WHOLESALE LENDING AT-A-GLANCE EMPLOYMENT/INCOME

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1 EMPLOYMENT/ DESCRIPTION Each borrower's employment and income are evaluated for adequacy and stability. Their employment history, opportunities for future advancement, educational background and occupational training determine the borrower's potential for stable future income. A borrower who has been working for the same employer for a long period of time will have both stable employment and income even if he or she has held the same position during his/her entire job tenure UNREIMBURSED EMPLOYEE BUSINESS EXPENSE When shown on the borrower s tax returns, 2106 unreimbursed employee business expenses are deducted from the qualifying income. ALIMONY / CHILD SUPPORT Support payments are recognized as stable if they are court awarded, if previous payments were received according to the court mandated schedule, and payments received were for the required amount. Income Determination The current income is used for qualifying as long as it will not be decreased or discontinued, according to the court order. Continuance Continuance for at least 3 years beyond the loan closing date is required and is verified from the court order. Verification Support income is verified by a copy of the court order or property settlement agreement specifying the payment award amount and period of time over which it will be received and receipt of support income is verified as follows: Copies of deposit slips or bank statements for the previous 12 month period showing payment of support deposited, or Copies of canceled checks for previous 12 month period, or Copies of federal income tax returns (1040s) with supporting schedules for the previous year showing alimony received. (If tax returns are older than 60 days, proof of current receipt via one of the methods above will be required), or Copies of court records, when payments have been received through the court, verifying a minimum 12 months of receipt. ASSET UTILIZATION Asset Utilization income may be used for borrowers who meet certain credit, equity and asset requirements. Refer to the eligibility and income calculation guidelines below. ELIGIBILITY ASSETS Reserve Requirements - Borrowers must have the greater or $250,000 or the reserves required for the product/transaction. These funds may not be included in the Asset Utilization income calculation. Eligible Assets Assets must be unencumbered and titled in the name of the borrower, the borrower s revocable trust, or a non-operating LLC that is 100% owned by the borrower. Eligible liquid assets include the following: 100% of the assets in the following types of accounts may be utilized: Checking, savings, money market, CDs, cash value of life insurance 70% of the following types of accounts/assets may be utilized: Stocks, bonds, mutual funds Treasury instruments Investment grade corporate and municipal bonds Equities, REITs, ADRS and exchange traded funds that are widely traded on major U.S. exchanges Retirement Accounts - If the borrower is less than 59 ½, 50% the funds in retirement accounts (IRAs, RIRAs, 401Ks) may be used as reserves and/or toward the asset utilization income calculation. If the borrower is 59 ½ or older, 85% the funds in retirement accounts Broker-Glance Employment/Income Page 1 of 7 12/01/2017

2 ASSET UTILIZATION EMPLOYMENT/ may be used for reserves and/or asset utilization. If Borrower is Taking Distributions from a Retirement Account If the borrower is taking distributions from an IRA or 401(k) retirement account, funds eligible to be used for Asset Utilization would be the account balance minus the qualifying distribution income over a 3 or 5 year distribution period utilizing 85% or 50% of the remaining balance, depending on the age of the borrower. If the income represents 50% or less of the qualifying income, then distributions over a 3-year period would need to be deducted from the account before utilizing the account as reserves. If the income represents more than 50% of the qualifying income, then distributions over a 5-year period would need to be deducted from the account before utilizing the account for reserves. Funds from 403(b) and 457 (b) can only be used as a source of income or reserves, but not both. If borrower is taking deductions, it would be considered as a source of income. Example: Borrower is 65 years old. Income from the retirement account represents 51% of the qualifying income. Qualifying distribution income is $50,000 annually x 5 years = $250,000. Retirement balance of $1,200,000 - $250,000 = $950,000 x 85% = $807,500 that can be applied toward the Asset Utilization income calculation. Ineligible Assets Business accounts, stock held in privately held corporations, stock options, nonvested restricted stock, gift funds, windfall assets (i.e. proceeds from a lawsuit, lottery winnings), proceeds from a cash-out refinance, non-financial assets (collectibles, stamps, coins, artwork, etc.) assets titled in an irrevocable trust, custodial accounts, escrow accounts, 529 accounts, accounts pledged as collateral for a loan, below investment grade corporate and municipal bonds, secured/pledged assets, and foreign assets. Other Accounts Accounts such as annuities, trust funds and hedge funds may be utilized as long as it can be documented that the funds are available to the borrower and under what condition the funds may be withdrawn. CREDIT Borrowers must meet Standard Credit requirements. Refer to Wholesale At-a-Glance Credit. Credit Scores Minimum 700 or 740 credit score required depending on loan amount Refer to Loan Amounts/LTV/TLTV/Minimum Credit Score table below. CALCULATION Asset Utilization income is calculated using a standard annuitization of verified eligible assets based on the following: Rate of return is equal to the 1 year T-Bill (a.k.a. 1-year Constant Maturity Index/CMT), not to exceed 6.0%. The current value for this index can be found on several different websites including The annuitization term is equal to 80 minus the borrower s age with a range up to a maximum of 30 years and a minimum of 15 years if the borrower is 65 years old. INTEREST/DIVIDEND Interest income generated by the borrower s assets may continue to be used in the income qualification even if Asset Utilization income is being used. LOAN AMOUNTS/LTV/TLTV/MINIMUM CREDIT SCORES When including Asset Utilization income in the qualifying income, the maximum LTV/TLTV is the lesser of what is shown on the rate sheet or what is shown in the table below for Purchases, No Cash-Out Refinances, and Cash-Out Loan Amounts Min Credit Score (1) Max LTV/TLTV (2) Up to $2,000, / 80 $2,000,001 to $2,500, / 70 (1) Minimum credit score is the greater of what is shown above or what is required for the specific transaction as shown on the rate sheet. Broker-Glance Employment/Income Page 2 of 7 12/01/2017

3 ASSET UTILIZATION EMPLOYMENT/ (2) Max LTV/TLTV is the lesser of what is shown above or what is allowed for the specific transaction as shown on the rate sheet. OCCUPANCY Primary residences and second homes only Non-Occupant Co-Borrowers Not Allowed PROGRAMS Eligible for: Portfolio Programs, excluding 3/1 ARMs (fully amortizing and Interest Only). EOM if subject property is located in an eligible census tract. PROPERTY TYPES Eligible Properties SFR, PUD, Condominium, 2-units Ineligible Properties 3-4 units, manufactured homes TRANSACTIONS Purchases, No Cash-Out Refinances, and Cash-Out Refinances Maximum $500,000 Cash-Out AUTOMOBILE ALLOWANCE Automobile allowance in excess of unreimbursed employee business expenses (Form 2106 from personal 1040s), may be added to income in an amount not to exceed the payment on the borrower s auto loan or lease. The auto loan or lease payment must still be added to the liabilities. If the automobile allowance is insufficient to completely offset all of the unreimbursed business expenses, the amount of unreimbursed employee business expenses not offset must be taken into consideration in income determination. For an automobile allowance to be considered as acceptable income, the borrower must have a twoyear consecutive history of receipt and the allowance must be likely to continue for 3 years. The receipt of an automobile allowance is documented with: Written VOE covering 2 full years, or Most recent year-to-date paystub confirming at least 30 days of income, and 1040 s and W-2 s covering the most recent 2 years The automobile allowance over the amount of the 2106 expenses, up to the amount of the automobile payment is added to the qualifying income. The automobile allowance may not be subtracted from the monthly automobile financing expense. If the borrower has no automobile financing expense or the automobile installment debt will be paid in 10 months or less, the auto allowance in excess of the unreimbursed employee business expenses, cannot be used to qualify (lease payments are considered a recurring obligation regardless of payments remaining). Example 1 Example 2 Example 3 Auto Allowance $250/month $250/month $250/month 2106 Expense $175/month $300/month $150/month Auto Payment $350/month $350/month No auto payment Add to Income $75 (auto payment must still be included in liabilities) $0 (2106 expense exceeds auto allowance) $0 (auto allowance may only be added to income if borrower has an auto payment) HOUSING / PARSONAGE Housing or parsonage income may be considered qualifying income if there is documentation that the income has been received for the most recent 12 months and the income is likely to continue for the next three years. The housing allowance may be added to income but may not be used to offset the monthly housing payment. The receipt of housing or parsonage income is documented with: Written VOE confirming amount of allowance and continuance, and Proof of receipt of the income for the most recent 12 months Note: These guidelines do not apply to military housing quarters allowance Broker-Glance Employment/Income Page 3 of 7 12/01/2017

4 EMPLOYMENT/ IRA / 401K / SEP / KEOGH DISTRIBUTIONS Eligibility - The borrower must be at least 59 ½ years old. The retirement funds must be in the borrower s name, must have unrestricted access to the funds, and will not incur a penalty if the funds are withdrawn. If the assets are in the form of stocks, bonds, or mutual funds, 70% of the value of the account is used to determine the number of months of distributions remaining. Verification - Retirement income paid in the form of a distribution from IRA, SEP, 401K, Keogh or other liquid retirement fund must continue for at least three (3) years from the date of the application and verified by the following: Copies of 2 most recent account statements or most recent quarterly statement; and 1099 form for the past 2 years; or Copies of federal income tax returns (1040s) for the past 2 years; or Account statements or other documentation from the account holder confirming the monthly distributions (if less than 12 month average of withdrawals) Income Calculations for Monthly Distributions Distribution History 24 Months A 24-month average of distributions based on the most recent two years 1099s or 1040s is used to qualify if stable and consistent. Distribution History 12 and < 24 Months If the monthly distributions have been consistent, the monthly distribution amount can be used. If the amount of the monthly distributions have been inconsistent or the borrower has taken lump sum distributions, a 24- month average of the distributions taken should be used to qualify. Distribution History < 12 Months If the distributions represent 30% or less of the qualifying income, the monthly distribution amount can be used with a minimum 6-month history of consecutive withdrawals. If the withdrawal amount is not consistent or the distributions represent more than 30% of the qualifying income, the distribution income cannot be used until the borrower has established a 12-month history of distributions. Funds Eligible for Reserves and - Funds eligible for reserves would be the account balance minus qualifying income over the 10 year distribution utilizing 70% of the remaining balance. (Example: Qualifying distribution income is $50,000 annually x 10 years =$500,000. Retirement balance of $1,200,000 - $500,000= $700,000 x 70% =$490,000 for reserves.) Note: If the borrower is using retirement funds for Asset Utilization income, refer to Asset Utilization Income above. RESTRICTED STOCK UNITS (RSUS) / STOCK OPTIONS Stock options are not eligible to be used as a source of income. Restricted Stocks Units (RSUs) RSUs are an eligible source of income for employees of publicly traded companies subject to the following requirements: No more than 35% of borrower total qualifying income may be generated from RSUs Credit Score - minimum 700 The stock must be from a publicly traded company Use 75% of current share price (most recent closing share price) to validate future earnings based on the RSUs RSUs must have been granted and vested (reported as income) for the previous 2 years with the current employer. Vested and future vested options are sufficient to support the amount using to qualify for at least 3 more years In addition to vested RSUs, continuance of RSU awards must be verified. The additional RSU awards must be of an amount that is consistent with the RSU qualifying income. Obtain documentation confirming the current balance of vested and unvested RSUs. Obtain Restricted Stock Unit Award Agreement confirming terms and conditions of the award. If there are concerns relating to the company s financial situation and/or stock price performance, RSUs from the company should not be included in the qualifying income. Only allowed on Portfolio Program loans that do not require mortgage insurance. RSU as Reserves Vested RSU may be used as reserves, using 70% of vested shares. Broker-Glance Employment/Income Page 4 of 7 12/01/2017

5 ROYALTY PAYMENT ROYALTY PAYMENT EMPLOYMENT/ Royalty income may be considered qualifying income if there is documentation that the income has been received for a minimum of 12 months and that payments will continue for a minimum of three years. The source(s) of royalty income can be found on Schedule E of 1040 tax returns. To use royalty income to qualify, verify the receipt of income with the following: Most recent 1040s, including Schedule E, and Royalty contract, agreement, or statement confirming amount, frequency, and duration of the income, or A written statement from the borrower s business manager, general partner, or CFO confirming amount, frequency, and duration of the income. SHORT TERM DISABILITY / TEMPORARY LEAVE Borrower must provide written confirmation of his or her intent to return to work. Documentation must be provided that shows the borrower s agreed-upon date of return to work. This documentation may be provided by the borrower or directly from the employer (or a third party representing the employer). The documentation must show that the return date has been produced by the employer or designee. Allowable Age of Credit Documents guidelines do not apply to this documentation. Information received from the employer cannot indicate that the borrower does not have the right to return to work. The amount and duration of the borrower s temporary leave income must be documented (multiple documents or sources may be required depending on type and duration of the leave). Allowable income for Borrowers on Temporary Leave Borrower Will Return to Work by the First Payment Date The borrower s regular employment income can be used for qualifying. Regular employment income includes, but not limited to, the income the borrower receives from employment on a regular basis that is eligible for qualifying purposes (base pay, commissions, and bonus). Borrower Will Not Return to Work by the First Payment Date The lesser of the temporary leave income (if any) or the regular employment can be used for qualifying. Supplemental Income If the borrower will not be returning to work by the first payment date and the amount of temporary income is less than regular employment income, the borrower s qualifying income may be supplemented with available liquid reserves, subject to the following: Available liquid reserves are total verified funds less funds required to close. Funds required to close may include funds needed for the down payment, closing costs, escrows, other debt payoffs, and minimum reserves. Standard minimum reserves requirements apply. Number of months of supplement income is the number of months from the first mortgage payment date to the date the borrower will begin receiving his or her regular income, rounded up to the next whole number. Temporary leave income + supplement income may not exceed the borrower s regular employment income. Example: Regular Employment Income:... $ 7,000 Temporary Leave Income:... $ 2,500 Total Verified Liquid Assets:... $40,000 Funds Required To Close (including reserves):... $15,000 Available Liquid Assets:... $25,000 First Payment Date;... February 1 Date Borrower will start receiving regular employment income: June 1 Supplemental Income = $25,000 4 = $6,250 Temporary Leave Income ($2,500) + Supplement Income ($6,250) exceeds Regular Employment Income ($7,000) so qualifying income would be $7,000. Broker-Glance Employment/Income Page 5 of 7 12/01/2017

6 EMPLOYMENT/ SOCIAL SECURITY Requirements for income from social security benefits are described as follows: Benefit with Defined Expiration Dates Benefits with defined expiration dates should have a remaining term of at least 3 years to be considered as income for loan qualifying purposes. Letters from doctors, etc. should not be requested to verify continuation. Social Security income for retirement or long-term disability will not have a defined expiration date and must be expected to continue. Benefits being paid for a family member of the benefit owner must have confirmation of three year continuation (examples of borrowers who could draw benefits from another person s account include a spouse, ex-spouse, dependent parent, minor child or disabled dependent) Benefits for a Minor Child If social security benefits are being received on behalf of a minor child, documentation must be provided to insure receipt for the next 3 years. This would include birth certificate of child, etc. Income Determination The current monthly income is used for qualifying as long as continuance has been established, when applicable. The non-taxable portion of social security income may be grossed-up by the borrower s prior year tax rate see Tax Free Income below. Verification Social security income is verified with a copy of the award letter and proof of current receipt with one of the following: Two months bank statements reflecting direct deposit of the social security benefit. Federal income tax returns (1040) with supporting schedules for the previous year 1099 for the previous year TAX FREE To provide the borrower the full benefit of non-taxable income for loan analysis, the income must be verified as non-taxable and have the likelihood to continue for a minimum of 3 years. Non-taxable income is grossed up based upon the borrower s prior year tax rate. To calculate a borrower s tax rate from federal tax returns: Form 1040 Divide the Total Tax by the Adjusted Gross Income on line 37. Total Tax can be found on line 63 of the tax returns or on line 61 on tax returns prior to Form 1040A Divide the Total Tax on line 35 by the Adjusted Gross Income on line 21. Form 1040EZ Divide the Total Tax on line 10 by the Adjusted Gross Income on line 10. If the borrower was not required to file a tax return the prior year, gross up non-taxable income by 22%. Examples of Tax Free Income Include: Child support Military allowances Military reserve income when member is called to active duty in a hostile area (Army, Navy, Marines, Air Force, Coast Guard) Tax free bonds Tax exempt portion of social security income Food stamps Worker's compensation benefits. UNACCEPTABLE The following are sources of income and compensation that are unacceptable for the purpose of loan qualifying: Any unverifiable source of income. Expense account payments. (1) Rent from boarders sharing the borrower's single family residence (2) Education benefits. (3) Temporary or one-time occurrence income Trailing spouse income Undistributed profits and retained earnings of a partnership or corporation Stock options Broker-Glance Employment/Income Page 6 of 7 12/01/2017

7 UNACCEPTABLE EMPLOYMENT/ Any income that is illegal in accordance with all applicable federal, state, or local laws. Including, but not limited to: o Foreign Shell Banks o Medical Marijuana dispensaries o Any business or activity related to growing, selling, or supplying marijuana even if allowed under State or Local law o Business engaged in internet gambling 1. Note: Automobile allowance, up to the amount of the automobile payment, may be added to income when borrower demonstrates: (a) a two-year consecutive history of receipt and (b) continuance for 3 years. The auto loan/lease payment must still be added to the liabilities and included in the debt ratio 2. Note: Rental income for borrowers with disability from a live-in aide boarder, received through Medicaid Waiver Funds, is considered as acceptable, stable income up to 30% of the total gross income used to qualify the borrower. Shared residency and rental payments for the previous 12 months must be demonstrated. Payment of rent by the boarder directly to a third party is not acceptable 3. Note: Does not apply to CalWORKS or other state welfare-to-work programs. Broker-Glance Employment/Income Page 7 of 7 12/01/2017

10/14/2013. Lloyd Rutherford Fannie/Freddie Expert Mortgage Currentcy.com TALKING POINT NEW INCOME GUIDANCE WITH THE 5/2013 UPDATE

10/14/2013. Lloyd Rutherford Fannie/Freddie Expert Mortgage Currentcy.com TALKING POINT NEW INCOME GUIDANCE WITH THE 5/2013 UPDATE Lloyd Rutherford Fannie/Freddie Expert Mortgage Currentcy.com DOCUMENTATION REQUIREMENTS FOR CURRENT RECEIPT OF INCOME NEW INCOME TOPIC NEW INCOME GUIDANCE WITH THE The documentation required for each