Traditional Super Jumbo

Transcription

1 Traditional Super Jumbo This guide provides parameters for standard fixed rate and 5/1, 7/1, and 10/1 adjustable rate, fully amortizing, non-conforming products for primary residence up to 2 units and 2nd Home properties; both eligible for purchase, R/T refinance, and cash out transactions. LTV Matrix below applies to all products. Product: TSJ30 Jumbo 30-YR Fixed Product: TSJ15 Jumbo 15-YR Fixed Product: TSJ10/1 Jumbo 10/1 ARM Product: TSJ7/1 Jumbo 7/1 ARM Product: TSJ5/1 Jumbo 5/1 ARM 1 Minimum Loan Amount: $417,001 or $1 above the conforming limits for # units; loan amounts between Base Conforming Loan Limits and Agency Super Conforming loan limits are eligible. 2 Max LTV/CLTV/HCLTV reduced by 5% when property values are declining as indicated in the Neighborhood Section Housing Trends or 1004 Median Comparable Sales Price 3 Cash-Out limited to $300,000 Page

2 Product Series Guidance Underwriting Method LOS Program Codes Anything not specifically addressed within should be directed to underwriting. Guidelines can change without notice. Manually underwritten Second Signature by the investor, Corporate Management If topics are not specifically addressed in this product matrix or the seller s guide, Fannie Mae Selling Guide polices will apply. All loans must satisfy stable monthly income, ratios, assets, reserves, and acceptable credit reputation guidelines. TSJ (See above matrix for specifics) Eligible States *Soft Market Restriction Geographic restrictions are listed under property types *Properties located in Soft Market areas, where the appraiser notes the property is in a declining market, are subject to 5% LTV/CLTV reduction Borrower Eligibility U.S. citizens Permanent resident aliens if the following requirements are met: o Documented proof of lawful permanent residence in the U.S. o 24 months employment history in the United States Inter-Vivos Revocable Trusts (revocable at any time by the trustor) and if closed in accordance with applicable Fannie Mae requirements First time homebuyers defined as anyone who has not owned a home for three (3) years. For loans with more than one borrower where at least one borrower has owned a home in the past three (3) years, first-time homebuyer requirements do not apply. All borrowers must have a valid social security number. Ineligible Borrowers Credit Score Requirements Qualifying Ratios Non-occupant co-borrowers Irrevocable trusts Land trusts Limited partnerships, general partners or corporations Mortgagors party to any transaction where there is a relationship or business affiliation between the buyer, seller, loan agent, or originator that the lender determines to result in a non-arm s length transaction. Such transactions include, but are not limited to: o Applicants related by blood or marriage to the seller of the property; o Owners, employees or family members of originating broker; o Builder/developers of the property; o Renters buying from landlord o Persons trading properties with the prior owner of the property Credit Report Requirements A full residential mortgage credit report (RMCR) or Tri-Merged in-file conforming to FNMA/FHLMC requirements should be used Credit Score Requirements The RMCR or tri-merged in-file should reflect credit scores from all 3 repositories and meet the minimum program standards as listed above Maximums vary based on transaction details listed above Note: DTI(1) calculation on ARMs purposes qualify at: ARM 5/1 = initial start rate + 5% Life Cap ARM 7+10 = initial start rate (1) Maximum back-end Debt-to-income (DTI) ratio limit is 43% Page

3 (2) Based on the current Qualified Mortgage (QM) Rule issued by the CFPB Refinance-Listed Property Refinance Rate and Term Properties currently listed for sale: If the sale contract/listing has been cancelled and the property has been taken off the market; the loan is eligible for a rate/term refinance Cash-out properties listed for sale within the previous 12 months are ineligible Pay off of 1st lien Pay off in whole, the outstanding principal balance of the existing subordinate mortgage that was used to acquire the subject property (purchase money 2nd lien only) OR Pay off in whole the outstanding principal balance of a 12 month seasoned closed- end mortgage as of the Note Date OR Pay off of any subordinate HELOC with cumulative draws <$2000 in the past 12 months as of the Note Date OR If HELOC draws total more than $2000 in past 12 months, then the borrower must confirm and provide documentation on property improvements. Pay related closing costs and prepaid items The inclusion of any delinquent property taxes, HOA dues, tax liens, garnishments, or judgments is not eligible and should not be included in the new loan amount. Disbursed cash-out to borrower not to exceed 2% or $2,000, whichever is less If a prior Cash-Out transaction (as determined by the HUD-1) is now being refinanced as a Limited Cash-Out refinance within 6 months of the prior transaction (as determined by the Note date), it will be considered a Cash-Out Refinance. Primary and Second Home have a 12 month seasoning requirement Borrower must have 12 months minimum ownership to base LTV on appraised value, otherwise the lesser of purchase price or current appraised value will be used. The ownership date is measured from date of acquisition (HUD-1 closing date) to date of application. Texas R/T originated to pay off an existing home equity/cash-out mortgage is ineligible Delayed Purchase Refinance Defined as the refinance of a property purchased by the borrower for cash within 6 months of loan application. Underwritten as a rate & term refinance. Primary residence only. Seller has obtained HUD-1 from original purchase. Seller has obtained evidence that the purchase funds were from the Mortgagor s own funds and that there was not any borrowing, gifts or shared funds. Refinance-Cash Out Maximum Cash Out amount not to exceed $300,000 Pay off of liens secured by the subject property only, to include unseasoned (i.e. open less than 12 months) junior liens exceeding the 2% or $2,000 draw limit. Proceeds may be disbursed directly to the borrower(s) or any other payee. Pay related closing costs, financing costs, and prepaid items Seasoning: Primary and Second Home have a 12 month seasoning requirement Borrower must have 12-month minimum ownership to base LTV on appraised value; otherwise the lesser of purchase price or current appraised value will be used. The ownership date is measured from the date of acquisition (HUD-1 closing date) to date of application Eligible Property Types Attached and Detached SFR, PUDs and Warrantable Condos must meet Fannie Mae Limited Project Review criteria, 2 unit properties must be owner occupied. Page

4 Ineligible Property Types 3-4 units, Mixed-Use, Leaseholds, Manufactured Homes, Mobile Homes, Unwarrantable Condos, Coops, Condotels, Unimproved Land, Properties in Litigation, Dome, Straw/Bale, Log, Earth, Working Farms, Timeshares, Working Ranches, Properties < 750 sq. ft. of living area, Properties > 10 acres, Properties held in a business name, Commercial Enterprise properties, Properties with Encroachments, Zoning violations including residential properties zoned for commercial and Construction properties. Non Arm s Length transactions defined as a pre-existing relationship between the buyer and seller. Texas 50 (a)(6 See Refinance Section Cash Out Not Permitted Properties located on the Island of Hawaii that are in Lava Zones 1 or 2, as determined by the U.S. Geological Survey Hawaiian Volcano Observatory, are not eligible Properties located in AR, MS, NY, SD Appraisal Unpaid Principal Balance $417,001 to $1,500,000 2 Unit $533,851 to $1,500,000: One Full URAR for loan amounts up to and including $1.5 mil (1004 or 1073) Appraisal subject to investor review Unpaid Principal Balance $1,500,001 +: Two Full URARs form loan amount $1,500,001 LTV will be based on the lower of the Two Full URARs and for purchase money loans, the purchase price, subject to investor s appraisal review process Appraisal Standards: All appraisers must hold at least the minimum required state license and a copy of the license must be submitted with the appraisal Appraiser must have E&O with $1 million minimum Appraisals must be completed in compliance with FIRREA/USPAP and all applicable regulatory requirements Minimum of three comparable sales (actual closed sales) and inclusion of current MLS listing price and history Include sale history for last 36 months and 12 months for any comparables used in the appraisal Condo or PUD property must include at least one comparable outside of the development Appraisals must be dated within 120 days of the Note. After this time a new appraisal will be required Each appraisal must be accompanied by a third party verification, whether an in-house appraisal review or an AVM, or a field review 1004MC required On Purchase transactions, the appraiser must review the sales contract Appraisal 1 st generation PDF required Unpermitted structural additions are allowable under the following circumstances: o The subject additions complies with all guidelines and investor s review o The quality of the work is described in the appraisal and deemed acceptable by the appraiser o The addition does not result in a change in the number of units comprising the subject property o If the appraiser gives the unpermitted addition value, the appraiser must be able to demonstrate market acceptance by the use of comparable sales with similar addition and state the following in the appraisal: Non permitted additions are typical for the market area and a typical buyer would consider the unpermitted addition square footage to be part of the overall square footage of the property The appraiser has no reason to believe the addition would not pass inspection for a permit Index One year LIBOR Page

5 Margin 2.50% (2.25% available with applicable price adjustment) Interest Rate Caps 5/1 ARM caps: 2/2/5 (initial/subsequent/lifetime) 7/1/ & 10/1 ARM caps: 5/2/5 Recast Option Prepayment Penalty Option Conversion option Interest Only Terms Amortization Buy down, Temporary Special Features and Specifications Assumability Notes & Riders Income N/A N/A N/A N/A Fixed :360 months and 180 months ARM: 360 months Fully Self Amortizing Not Permitted Revocable Inter-Vivos trust: Permitted on Underwriting Management approval A living trust or inter-vivos revocable trust borrower must continue to be a living trust that meets agency revocability and other eligibility requirements Power of Attorney: Eligible with Underwriting Management approval Life Estates: Not Permitted HPML/HCML: Not Permitted MCCs: Not eligible for use Construction To Perm: Post Construction financing allowed All transactions will be treated as a R/T Refinance. Borrower must have legal title to land prior to application and must be named as borrower on construction financing. LTV/CLTV ratios are based on the as-completed appraised value regardless of the length of time the borrower has owned the lot. MegaCapital Funding reserves the right to ask for additional documentation for cost, etc. when warranted. Identify this transaction as Const/Perm Not allowed, except as specified in Fannie Mae Adjustable Rate Note Form 3528 and Adjustable Rate Rider Form 3187 and utilized for Hybrid ARM products. All products are fully amortizing Fixed Rate: Multistate Fixed Rate Note #3200 (or state specific as required) Hybrid ARM (5/1, 7/1 & 10/1 ARM): Note 3528 & Rider 3187 Salaried Income: The following documentation must be provided for each borrower whose income is used to qualify: W-2 forms or personal tax returns, including all schedules, for prior two years; Most recent year-to-date computer generated paystub up through and including the most recent pay period (at the time of application). Paystub must cover at least 30 days. If borrower has less than a two year history of receiving income, Seller must provide a written analysis to justify the determination of any income used to qualify the borrower as stable. Sources of income may vary; however, income stability takes precedence over job stability. Fluctuations in income over the previous two years must be explained and documented. Borrowers with a 25% or more ownership interest in a business must provide personal tax returns for the most recent two tax years. If income from ownership interest constitutes Page

6 more than 25% of income used for qualifying purposes, the borrower is considered selfemployed and must provide income documentation per self-employed income requirements. The following should be considered in determining acceptable income for qualification purposes: A minimum of 30 days current employment is required. Any gaps in employment spanning one or more months must be explained and documented by the Borrower in writing. If Borrower was in school or the military for the most recent two full years, documents in support must be provided. Allowances can be made for seasonal employment, provided they are documented. Income may be considered effective and stable when a borrower has recently returned to work after an Extended Absence (defined as six (6) months in the CFPB s ATR/QM Final Rule) if borrower: (a) is employed in the current job for six months or longer; and (b) can document a two year work history prior to an absence from employment using: (i) Traditional employment verifications; and/or (ii) copies of IRS Form W-2s and pay stubs. An acceptable employment situation includes individuals who took several years off from employment to raise children, then returned to the workforce for a minimum of six (6) months. Situations not meeting these criteria may not be used in qualifying. If Mortgagor has provided notice of intent to retire during the first three (3) year period, effective income must include the amount of: (a) documented retirement benefits, (b) Social Security payments; or (c) other payments expected to be received in retirement. Part-Time Income: Part-time income refers to employment taken to supplement the borrower s income from regular employment; part-time employment is not a primary job and it is worked less than 40 hours. Part-time and seasonal income can be used to qualify if Seller documents that the borrower has worked the parttime job uninterrupted for the past two years, and plans to continue. Part-time income not meeting these requirements may not be used in qualifying. Seasonal employment includes, but is not limited to: (i) umpiring baseball games in the summer; or (ii) working at a department store during the holiday shopping season. The following documentation must be provided for each borrower whose income is used to qualify: W-2 forms for prior two years; Most recent year-to-date computer generated paystub up through and including the most recent pay period (at the time of application). Bonus, Overtime, or Commission Income: If more than 25 percent of income used to qualify is from bonus, overtime or commission income, the following requirements apply: In addition to items required for salaried borrowers, the two most recent years of personal income tax returns are required. An average of bonus, commission or overtime income for the past two years must be developed. A longer period may be required if income varies significantly from year to year. Borrowers whose commission income was received for more than one year, but less than two years may be considered favorably if the underwriter can: o Document the likelihood that the income will continue, and o Soundly rationalize accepting the income Unreimbursed business expenses must be subtracted from gross income An earnings trend for overtime and bonus income must be established and documented. If Page

7 either type of income shows a continual decline, written sound rationalization for including the income to qualify the Mortgagor must be provided, or the income should not be used. Commission income earned for less than one year is not considered effective income. Exceptions may be made for situations in which the borrower s compensation was changed from salary to commission within a similar position with the same employer. A borrower s income may also qualify when the portion of earnings not attributed to commissions would be sufficient to qualify the borrower for the mortgage. Self-Employment Income: Self-employed borrowers are defined as individuals who have 25% or greater ownership interest or receive a 1099 statement to document income. The following documentation must be provided for each borrower whose income is used to qualify: Sole Proprietorship o Personal tax returns, including all schedules for the most recent two tax years; o IRS Tax Transcripts for the corresponding returns provided; o Year-to-date P&L statement signed and dated by the borrower. Corporations, S Corporations, Partnerships (General, Limited), Limited Liability Companies o o o o o Personal tax returns, including all schedules, for the most recent two tax years; K-1s from most recent two tax years, showing ownership percentage. K-1s are not required if the source is reporting positive income and the income is not used for qualification. If K-1s show a loss, they are required, regardless if they are used for qualifying purposes. Business tax returns, including all schedules, for the most recent two tax years are required if the borrower has an ownership percentage 25%; they are not required if reporting positive income via a K-1, and the income is not used for qualification purposes. Year-to-date P&L statement; IRS Tax Transcripts for the corresponding returns provided. Income from self-employment is considered stable, and effective, if the Borrower has been selfemployed for two or more years. Under very limited circumstances, Borrowers who have been selfemployed between one and two years may be considered if previous successful employment is documented in the same line of work and the business shows financial success. If the borrower is selfemployed for less than one year, the income from the borrower may not be considered qualifying income. When qualifying income, the Seller must establish a Borrower's earnings trend from the previous two years using the Borrower's most recent two years tax returns. If a Borrower provides quarterly tax returns, the income analysis may include income through the period covered by the tax filings, or if a Borrower is not subject to quarterly tax returns, or does not file them, then the income shown on the P&L statement may be included in the analysis, provided the income stream based on the P&L is consistent with the previous years' earnings. If the P&L statements submitted for the current year show an income stream considerably greater than what is supported by the previous year's tax returns, the Seller must base the income analysis solely on the income verified through the tax returns. If the Borrower's earnings trend for the previous two years is downward and the most recent tax return or P&L is less than the prior year's tax return, the Borrower's most recent year's tax return or P&L must be used to calculate his/her income. Additional analysis must be conducted to determine if this income should be used, but in no instance may it be averaged over the period when the declination occurred. The Seller must consider the business s financial strength by examining annual earnings. Annual Page

8 earnings that are stable or increasing are acceptable, while businesses that show a significant decline in income over the analysis period may not acceptable. A borrower employed by a family owned business is required to provide evidence that borrower is not an owner of the business, which may include: o Copies of signed personal tax returns, or o A signed copy of the corporate tax return showing ownership percentage. Passive Income: The determination as to whether income constitutes passive income must be in accordance with Fannie Mae Requirements. The following documentation must be provided for each borrower whose income is used to qualify: a) A minimum two year history of receiving passive income from the same source. b) Verification of existence of current portfolio generating passive income to support continuance for three or more years. c) Personal tax returns, including all schedules for the prior two years d) IRS Tax Transcripts for the prior two years Other Real Estate Owned-Rental Income: Rental income may be used to qualify, provided the Seller can determine the stability of the rental income through a current lease, an agreement to lease, or rental history over the previous 24 months that is free of unexplained gaps greater than three months. Analysis of the following required documentation is necessary to verify all rental income: a) IRS Form 1040 Schedule E: Depreciation shown on Schedule E may be added back to the net income or loss. Positive rental income is considered gross income for qualifying purposes, while negative income must be treated as a recurring liability. b) Current leases/rental agreements. The Borrower can provide a current signed lease or other rental agreement for a property that was acquired since the last income tax filing, and is not shown on Schedule E. Monthly net rental income should be calculated as follows: o Reduce the gross rental amount by 25% for vacancies and maintenance; o Subtract PITI and any homeowners association dues; and o Apply the resulting amount to income, if positive, or to recurring debts, if negative. Verification of all rent in must be accordance with QM/ATR Final Rule, without exception. In addition, the following is required in order to use rental income for qualifying: o The borrower must qualify using the sum of the full PITI on all properties. If rental income is used for qualifying purposes, evidence of positive equity must be provided utilizing Zillow or Trulia web searches or with a FirstKey approved AVM. OR o The borrower must demonstrate a rental history covering the prior two (2) years with IRS Schedule E (Form 1040), and o Property has at least a 10% market equity position on all Other Real Estate Owned (OREO) in order to use rental income for qualifying. Evidence of the equity must be provide utilizing Zillow or Trulia web searches or with a FirstKey approved AVM. If used, the verified equity position on real estate owned should be dated within 60 days of the Note date. Asset Based Income (Asset Amortization): Page

9 Asset amortization is a calculation used to generate a monthly income stream from a borrower s personal assets. It can be combined with other income such as Social Security, pension or other investment income. The following requirements apply for use of this income for qualifying purposes: Max. 70% LTV/CLTV for Primary Residence & Second Homes Only. Must meet 43% DTI standard. Borrower and Co-borrower must be individual or co-owners of all asset accounts with no other account holders listed on the documentation. Income must support projected earnings and must be expected to continue for a minimum of 3 years 100% of eligible assets must be verified following ATR/QM Final Rule and appendix Q standards. All assets must be in a U.S. financial institution; foreign assets are not allowed. Borrower and co-borrower must have full unrestricted access to the funds and joint accounts to be used must have all account holders on the loan. The sum of eligible assets as defined are net of any discounts & minus any funds used for closing and/or minimum reserves required for the program. Other reported earnings from Capital Gains or interest/dividends already considered and averaged as qualifying income cannot be included or double counted. Eligible assets must be comprised of the following readily marketable assets which must be available to the borrower with no penalty and is limited as follows: Bank Deposits Checking, Saving, Money Market accounts 100% Publicly traded stocks & bonds 65% (stock options not allowed) Mutual Funds 65% Retirement Accounts 401(K)plans or IRA, SEP or KEOGH accounts 65% (can only be used if distribution is not already set up) Annunitization (asset depletion) is subject to the following calculation Eligible asset amount to be amortized over the life of the loan (i.e. 360 months for 30 year mortgage) Rate of return is the 1 YR LIBOR index as published within the Wall Street Journal. Social Security and Pension Income: Benefits (for children or surviving spouse) with a defined expiration date must have a remaining term of at least three years. Must be verified by a Social Security Administration award letter, copies of the borrower s previous 12 months bank statements to confirm regular payment deposits, or signed personal tax returns from the prior two years. Pending or current reevaluation of medical eligibility for benefit payments is not considered an indication that the benefit payments are not likely to continue. Non-taxable social security income may be grossed up a maximum of 15%. Other: Alimony, Separate Maintenance and Child Support Income may be considered if: o The following documentation must be provided: a copy of the final divorce decree, legal separation agreement, court order, or voluntary payment agreement providing the payment terms confirming that income will continue for the first three (3) years of the mortgage. Page

10 o Documentation evidencing that the borrower has been receiving full, regular, and timely payments for the past 12 months, such as cancelled checks, deposit slips, tax returns or court records. o Periods less than 12 months may be acceptable, provided the seller can adequately document the payer s ability and willingness to make timely payments. o Child support may be grossed up under the same provisions as non-taxable income sources. IRA, 401K, or Similar Retirement Asset Income o Allowed only for borrowers of retirement age (59½ or older). o Verification of the assets of the plan and verification of at least 6 months of receipt of distributions are required. Retirement income must be verified from the former employer, or from federal tax returns. o Assets must be sufficient to sustain income continuance for a minimum of 3 years. If any retirement income will cease within the first three years of the mortgage loan, such income may not be used in qualifying. o Distributions cannot be set up or changed solely for loan qualification purposes. Investment Income o Interest and dividend income may be used as long as tax returns or account statements support a two-year receipt history. This income must be averaged over the two years. o Any funds that are derived from these sources, and are required for the transaction, must be subtracted from available assets before calculating the projected interest or dividend income. Notes Receivable Income o In order to include notes receivable income to qualify, Borrower must provide: o A copy of the note to establish the amount and length of payment, and evidence that these payments have been consistently received for the last 12 months through deposit slips, deposit receipts, cancelled checks, bank or other account statements, or tax returns. o If the Borrower is not the original payee on the note, the Seller must establish that the Borrower is able to enforce the note. Trust Income o Income from trusts may be used if guaranteed and regular payments will continue for at least 3 years of the mortgage term as evidenced by trust income documentation. o Regular receipt of trust income for the past 12 months must be documented. o A copy of the Trust Agreement or Trustee Statement showing the total amount of borrower-designated trust funds, frequency of distribution and duration of payments. o Non-taxable trust income must include proof of distribution. o Trust account funds may be used for the required cash investment if the Borrower provides adequate documentation that the withdrawal of funds will not negatively affect income. The Borrower may use funds from the trust account for the required cash investment, but the trust income used to determine repayment ability cannot be affected negatively by its use. Foreign income o May be used only if its stability and continuance can be verified. o Must be paid in U.S. dollars, and is supported by U.S. Federal Tax Returns. Automobile Allowance and Expense Account Payments o Only the amount by which the Borrower's automobile allowance or expense account payments o To establish the amount to add to gross income, the borrower must provide (i) IRS Form 2106, Employee Business Expenses, for the previous two years; and (ii) Page

11 Employer verification that the payments will continue. o If the Borrower uses the standard per-mile rate in calculating automobile expenses, as opposed to the actual cost method, the portion that the IRS considers depreciation may be added back to income. o Expenses that must be treated as recurring debt include the Borrower's monthly car payment and any loss resulting from the calculation of the difference between the actual expenditures and the expense account allowance. Employer Differential Payments o If the employer subsidizes a Borrower s mortgage payment through direct payments, the amount of the payments is considered gross income and cannot be used to offset the mortgage payment directly, even if the employer pays the servicing creditor directly. Military, Government Agency and Assistance Program Income o Military personnel not only receive base pay, but often times are entitled to additional forms of pay, such as: Income from variable housing allowances; Clothing allowances; Flight or hazard pay; Rations; and Proficiency pay. o These types of additional pay are acceptable when analyzing a Borrower's income as long as the probability of such pay to continue is verified in writing. Note: The tax-exempt nature of some of the above payments should also be considered. VA Benefits. o Direct compensation for service-related disabilities from the Department of Veterans Affairs (VA) is acceptable, provided the Seller receives documentation from the VA. o Education benefits used to offset education expenses are not acceptable. Non-Taxable and Projected Income o Certain types of regular income may not be subject to Federal tax. Such types of nontaxable income include: Some portion of Social Security, some Federal government employee retirement income, Railroad Retirement Benefits, and some State government retirement income; Certain types of disability and public assistance payments; Child support; Military allowances; and Other income that is documented as being exempt from Federal income taxes. o The amount of continuing tax savings attributed to regular income not subject to Federal taxes may be added to the Borrower s gross income. o The percentage of non-taxable income that may be added cannot exceed the appropriate tax rate for the income amount. Additional allowances for dependents are not acceptable. o Projected or hypothetical income is not acceptable for qualifying purposes. However, exceptions are permitted for income from cost-of-living adjustments, performance raises, and bonuses. o For the above exceptions to apply, the income must be verified in writing by the employer and scheduled to begin within 60 days of loan closing. Projected Income for New Job o Projected income is acceptable for qualifying purposes for a Borrower scheduled to start a new job within 60 days of loan closing if there is a guaranteed, nonrevocable contract for employment o The Seller must verify that the Borrower will have sufficient income or cash Page

12 o reserves to support the mortgage payment and any other obligations between loan closing and the start of employment. Examples of this type of scenario are teachers whose contracts begin with the new school year, or physicians beginning a residency after the loan close. Income cannot be considered if the loan closes more than 60 days before the Borrower starts the new job. Source of Funds / Gifts Unacceptable Income: Income from trailing co-borrowers Stock options and restricted stock grants Any unverified source Income that is temporary or a one-time occurrence Rental income received from the borrower s single family primary residence or second home. Retained earnings Education benefits Business Funds are not eligible for this program All funds for reserves must come from borrowers own demonstrated savings If using gift funds: The borrower is required to meet a 5% minimum down payment from his or her own personal funds for all purchase transactions. All borrower funds must be documented with two most recent months asset statements or VOD covering a minimum of 60 consecutive days. All unusual large deposits must be explained and source must be documented. Verify the borrower s actual receipt of the funds realized from sale or liquidation when non-liquid assets are used for any part of the down-payment or required cash to close Gift funds are permitted subject to the following criteria: Primary residence purchase money transactions only Minimum down payment is 20% (max 80% LTV): First 5% of down payment must come from borrower s own personal funds Once the first 5% of the buyer's own funds are verified, a gift can be used for the remaining down payment and closing costs Notes: Gift funds are not allowed to meet reserve requirements. Gift funds can be applied towards closing costs/pre-paids above minimum required investment. Gift letter, signed by the donor that includes the amount of the gift, date the funds were transferred, a statement that no repayment is expected, the donor s name/address/phone number and relationship to the borrower source of funds. The loan file must verify that sufficient funds to cover the gift were in the donor s account and have been transferred to the borrower s account prior to closing. Gift funds may not be transferred at the settlement table. Reserves Reserves required for the subject property are based on the loan amount as follows: Occupancy & Loan Purpose Loan Amount Reserves (months in PITIA) Primary (1-unit): Purchase / Rate Term $417,001 - $1.0 mm 6 Purchase / Rate Term $1,000,001 - $1.5 mm 12 Page

13 Primary (1-unit): Second Home: Second Home: Purchase / Rate Term $1,500,001 - $2.0 mm 18 Purchase / Rate Term $2,000,001 - $2.5 mm 18 Cash-Out $417,001 - $1.0 mm 9 Cash-Out $1,000,001 - $1.5 mm 12 Cash-Out $1,500,001 - $2.0 mm 18 Purchase / Rate Term $417,001 - $1.0 mm 9 Purchase / Rate Term $1,000,001 - $1.5 mm 12 Purchase / Rate Term $1,500,001 - $2.0 mm 18 Cash-Out $417,001 - $1.0 mm 9 Cash-Out $1,000,001 - $1.5 mm 12 Cash-Out $1,500,001 - $2.0 mm 18 Primary (2 unit): Purchase / Rate Term $533,851 - $1.0 mm 12 Primary (2 unit): Purchase / Rate Term $1,000,001 - $1.5 mm 12 Purchase / Rate Term $1,500,001 - $2.0 mm 18 Cash-Out $533,851 - $1.0 mm 12 Cash-Out $1,000,001 - $1.5 mm 12 Cash-Out $1,500,001 - $2.0 mm 18 See Eligibility Matrix for required reserves Reserve funds must be verified with 2 consecutive months bank statements or VOD All reserves are calculated on the Note Rate for all loan types using the full Principal, Interest, Taxes, Insurance, Assessments ( PITIA ) payment Borrowers must disclose and lenders must verify all assets In addition to the minimum reserves required for the subject property, 6 months PITIA reserves is required for each additional property owned by all borrowers Acceptable PITIA Documentation: The minimum documentation to correctly verify he full PITIA payment should be from one of the following sources: 1) Current monthly mortgage statement; 2) Copy of Homeowners insurance policy; 3) Copy of recent tax bill or web search to taxing authority; 4) copy of mortgage note, etc. Defined Acceptable Reserve Accounts The types of assets that can be used for reserves and the value of those funds are as follows: Checking/Savings/Money Market 100% Publicly traded stocks, bonds and mutual funds 65% IRAs; SEP or Keogh accounts 65% / 100%(1) Annuities 65% / 100%(1) Vested amount of 401(k) Plans 65% (2) Trust Assets Up to 100% (3) (1) 100% of the account value may be used for borrowers of retirement age Page

14 (2) 65% of the vested amount; No more than 50% of the total reserve requirement may come from 401(k). The terms and conditions under which funds may be withdrawn or borrowed must be verified (3) Borrower/Co-Borrower must have full access to consider; Copy of complete trust or trustee letter is required Documentation Requirements Housing Payment History Credit History Full Documentation only Standard Agency documents apply Tax Transcripts are required for the number of years of income documentation required Maximum age of the credit package documentation is 90 days to Note date for purchase or refinance If not contained within the credit report, the following documentation must be provided by a third party: VOM - A 24 month minimum mortgage payment history is required to reflect no late payments in the last 24-months. VOR - A 12 month minimum rental payment history is required to reflect no late payments in the last 12-months. Minimum Credit Standards: A minimum of 3 trade lines open for at least 24 months is required. o At least 2 of the trade lines must show activity within the past 12 months; o At least 1 trade line must be a mortgage for non-first time homebuyers, and for first time homebuyers, 1 trade line must be an installment line; o First time homebuyers must have a satisfactory VOR for at least 24 months; o Credit history must be established for at least 5 years, and be consistent with the borrower(s) occupation and financial activity. Fewer than 3 trade lines open for at least 24 months may be considered if o Credit history is established for at least 10 years, and no fewer than 10 trade lines are reported, one of which is a mortgage; o At least 1 trade line is open and shows activity within the past 12 months Adverse Credit Policy: In addition to the minimum credit standards and score requirements, the following adverse credit standards apply: No public records within the last 24 months No bankruptcies or foreclosures, short sales, deed in lieu of and modification within the last 7 years No significant derogatory ratings on any trade line activity within the last 36 months (including installment or revolving accounts) Subordinate Financing Project Eligibility Contributions to Closing Costs Permitted, but must conform to the above CLTV limitations listed in transaction details Condominium and Attached PUDs: Must be warrantable - Must meet FNMA Criteria. Use CPM for warranty. Interested Party Contributions are allowed in accordance with Fannie Mae Standards The property seller or any interested party (builder, developer, lender, real estate agent or any of their affiliates) can pay closing costs, prepaid items and escrows. All contributions are based on the LTV/CLTV of each loan. Primary and Second Homes: 80% = 6% Amounts in excess of these limits must be deducted from the lower of sales price or appraised value when calculating the LTV Page

15 Multiple Property Ownership Escrow Waivers Maximum 4 total financed properties inclusive of the subject property Borrowers with > 2 financed properties are required to have a minimum of 18 months reserves California (CA): Escrows may be waived at the borrowers request without conditions per state requirements There are no other underwriting conditions or overlays that apply for loans in CA (1) Underwriting Review Criteria Escrow waiver requests are subject to underwriting review and approval per the following criteria: Refer to this guideline: Maximum DTI refer to Transaction Details A review of the title work for evidence of tax liens or other evidence of failure to pay tax obligations. File cannot reflect evidence of lapsed hazard insurance coverage Loan documentation should support a history of timely independent payment of escrow items. Borrowers with a prior history of delinquent taxes or lapses in homeowner s coverage are not eligible to waive escrows. Guidelines can change without notice Page