Non-Conforming Fixed and ARM

Transcription

1 Non-Conforming Fixed and ARM Investor 07 Retail Only These guidelines are an overview only and underwriters must utilize Investor 07 guidelines when underwriting. Revisions Date Revisions 6/10/15 Updated Section 5.1-A6 LTV/CLTV Parameters Fully Amortized 7/15/15 Updated Geographic Restrictions removed California as Ineligible State 9/11/15 Updated Section 5.1-B1 Borrower Eligibility 5.1-A General 5.1-A1 Eligible Programs/Product Codes J-F year fixed J-F year fixed J-F year fixed 5.1-A2 Doc Type Full 5.1-A3 Occupancy Primary Second Homes 5.1-A4 Term 15, 20, 30 year term 5.1-A5 Geographic Restrictions Loans not allowed in Alaska and Hawaii. 5.1-A6 LTV/CLTV Parameters Fully Amortized PURCHASE AND NO CASH-OUT REFINANCE Property Type Max LTV/TLTV Max Loan Amount Minimum Credit Score Max DTI Required Reserves Primary Residence (1 Unit) J-A5L-07-5/1 P & I Libor ARM J-A7L-07-7/1 P &I Libor ARM J-A10L-07-10/1 P&I Libor ARM Additional Required Reserves for Previous Primary Residence (Pending Sale or Conversion) when Purchasing New Primary Residence 80/80% $1,000, % 6 months PITI 2 months PITI 70/70% $1,000,001- $1,500, % 9 months PITI 6 months PITI 65/65% $1,500,001- $2,000, % 9 months PITI 6 months PITI SNMC Page 1 September 11, 2015

2 5.1-A General (cont.) 5.1-A6 LTV/CLTV Parameters Fully Amortized (cont d) Property Type Primary Residence (2 Unit) Second Home (1 Unit) Max LTV/TLTV PURCHASE AND NO CASH-OUT REFINANCE (cont d) Max Loan Minimum Max Required Amount Credit DTI Reserves Score Additional Required Reserves for Previous Primary Residence (Pending Sale or Conversion) when Purchasing New Primary Residence 60/60% $1,500, % 12 months PITI 6 months PITI 70/70% $1,000, % 6 months PITI 65/65% $1,000,001- $1,500, % 12 months PITI CASH-OUT REFINANCE Property Type Max Max Loan Minimum Required Max DTI LTV/TLTV Amount Credit Score Reserves 75/75% $650, % 6 months PITI Primary Residence (1 Unit) 70/70% $1,000, % 6 months PITI Max Cash-Out $250,000 $1,000,001-60/60% $1,500, % 12 months PITI Note: As standard SNMC policy, any loan amount greater than $650,000 will require an underwriting manager 2 nd signature, and any loan amount greater than $1,000,000 will require additional corporate approvals. 5.1-A7 Minimum Loan Amount $417, A8 Refinance Transactions All refinances, including rate term and cash out, must comply as follows: When the current mortgage will be satisfied as the result of the refinance transaction, one of the following requirements must be met relating to the borrowers on the new mortgage: At least one borrower on the new refinance was a borrower on the mortgage being refinanced, or At least one borrower on the new refinance held title to and resided in the subject property as their primary residence for the most recent twelve month period and the documentation provided that the borrower either: o has been making timely mortgage payments, including the payments for any secondary financing, for the most recent twelve month period; or o is a related person to a borrower on the mortgage being refinanced; or At least one borrower on the new refinance has inherited or was legally awarded the mortgaged premises by a court in the case of divorce, separation or dissolution of a domestic partnership. SNMC Page 2 September 11, 2015

3 5.1-A General (cont.) 5.1-A8 Refinance Transactions (cont.) The following restrictions apply on all refinances: Marital/Spousal rights are not acceptable as proof of legal title to the property. Loans may not be refinanced in which a Life Estate exists on the current title. Loans must be titled in the name of individuals only. Loans may not be titled in the name of a business, Corporation, S-Corp, Partnership, LLC or other non-living business entity. Transfer of ownership from an LLC, Corporation, S-Corp, Partnership, or any other non-living business entity for the purpose of refinancing the loan into the prospective borrower s name is unacceptable. Verification of funds for refinance transactions is required. All funds listed on the application must match those verified in the loan file. This includes any funds required to complete the refinance transaction including reserves, funds to cover either or both the balance of the first and pay the closing costs of the new loan or to pay off any subordinate financing. Rate Term Refinance Primary Residence: When the mortgage being refinanced is a purchase money transaction, the new refinance mortgage must be seasoned for at least 120 days to be eligible. This requirement is based on the Note Date of the mortgage being refinanced being at least 120 days prior to the Note Date of the new Rate Term refinance transaction. Second Home: Six month seasoning is required Cash Out Refinance Primary residences only. Maximum $250,000 cash out. Six month seasoning requirement for recently acquired, recently listed or recently refinanced properties. Cash out on new construction is not allowed. Statement regarding the purpose of the cash out is required from borrower. Cash out proceeds may not be used to pay down debt for qualifying. Cash out proceeds may not be used to meet reserve requirements. If none of the borrowers have been on the title to the subject property for at least six months prior to the Note Date on a cash out refinance, the following requirements must be met: The executed HUD-1 Settlement Statement from the purchase transaction must reflect that no financing secured by the subject property was used to purchase the subject property. The preliminary title report for the refinance transaction must reflect the borrower as the owner of the subject property and must reflect that there are no liens on the property. The source of funds used to purchase the subject property must be fully documented. If funds were borrowed to purchase the subject property, those funds must be repaid and reflected on the HUD-1 Settlement Statement for the refinance transaction. The amount of the cash-out refinance mortgage must not exceed the sum of the original purchase price and related closing costs, financing costs and prepaids/escrows as documented by the HUD-1 Settlement Statement for the purchase transaction. There must have been no affiliation or relationship between the buyer and seller of the purchase transaction. The cash-out refinance must comply with the applicable LTV/TLTV/HTLTV ratio limits and all other nonconforming guideline requirements. SNMC Page 3 September 11, 2015

4 5.1-A General (cont.) 5.1-A8 Refinance Transactions (cont.) Recently Refinanced Properties Any loan application to pay off an existing mortgage loan that was closed within six months of the new application must be priced and evaluated as a cash out refinance, unless the prior mortgage was not a cash out, as evidenced by a copy of the HUD-1 from that closing. Clear evidence is required to submit the new loan as a no-cash out. If a loan that was evaluated as a no-cash out is determined to be a cashout, any pricing adjustments that may apply will be assessed at funding. Recently Listed Properties Any refinance transaction secured by a property that is currently listed for sale or was listed for sale within the six months prior to the initial loan application is not eligible. Privately Financed First And/Or Second Mortgages A refinance transaction with a mortgage being paid off which is currently held by a non-financial institution is eligible. Secondary financing is permitted if provided by a financial institution, private nonfinancial institution or builder. Second Mortgages Included In Refinance Refinances, regardless of loan size, which includes the payoff of a second lien, can be considered as a no cash out refinance provided: The subordinate lien must be seasoned for at least 12 months. Total amount of draws cannot exceed $2,000 in the last 12 months. Cash back to the borrower cannot exceed 2% of the new refinance loan amount or $2,000, whichever is less. 5.1-A9 Construction Conversion and Renovation Mortgages Please see investor guidelines for more information. 5.1-A10 Texas Equity Section 50(a) (6) Texas Equity section 50(a)(6) laws/guidelines must be followed when refinancing an existing Texas Equity section 50(a)(6) mortgage (regardless of any new Cash Out) or providing any cash back to the borrower on a Primary residence refinance. Schedule C of the title commitment must be reviewed to determine if the loan being refinanced is a Texas Equity loan. All loans must be submitted to Investor 07 for manual underwriting. Product Purpose No Cash-Out Refinance and Cash-Out Refinance Please note that the Standard Agency (Freddie Mac/Fannie Mae) classifications of No Cash-Out and Cash-Out Refinances differ from the manner in which Texas Law classifies these mortgages. Under Texas Law, if the borrower receives any cash back at closing the loan must follow the Texas Equity section 50(a)(6) laws/guidelines. Closing costs, Prepaids and Taxes may be rolled into the loan amount: however, no cash back is allowed at closing. A principal curtailment is allowed to eliminate any cash back at closing. Additionally, if an existing Texas Equity section 50(a)(6) mortgage is being refinanced, the new mortgage must conform to Texas Equity laws/guidelines. SNMC Page 4 September 11, 2015

5 5.1-A General (cont.) 5.1-A10 Texas Equity Section 50(a) (6) (cont.) Assumption Varies; please refer to the Product Description for specific product/program chosen. Borrower Eligibility U.S. Citizen, Permanent Resident Alien, and Non-Permanent Resident Alien. Additional requirements apply for Non-Permanent Resident Aliens; see Section 5.1-B1 for details. Credit Requirement Refer to the credit requirements within these guidelines. Credit Score Refer to minimum credit score requirements in Section 5.1-A6. Documentation Follow documentation requirements within these guidelines. Eligible Loan Programs Fixed Rate programs with 30, 20, and 15 Year Amortizations 7 Year and 10 Year Fully Amortizing ARMs Escrows Not required. LTV/TLTV Refer to LTV/TLTV requirements in Section 5.1-A6. Maximum LTV/TLTV for Non-Permanent Resident Aliens may not exceed 75% Mortgage Insurance LTV over 80% is not allowed. Occupancy Owner Occupied, Primary residence only Property Types 1-Unit Single Family Dwelling, Condominium and PUD classification as the borrower s Homestead located in the State of Texas. Qualifying Ratios Maximum DTI is 43%. Reserves Please refer to Section 5.1-B5 for information. SNMC Page 5 September 11, 2015

6 5.1-A General (cont.) 5.1-A10 Texas Equity Section 50(a) (6) (cont.) Ineligibles Property designated as agricultural use, unless property is used primarily for the production of milk. Minimal farm type animals are acceptable as long as it is clear they are being kept as pets. Properties subject to roll back taxes (i.e. properties where the Agricultural use exemption was removed and subjected to roll back taxes) 2 unit dwellings and second homes. Properties with more than one Texas Equity section 50(a)(6) loans. Texas Equity section 50(a)(6) loans may not be closed in a trust. The utilization of a Power of Attorney is unacceptable on Texas Equity section 50(a)(6) transactions. Loans with closing costs that exceed 3% of the loan amount. Includes third party, attorney, title company fees and discount points, but excludes prepaid interest and escrows. Closing cost over the 3% limitations cannot be cured by a lender credit, they must be waived or paid outside of closing by the lender. Secondary Financing No new secondary financing allowed, regardless of LTV/TLTV. Existing, purchase money second mortgages may be resubordinated provided the TLTV is less than or equal to 80%. Seasoning Requirement 12 months (Note Date of the mortgage being refinanced to Note Date of the new refinance transaction). Temporary Buydowns Not allowed. Title Requirements and Additional Disclosures Every borrower must be on title prior to closing. Properties held in a Trust are not eligible. Every borrower and their spouse must sign the following documents twelve days prior to closing. o Loan application (1003) o Notice concerning extensions of credit defined by section 50(a)(6), Article XVI, Texas Constitution. Mortgage Policy of Title Insurance (Form T-2) supplement by an Equity Loan Mortgage Endorsement (Form T-42) and a Supplemental Coverage Equity Loan Mortgage Endorsement (Form T-42.1). Schedule C of the title commitment The following documents must be signed at Closing: o o Notice of right to cancel Acknowledgement of Fair Market Value of Homestead Property SNMC Page 6 September 11, 2015

7 5.1-A General (cont.) 5.1-A10 Texas Equity Section 50(a) (6) (cont.) Special Considerations All loans must close at a title company, bank branch or attorney s office. In the event, that an internal review or customer notification uncovers that a loan was originated out of compliance with Texas Equity section 50(a)(6) statues, the closing attorney should be contacted within 24 hours. Investor 07 cannot require that the borrower pay off any Investor 07-owned debt that is not tied to the subject property, in order to qualify. This includes debt that may be owned by one of Investor 07 s affiliates. 5.1-A11 Temporary Buydowns Not allowed 5.1-A12 Mortgage Insurance Not applicable, maximum LTV 80% 5.1-A13 Assumability Not assumable 5.1-A14 Prepayment Penalty Not allowed 5.1-A15 Subordinate Financing Not allowed 5.1-A16 ARM Information 5/1, 7/1, & 10/1 ARM available: 2/2/5 caps o The first adjustment may change the previous interest rate by no more than 2% up or down o Subsequent Adjustment Cap: each subsequent adjustment may change the interest rate by no more than 2% up or down o Lifetime Cap: The lifetime cap is 5% over the initial note rate. o Life Floor: The life floor will never be lower than the margin. Margin: 2.25% Index: 1 year LIBOR-The average of interbank offered rates for one year in U.S. dollardenominated deposits in the London Market (LIBOR) as published in The Wall Street Journal. The index will be notated on the current rate sheets. DU ARM plan: /1 ARM: qualify at initial Note Rate plus 2% 7/1 and 10/1 ARM: qualify at initial Note Rate In an effort to limit the impact of any potential payment shock on a 5/1 ARM, borrowers will be qualified based on the Note Rate plus 2%. No conversion option, No negative amortization HPML: ineligible SNMC Page 7 September 11, 2015

8 5.1-A General (cont.) 5.1-A16 ARM Information (cont.) Additional Disclosures: 5/1 ARM: 5/1 ARM: LIBOR- Indexed Adjustable Rate Mortgage Loan Program Disclosure 5/1 Year Discounted or Premium Non-Convertible ARM with 2/2/5 Caps 7/1 ARM: 7/1 ARM: LIBOR- Indexed Adjustable Rate Mortgage Loan Program Disclosure 7/1 Year Discounted or Premium Non-Convertible ARM with 2/2/5 Caps 10/1 ARM: 10/1 ARM: LIBOR- Indexed Adjustable Rate Mortgage Loan Program Disclosure 10/1 Year Discounted or Premium Non-Convertible ARM with 2/2/5 Caps Note: Use the Discounted disclosure if the note rate is less than the index plus the margin. Use the Premium disclosure if the note rate is equal to or greater than the index plus the margin. 5.1-B Underwriting A branch underwriter will review the file for Investor 07 guidelines. All loans, regardless of loan size, must be submitted to Investor 07 for manual underwriting. Loans with DU or LP approval are ineligible. As standard SNMC policy, any loan amount greater than $650,000 will require an underwriting manager 2 nd signature, and any loan amount greater than $1,000,000 will require additional corporate approvals. Loan Amounts Greater Than $1,000,000 The rule of two, i.e. two paystubs, two years W-2s, two bank statements, two appraisals, etc. Self-employed borrowers must provide most current two years personal and business tax returns with all applicable schedules 5.1-B1 Borrower Eligibility Co-Borrower/Co-Signer/Guarantor Non-occupant co-borrowers are acceptable. The non-occupant co-borrower must be a parent, legal guardian, child, grandparent or sibling to the occupant borrower. Maximum DTI cannot exceed 43% for the occupant borrower. Living Trust Living Trusts also referred to as "inter vivos revocable trusts" or "inter vivos trusts" are allowed and must meet the following eligibility requirements: The trust is created by one or more Settlors (individual who creates a Living Trust) during his or her lifetime. The trust becomes effective during the lifetime of the Settlor(s), and Each Settlor retains the right during his or her lifetime to revoke or amend the trust. The Settlor(s) is also: o The Trustee or one of the co-trustees, o Occupies the property as either a primary residence or second home, and o Is the primary beneficiary of the trust. SNMC must submit a completed Living Trust Certification with the delivery package. The certification is available in Credit Policy Section 5.3. SNMC Page 8 September 11, 2015

9 5.1-B Underwriting (cont d) 5.1-B1 Borrower Eligibility (cont d) Non-Arms Length Transactions Non-Arms length transactions are purchase transactions in which there is a relationship or business affiliation between the borrower and the builder, developer, or seller. The investor will allow non-arms length transactions for the purchase of newly constructed or existing properties secured by a primary residence, and existing properties secured by second homes. Investment properties are ineligible. If a borrower has a business affiliation (any ownership interest or employment) with the builder, developer or seller of the property, additional due diligence including, but not limited to, detailed information regarding unsold builder/developer inventory held individually and/or through his or her business (LLC s, DBA s, etc.) is required to determine the legitimacy of the transaction. Loan to Builders/Developers See "Non-Arms Length Transactions" section above for details. The investor will not fund loans where the builder/developer is purchasing or refinancing their current unsold inventory. USA Patriot Act SNMC is required to comply with all aspects of the USA PATRIOT ACT. Due to the nature of the law and severity of penalties associated with non-compliance, the investor strongly urges that SNMC adopts procedures to insure that their staff fully complies with the requirements of the Act and that SNMC files are properly documented. Non-U.S. Citizens The investor has adopted the following policy for extending mortgage loans to non-u.s. Citizens. USA Patriot Act documentation is required in addition to the following guidelines. A permanent resident alien who is lawfully residing in the U.S. is eligible for a mortgage on the same terms as a U.S. Citizen. The investor does not differentiate between U.S. Citizens and permanent resident aliens for general underwriting guidelines. Non-Permanent Resident Aliens are subject to additional requirements as stated below. All permanent resident aliens must provide their valid Permanent Resident Card. All non-permanent resident aliens must provide evidence of a valid, unexpired visa. Evidence must be included in closed loan file. Visas granting diplomatic immunity or Foreign Nationals are not allowed. The investor requires sufficient documentation that the borrower is lawfully residing in the U.S., as permanent or non-permanent resident alien. A Social Security Number is required. Borrowers with an ITIN are not eligible Borrowers must qualify on U.S. credit; U.S. reported income, U.S. assets, and U.S. residency history. Non-Permanent Resident Aliens: must meet all requirements stated above, AND o Maximum property values limited to $1,000,000, o Requires a 5% LTV/TLTV reduction from maximum allowed financing for property and transaction type, o LTV/TLTV may not exceed 75%. SNMC Page 9 September 11, 2015

10 5.1-B Underwriting (cont d) 5.1-B1 Borrower Eligibility (cont d) Non-U.S. Citizens (cont d) All guidelines herein regarding the determination and documentation for stable monthly income, adequate credit history, sufficient liquid assets and residency must be applied in the same manner to each borrower including borrowers who are non-permanent resident aliens. For non-permanent resident aliens who work for an International Organization (i.e., Red Cross, UNICEF, World Bank, etc.), the investor will require a copy of the most recent year s tax transcript evidencing "no record of return filed". For these borrowers who do not report income to the IRS, BB&T will not allow their income to be "grossed up" for qualifying purposes. Properties Currently or Formerly in the Name of an LLC If a property is currently in the name of borrower's LLC or has been in the name of the borrower's LLC in the most recent six month period, as measured backward from the date of the initial application, it is not eligible for refinancing into the borrower's name. If there is an outstanding lien against the property, it also must be in the borrower's name for a minimum of six months in order to be refinanced. Credit Reputation/Required Minimum Number of Tradelines The credit report must show a minimum of two (2) years established credit history. Additionally, each borrower must have a minimum of three (3) tradelines with 12 months satisfactory history. A prior mortgage or rental history which evidences no late payments during the past 24 months is required. Non-traditional credit is not permitted. Authorized User Accounts A tradeline for an account for which the Borrower is not the primary account holder, but is listed as an authorized user, may not be considered a Borrower s tradeline. Foreign Credit Reports Use of foreign credit reports is unacceptable. Payment Plans for Unpaid Income Taxes Loans where the Borrowers have payment plans for unpaid income taxes are ineligible regardless of whether or not a tax lien exists. Significant Adverse or Derogatory Credit/Waiting Periods Recovery Time Periods for Significant Derogatory Event Reestablishment of Credit with Financial Mismanagement Foreclosure Deed-in-Lieu of Foreclosure Not Allowed Short Sale Charge-offs of Mortgage Debt Recovery Time Periods for Reestablishment of Credit with Extenuating Circumstances Not Allowed SNMC Page 10 September 11, 2015

11 5.1-B Underwriting (cont d) 5.1-B1 Borrower Eligibility (cont d) Significant Adverse or Derogatory Credit/Waiting Periods (cont d) Significant Derogatory Event Recovery Time Periods for Reestablishment of Credit with Financial Mismanagement 7 years (84 months) from the discharge or dismissal date Bankruptcy Chapter 7, 11 or 13 Multiple Bankruptcy Filings Not Allowed Not Allowed Other Significant Adverse or Derogatory Credit Not Allowed Information Collections and Chargeoffs (other than Charge-offs of Mortgage Debt) Required Documentation Collections (including medical) and chargeoffs in excess of $1,000 individually or collectively must be paid in full prior to or at closing. Underwriter must explain on the Transmittal Summary the rationale supporting the determination that the financial mismanagement is unlikely to recur and the Borrower s credit reputation is acceptable. Mortgage file must contain all of the following documentation: o o Evidence that the Borrower has reestablished an acceptable credit reputation per guidelines below. Evidence on the credit report and other credit documentation in the file of the length of time since completion of the significant derogatory event to the date of the application and of completion of recovery time period requirement. Recovery Time Periods for Reestablishment of Credit with Extenuating Circumstances 2 years (24 months) from the discharge or dismissal date 2 years (24 months) from the most recent significant adverse or derogatory credit information N/A Written statement from the Borrower attributing the cause of the financial difficulties to outside factors beyond the borrower s control and are not ongoing and unlikely to recur, Third Party documentation confirming that the events related by the borrower in the explanation were an isolated occurrence and significantly reduced the borrower s income, and Evidence on the credit report and other credit documentation in the mortgage file of the length of time since completion of the significant derogatory event to the date of the application, and of completion of the recovery time period requirement. SNMC Page 11 September 11, 2015

12 5.1-B Underwriting (cont d) 5.1-B1 Borrower Eligibility (cont d) Significant Adverse or Derogatory Credit/Waiting Periods (cont d) Restructured Loan A restructured loan occurs when the terms of the original transaction have been changed resulting in absolute forgiveness of debt or a restructure of debt through modification or the origination of a new loan that results in: Forgiveness of a portion of principal and/or interest on either the first or second mortgage, OR Application of a principal curtailment by or on behalf of the investor to stimulate principal forgiveness, OR Conversion of any portion of the original mortgage debt to a "soft" subordinate mortgage, OR Conversion of any portion of the original mortgage debt from secure to unsecured. Not allowed for subject property currently owned by borrower. Re-establishing Credit If one or more of the borrowers on the loan has entered into a restructured mortgage loan transaction for a property other than the subject property in the past, the loan is ineligible. After a Bankruptcy, the Borrower s credit will be considered reestablished if all of the following are met: The waiting period and the related additional requirements are met; and All credit reviewed must be reestablished traditional credit. Nontraditional credit files are not acceptable. Loans where the Borrowers have a history of Foreclosure, Deed-in- Lieu of Foreclosure, Short Sale, Short Refinance, Short Payoff and/or Restructured Mortgage are ineligible. The credit report must show a minimum of two (2) years established credit history. Additionally, each borrower must have a minimum of three (3) tradelines with 12 months satisfactory history. A prior mortgage or rental history which evidences no late payments during the past 24 months is required. 5.1-B2 Ratios Max DTI 43% Paying down debt or paying off debt to qualify is not acceptable. SNMC Page 12 September 11, 2015

13 5.1-B Underwriting (cont d) 5.1-B3 Credit The credit report must show a minimum of 2 years established credit history. Additionally, each borrower must have a minimum of 3 tradelines with 12 months satisfactory history. A prior mortgage or rental history which evidences no late payments during the past 24 months is required. Non-traditional credit is not allowed. Inquiries All credit inquiries on the credit report within the past 120 days must be evaluated to determine if credit was granted. Credit Inquiries should be addressed the same as with all conventional loans (LQI). In addition, borrowers must sign a statement explaining all inquiries, including those generated as a result of the subject mortgage. Information obtained through the use of a third-party vendor is not acceptable as an alternative to the borrower s letter of explanation. Derogatory Credit Requirements Regardless of AUS findings No foreclosures, deed in lieu, short sales, or charge-offs of mortgage debt allowed No bankruptcies in the past 7 years No public records in the past 2 years (i.e. judgments, collections, etc) Collections (including medical) and charge-offs (other than charge-offs of mortgage debt) in excess of $1,000 individually or collectively must be paid in full prior to or at closing. 24 Month Residency History A satisfactory residency history payment record covering the most recent 24 month period is required. Satisfactory is defined as no delinquent payments in the last 24 months. Borrowers who rent from a rental management company must provide direct written Verification of Rental or verification on a Residential Mortgage Credit Report that includes rental amount, payment history, length of payment history, and landlord s contact information. Borrowers who rent from a private landlord must provide direct written Verification of Rental, verification on a Residential Mortgage Credit Report, or copy of lease; AND most recent 12 months canceled checks (front and back) or bank statements verifying rental amount. It is at the investor s discretion to determine if past mortgage histories are acceptable and meet guideline requirements. Borrowers who own their current residence free and clear and have a satisfactory past mortgage payment history on the credit report, whether an open mortgage from another REO property or a closed mortgage, are not subject to the satisfactory 24-month residency history noted above. SNMC Page 13 September 11, 2015

14 5.1-B Underwriting (cont.) 5.1-B4 Income Document income as per AUS findings unless specifically mentioned below. Loan Amounts Greater Than $1,000,000 The rule of two, i.e. two paystubs, two years W-2s. Paystubs Paystubs must cover at least 30 days of income, show YTD earnings, and be dated within 30 days of application date. Tax Returns Base salaried borrowers who have income other than base salary income, i.e. rental income, royalties, etc.: The last two years personal tax returns including all schedules are required. Loans delivered on or before April 15 th are required to contain tax returns from the previous two calendar years Self-Employed borrowers: The last two years personal and business tax returns, including all schedules, are required. Loans delivered after April 15 th are required to contain tax returns from the previous 2 years. If the loan amount is greater than $1,000,000, self-employed borrowers must provide most current two years personal and business tax returns with all applicable schedules. If the tax returns have not been submitted and processed by the IRS, then SNMC will accept either a copy of the tax return submitted completed by a licensed CPA and date stamped received by the IRS OR an audited Profit and Loss Statement for the previous calendar year completed by a licensed CPA. Amended tax returns may require additional due diligence Federal tax return extensions are not allowed. Note: Amortization may not be added back when calculating income for the Self-Employed Borrower. Schedule F Income Loans subject to Schedule F income will be considered on a case-by-case basis. If Schedule F income is reflected on the IRS tax transcripts, the actual Schedule F must be reviewed for the existence of leases and true gross income. If any income is from sources (i.e. rental income, pension income, interest income, trust income, dividend income, etc.) that must be documented by tax returns, federal extensions will NOT be accepted. The most recent calendar year is required T The 4506-T form is required: To be completed, signed, and dated as of the date of the loan application and at loan closing Whether or not the borrower(s) are employed The 4506-T form is required whether or not the loan is income qualifying SNMC Page 14 September 11, 2015

15 5.1-B Underwriting (cont.) 5.1-B4 Income (cont d) Tax Transcript The most recent available IRS Tax Return Transcript requirement applies to every loan, regardless of the loan type or borrower s income source The Official Tax Return Transcript is required on each borrower The Official Tax Return Transcript is required even if tax returns are not required for loan qualification. Foreign Income All U.S. Citizens using foreign income to qualify must document income with the following: Two years signed U.S. Federal Tax returns Standard income documentation (YTD paystubs, 2 years W-2 statements, etc.) All income translated into U.S. dollars 5.1-B5 Assets/Reserves The borrower is required to contribute a minimum of 5% liquid assets from his or her own personal funds not derived from recent undocumented, unsecured, unstable or business sources. Verification of Deposits and Assets Any of the following types of documentation can be used to verify that a borrower has sufficient funds for closing costs, down payment, and/or financial reserves: Request for Verification of Deposit The information must be requested directly from the depository institution, and the complete signed and dated document must be sent directly from the depository institution. Copies of Bank Statements or Investment Portfolio Statements The statements must cover account activity for the most recent two-month period (or, if account information is reported on a quarterly basis, for the most recent quarter). The statement must: clearly identify the borrower as the account holder include the account number include the time period covered by the statement include all deposits and withdrawal transactions (for depository accounts) include all purchase and sale transactions If Investor 07 is the holder of the borrower s account, Investor 07 may produce a printout or other alternative verification of the assets directly from Investor 07 s system. The printout or alternative verification is acceptable as long as all required data (above) is supplied and documented. Documents received by fax or downloaded from the Internet must clearly identify the name of the depository or investment institution and the source of information- for example, by including that information in the Internet or fax banner at the top of the document. Copies of Retirement Account Statements The borrower must provide the most recent statements that identify the borrower s vested amount and the terms. SNMC Page 15 September 11, 2015

16 5.1-B Underwriting (cont.) 5.1-B5 Assets/Reserves (cont.) Large Deposits/Business Funds Large deposits are defined as a single deposit that exceeds 50% of the total gross monthly qualifying income for the loan. This requirement is for all transactions where the deposit is needed to meet the requirements for borrower funds and/or required reserves. When a deposit that meets the definition for large deposits is not documented and is not needed for borrower funds and/or required reserves, the funds used for qualifying purposes by the amount of the unverified deposit must be reduced. Any borrowed funds including any related liability must be considered, including undisclosed debt. Therefore, a signed statement from the borrower explaining the origin of unverified deposits is required and must be included in the loan file. When a single deposit consists of both verified and unverified funds, the unverified funds are used when determining whether the deposit exceeds the 50% requirement. The use of business funds is eligible under the following conditions: Borrower must be 100% owner of the business. Business average annual cash flow is greater than the amount to be withdrawn and/or used towards reserves. Cash on company year-end balance sheet for each of the previous three years is greater than the amount to be withdrawn and/or used towards reserves. This information is found on line 1 of the Schedule L for the Partnership, S-Corporation and the Corporation. Two years of the Schedule L will show three years of cash on hand for the company. Full analysis of the business must consider the effect of the withdrawal of the assets and how it will impact the strength and viability of the business in the future. Documentation Obtain one of the following: Two most recent consecutive monthly bank statements Most recent quarterly statement Verification of Deposit If the latest statement is more than 45 days earlier than the date of the loan application, the investor requires the borrower to provide a more recent, supplemental, bank-generated form that shows the account number, balance, and date. The statements may be computer-generated forms, including online account or portfolio statements downloaded by the borrower from the internet. Loan Amounts Greater Than $1,000,000 The rule of two, i.e. two bank statements, etc. SNMC Page 16 September 11, 2015

17 5.1-B Underwriting (cont.) 5.1-B5 Assets/Reserves (cont.) Gift Funds Gift funds must be from a related family member, and are allowed on transactions secured by primary residences or second homes. Gift funds may fund all or part of the down payment, closing costs or financial reserves subject to the minimum borrower contribution requirements. Gift letters must be obtained on all loans. Acceptable related family members include: A relative, defined as the spouse, child, or other dependent, or any other individual who is related by blood, marriage, adoption, or legal guardianship, or A fiancé, fiancée, or domestic partner The related family member may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction. The gift letter must: Specify the dollar amount of the gift Specify the date the funds were transferred Include the donor s statement that no repayment is expected Identify the mortgaged premises, and Indicate the donor s name, address, telephone number, and relationship to the borrower Documentation must be obtained to verify that sufficient funds to cover the gift are either in the related family member s account or have been transferred to the borrower s account. When funds from a relative or domestic partner are being pooled with the borrower s funds to make up the required minimum cash down payment, the following items must also be included: A certification from the donor stating that he or she has lived with the borrower for the past 12 months and will continue to do so in the new residence. Documents that demonstrate a history of borrower and donor shared residency. The donor s address must be the same as the borrower s address. The following documentation is required: Fully executed gift letter And obtain one of the following: Copy of the donor s check and the borrower s deposit slip Copy of the donor s withdrawal slip and the borrower s deposit slip Copy of the donor s check to the closing agent Settlement statement showing receipt of the donor s check SNMC Page 17 September 11, 2015

18 5.1-B Underwriting (cont.) 5.1-B5 Assets/Reserves (cont.) Reserve Requirement Occupancy Units Max Loan Amount Purchase / Rate-Term Refinance Required Reserves Additional Required Reserves for Previous Primary Residence (Pending Sale or Conversion) when Purchasing New Primary Residence Primary 1 $1,000,000 6 months PITI 2 months PITI Primary 1 $1,000,001 to $1,500,000 9 months PITI 6 months PITI Primary 1 $1,500,001 to $2,000,000 9 months PITI 6 months PITI Primary 2 $1,500, months PITI 6 months PITI Second Home 1 $1,000,000 6 months PITI N/A Second Home 1 $1,000,001 to $1,500, months PITI N/A Occupancy Units Max Loan Amount Cash Out Refinance Required Reserves Additional Required Reserves for Previous Primary Residence (Pending Sale or Conversion) when Purchasing New Primary Residence Primary 1 $650,000 6 months PITI N/A Primary 1 $1,000,000 6 months PITI N/A Primary 1 $1,000,001 to $1,500, months PITI N/A 5.1-B6 Interested Party Contributions LTV Maximum Seller Contributions >75%-80% 6% 75% 9% Seller contributions may be used to pay closing costs. If the following conditions are met, the seller may also pay prepaids: Pre-paids/escrows not paid by the borrower are paid by: o The originating lender o The borrower s employer, and/or o The property seller 5.1-B7 Liabilities If the current property is not sold prior to closing or is being retained, the amount of both the current and proposed payments must be used to qualify the borrower for the new transaction, and the maximum DTI allowed is 43%. SNMC Page 18 September 11, 2015

19 5.1-C Property 5.1-C1 Eligible Properties Primary Residence 1-2 Family Second Home 1 unit Warrantable Condominiums PUD Townhomes Log Homes Modular Homes (see Section 5.1-C5 for details) 5.1-C2 Ineligible Properties 1031 exchange transactions on primary residence or second home 3-4 Unit Properties Actual or potential income producing properties Condo Hotels Co-ops Down Payment Assistance programs Energy Efficiency programs Foreign Nationals High Cost Criteria Irrevocable Trusts Land Contracts Land Trusts Loans currently or recently titled in the name of a business, Corporation, S-Corp, Partnership, LLC or any other non-living business entity Loans to Builder/Developer to purchase/refinance current unsold inventory Lot Loans Mobile/Manufactured housing Model Lease-back loans Non-warrantable condos Private transfer fee covenants that do not benefit the subject property Properties located in Alaska, California, and Hawaii Resale of properties by an individual, LLC or Investment group obtained through foreclosure, deed-in-lieu, short sale or at auction within 6 months from sale date Restricted Access properties Second Mortgages Transfer of ownership from an LLC, Corporation, S-Corp, Partnership, or any other non-living business entity for the purpose of refinancing the loan into the prospective borrower s name Unacceptable Title/Deed Restrictions (Marital Rights, Reversion to Seller Clauses, Life Estates) 5.1-C3 Appraisals A full URAR is required, regardless of AUS findings. Limited appraisal options are not allowed. Appraisal is effective for 120 days to note date. 5.1-C4 Condominiums Each condominium loan must be classified to Freddie Mac guidelines as the benchmark for classifying condominium properties. See investor guidelines for more information. SNMC Page 19 September 11, 2015

20 5.1-C Property (cont.) 5.1-C5 Modular Homes Permitted if the structure meets the following definition: A structure that is built in compliance with the State Building Codes and is built on a steel frame (on-frame) or a wood frame (off-frame). The unit does not have a permanent chassis. It is designed to be used as a dwelling with a permanent foundation. The minimum roof pitch can be 5/12 and the Certification Label (blue and silver label) is located normally in the electrical panel box inside the home. Additionally, Modular homes must be existing construction with a 100% complete as is appraisal provided. Modular homes that meet these requirements are comparable to stick-built homes and can be appraised as stick-built construction. 5.1-C6 Declining Market All properties are subject to a declining market policy. If the property falls within a designated county as notated on the list published in investor 07 guidelines or if the appraiser indicates a 6 month marketing trend, declining value, or over-supply. Property located in a Declining market requires a 5% LTV reduction from maximum allowed financing for the property and transaction type. Property located in a Severely Declining market requires a 10% LTV reduction from maximum allowed financing for the property and transaction type. 5.1-C7 Acreage The following guidelines should be considered when reviewing properties with acreage: Comparables must be within a reasonable radius, recent closed sales, similar land size and valuation Properties with excessive acreage are generally not considered to meet residential definition No income producing or potential activity allowed on the acreage Land valuation should be typical for the residential properties in the market. Adjustments for excess acreage for comparables should be minimal and an explanation provided on the effect these differences have on the subject property's value or marketability. Additional residential structures (including homes) or significant/numerous outbuildings are not allowed 5.1-C8 Property Flip Guidelines Resale of a property cannot be less than six months from the date of the last sale. Certain exceptions may apply for resale of inherited properties, divorce settlements, HUD or Federally Chartered Institutions, or relocations. 5.1-C9 Shared Wells If the property is part of a HOA/POA, a shared well agreement is required If subject property is not part of a HOA/POA and is in a remote, rural setting, proof of a recorded perpetual easement is required. Mortgaged premises must be residential SNMC Page 20 September 11, 2015