Min. Max DTI CLTV /HCLTV 3,5

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1 DU 9.0 STANDARD CONFORMING FIXED 1 CORRESPONDENT BUSINESS CHANNEL ONLY PRIMARY HOME PURCHASE & RATE/TERM REFI Property Type 2 Max LTV/ Min. Max DTI CLTV /HCLTV 3,5 FICO 1 Unit 97 4 /97 2 Unit 85 4 /85 DU/620 DU 3 4 Unit 75/75 SECOND HOME PURCHASE & RATE/TERM REFI 6 1 Unit 90 4 /90 DU/620 DU INVESTMENT PURCHASE 1 Unit 85 4 /85 DU/620 DU 2 4 Unit 75/75 DU/620 DU INVESTMENT RATE/TERM REFI 6 1 Unit OR 2 4 Unit 75/75 DU/620 DU CASH OUT REFI 6,7 1 Unit Primary 85 4 /85 5 DU/ Units Primary 75/75 DU/620 1 Unit 2 nd Home 75/75 DU/620 1 Units Investment 75/75 DU/ Units Investment 70/70 DU/620 DU 1. This matrix is applicable to all standard conventional Fixed Rate loans Loan Amount < $417,000 decisioned in DU version 9.0 release. 2. Attached PUD restrictions apply to Florida condominiums and Attached PUD s refer to FL location topic for specifics 3. Maximum LTV/CLTV/HCLTV are the same. If Second is HELOC, loan amt + line amt cannot exceed the CLTV/HCLTV 4. Loans >80% LTV are subject to additional M.I. company requirements in addition to LTV/CLTV parameters and other criteria stated in this product guide, SPM P&P requirements must also be met and could potentially supersede applicable M.I. company s guidelines for loans requiring M.I. Nevada condo s >80% LTV are not permitted (either attached or detached) 5. Community or Affordable/Subsidy Secondary programs sponsored by govt. entities or affordable housing entities are allowed: E.G. Down payment Assistance (DAPS), Up Front Cost Assistance (UCAP) and Housing Assistance Programs. Please refer to Resale Deed Restriction topic 6. Applicable COO requirements apply as stated in Continuity of Obligation section 7. Special restrictions apply for Delayed Financing scenarios as stated in Delayed Financing topic. 1

2 Property Type 2 DU 9.0 STANDARD CONFORMING ARM 1 PRIMARY HOME PURCHASE & RATE/TERM REFINANCE 4 Max LTV (same as CLTV /HCLTV ) 3 Min. FICO Max DTI 1 Unit 90 5 /90 2 Unit 75/75 DU/620 DU 3 4 Unit 65/65 SECOND HOME PURCHASE & RATE/TERM REFINANCE 4 1 Unit 80/80 DU/620 DU INVESTMENT PURCHASE 1 Unit 75/75 DU/620 DU 2 4 Unit 65/65 DU/620 INVESTMENT RATE/TERM REFINANCE 4 1 Unit OR 2 4 Unit 65/65 DU/620 DU CASH OUT REFINANCE 4,5 1 Unit Primary 75/75 DU/620 DU 2 4 Units Primary 65/65 DU/620 DU 1 Unit 2 nd Home 65/65 DU/620 DU 1 Units Investment 65/65 DU/620 DU 2 4 Units Investment 60/60 DU/620 DU 1. This matrix applies to all standard conventional ARM loans Loan Amount < $417,000, decisioned in DU version 9.0 release 2. Eligibility matrix does NOT apply to condo and attached PUD projects located in Florida. Please refer to specific condo/attached PUD projects Florida location topic for applicable LTV/CLTV/FICO and eligibility criteria. 3. HCLTV = CLTV: If Second is HELOC, loan amt + line amt cannot exceed the CLTV/HCLTV 4. Continuity of Obligation requirements apply as stated in COO topic 5. Transactions >80% LTV where M.I. is required may have additional criteria regarding Condo/PUD properties, declining markets, Min. FICO, Max DTI, cash reserves, etc. Please refer to individual M.I. company requirements. Condo s in the state of Nevada >80% LTV are not permitted (either attached or detached) 6. Six months ownership seasoning is required unless Delayed Financing requirements are met. Note: Investor and Second home transactions with 5 to 10 financed properties Refer to Fannie Mae guides B for additional requirements and restrictions. 2

3 DU 9.0 JUMBO/HIGH BAL FIXED 1 PRIMARY HOME PURCHASE & RATE/TERM REFINANCE Property Type 2 Max LTV Min. Max DTI (CLTV /HCLTV) 3 FICO 1 Unit 90 4 / Unit 75/ DU SECOND HOME PURCHASE & RATE/TERM REFINANCE 5 1 Unit 65/ DU INVESTMENT PURCHASE& RATE/TERM REFINANCE 5 1 Unit OR 2 4 Unit 65/ DU CASH OUT REFINANCE 5, 6 1 Unit Primary 60/ DU 2 4 Units Primary OR 1 Unit 2 nd Home OR 1 Units Investment OR 2 4 Units Investment N/A N/A N/A 1. This matrix is applicable to all Jumbo/High Bal conventional Fixed Rate loans decisioned in DU version 9.0 released the weekend of Oct. 20, 2012 with loan amounts >$417,000. (E. G. The minimum loan amount is $417,001). Maximum loan limits are subject to FannieMae High Balance County limits. 2. Condo/Attached PUD restrictions apply to Florida condominiums and Attached PUD s refer to FL location topic for specifics 3. Maximum LTV/CLTV/HCLTV are the same. If Second is HELOC, loan amt + line amt cannot exceed the CLTV/HCLTV 4. Loans >80% LTV are subject to additional M.I. company requirements in addition to LTV/CLTV parameters and other criteria stated in this product guide, SPM P&P requirements must also be met and could potentially supersede applicable M.I. company s guidelines for loans requiring M.I. Nevada condo s >80% LTV are not permitted (either attached or detached) 5. Applicable COO requirements apply as stated in Continuity of Obligation section. 6. Special restrictions apply for Delayed Financing scenarios as stated in Delayed Financing topic. Maximum cash in hand refi proceeds to Borrower is $250,000 max for transactions not qualifying under Delayed Financing. Note: Investor and Second home transactions with 5 to 10 financed properties Refer to Fannie Mae guides B for additional requirements and restrictions. 3

4 DU 9.0 JUMBO/HIGH BAL ARM 1 PRIMARY HOME PURCHASE & RATE/TERM REFINANCE 4 Property Type 2 Max LTV (CLTV /HCLTV) 3 1 Unit 75/ Unit 65/65 Min. FICO Max DTI 660 DU SECOND HOME PURCHASE & RATE/TERM REFINANCE 4 1 Unit 65/ DU INVESTMENT PURCHASE& RATE/TERM REFINANCE 4 1 Unit OR 2 4 Unit 65/ DU CASH OUT REFINANCE 4,5 1 Unit Primary 60/ DU 2 4 Units Primary OR 1 Unit 2 nd Home OR 1 Units Investment OR 2 4 Units Investment N/A N/A N/A 1. This matrix is applicable to all Jumbo/High Bal conventional ARM loans decisioned in DU version 9.0 scheduled for release the weekend of Oct. 20,2012 with loan amounts >$417,000. (E. G. The minimum loan amount is $417,001). Maximum loan limits are subject to FannieMae High Balance County limits. 2. Condo/Attached PUD restrictions apply to Florida condominiums and Attached PUD s refer to FL location topic for specifics 3. Maximum LTV/CLTV/HCLTV are the same. If Second is HELOC, loan amt + line amt cannot exceed the CLTV/HCLTV 4. Applicable COO requirements apply as stated in Continuity of Obligation section. 5. Special restrictions apply for Delayed Financing scenarios as stated in Delayed Financing topic. Maximum cash in hand refi proceeds to Borrower is $250,000 max for transactions not qualifying under Delayed Financing. Note: Investor and Second home transactions with 5 to 10 financed properties Refer to Fannie Mae guides B for additional requirements and restrictions. 4

5 AIT APPRAISAL AIT (At interest Transactions) are permitted unless otherwise states such as Flipping policy requirements. See Non Arms length transactions topic for complete NAL definitions relative to this product guide. Assigned appraisal reports are not acceptable. Appraisal report documentation requirements follow standard FannieMae policies including but not limited to the appraisal age, recertification of value, etc. DU findings permitting reduced appraisal reports including Property Inspection Waiver (PIW) will be allowed providing that the specific loan scenario or property does not otherwise require a full appraisal report. The following requirements apply: o Specific transactions requiring full appraisals such as those subject to Hobby Farm properties, condos in litigation, Geographic Restriction, Disaster policies are not eligible for reduced appraisal reports. Also ineligible: Tax Returns (or other file information) indicates subject property is a Mixed Use property o DU Accept/Eligible finding must reflect PIW, #2055 or #2075 eligibility on FINAL DU report o A fee of $75.00 is due when exercising the DU option of a PIW (Property Inspection Waiver) o When Desktop Underwriter recommends an exterior only inspection (2055), an upgrade to interior and exterior inspection is required when: The appraiser cannot adequately view the property from the street The property does not conform to the neighborhood There are apparent adverse physical deficiencies or environmental conditions Data sources do not provide sufficient information about the property to perform the appraisal Purchase transactions when the transaction is the result of the sale of an REO property The last transaction on the property being purchased was a foreclosure The condition rating is C5 or C6 based on the UAD and the data sources used to develop the appraisal or the appraiser's observations during the exterior only property inspection The quality rating is Q6 based on the UAD and the data sources used to develop the appraisal or the appraiser's observations during the exterior only inspection o When DU recommends a 2075 Property Inspection, an upgrade to interior & exterior inspection is required when: The appraiser cannot adequately view the property from the street The property does not conform to the neighborhood Apparent adverse physical deficiencies or environmental conditions are observed The appraiser needs additional information about the physical conditions of the property Purchase transactions when the transaction is the result of the sale of an REO property The last transaction on the property being purchased was a foreclosure o When Desktop Underwriter recommends a Property Inspection Waiver, an upgrade to interior and exterior inspection is required when: The subject property does not conform to the neighborhood There are apparent adverse physical deficiencies or environmental conditions The property consists of new or proposed construction. Escrows for postponed improvements are not permitted. Home inspection report or other information in the file indicates the presence of adverse condition and/or marketability factors Purchase transactions when the transaction is the result of the sale of an REO property The last transaction on the property being purchased was a foreclosure 5

6 Age of Credit Documents AUTOMATED UNDERWRITING ASSETS Appraisals are good for 4 months old on the date of the note and mortgage (B ) Credit documents include credit reports, and employment, income, and assets documentation must be no more than four months old on the date the note is signed (B1 1 03) DU Accept/Eligible findings only. Final DU certificates indicating anything less than Accept/Eligible will not be permitted Manual Underwriting is not permitted under any circumstance. All funds used for down payment, funds to close and reserves must be an acceptable liquid asset, sourced and documented as per standard FannieMae guidelines and/or DU findings. (E.G. VOD s are acceptable sources of asset documentation providing FannieMae requirements are met). Uniform Trust for Minor accounts: Funds held in a custodial account for the benefit of a minor (E.G. UTMA, UGMA, etc) may be considered a liquid asset providing the following criteria is met: o Tax consequences must be taken into consideration. o Ownership of funds: Borrower must be listed as the custodian on the account Applicable state laws will apply: Some state laws dictate that these funds automatically become the child's funds at the age of 18, others at age of 21. Copy of birth certificate is required. o Funds must be liquidated and file documentation must include applicable paper trail for liquidation of funds, etc. Gift funds: are NOT acceptable for Second Home or Investment property transactions Gift funds may not be used to meet reserve requirements. o For Primary residences, Business funds: may be utilized for down payment. closing costs or reserves subject to the following requirements: o Borrower must own 100% of business or receive written authorization from other owners that funds will be accessible to Borrower o Underwriter must complete business cash flow analysis to determine there is no negative impact to the business operation resulting from the withdrawal of funds. LTV/CLTV/or HCLTV Ratio Occupancy & Property Type Minium Borrower Contribution Requirement from Borrower s Own Funds BORROWER MINIMUM CONTRIBUTION > 80% 1 Unit Principal Residence < $417, Unit Principal Residence High Balance Mortgage Loans (Ln Amt > $417,000) No Minimum Borrower own funds required. All funds can come from an allowable gift donor 5% Borrower s own funds minimum contribution required. 6

7 FEATURED TOPIC BORROWER ELIGIBILITY Borrower Residency Documentation CRITERIA Standard SPM Borrower vesting and Social Security Number policies apply. Citizenship/Residency requirements: U.S. citizens, Permanent Resident Aliens and Non Permanent Resident Aliens. Permanent Resident Aliens and Non Permanent Resident Aliens financing terms are same as U.S. Citizens/ E.G. they may purchase Primary, Second Home or Investment properties Individuals classified under Diplomatic Immunity, Temporary Protected Status, Deferred Enforced Departure or Humanitarian Parole are not eligible Eligible Expanded Residency Documentation Policy options: UW may approve Permanent or Non Permanent Resident Aliens unable to meet standard SPM citizenship/ residency policy if the following documentation requirements are met: Type Pass port I 751 or I829 Expanded Permanent Resident Documentation Documentation requirements Documentation evidencing the Borrower is currently applying for the green card and has unexpired passport stamped processed for I 551, Temporary evidence of lawful admission for permanent residence. Valid until. Employment authorized I 155 Conditional Permanent Resident Card with at least 6 months remaining may be considered eligible if accompanied by a copy of an USCIS form I 751 (Petition to Remove the Conditions on Residence) or USCIS form I 829 (Petition by Entrepreneur to Remove Conditions) filing receipt. Expanded Non Permanent Visa types Visa Visa document with Visa classification as follows: E 2 Treaty investor: A national of the country that under an investor treaty with the U.S. develops or directs the operation of an enterprise in which he/she has a substantial investment E 3 Australian Specialists entering the U.S. to perform services in specialty occupation H 4 Spouse may not work or accept any type of employment in the U.S. Therefore, the primary H1 B applicant must qualify on the loan including all debts. H 4 Visa is only permitted in conjunction with H1 B applicant. L 2 Only permitted if L 1 Borrower is on the loan P 1 Internationally recognized athlete, entertainment Group or essential support personnel R 1 Religious Worker Other acceptable Non Permanent documentation (if VISA is not available) EAD The EAD can be documented by form I 766 or I688A containing the applicant s photograph I 94 Borrower authorized for a specific employer: A valid, unexpired passport and I 94 Form (Arrival Departure Record, Form I 94 Card) stating Work Authorized I797A Copy of the I797A with I 94 attached indicating H 1A, H 1B, E 2,L 1, P 1, R 1 or TN status For TYPES NOT LISTED ABOVE, PLEASE REFER TO THE PnP FOR ADDITIONAL ELIGIBILE DOCUMENTATION 7

8 CASH OUT REFINANCE Six months seasoning applies unless Delayed Finance requirements are met Continuity of Obligation rules apply unless Delayed Finance requirements are met. Please refer to Continuity of Obligation and/or Delayed Financing topics for specifics. Additional Borrowers may not be added for loan qualification purposes Condo Maximum LTV 97% for attached Condo s Maximum LTV97% for Site Condo s Warrantable condo projects located in Florida may be considered for financing subject to the following requirements: Conforming Loan Limits max $417,000 Project must be established or new construction newly converted projects are not eligible. Owner Occupied residences and Second Homes only. Investment properties are now allowed. Project Review Types: PERS (Final Approval only), Lender Full Review, CPM Expedited Review, and Limited Review see below for Maximum LTV/CLTV PERS is required for new and newly converted condo projects consisting of attached units located in Florida All Branches to complete a Quality Control pre funding review on all loans secured by attached condo units. All loans must be bona fide fully arms length transactions and are subject to the following parameters: FLORIDA ESTABLISHED CONDO PROJECTS CONDO/ Attached PUD PROJECTS IN FLORIDA Occupancy Project Warranty LTV/CLTV Eligible Counties Primary Residence PERS Lender Full Review 97% / 97% CPM Limited Review 75% / 75% All Second Home PERS Lender Full Review 90% / 90% CPM Limited Review 75% / 75% All Investor PERS 85% / 85% ALL Project Types Low Rise, High Rise, Mid Rise attached/detached Low Rise, High Rise, Mid Rise attached/detached Low Rise, High Rise, Mid Rise attached/detached 8

9 FLORIDA NEW & Newly Converted Condo Projects Occupancy Project Warranty LTV/CLTV Eligible Project Type Counties Primary Residence PERS 97% / 97% All Low Rise, High Rise, Mid Rise attached/detached Second Home PERS 90% / 90% All Low Rise, High Rise, Mid Rise attached/detached Investor Not Eligible Not Eligible Not Eligible Not Eligible Attached PUD projects may also be considered for financing subject to same requirements. Ineligible condo projects include: Condo projects under any type of litigation Non warrantable condo projects Newly Converted condo Projects Projects consisting of Manufactured Home Condos with < 400 sq feet Site Condo For owner occupied Site Condo, the Maximum LTV/CLTV increased to 97% Property must meet warranty requirements as outlined in FNMA B , Limited Review Process for Detached Condo Units, as well as all findings per DU. 9

10 FEATURED TOPIC CONDO/PUD PROJECTS IN LITIGATION Condo Project Eligibility Waivers CRITERIA Condo or PUD projects involving pending litigation may be considered eligible providing all of the following requirements are met: Condo project must have a formal Home Owner Association. Small 2 4 condo projects without a formal HOA with known pending litigation are not eligible for financing. Project may not be located in Florida regardless if subject s location is an eligible county Project must meet all other FNMA project eligibility criteria Full appraisal report is required. o Reduced appraisals or PIW is not permitted regardless of DU findings. o Appraiser may not indicate that marketability issue are present as a result of the litigation issues Prior to UW loan approval being issued, acceptable documentation must be provided and reviewed by UW prior to docs to determine: o Pending litigation is limited only to minor matters and: o Litigation has no impact on the safety, structural soundness, habitability, or functional use of the project. o The following are defined to be minor matters: non monetary litigation involving neighbor disputes or rights of quiet enjoyment or litigation for which the claimed amount is known, the insurance carrier has agreed to provide the defense, and the amount is covered by the association s insurance; or The homeowners association is named as the plaintiff in a foreclosure action, or as a plaintiff in an action for past due homeowners association dues. Operation s Manager 2 nd signature is required in addition to UW approval Not permitted 10

11 FEATURED TOPIC Continuity of Obligation Requirements for Continuity of Obligation CRITERIA For a refinance transaction (either limited cash out or cash out) to be eligible for sale to Fannie Mae, there must be a continuity of obligation if there is currently an outstanding lien that will be satisfied through the refinance transaction. (Refer to next page for loans without acceptable Continuity of Obligation or properties without existing liens) Continuity of obligation is met when any one of the following exist: At least one borrower is obligated on the new loan who was also a borrower obligated on the existing loan being refinanced. 1 The borrower has been on title and residing in the property for at least 12 months and has either paid the mortgage for the last 12 months or can demonstrate a relationship (relative, domestic partner, etc.) 2 with the current obligor. The loan being refinanced and the title to the property are in the name of a natural person. (An Intervivos Revocable/Family/Living Trust) is considered a natural person. 3 The borrower has recently inherited, or was legally awarded, the property (divorce, separation, or dissolution of a domestic partnership). 4 Footnotes: 1. Borrower s contractual obligation must be accompanied by individual vesting properties in order to qualify for this feature. Properties vested in business entities or Trusts are not eligible. 2. Per FannieMae definition: An immediate relative is defined as the Borrower s spouse, child, or other dependent, or any individual related by blood, marriage, adoption, or legal guardianship. 3. A limited liability company (LLC) or any Borrowers whom are members of the LLC at the time of or prior to loan application is not eligible for financing. A chain of title or other property profile history information indicating the property has been deeded in and out of an LLC or any other type of business entity is not permitted 4. If the property has recently been inherited or legally awarded, the documentation must include a copy of the applicable court order. Per FannieMae clarification: Loans which have recently been inherited may be considered either Cash Out or Rate/Term. The Borrower (Beneficiary) does not necessarily have to be on title at the time of loan application and can be vested on to the property at close of escrow. Fannie s rationale is that the decedent s ownership tenure is transferred over to the Beneficiary upon passing, so that the 6 month s ownership seasoning requirement normally required for cash out refinance are automatically met. Loans with an acceptable continuity of obligation (as outlined above) may be underwritten, priced, and delivered as either cash out or limited cash out refinance transactions based on the requirements for each type of transaction. Continued on following page 11

12 Continuity of Obligation Continued from previous page No Acceptable Continuity of Obligation If the borrower is currently on title but is unable to demonstrate an acceptable continuity of obligation, or if there is no outstanding lien against the property, the loan is still eligible for delivery but with the additional restrictions described in the following table. The loans must be underwritten, priced, and delivered as a cash out refinance transaction. Outstanding Liens Purchase Date LTV Ratio Requirements No (the property was purchased for cash, previous mortgages have been paid off, and so on). 1 Yes Within the 6 to 12 month period prior to the application date for the new financing. 1 More than 12 months prior to the application date for the new mortgage. The borrower has been on title for at least 6 months. The LTV/CLTV/HCLTV ratios must be based on the lesser of the original sales price/acquisition cost (documented by the HUD 1 Settlement Statement) or the current appraised value. 2 The LTV/CLTV/HCLTV ratios must be based on the current appraised value. The maximum LTV/CLTV/HCLTV ratios are limited to 50% based on the current appraised value. 3 Footnotes: 1. The property must have been purchased by the Borrower. Properties gifted to the Borrowers are not eligible for refinancing for full 12 months since they cannot meet lesser of LTV/CLTV ratio calculation requirements 2. HUD 1 closing statement must be provided to document acquisition cost 3. There are no exceptions available to the max 50% LTV/CLTV/HCLTV limitation 12

13 FEATURED TOPIC Conversion Policy (Rental/SH) DEED RESTRICTIONS (resale deed restrictions) Community Seconds CRITERIA When the Borrower is purchasing a new residence and retaining their current residence as Second Home or Investment property, the use of an AVM will be an acceptable source to document required equity for the property being retained. Other than the use of an AVM, all other conversion policy requirements must be met. Deed Restrictions (Resale Deed restrictions) can be located within the terms and conditions of the subordinate lien or the Preliminary title report. The Underwriter may approve properties with Resale Deed restrictions subject to the following requirements in addition to applicable Fannie Mae policies: Property must be an owner occupied 1 2 unit property or a Condo s or PUD unit. The following types of resale restrictions are eligible (some are likely to occur in combination with others): o Income limits o Principal residence requirements o First time homebuyer requirements as designated by the subsidy provider o Resale Price Limits o Age Limits (Senior Communities must comply with applicable laws) o Massachusetts Resale Restriction (FNMA B ) FNMA will purchase loans w/deed restrictions if the Massachusetts Housing Finance Agency s Affordable Housing Restriction document is used Only state, county municipalities, local housing agencies or entities that are otherwise administering government sponsored subsidy programs will be eligible. Duration of resale restrictions will be permitted as follows: o When the restrictions terminate automatically upon foreclosure (or the expiration of any applicable redemption period, o Upon the recordation of a deed in lieu of foreclosure; or o When the resale restrictions survive foreclosure If the resale restrictions survive foreclosure: o The resale restrictions must not impair the servicer s ability to foreclose on the property. o The subsidy provider is not permitted to be entitled to obtain any proceeds from the initial sale or transfer of the property after foreclosure, from the foreclosing mortgage holder who obtained the property at foreclosure, or pursuant to a deed in lieu of foreclosure. If the resale restrictions terminate at foreclosure, the subsidy provider may not be entitled to obtain any proceeds from the future sale or transfer of the property after foreclosure of acceptance of the deed in lieu of foreclosure. The subsidy provider may retain the right of first refusal or option to purchase a resale restricted property when the borrower is in default or the property is in foreclosure. The terms of the right of first refusal or option to purchase must be specified in the terms of the resale restrictions. The subsidy provider may permit borrowers to refinance their mortgage and take cash out of the transaction. However, the resale restrictions may limit the cash out amount in order to protect the subsidy invested in the property. Documentation that the subsidy provider has approved the refinance transaction and that the cash amount complies with the provisions of the resale restrictions is required. Resale Deed Restrictions other than herein stated are not eligible. Note: FNMA purchase contracts 90 day anti flipping resale clauses prohibiting the Borrower from re selling the subject property <90 days of acquisition are NOT considered a Resale Deed Restriction and are therefore acceptable for financing. 13

14 FEATURED TOPIC CRITERIA Delayed Financing Exception Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash out refinance if all of the following requirements are met. Requirements for a Delayed Financing Exception The original purchase transaction was an arms length transaction. DELAYED FINANCING FOR PRIMARY RESIDENCES, SECOND HOMES, AND INVESTMENT PROPERTIES The original purchase transaction is documented by a HUD 1 Settlement Statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed [or similar alternative] confirming the amount paid by the grantee to trustee may be substituted for a HUD 1 if a HUD 1 was not provided to the purchaser at time of sale.) The preliminary title search or report must confirm that there are no existing liens on the subject property. The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property). If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the HUD 1 for the refinance transaction must reflect that all cash out proceeds be used to pay down, if applicable, the loan (unsecured or secured by an asset other than the subject property) used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt to income ratio calculation for the refinance transaction. Note: Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. 14

15 The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV/CLTV/HCLTV ratios for the transaction). All other cash out refinance eligibility requirements are met and cash out pricing is applied. Note: Investor and second home borrowers with five to ten financed properties are ineligible for cash out refinance transactions unless all of the delayed financing exception requirements listed above are met. Additional restrictions apply. See B2 2 03, Multiple Financed Properties for the Same Borrower (11/13/2012). DOCUMENTATION EXCEPTIONS FINANCED M.I. FLIPPING Standard FannieMae/DU findings documentation unless otherwise stated. This includes: appraisal, income, assets, and credit documentation. (Also see Self employed income and tax return topics) Note: Verbal verification requirements reflected in DU 9.0 may be followed for this product. Exceptions for documentation waivers and/or requirements mandated by Fannie Mae are not available. Financed Single Premium Mortgage insurance (FSPMI) info is posted on Rate Sheet & subject to the following: Maximum Base LTV 95% (prior to financed MI) Maximum Gross LTV 97% (Includes financed MI) Acceptable MI companies for Financed MI: Radian M.I. policy endorsement: An FSPMI endorsement to the mortgage insurance policy is required. The endorsement must provide that the insurance benefit paid pursuant to the percentage option in satisfaction of a claim be calculated as: o The claim amount minus the unamortized portion of the financed mortgage insurance premium] multiplied by the applicable coverage percentage, PLUS o The unamortized portion of the financed mortgage insurance premium The LTV is calculated using the base loan amount prior to the addition of the FSPMI. E.G.: TWO different calculations of the LTV are required: o For M.I. coverage requirements = base loan amount prior to the addition of the FSPMI* o Pricing & LTV program eligibility = loan amount after the addition of the FSPMI. Loan amount after addition of the FSPMI may not exceed 97% LTV as stated in product matrix. Reminder: Add ons, FICO scores and other parameters must be met exactly as posted on the Rate Sheet Check Radian Guidelines for additional restrictions Effective immediately, purchase transactions for properties that are owned by the Seller and resold < 90 days can be Approved by the UW. The Sellers acquisition date is evidenced by the Preliminary Title report s recordation of Grant Deed to date borrower s purchase contract was executed all contract terms accepted by the seller. All of the following requirements must be met 15

16 Loan file is reviewed and counter signed by Operations Manager. OPS Flip field In UW screen must be correctly populated. (Note: instructions were previously communicated and requires field to be completed for all flips resold 0180 days) Single Family 1unit Owner Occupied properties and Second Homes(this includes PUD and Condos) Maximum LTV of 90% for Owner Occupied Homes and. If the entire down payment is comprised of gift funds, the maximum LTV is 70% Minimum 5% borrower own funds must be vested into the transaction Max LTV of 80% for Second Homes no gifts or secondary financing allowed Secondary Financing is permitted if obtained from institutional lender. Max CLTV will be 90%.for Owner Occupied Only secondary financing not allowed for second homes The maximum number of ownership transfers within the most recent 90 days is limited to ONE. (E.G. multiple title/ownership transfers within a 90 day period is not permitted) Must be a bona fide fully arms length transaction. FSBO or other NonArms length transactions are not permitted At interest transactions are not permitted If the Seller is an entity (LLC, trust, etc), documentation showing legal registration of the entity such as articles of operation with the seal, or a business license. The borrower(s) can have no affiliation with the entity of any kind Standard SPM policy regarding acceptable purchase contract documentation applies, including but not limited to: o Complete executed purchase contract is in file with all addenda attached and reviewed by UW o Seller is currently on title and must remain on title throughout closing A full appraisal report will be required with a Field Review which must support appraisal value. Limited appraisal reports or PIW is not permitted. The Underwriter will be responsible to evaluate appraisal report to ensure: The subject property s sales history makes sense for the market as addressed on appraisal report Appraiser must confirm property improvements made for properties that were purchased through a distressed sale and where substantial renovations to the property were made and is now selling for a profit The renovations must be documented and verified Increase in value must be supported by Appraiser s comments and photo s reflecting Seller s improvements/rehab/capital improvements were made to the property beyond normal clean up, repairs and refurbish Gas, Oil and Minl Rights Leases GEOGRAPHIC RESTRICTIONS HOLD BACKS (ESCROW REPAIR) PLEASE REFER TO THE POLICY & PROCEDURES MANUAL FOR FULL REQUIREMENTS Restrictions removed as of 03/20/2013 SPM Geographic restrictions apply Escrow Repair Hold backs are permitted subject to SPM hold back policy requirements 16

17 INCOME (Employment related Assets) Fannie Mae s published policy for Employment Related Assets as Qualifying Income may be utilized when SPM lump sum distribution annuity policy requirments cannot be met. All Fannie requirements including but not limited to LTV parameters, occupancy, property types, documentation and income calculation requirements must be met. LOAN TYPES/ TERM Standard Fixed Rate Products: 10, 15, 20 and 30 year loan terms Jumbo Fixed Rate Products: 15 and 30 year loan terms. Standard ARM Products: 5/1 and 7/1 30 year Adjustable Rate Mortgage Jumbo ARM product: 5/1 and 7/1 Adjustable Rate Mortgage MAX. FINANCED PROPERTIES Follow FannieMae guidelines for Borrowers with 5 to 10 financed properties *****MINIMUM FICO SCORE OF 720***** SEE SECTION B FOR SPECIFIC REQUIREMENTS Reminder: DU cannot determine exactly how many properties are owned and financed by Borrowers. UW is responsible to determine all applicable guidelines are met For Borrowers with >4 financed properties Cash Out Transactions for Investor & 2 nd Homes is not available unless transaction falls under delayed financing requirements 17

18 MAX. LOAN AMT Standard Fannie Conforming and FannieMae High Balance County loan limits NON ARMS Length Transaction Definition: Non arm's length (NAL) transactions defined for this product/program guideline specifically as: o Purchase transactions in which there is a relationship or business affiliation between the Seller and the Buyer of the property. For Sale by Owner (FSBO) transactions are not considered NAL, but may be restricted for certain loan transactions such as Flipped properties. While FSBO transactions are not considered NAL, the Underwriter is expected to exercise proper due diligence when approving these transactions. The following criteria must be met: A written, fully executed purchase agreement is required The Underwriter must be able to document the method in which the property was marketed Appraisal report (if applicable) must indicate purchase contract was reviewed by appraiser o NAL policy does NOT apply to refinance transactions o There is no At interest (AIT) requirement or restriction unless specifically stated such as the Flipping policy NAL transactions for the purchase of existing properties are allowed unless specifically forbidden for the particular scenario, such as Delayed Financing, Flipping policy or if otherwise stated. Purchase of newly constructed properties: if the borrower has a relationship or business affiliation (any ownership interest, or employment) with the builder, developer, or seller of the property: o Only purchase mortgage loans for a primary residence is permitted. o Newly constructed homes secured by a second home or investment property wherein the borrower has a relationship or business affiliation with the builder, developer, or seller of the property are not eligible for financing. Clarification: The NAL definition herein stated is specific to SD products only. Unless otherwise stated, or restricted all occupancy types are permitted Paying off/paying down debts The UW is responsible to evaluate payoff or pay down of debts in relation to the overall loan analysis. The Borrower s history of credit use must be considered in determining whether the appropriate approach is to include or exclude debt for qualification. Each loan transaction must stand on its own merits and must pose an acceptable risk to SPM and meet Fannie guidelines 18

19 FEATURED TOPIC PRE FORECLOSURE/ SHORT SALE Waiting periods Property Eligibility CRITERIA DU measures whether or not the applicable waiting period has been met after a significant derogatory event using the credit report date. If DU determines that the waiting period has not been met based on the credit report used on the initial submission to DU, the lender may obtain an updated credit report and resubmit the loan casefile to DU after the required time has elapsed. See B , Significant Derogatory Credit Events Waiting Periods and Re establishing Credit (05/28/2013), for additional information about identification of these types of accounts Two year waiting period option can only be applied if all of the requirements herein stated are met: otherwise the standard waiting period will apply. Maximum LTV is the lesser of 90% LTV or the applicable LTV stated in product matrix UW must obtain and review all of the following documentation: o The borrower's fully executed written LOE must attribute the cause of the financial difficulties to factors beyond his or her control. o Supporting third party documentation specific to the circumstances (E.G. job loss, reduction of income, divorce, medical, etc.) must correlate to borrower's explanation and timetable of events, and confirm the events were an isolated occurrence, which resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligation. Examples of documents confirming the event were beyond Borrower s control include but are not limited to: copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc. The difficulties must not be ongoing or likely to recur. All applicable FannieMae guidelines will apply Standard property and occupancy eligibility requirements. Hobby Farms: One Unit SFR Primary Residence properties located in rural or semi rural locations with primary residential use may be considered eligible when some of the acreage is used for Hobby Farm purposes. Examples: Small barns and/or riding rings, small orchards or vineyards, etc. The UW may approve such properties subject to: o Appraisal requirements: Full appraisal report required with interior and exterior photo s including photo s of the non residential use The appraisal report must value the property as residential real estate ( Property must be residential in nature and supported by Appraiser s indication of highest and best use as residential property Agricultural use cannot exceed > 20% of total acreage Hobby Farm use of the property may not result in any significant alterations Subject property must conform to zoning and allow Hobby Farm use Outbuildings must be minimal and their valuation must be minor and of relatively insignificant value in relation to the total appraised value. Also, outbuildings must be typical of the subject property s market as demonstrated by the Appraiser s ability to provide valid comparable sales indicating there is an active, viable market for properties with these types of amenities. Properties with large, substantial outbuildings (such as silo s, large barns, storage facilities, or other types of buildings used for commercial, industrial, working farm, ranch or orchard purposes) will not be eligible for financing even if the appraiser assigns no value to these buildings. Continued on following page 19

20 FEATURED TOPIC Property Eligibility (Hobby Farmscontinued from previous page) SELF EMPLOYED BRW. CASH FLOW (Using Bus. Income for qualifying) INCOME (Tax transcripts) Secondary Financing Continued from previous page CRITERIA o The reported income on Borrower s tax returns from this source must be carefully analyzed and treated as follows: The Gross income (not net income) must be minimal. E.G. substantial gross income may be an indication of commercial business operation. Losses must be included in the DTI and cannot be disregarded Ineligible properties include: Manufactured/Modular homes, Non warrantable condos, co ops, commercial properties, working farms (except as specifically eligible under Hobby Farms), and property with Resale Deed Restrictions other than for those listed as being eligible. If business income other than Schedule C Sole Proprietors is used, the inclusion of business income, retained earnings, or capital withdrawal may be used as qualifying income providing that the 1084 cash flow analysis is completed in accordance with FannieMae requirements including: UW receives and reviews complete set of 2 yrs. Business tax returns (all statements must be attached) in addition to personal returns Cash flow analysis form must be completed for all applicable business entities and Underwriter must clearly document the manner in which the qualifying income was calculated All FannieMae self employment income, documentation and business analysis requirements must be met Reminder: o For Corporate entities, the Borrower must own 100% of the business in order to use business income. o A Partnership s, LLC s or S Corp owner s proportionate share of business income is based on his or her percentage of capital ownership in the business, as shown on Schedule K 1. The IRS issued transcripts of the borrower s individual and business federal income tax returns that were filed with the IRS for the most recent two years may be utilized in lieu of validated returns. All of the FannieMae requirements will apply including but not limited to: The information provided must be complete and legible The transcripts must include the information from all of the applicable schedules Refer to FannieMae guides for other requirements regarding assets, income trends, etc. HELOC s with Credit Line Reductions All loan transactions wherein a Credit Line Reduction is required, in lieu of a formal recorded Modification Agreement from the Lien Holder on secondary financing, the following would be acceptable documentation Fully Executed Agreement between Borrower(s) and Secondary Lienholder, or Letter from Secondary Lienholder referencing the modified loan amount, or Correspondence from Secondary Lienholder that existing HELOC reached the end of the draw period, and now in the repayment plan with no further draws/advances possible. No longer needed is a formal Modification Agreement, nor does the Subordination Agreement needed to reflect the Modified Line Amount. 20

21 DU measures whether or not the applicable waiting period has been met after a significant derogatory event using the credit report date. If DU determines that the waiting period has not been met based on the credit report used on the initial submission to DU, the lender may obtain an updated credit report and resubmit the loan casefile to DU after the required time has elapsed. See B , Significant Derogatory Credit Events Waiting Periods and Re establishing Credit (05/28/2013), for additional information about identification of these types of accounts Identification of Significant Derogatory Credit Events in the Credit Report: Significant Derogatory Events (Bankruptcy, Foreclosure, Deed in Lieu, and PreForeclosure Sales Lenders must review the credit report and Section VIII, Declarations, of the loan application to identify instances of significant derogatory credit events. Lenders must review the public records section of the credit report and all tradelines, including mortgage accounts (first liens, second liens, home improvement loans, HELOCs, and mobile home loans), to identify previous foreclosures, deeds in lieu or preforeclosure sales, and bankruptcies. Lenders must carefully review the current status of each tradeline, manner of payment codes, and remarks (descriptive text or codes such as Foreclosure, Forfeit deed in lieu of foreclosure, Settled for less than full balance ) to identify these types of significant derogatory credit events. Significant derogatory credit events may not be accurately reported or consistently reported in the same manner by all creditors or credit reporting agencies. If not clearly identified in the credit report, the lender must obtain copies of appropriate documentation. The documentation must establish the completion date of a previous foreclosure, deed in lieu or preforeclosure sale; confirm the bankruptcy discharge or dismissal date; and identify debts that were not satisfied by the bankruptcy. Debts that were not satisfied by a bankruptcy must be paid off or have an acceptable, established repayment schedule DU applies the following guidelines to prior bankruptcies: If a Chapter 13 bankruptcy was discharged within the last two years, dismissed within the last four years, or filed but neither discharged nor dismissed within the last four years, the loan casefile will receive a Refer with Caution or Refer with Caution/IV recommendation and will be ineligible for delivery to Fannie Mae. If a non Chapter 13 bankruptcy was filed, discharged, or dismissed within the last four years, the loan casefile will receive a Refer with Caution or Refer with Caution/IV recommendation and will be ineligible for delivery to Fannie Mae. DU will not take bankruptcy information in the public record section of the credit report into account if the bankruptcy is dated more than seven years prior to the credit report date. DU will not take tradeline accounts that are reported with a bankruptcy status code or manner of payment/mop code of 7 into account if there is at least one bankruptcy reported in a public record within seven years of the credit report date. In this scenario, DU assumes the date filed and the date discharged in the public record are more accurate than the dates in the tradeline; i.e., specific filed and discharged dates do not exist in the tradeline. DU will use tradeline accounts that are reported with a bankruptcy status code or manner of payment/mop code of 7 if there is not a bankruptcy reported in a public record within seven years of the credit report date. In this scenario, the lender will need to verify the actual filed and discharged dates to determine that the bankruptcy meets the DU bankruptcy policy. DU is not able to determine if multiple filings have occurred due to the manner in which bankruptcies are reported to the credit report. DU will issue a message when it appears that there may have been multiple bankruptcy filings. This message will list each of the bankruptcies seen on the credit report, and will instruct lenders to ensure the loan casefile 21

22 meets the criteria for underwriting loan casefiles with multiple bankruptcies. DU applies the following guidelines to prior foreclosures: Mortgage accounts, including first liens, second liens, home improvement loans, HELOCs, and mobile home loans, will be identified as a foreclosure if there is a current status or manner of payment/mop code of 8 (foreclosure) or 9 (collection or charge off); or if there is a foreclosure related Remarks Code present in the credit report data and associated to the tradeline. If a foreclosure was reported within the seven year period prior to the credit report date, the loan casefile will receive a Refer with Caution or Refer with Caution/IV and will be ineligible for delivery to Fannie Mae. If the filed date and the satisfied date of the foreclosure are both unknown, but it appears that the foreclosure occurred within the seven year period prior to the credit report date, the lender must confirm that the foreclosure did not occur within the most recent seven year period. Foreclosure laws vary by state and the time it takes to complete the process may vary by state. DU assumes that the date the foreclosure was reported in the tradeline is the date of the foreclosure sale or liquidation. The lender must confirm that all foreclosures are satisfied. DU applies the following guidelines to prior deeds in lieu of foreclosure: DU will determine if a mortgage tradeline is a deed in lieu of foreclosure by using specific Remarks Codes that are present in the credit report data and associated to the tradeline. If a deed in lieu of foreclosure was reported within the two year period prior to the credit report date, the loan casefile will receive a Refer with Caution or Refer with Caution/IV and will be ineligible for delivery to Fannie Mae. If a deed in lieu of foreclosure was reported more than two years before the credit report date, the existence of the deed of lieu foreclosure is acceptable provided the loan complies with the LTV ratio requirements that apply after two years and up to seven years following the completion date, as stated in B , Significant Derogatory Credit Events Waiting Periods and Re establishing Credit (05/28/2013). Preforeclosure Sales or Short Sales DU is not able to identify preforeclosure or short sales in the credit report data. Lenders must manually apply the preforeclosure sale requirements to DU loan casefiles, regardless of the underwriting recommendation received from DU. DU will issue a message on loan casefiles where the borrower's credit report indicates an account may have been released to a preforeclosure sale. The recommendation on the loan casefile will not be changed when this information appears on the credit report, though as stated above, the lender must ensure the loan complies with all other requirements specific to preforeclosure sales as specified in B , Significant Derogatory Credit Events Waiting Periods and Re establishing Credit (05/28/2013). Note: Topic B , Significant Derogatory Credit Events Waiting Periods and Re establishing Credit, also contains additional requirements pertaining to underwriting borrowers with a preforeclosure sale, short sale, or extenuating circumstances. DU is not able to identify preforeclosure or short sales in the credit report data, or whether the borrower s derogatory credit history was the result of extenuating circumstances. Loan casefiles that receive a Refer with Caution or Refer with Caution/IV recommendation due to a bankruptcy or foreclosure action that was caused by extenuating circumstances may be manually underwritten if the lender has the appropriate documentation that these events occurred, 22