Community Seconds - Mortgage Refinancing - Mortgage Rates

[Pages:4]Community Seconds

Program Guidelines

Description of Program A Community Seconds transaction is a vehicle for structuring affordable housing, partnerships between lenders, non-profit organizations (other than credit unions), government entities, and employers to aid qualified home buyers. It is eligible behind a MyCommunity? mortgage but may not be eligible behind a first lien with Mortgage Insurance. Refer to the Mortgage Insurance guidelines for more information. Plaza does not finance Community Second loans. General Information Borrowers can obtain a secured loan from a non-profit organization (including churches); the private or public sector conditional repayable grant program; a state, county, or local housing agency; or the borrower's employer. In general, the loan can not be funded by the property seller or other interested party to the transaction. CLTV Requirements Generally, the maximum CLTV for the first mortgage originated with a Community Second loan is 100%. There are circumstances, however, when the CLTV can go to 105%. When CLTV totals are between 100.01% and 105%, the guidelines of the second mortgage address how the second lien is to be handled when there is a catastrophic event, such as the death or extended illness of the borrower. One of the following must be allowed no later than the date the property is sold:

? Forgiveness of the entire unpaid balance of the second and release of the subordinate lien. ? Forgiveness of that portion of the unpaid principal balance of the second that results in a

CLTV of greater than 100% of the value of the property and release of that portion of the debt from the subordinate lien.

? Release of the existing second lien, with no forgiveness of the debt, and the contemporaneous

execution of an unsecured promissory note equal to the unpaid balance of the second, or a modification agreement that makes the existing second mortgage an unsecured loan.

? Release of the portion of the existing second that results in a CLTV ratio being more than

100% of the value of the property, with no forgiveness of that debt, and the contemporaneous execution of an unsecured promissory note to equal the amount released from the second mortgage, and a modification agreement that reduces the secured debt of the existing second mortgage by the amount of the new unsecured promissory note.

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Grants Assistance may be in the form of a gift or a grant. The donor must be a relative, church, local government agency, non-profit organization, or the borrower's employer (refer to Employer's Assistance). The gift or grant can be used to pay any prepaid items that are the buyer's responsibility, part of the down payment in some instances, or case reserves. There may not be any repayment obligation attached to the gift or the grant. The exception is a conditional grant, a grant by a non-profit agency or local government agency that is secured by a Resale Restriction. Any restrictions must be subordinate to the first lien. Repayment Requirements The Community Seconds loan can:

? Have fully amortizing level monthly payments. ? Have payments fully deferred over the entire term until the mortgage is paid off or the property

is sold.

? Have deferred payments for some period before changing to fully amortizing level payments. ? Be forgiven completely or over time, after an initial term of owner occupancy.

Negative Amortization Not allowed. Interest can not accrue during the period of payment deferral. Interest Rate If interest is charged on the Community Seconds loan, the interest rate can not be higher than the rate of the first mortgage by more than 2 percent. Appreciation of the Property The Community Seconds loan allows the Community Seconds lender to share in the appreciation of the value of the property in lieu of charging interest. The appreciation must be based on:

? The actual sales price of the property that is sold on the open market ? The appraised value of the property

Or

? The amount of a successful bid at a foreclosure sale

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Subsidizing the Sales Price

If the Community Seconds loan is used as a subsidy to reduce the sales price to the borrowers, the unsubsidized sales price must be used in determining the minimum down payment from the borrower's own resources, and the level or need for M1. The unsubsidized sales price is determined by adding the amount of the Community Seconds loan to the reduced sales price.

Forgiving the Loan

Community Seconds loans can be forgiven over time.

Lien Position

For House America loans only, the Community Seconds loan can consist of a second-lien mortgage, and a third-lien mortgage where different funding sources are used or where different repayment terms are needed.

When two such subordinate liens are used, the conditions contained herein regarding Community Seconds shall apply to each loan, except that the aggregate amount of the two subordinate loans shall be considered to be the amount of the Community Seconds loan for purposes of calculating the CLTV.

Proceeds

All proceeds from the Community Seconds loan must be applied to closing costs and/or payment of the sales price of the property (including down payment assistance).

Mortgage with Balloon Payments

A subsidized second that provides for a balloon payment before the maturity date of the first mortgage is not permitted.

Right of First Refusal

The Community Seconds lender (or its designee) may retain an option for the right of first refusal to purchase the property. When borrowers give notice to the Community Seconds lender of an intent to transfer the property (when the borrowers are not in default), the right of first refusal must be exercised, if at all, within 60 days of receipt of the borrower's written notice of intent to sell or transfer, and, if the option is exercised, the purchase must be closed within 90 days of the receipt of the borrower's written notice.

Default

The terms of the Community Seconds loan, any related covenants, restrictions, and any other recorded documents, must contain an enforceable provision that prohibits foreclosure or acceptance of a deed in lieu of foreclosure in the event of default (monetary or non-monetary) on the Community Seconds loan without prior written notification to the beneficiary/mortgagee. There must be no requirement that the beneficiary/mortgagee give notice of the borrowers' default or a pending foreclosure under the mortgage to the Community Seconds lender or any other party, except pursuant to any applicable statutory procedure for the giving of notice of foreclosure to junior lien holders.

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Rights of Community Seconds Lenders The right of the Community Seconds lender to collect and apply hazard insurance proceeds or a condemnation award must be subject and subordinate to the rights of the first lien holder to collect and apply such proceeds in accordance with the terms of the first loan. Resale The Community Seconds loan may contain restrictions on the borrower's ability to resell the property as well as other land-use restrictions. All such restrictions, however, must forever terminate upon the acquisition of the property upon foreclosure of the mortgage. Subordination The deed of trust or mortgage evidencing the Community Seconds loan, and any other covenants and restrictions recorded against the property by the Community Seconds lender, must be subordinated to the first lien. Such subordination must allow the beneficiary/mortgagee to acquire title to the property through foreclosure, free and clear of all such subordinated interest. Further, no such covenants or restrictions may reattach to the property upon resale of the property by the beneficiary/mortgagee. In confirmation of subordination, the title policy must show the second lien as subordinate to the first lien. Assignment of Loan The Community Seconds loan may not be assigned without Countrywide's prior written consent until the mortgage has been satisfied. Employer's Assistance Assistance may be through a grant; a direct fully repayable second mortgage or unsecured loan; a forgivable second mortgage or unsecured loan; or a deferred payment second mortgage or unsecured loan from the employer. If the loan is unsecured, the borrower must retain the right to continue making payments on the loan in the event the borrower no longer works for the employer (including situations involving voluntary termination for reasons other than those related to disability). When the employer's assistance takes the form of a grant, there is no specific requirement for the terms of any expected repayment. When the employer's assistance takes the form of a secured second mortgage, it must be structured as described above. Refer to Repayment Requirements.

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