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[Pages:43]Manual Underwriting Certification Program

Reference Guide

Bringing Excellence to Serving the Underserved

Contents

Module 1 ? Program Introduction.......................................................................................... 5 Program Objectives ..................................................................................................................... 5 Benefits of Certification .............................................................................................................. 6 How will we Serve the Underserved? ......................................................................................... 6

Module 2 ? Which Loans need to be Manually Underwritten? ............................................... 8 Reasons for Automatic Downgrade ............................................................................................ 8 Reasons for Possible Downgrade ................................................................................................ 9

Module 3 ? Credit - Getting the Full Picture ......................................................................... 10 Credit Review ............................................................................................................................ 10 Letters of Explanation ............................................................................................................... 11 Supporting Documentation....................................................................................................... 11

Module 4 ? Reviewing Challenged Credit ............................................................................. 12 Indicators of Derogatory Credit ................................................................................................ 12 Judgments and Collections .................................................................................................... 13 Capacity Analysis ................................................................................................................... 13 Tax Liens ................................................................................................................................ 14 Bankruptcy............................................................................................................................. 14 Foreclosure ............................................................................................................................ 14 Short Sale ............................................................................................................................... 15 Credit Counseling................................................................................................................... 15 Disputed Accounts .................................................................................................................... 16

Module 5 ? Non-Traditional Credit....................................................................................... 17 Developing Non-Traditional Credit .......................................................................................... 17 Insufficient Credit ...................................................................................................................... 18

Manual Underwriting Program Version 1 April 2014

?Carrington Mortgage Services, LLC Mortgage Lending All rights reserved. Proprietary and confidential.

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Module 6 ? Capacity and Income ......................................................................................... 19 How do we Determine a Borrower's Capacity to Repay?......................................................... 19 Salaried Borrowers Income Documentation ......................................................................... 19 Self Employed Borrowers ...................................................................................................... 21 Commissioned Income Rule .................................................................................................. 22 Non-Employment Income ..................................................................................................... 22 Documenting Requirements for Non-Employment Income: ................................................ 23 Income Documentation Red Flags......................................................................................... 24

Module 7 ? Debt to Income and Liabilities ........................................................................... 25 Calculating DTI........................................................................................................................... 25 Debt to Income Rule for Manually Underwritten Loans: ...................................................... 25 Scenarios with a Higher DTI Requirement: ............................................................................... 26 Liabilities.................................................................................................................................... 27 What can be excluded? ......................................................................................................... 27 What Must Be Included? ....................................................................................................... 27 A Word about Student Loans: ............................................................................................... 28

Module 8 ? Compensating Factors ....................................................................................... 29 Minimum Requirements ........................................................................................................... 29 Standard Compensating Factors ............................................................................................... 29 Cash Reserves............................................................................................................................ 30 Documenting Cash Reserves ................................................................................................. 30 Minimal Increase in Housing Expense....................................................................................... 31 Significant Additional Income ................................................................................................... 31 Residual Income ........................................................................................................................ 32 Calculating Residual Income.................................................................................................. 32 Residual Income Example:..................................................................................................... 33 No Discretionary Debt ............................................................................................................... 34

Manual Underwriting Program Version 1 April 2014

?Carrington Mortgage Services, LLC Mortgage Lending All rights reserved. Proprietary and confidential.

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Module 9 ? The Four Cs of Manual Underwriting ................................................................. 35 Credit ......................................................................................................................................... 35 Capacity to Repay...................................................................................................................... 36 Cash ........................................................................................................................................... 36 Important Notes about Asset Verification: ........................................................................... 37 Important Notes about Gift Funds: ....................................................................................... 37 Collateral ................................................................................................................................... 38

Module 10 ? Successful Loan Submissions ........................................................................... 39 Cover Sheet Memo.................................................................................................................... 39 Manual Underwriting Checklist................................................................................................. 40 Common Missing Conditions .................................................................................................... 43

Manual Underwriting Program Version 1 April 2014

?Carrington Mortgage Services, LLC Mortgage Lending All rights reserved. Proprietary and confidential.

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Module 1 ? Program Introduction

Program Objectives

Understand why certification is important: o To YOUR success - and o Carrington's Strategy of Serving the Underserved

Effectively communicate: o Parameters for manually underwritten FHA loans o All levels of documentation requirements

Identify which transactions require a manual underwrite Know the flags that cause a loan to be downgraded Better understand acceptable credit risk factors Identify and suggest compensating factors Understand and calculate residual income Avoid common conditions and loan delays from the start

Important Note: All guidelines and concepts in this program are intended for loans being submitted for FHA Manual Underwrite

Manual Underwriting Program Version 1 April 2014

?Carrington Mortgage Services, LLC Mortgage Lending All rights reserved. Proprietary and confidential.

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Benefits of Certification

? Lead your clients and referral sources to successful loan closings by fully understanding all aspects of manual underwriting

? Gain the personal confidence needed to effectively communicate with your clients and internal associates, as we move loans to closing

? Build client confidence, and connection, leading to a larger referral base and pipeline! ? Navigate loans with challenged credit and offer constructive guidance ? Carry out the mission of Serving the Underserved!

How will we Serve the Underserved? My Loan Detail

Provides borrowers applying for an FHA loan, with a certain credit score threshold, education and easy to understand details about their loan. ? The Completion Certificate ensures every borrower in this category understands exactly

how their loan works ? Reduces any confusion or future accusations ? Offers Peace of Mind lending for the borrower and the lender ? Unique to Carrington ? proprietary - developed by us!

Manual Underwriting Program Version 1 April 2014

?Carrington Mortgage Services, LLC Mortgage Lending All rights reserved. Proprietary and confidential.

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Marketing Support

We are aggressively building our brand awareness through national advertising, direct mail marketing and Public Relations ? Bringing new clients to our doors ? Establishing a solid reputation in the market ? Providing collateral and information - setting our clients up for success!

Exceptional Operational Support

? Underwriting - Experienced underwriters that are internally trained and certified to manually underwrite with the goal of making loans work!

? Sales and Operations Staff - Understand the process and what is required to support our clients

? Scenario Help Desk - Staffed by senior level underwriters who will offer guidance and loan structure advice

? Consistency - Training and process implementation across all 4 regional operations centers

Manual Underwriting Program Version 1 April 2014

?Carrington Mortgage Services, LLC Mortgage Lending All rights reserved. Proprietary and confidential.

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Module 2 ? Which Loans need to be Manually Underwritten?

Reasons for Automatic Downgrade

When these circumstances exist, a manual underwrite is required:

1. AUS Refer ? Refer Eligible or Refer Ineligible 2. Streamline Refinances 3. Any Delinquent Federal Debt 4. Credit Alert Interactive Voice Response System (CAIVRS) Alert 5. Mortgage Payment History is Less than 6 months 6. Credit Score Below 620 with a DTI Ratio in Excess of 43% 7. Paystubs without YTD earnings or are handwritten 8. Late mortgage payments in the past12 months

? If any mortgage trade line, including a mortgage line-of-credit, reflects any combination of 90 days late: ? 3 or more 30 day late payments; or ? 1 or more 60 day late payments plus 1 or more 30-day late; or ? 1 90 day or greater late payment

9. Disputed Accounts/Collections or Public Records that together have a cumulative balance of of $1,000 or greater

10. Previous Mortgage Foreclosure - within 3 years 11. Chapter 7 and 13 Bankruptcies

? If discharged less than 2 years from application date

Manual Underwriting Program Version 1 April 2014

?Carrington Mortgage Services, LLC Mortgage Lending All rights reserved. Proprietary and confidential.

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