarity Engine Gear 1 program, but flag
IF property_type = RURAL OR lot_size > 10_acres:
flag RURAL_PROPERTY_APPRAISAL_CONSIDERATIONS
FAIR LENDING REVIEW TRIGGERS (Gear 1 advisory only — not blocking):
PROTECTED CLASS AWARENESS:
Clarity Engine does not make lending decisions based on race, color, religion,
national origin, sex, familial status, or disability (Fair Housing Act / ECOA).
All qualification logic is based solely on credit, income, assets, and property.
DISPARATE IMPACT MONITORING FLAG:
If any qualifying recommendation results in a systematically different outcome
for similarly-situated borrowers, flag for human review.
flag DISPARATE_IMPACT_REVIEW (triggered by: Constraint Detection or auditor signal)
HMDA REPORTABLE TRANSACTION:
Most residential mortgage applications are HMDA reportable.
flag HMDA_REPORTABLE
note: "Lender will collect race, ethnicity, and gender information per HMDA requirements."
HIGH-COST LOAN (HOEPA):
APR exceeds APOR by: 6.5% for first lien, 8.5% for subordinate
Points and fees exceed 5% of loan amount
IF estimated_apr > (apor_rate + 0.065):
flag HOEPA_HIGH_COST_LOAN_REVIEW
note: "Estimated APR may trigger HOEPA high-cost loan provisions."
(Gear 1: flag for review; full HOEPA calculation requires lender APR quote)
ANTI-STEERING COMPLIANCE:
Clarity Engine recommendations are based on borrower benefit (lowest total cost,
highest qualification certainty, borrower-stated goal). Never recommend a
product because of compensation or lender relationship.
flag ANTI_STEERING_COMPLIANT on all outputs.
Final overlay-adjusted confidence for each program:
overlay_confidence = base_confidence (from Ranking Skill)
+ sum(all overlay adjustments from Stages 2–7)
overlay_confidence = CLAMP(overlay_confidence, 0.30, 0.99)
ADJUSTMENT SUMMARY TABLE:
CONV_CREDIT_OVERLAY_HIGH_RISK: −0.10
FHA_CREDIT_OVERLAY_RISK: −0.10
FHA_SCORE_BELOW_MOST_LENDER_MINS: −0.20
VA_CREDIT_OVERLAY_RISK: −0.08
CONV_DTI_OVERLAY_RISK: −0.05
FHA_DTI_OVERLAY_RISK: −0.05
VA_DTI_ADVISORY: −0.03
WAITING_PERIOD_ACTIVE: −1.00 (blocks program entirely → confidence = 0)
COMMUNITY_PROPERTY_STATE: −0.03 (data review required)
CONDO_WARRANTABILITY_REVIEW: −0.05 (may be cleared with documentation)
MANUFACTURED_HOME: −0.05
HOEPA_HIGH_COST_LOAN_REVIEW: −0.05
NOTE: Adjustments are cumulative.
A borrower with score 615, DTI 48%, and community property state
on a Conventional loan: −0.10 (credit) −0.05 (DTI) −0.03 (state) = −0.18 total.
For each ranked program, generate a LenderGuidance note covering:
1. Recommended lender profile (portfolio lender, retail bank, credit union, broker)
2. Key overlay risks to address with lender before application
3. Documentation requirements specific to overlay conditions
4. Any compliance or disclosure requirements
LENDER PROFILE GUIDANCE:
Score 620–639 + Conventional: Portfolio lender or community bank — avoid major servicers
Score < 620 + FHA: Specialized FHA lenders — FHA Direct Endorsed lenders
Manual underwrite: Avoid automated-only lenders — require manual UW experience
DSCR: Non-QM specific portfolio lenders — not retail banks
High DTI FHA (50–57%): Correspondent lenders with direct FHA approval
OUTPUT per program:
lender_profile: "string"
key_overlays_to_verify: ["list"]
pre_application_checklist: ["list"]
{
"schema_version": "clarity_engine_v1.0",
"skill": "OVERLAY",
"skill_version": "1.0",
"deal_id": "string",
"borrower_id": "string",
"created_at": "ISO 8601 UTC",
"property_state": "string",
"state_specific_flags": [],
"overlay_adjusted_programs": [
{
"rank": 1,
"program": "string",
"base_confidence": 0.00,
"overlay_adjustments": [],
"overlay_adjusted_confidence": 0.00,
"lender_guidance": {
"lender_profile": "string",
"key_overlays_to_verify": [],
"pre_application_checklist": []
}
}
],
"overlay_flags": [],
"compliance_flags": ["HMDA_REPORTABLE", "ANTI_STEERING_COMPLIANT"],
"seasoning_flags": [],
"state_flags": [],
"property_flags": [],
"recommendation_unchanged": true,
"recommendation_downgraded": false,
"downgrade_reason": null,
"flags": [],
"lineage_trace": {}
}
Inputs:
RankedProgramList: VA (rank 1, confidence 0.98), FHA (rank 2, confidence 0.91)
property_state: CA
property_type: SFR
qualifying_credit_score: 698 (from context)
back_dti_VA: ~47% (residual income governs)
back_dti_FHA: 50.15%
No derogatory events
Stage 2 — Credit Overlays:
VA: score 698 ≥ 580 → no flag
FHA: score 698 ≥ 640 → no flag
No credit overlay adjustments.
Stage 3 — DTI Overlays:
VA: back_dti ~47% — VA does not have DTI limit; residual income met with surplus
VA_DTI_ADVISORY only if > 55% — not triggered.
FHA: back_dti 50.15% > 50% threshold:
flag FHA_DTI_OVERLAY_RISK
FHA confidence adjustment: −0.05 → 0.91 - 0.05 = 0.86
note: "Back DTI 50.15% above 50% common FHA overlay. Limited but available lenders."
Stage 4 — Seasoning:
No derogatory events. No seasoning flags.
Stage 5 — California:
flag COMMUNITY_PROPERTY_STATE (CA)
flag NON_BORROWING_SPOUSE_DEBT_REVIEW
flag CA_PROP_13_TAX_ESTIMATE
estimated_annual_tax = 425,000 × 0.011 = $4,675 ($389.58/month)
Current tax used = $531.25/month — actual tax must be verified at close.
VA confidence: −0.03 → 0.98 - 0.03 = 0.95
FHA confidence: already at 0.86; −0.03 → 0.83
note: "Community property state. Verify no non-borrowing spouse debt. CA property
tax will be recalculated at close — verify final tax estimate with lender."
Stage 6 — Property Type:
SFR — no special overlays.
Stage 7 — Compliance:
flag HMDA_REPORTABLE
flag ANTI_STEERING_COMPLIANT
Stage 8 — Final Adjusted Confidence:
VA: base 0.98 − 0.03 (CA community property) = 0.95
FHA: base 0.91 − 0.05 (DTI overlay) − 0.03 (CA) = 0.83
Stage 9 — Lender Guidance:
VA:
lender_profile: "VA-approved lender with California closing experience"
key_overlays_to_verify: ["Score 698 above most VA overlays", "CA community property — verify non-borrowing spouse has no undisclosed debt"]
pre_application_checklist: ["Certificate of Eligibility", "DD-214 if applicable", "CA non-borrowing spouse debt disclosure"]
FHA:
lender_profile: "FHA Direct Endorsed lender with 50%+ DTI approval history"
key_overlays_to_verify: ["DTI 50.15% — verify lender accepts above 50%"]
pre_application_checklist: ["TOTAL Scorecard AUS output confirmation", "CA community property disclosure"]
Final Output:
recommendation_unchanged: true (VA still rank 1)
recommendation_downgraded: false
VA overlay_adjusted_confidence: 0.95 (down from 0.98)
FHA overlay_adjusted_confidence: 0.83 (down from 0.91)
FO-01: Using overlay logic to re-run program qualification
The Overlay Skill adjusts confidence — it does not re-qualify.
Never recompute DTI, payment, or eligibility gates in the Overlay Skill.
Those computations belong to the family skills (VA, FHA, Conventional, DSCR).
FO-02: Applying overlays that are discriminatory
Overlays must be based on credit, income, LTV, and property factors.
Never apply overlays based on protected class characteristics.
FO-03: Setting overlay_adjusted_confidence below 0.30
If overlays drive confidence below 0.30, set = 0.30 and flag EXTREME_OVERLAY_RISK.
A 0.30 confidence = "possible but requires specialized lender and advisor guidance."
FO-04: Omitting the HMDA_REPORTABLE flag
Every residential mortgage result must include HMDA_REPORTABLE.
It is a compliance requirement — not optional.
FO-05: Applying state-specific costs without noting they are estimates
State transfer taxes, doc stamps, and Mello-Roos are estimates.
Always flag as ESTIMATE and note: "Verify exact amounts with lender or title company."
| Skill | Relationship |
|---|---|
Clarity_Engine_Ranking_SKILL.md | Required input — provides RankedProgramList |
Clarity_Engine_Borrower_Profile_SKILL.md | Required input — state, derogatory history |
Clarity_Engine_Explanation_SKILL.md | Downstream — overlay flags become borrower-facing notes |
Clarity_Engine_Audit_Trace_SKILL.md | Downstream — full lineage |
Clarity_Engine_Always_Approved_SKILL.md | Gate 3 — integrates overlay-adjusted confidence |
Clarity Engine — Overlay Skill v1.0 | CONFIDENTIAL — PreFi, Inc. / Purpose Technology, Inc. d/b/a Purlend