CONVENTIONAL UNDERWRITING GUIDELINES

[Pages:60]CONVENTIONAL UNDERWRITING GUIDELINES

Conforming Loan Amounts FNMA DU ONLY FIXED RATE

PRIMARY RESIDENCE

Purchase & Rate/Term Refinance

PROPERTY TYPE

LTV

CLTV/HCLTV

FICO

UNDW OPTIONS

1 unit (SFR,Condos,PUDs)

95

95

640

DU

2 unit

80

80

640

DU

3-4 unit

75

75

640

DU

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

85

85

640

DU

2-4 unit

75

75

640

DU

SECOND HOME

Purchase & Rate/Term Refinance

PROPERTY TYPE

LTV

1 unit (SFR,Condos,PUDs)

90

Cash Out Refinance

CLTV/HCLTV 90

FICO 640

UNDW OPTIONS DU

1 unit (SFR,Condos,PUDs)

75

75

640

DU

INVESTMENT PROPERTY

Purchase

PROPERTY TYPE

LTV

CLTV/HCLTV

FICO

UNDW OPTIONS

1 unit (SFR,Condos,PUDs)

80

85

640

DU

2-4 unit

75

75

640

DU

Rate/Term Refinance

1 unit (SFR,Condos,PUDs)

75

75

640

DU

2-4 unit

75

75

640

DU

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

75

75

640

DU

2-4 unit

70

70

640

DU

NOTE: LTV's greater than 80% are subject to MI approval and guidelines with regard to maximum LTV for property types, FICO score and

minimum trade line requirements.

CONVENTIONAL UNDERWRITING GUIDELINES

Conforming Loan Amounts FNMA DU ONLY LIBOR ARM (3/1, 51, 7/1, 10/1 )

PRIMARY RESIDENCE

Purchase & Rate/Term Refinance

PROPERTY TYPE

LTV

1 unit (SFR,Condos,PUDs)

95

2 unit

80

3-4 unit

75

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

85

1 unit (SFR,Condos,PUDs)

80

2-4 unit

75

SECOND HOME

Purchase & Rate/Term Refinance

PROPERTY TYPE

LTV

1 unit (SFR,Condos,PUDs)

90

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

75

INVESTMENT PROPERTY

Purchase

PROPERTY TYPE

LTV

1 unit (SFR,Condos,PUDs)

80

2-4 unit

75

Rate/Term Refinance

1-4 unit (SFR,Condos,PUDs)

75

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

75

2-4 unit

70

CLTV/HCLTV 95 80 75

85 80 75

CLTV/HCLTV 90

75

CLTV/HCLTV 85 75

75

75 70

FICO

640 640 640

640 640 640

FICO

640

640

FICO

640 640

640

640 640

UNDW OPTIONS DU DU DU

DU DU DU

UNDW OPTIONS DU

DU

UNDW OPTIONS DU DU

DU

DU DU

3/1 5/1, 7/1, 10/1

CAPS 2/2/6 5/2/5

MARGIN 2.25 2.25

INDEX 1 YR LIBOR 1 YR LIBOR

FLOOR margin margin

NOTE: LTV's greater than 80% are subject to MI approval and guidelines with regard to maximum LTV for property types, FICO score and minimum trade line requirements.

3/1 and 5/1 LIBOR ARM and will qualify at 2% above Note Rate 7/1 and 10/1 ARMS and will qualify at Note Rate.

CONVENTIONAL UNDERWRITING GUIDELINES

Conforming Loan Amounts FHLMC LP ONLY

FIXED RATE and LIBOR ARM

(3/1, 51, 7/1, 10/1 )

PRIMARY RESIDENCE

Purchase & Rate/Term Refinance

PROPERTY TYPE

LTV

1 unit (SFR,Condos,PUDs)

95

2-4 unit

80

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

80

2-4 unit

75

CLTV/HCLTV 95 80

80 75

FICO 640 640

640 640

UNDW OPTIONS LP LP

LP LP

SECOND HOME

Purchase & Rate/Term Refinance

PROPERTY TYPE

LTV

1 unit (SFR,Condos,PUDs)

85

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

75

CLTV/HCLTV 85

75

FICO 640

640

UNDW OPTIONS LP

LP

INVESTMENT PROPERTY

Purchase

PROPERTY TYPE

LTV

1 unit (SFR,Condos,PUDs)

80

2-4 unit

75

CLTV/HCLTV 85 75

FICO 640 640

UNDW OPTIONS LP LP

Rate/Term Refinance

1 unit (SFR,Condos,PUDs)

75

75

640

LP

2-4 unit

75

75

640

LP

Cash Out Refinance

1 unit (SFR,Condos,PUDs)

75

75

640

LP

2-4 unit

70

70

640

LP

LP Overlays Primary Residence Purchase & Rate/Term Refinance:

LTV is limited to 95% without secondary financing & 90% with secondary financing with a max CLTV of 95% with or without secondary financing. Max LTV is 80% without secondary financing, max LTV with secondary is 75% financing. Max CLTV is 80% with or without secondary financing.

LP Overlays Owner Occupied Cash Out Refinances:

LP Overlay: Max LTV without secondary financing is 80%, max LTV with secondary financing is 75%. Max CLTV with or without secondary financing is 80%. LP Overlay: Max LTV without secondary financing is 75%, max LTV with secondary Financing is 70%, Max CLTV with our without secondary financing is 75%.

3/1 5/1, 7/1, 10/1

CAPS 2/2/6 5/2/5

MARGIN 2.25 2.25

INDEX 1 YR LIBOR 1 YR LIBOR

FLOOR margin margin

NOTE: LTV's greater than 80% are subject to MI approval and guidelines with regard to maximum LTV for property types, FICO score and minimum trade line requirements.

3/1 and 5/1 LIBOR ARM and will qualify at 2% above Note Rate

7/1 and 10/1 ARMS and will qualify at Note Rate

Table of Contents

APPRAISAL REQUIREMENTS ..................................................................................................................................... 10 1007/216 Requirements ...........................................................................................................................................................10 Age of Appraisal ......................................................................................................................................................................... 10 Appraisal Form ........................................................................................................................................................................... 10 Appraisal Review Policy ...........................................................................................................................................................12 Certification by Substitute Appraiser .......................................................................................................................................12 Health and Safety Issues ..........................................................................................................................................................12 Net and Gross Adjustments .....................................................................................................................................................12 Photograph Requirements .......................................................................................................................................................12 Re-Inspection and Review Requirements for DISASTER AREAS ..................................................................................... 13 Swimming Pool Requirements .................................................................................................................................................13 Unacceptable Appraisal Practices ...........................................................................................................................................14 AGE OF CREDIT DOCUMENTS ................................................................................................................................... 14 Documentation Expiration Dates .............................................................................................................................................14 Age of Documentation at Time of Application ....................................................................................................................... 14 ASSETS .......................................................................................................................................................................... 14 Business Funds ..........................................................................................................................................................................15 Checking and Savings Accounts .............................................................................................................................................15 Sourcing Deposits ......................................................................................................................................................................15 Foreign Accounts /Currency Conversion ................................................................................................................................16 Earnest Money Deposit .............................................................................................................................................................16 Gift Funds ...................................................................................................................................................................................16 Gift of Equity ...............................................................................................................................................................................18 Home Equity Line of Credit ......................................................................................................................................................18 Inherited Funds ..........................................................................................................................................................................18 Realtor Credits ...........................................................................................................................................................................18 Retirement Accounts .................................................................................................................................................................18 Sale of an Asset .........................................................................................................................................................................18 Sale of Home ..............................................................................................................................................................................19 Stocks, Bonds, Mutual Funds, or US Government Securities ............................................................................................. 19 Trust Account .............................................................................................................................................................................19 Rent Credit for Options to Purchase .......................................................................................................................................19 1031 Exchange Documentation ..............................................................................................................................................19 Ineligible / Unacceptable Sources of Funds ........................................................................................................................... 19 BORROWERS ................................................................................................................................................................ 20

Borrower's Age .......................................................................................................................................................................20 First-time Homebuyer ............................................................................................................................................................20 Ineligible Borrowers ...............................................................................................................................................................20 Living Trust .............................................................................................................................................................................20 Maximum Number of Borrowers ..........................................................................................................................................20 Military Personnel ..................................................................................................................................................................20 Non-Occupying Co-Borrowers .............................................................................................................................................20 Non-Permanent Residents ...................................................................................................................................................20 Non-Purchasing Spouse .......................................................................................................................................................20 Social Security Number ........................................................................................................................................................21 Residency and Immigration Status ......................................................................................................................................21

United States Citizen .........................................................................................................................................................21

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Permanent Resident Aliens / Green Cards .................................................................................................................... 21

Non-U.S. Citizen Borrowers / Non-Permanent Resident Aliens ......................................................................................... 21 Acceptable Visas .......................................................................................................................................................................21 Foreign Nationals (Non-Resident Aliens) ............................................................................................................................... 22 North American Free Trade Agreement (NAFTA) Workers ................................................................................................. 22 CLOSING REQUIREMENTS ......................................................................................................................................... 22 Allowable Fees . ........................................................................................................................................................................22 Chain of Title ...............................................................................................................................................................................22 Escrows /Impound Accounts ....................................................................................................................................................22 Interested Party contributions ..................................................................................................................................................22 Short Sale Negotiation Fees ....................................................................................................................................................23 Giveaways ..................................................................................................................................................................................23 Homeowners' Association Dues ..............................................................................................................................................23 Power of Attorney ......................................................................................................................................................................23 Seller Credits ..............................................................................................................................................................................24 Real Estate Commission Limitation ........................................................................................................................................24 CONDO WARRANTY REQUIREMENTS ...................................................................................................................... 24 2-4 Unit Projects ........................................................................................................................................................................24 Conversions 2-4 Unit Projects ..................................................................................................................................................25 Conversions 5+ Unit Projects ...................................................................................................................................................25 Detached Project .......................................................................................................................................................................25 Full Review .................................................................................................................................................................................25 Limited Review ...........................................................................................................................................................................26 COMMUNITY PROPERTY STATES ............................................................................................................................. 27 CONVERSION OF PRIMARY RESIDENCE ................................................................................................................. 27

Equity Requirements .........................................................................................................................................................27

Reserve Requirements .....................................................................................................................................................27

Departing Residences with Negative Equity Position ................................................................................................... 28

CREDIT ............................................................................................................................................................................ 28 Adverse Credit and Past Due Accounts ............................................................................................................................. 28 Authorized User Accounts ....................................................................................................................................................28 Bankruptcies ...........................................................................................................................................................................28 Borrower Representative Score ...........................................................................................................................................28 Credit Inquiries .......................................................................................................................................................................28 Credit Report Security Freeze ..............................................................................................................................................28 Collections and Charge-Offs ................................................................................................................................................29 Consumer Credit Counseling ...............................................................................................................................................29 Derogatory Credit ...................................................................................................................................................................29 Disputed Account Information ..............................................................................................................................................29 Derogatory Events .................................................................................................................................................................29 Extenuating Circumstances .............................................................................................................................................29

Fraud Alert Messages ...........................................................................................................................................................29 Foreclosures ...........................................................................................................................................................................30 Housing Payment History .....................................................................................................................................................30 Minimum Tradelines ..............................................................................................................................................................30 Red Flag Alerts .......................................................................................................................................................................30

Lawsuits ..................................................................................................................................................................................30 DOCUMENTATION & FORMS ...................................................................................................................................... 30 Initial 1003 ...................................................................................................................................................................................30 Short Sales .................................................................................................................................................................................30 Purchase Agreements ...............................................................................................................................................................30 Payoff Demand Statements .....................................................................................................................................................31 DU REFI PLUS ................................................................................................................................................................ 32 ELECTRONIC SIGNATURES ........................................................................................................................................ 32 ESCROW/ IMPOUND ACCOUNTS ............................................................................................................................... 32 ESCROW HOLDBACKS ................................................................................................................................................ 32 FLIPS(PROPERTY FLIPPING) ...................................................................................................................................... 32

Property Flips (Flipping) ........................................................................................................................................................32 INELIGIBLE TRANSACTIONS ...................................................................................................................................... 33 INCOME & EMPLOYMENT ............................................................................................................................................ 34

34 Amended Tax Return Requirements .............................................................................................................................. 34

Alimony, Spousal or Child Support ......................................................................................................................................34 Asset Depletion ......................................................................................................................................................................35 Automobile Allowance ...........................................................................................................................................................36 Base Earnings ........................................................................................................................................................................36 Boarder Income/Room Rents Income .................................................................................................................................36 Capital Gains Income ............................................................................................................................................................36 Changes in Employment .......................................................................................................................................................36 Clergy Income ........................................................................................................................................................................36 Commission Income ..............................................................................................................................................................37 Declining Income ...................................................................................................................................................................37 Disability Income ....................................................................................................................................................................37 Employed by Relatives ..........................................................................................................................................................37 Foreign Income ......................................................................................................................................................................37 Foster Care/IHSS ...................................................................................................................................................................37 Future Employment ...............................................................................................................................................................38 Gap(s) in Employment ..........................................................................................................................................................38 Handwritten Paystubs ...........................................................................................................................................................38 Interest and Dividend Income ..............................................................................................................................................38 IRA Distributions ....................................................................................................................................................................38 Leave of Absence/Maternity Leave .....................................................................................................................................39 Mortgage Differential Payments ..........................................................................................................................................39 Notes Receivable ...................................................................................................................................................................39 Overtime & Bonus Income ....................................................................................................................................................39 Pensions / Retirement Income / Social Security Income/ Annuities ............................................................................... 39

Grossing Up SSI Income ..................................................................................................................................................40

Relocation / New Job ............................................................................................................................................................40 W2 to 1099 ..............................................................................................................................................................................40 1099 to W2 .............................................................................................................................................................................40 Rental income from subject property ..................................................................................................................................41 Rental income from property other than the Security Property ....................................................................................... 41

Refinance ............................................................................................................................................................................42

Rental income from other properties ............................................................................................................................... 42

Calculating Rental Income: Cash Flow Method ................................................................................................................ 42 Seasonal Employment ..........................................................................................................................................................42 Second Job Or Part-Time .....................................................................................................................................................43 Self Employed Income ..........................................................................................................................................................43 Tax Exempt Income ...............................................................................................................................................................43 Teachers' Income ..................................................................................................................................................................43 Tip Income ..............................................................................................................................................................................43 Trailing Income .......................................................................................................................................................................43 Trust or Estate Income ..........................................................................................................................................................44 Unemployment and Welfare .................................................................................................................................................44 Union Workers ........................................................................................................................................................................44 VA Benefits .............................................................................................................................................................................44 Unacceptable Income ............................................................................................................................................................44 Contingent Liabilities .............................................................................................................................................................45 Excluding Debt Obligations Paid by Others ....................................................................................................................... 45 Monthly Debt Payments ........................................................................................................................................................45 Deferred Student Loans ........................................................................................................................................................46 Lease Payments ....................................................................................................................................................................46 Payoff of Debt to Qualify .......................................................................................................................................................46 Property Tax Calculation ......................................................................................................................................................46 Qualifying Payment ................................................................................................................................................................47

Conforming ARMS .............................................................................................................................................................47

LOAN AMOUNTS ........................................................................................................................................................... 47 Maximum Loan Limits ...............................................................................................................................................................47 Minimum Loan Amount .............................................................................................................................................................47 LOAN TERMS ................................................................................................................................................................. 47 ARM Loans .................................................................................................................................................................................47 Fixed Rate ...................................................................................................................................................................................47 LTVs/High LTV's ............................................................................................................................................................ 47 95.01% - 97% . . ........................................................................................................................................................................ 47 LTV Ratios ..................................................................................................................................................................................48 MAX # OF FINANCED PROPERTIES .......................................................................................................................... 48 Number of Properties per Borrower ........................................................................................................................................48 Multiple Mortgages to Same Borrower ...................................................................................................................................48 DETERMINING "Number of FINANCED" PROPERTIES ........................................................................................... 49 MORTGAGE INSURANCE ............................................................................................................................................ 50

Links to MI Companies .....................................................................................................................................................50

NON-ARMS LENGTH TRANSACTIONS ...................................................................................................................... 50 For Sale by Owner (FSBO) ......................................................................................................................................................50 Non-Arm's Length Transactions ..............................................................................................................................................50 Ineligible Relationships ................................................................................................................................................ 51 Borrower is an Interested Party .................................................................................................................................. 51

Required Documentation for Non-Arms Length Transaction ...................................................................................... 51

OCCUPANCY ................................................................................................................................................................. 52 Owner Occupied ............................................................................................................................................................ 52

Second Homes .............................................................................................................................................................. 52 Investment Properties .................................................................................................................................................. 52 PROPERTY REQUIREMENTS ...................................................................................................................................... 52

General Requirements ..........................................................................................................................................................52 Building Permits .....................................................................................................................................................................52 Certificates of Occupancy .....................................................................................................................................................53 Condo Warranty Requirements ...........................................................................................................................................53 Legal Non-Conforming Use Properties ............................................................................................................................... 53 Log Homes ..............................................................................................................................................................................53 Mixed Use ...............................................................................................................................................................................53 Multiple Lots/Parcels .............................................................................................................................................................53 Private Well or Septic Facilities ............................................................................................................................................53 When private community facilities are used, the client should verify that the subject property has the right to access the system and that the facilities will be viable on an ongoing basis ................................................................ 53 Properties Listed for Sale (within the past 6 months) ....................................................................................................... 54 Rapid Appreciation Policy .....................................................................................................................................................54 Rural Properties with Excess Land Acreage ..................................................................................................................... 54 Unpermitted Additions ...........................................................................................................................................................54 Unacceptable Properties ......................................................................................................................................................55 PROPERTY INSPECTIONS ........................................................................................................................................... 55 QUALIFYING RATE ....................................................................................................................................................... 56 QUALIFYING RATIOS ................................................................................................................................................... 56 REFINANCE .................................................................................................................................................................... 56 Rate and Term Refinance ....................................................................................................................................................56 Cash Out .................................................................................................................................................................................57 Cash Out /Delayed Financing EXCEPTION ..................................................................................................................... 57 Cash Out From Concurrent Secondary Financing ............................................................................................................ 58

Max Amount of Cash Out .................................................................................................................................................58

Net Tangible Benefit (NTB) ......................................................................................................................................................58 Seasoning ...................................................................................................................................................................................58 Continuity of Obligation .............................................................................................................................................................58 RESERVES ..................................................................................................................................................................... 59

Cash-Reserves Requirements .............................................................................................................................................59 Definition of PITIA for Reserves Calculations ................................................................................................................ 59

Reserves Requirements ...................................................................................................................................................59

Reserve Requirements for Borrower with Multiple Financed Properties ................................................................... 59

Reserve Requirements for Borrower Converting a Primary Residence .................................................................... 59

SUBORDINATE FINANCING ........................................................................................................................................ 60 Subordinate Financing Documentation Requirements ..................................................................................................... 60 Modification HELOC Requirements ....................................................................................................................................60 Seller-carry back /Private 2nds ............................................................................................................................................60 Ineligible Subordinate / 2nd Mortgages .............................................................................................................................. 60 Housing Expense Ratio ....................................................................................................................................................61

TITLE REQUIREMENTS ................................................................................................................................................ 61 UNDERWRITING ............................................................................................................................................................ 61

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