V FundLoans Montage Business Purpose Loans Guidelines

Transcription

1 V FundLoans Montage Business Purpose Loans Guidelines October 27, 2017

2 100 Loan Program Overview Program FundLoans RESIDENTIAL TRANSITION Loan Purchase Guidelines 9-24 Month Interest Only Fixed Rate Loan Purpose Investment Property Bridge Loans; Fix and Flip or Rent; New Construction Interest Rates 8-12% Loan Amounts $500,000 - $10,000,000 Loan to Initial Value (refi) Up to 75% Loan to Cost (purchase) Up to 80% Loan to ARV Up to 70% Lien Position 1st Liens Geography US, Major Metropolitan Markets Loan Term 9-24 months Origination Fees 2 4% Reserves For interest, taxes and insurance: held by Lender or its agent for the term of loan or commensurate with borrower s exit strategy and ability to pay Amortization Interest only (fixed rate) Prepayment Minimum interest of 6 months, no prepayment penalty thereafter Property Types Non-owner occupied 1-4 unit residential properties including condos and PUD s, entitled land, multi-family (5-30 units), mixed use properties. Others are considered case-by-case. Occupancy Evaluated case by case Recourse Full recourse guarantee required see Borrower Eligibility below Loan Type Business purpose loans only. Loans may be structured with either (i) a single advance at closing with no rehab escrow, or (ii) an advance at closing with rehab/construction reserve and advances over time. Rehab and Construction Funding Draw fundings permitted upon completion of scheduled rehab work and payment of fees which covers lender's out-of-pocket costs (subject to satisfactory inspection, LTV and LTC limits). Interest accrues based on the full note amount until repaid. Rehab draw fees, and costs of construction completion verification, title recertification and final valuation must be reserved at closing. V

3 Borrower Requirements at a Glance Eligible Borrower Types Minimum Credit Score Minimum Liquidity Exit Strategy Business entities (including sole proprietorships). Individuals 600 (middle of 3 bureaus) with fraud check included Documented liquidity to support down payment, repairs if applicable and 3 months payment reserves in addition to reserves taken at closing If the method of repayment is refinance (as opposed to a sale), the borrower s ability to obtain retail financing will be reviewed Personal Guaranty Personal guarantees required for all principals with ownership > 49%, and at least 50% of ownership must guarantee the loan Other guarantors may be required to qualify. Experience Level Experience level must be documented and can affect pricing and LTV see Definitions for experience criteria. Loan Limits Product Experienced Borrowers Max Loan to Value ("As Is")( 1 ) Max Loan to Cost ( 1 ) Max Loan to ARV( 1 )( 2 ) Light Rehab Purchase 75% 80% 70% Light Rehab Refinance (No Cash Out) 75% 80% 70% Light Rehab Refinance (Cash Out) 70% 80% 65% Moderate Rehab Purchase 75% 80% 70% Moderate Rehab Refinance Not Permitted New Construction 60% 80% 70% New Borrowers Light Rehab Purchase 70% 80% 65% Moderate Rehab Purchase 65% 75% 65% Refinance Not Permitted (1) Lower of the three variables will be used. The maximum LTV / LTC is subject to reduction as set forth in Maximum LTV/LTC Limits below (2) Only required if the loan permits a future draw or release of funds from rehab escrow Adjustments 1. Loan amounts LTV (As Is) LTC LTV (ARV) $2,000,000-$5,000,000 (5%) (5%) (5%) $5,000,000+ Case by case Case by case Case by case V

4 2. Foreign national: (10%) (10%) (10%) 3. Additional Cross-Collateral: Case by case Case by case Case by case Additional adjustments may be made based on the following in our discretion: 1. Nature and scope of rehab work vs. borrower s previous experience 2. Borrowers financial status and credit profile 3. Likelihood of achieving the exit strategy within agreed timelines 4. Type of property and occupancy characteristics 5. Location of property, average marketing times and values as compared to the market Borrower Limits Moderate Rehab over $1,000,000 and New Construction are reserved for Experienced Borrowers only. Exceptions made on a case by case basis. Property Requirements at a Glance Eligible properties include: Single Family Detached. Single Family Attached (Townhouse/row house). Condominium. Condominium projects with fewer than 5 units considered on exception basis only. PUDs. 2-4 Family. Business, Commercial or Agricultural Zoning will be considered on case-by-case basis. The Property must be mostly residential in use. Rural properties will be considered on a case-by-case basis. Mixed-use properties will be considered on a case-by-case basis. Multi-family/Condo properties (5-30 units). Entitled land for new construction. Other property types may be considered as additional collateral. All properties must have an appropriate Certificate of Occupancy, or a clear path to obtaining one in FundLoans discretion. Ineligible Properties include: Log Cabins, Earth Homes, Syndications, Time-Shares, Manufactured Homes, Mobile Homes, Dome, and Kiddie Condos. Working farms and/or ranches. Co-ops, condo-tels. Exceptions will be considered on case-by-case basis. Leasehold Estates are acceptable on a case by case basis. Required insurance policies include Hazard, Liability, Builder s Risk, and Flood, as applicable. See Section 900 Insurance. V

5 Rehab and Construction Requirements Rehab and New Construction projects require the following documentation: Borrower historical performance summary Scope of work/ Budget, Project plan Proposed Rehab/construction Draw Schedule, timeline Exit Strategy Statement and Pro-forma profit calculation Permits, plans, approvals, as applicable List of contractors Builder s risk insurance and workmen s comp, where applicable See Section 800 Underwriting the Property. Definitions Experienced Borrowers: The guarantor(s) in the aggregate have at least 5 documented investment property sales in the past three years and at least one year in the business of acquiring real estate for investment purposes or renovating real estate. New Borrowers: The guarantor(s) in the aggregate have 2-4 documented investment property sales in the past three years or less than one year in the business of acquiring real estate for investment purposes or renovating real estate. All customers must have completed at least one prior project to qualify. Light Rehab: Rehab budget is less than or equal to 50% of "as is" value (purchase and refinance) and purchase price (if a purchase). Projects without any rehab budget are classified as light rehab. Moderate Rehab: Rehab budget is less than or equal to 100% of "as is" value (purchase and refinance) and purchase price (if a purchase), does not involve a 15% expansion (except with pre-approval) of the property and the property does not qualify under Light Rehab above. New Construction: Loans that are not Light or Moderate Rehab loans, typically involving purchase of a building lot with construction of a new building. Loan to "As is" Value: Initial loan amount at the origination date (exclusive of rehab and other escrows or other amounts not funded to the borrower at closing) divided by "as is" appraised value. Loan to Cost: Outstanding loan amount at origination (exclusive of rehab escrows) divided by borrower Cost Basis at the origination date. The same ratio is to be maintained throughout the loan. Cost Basis: Cost basis is inclusive of purchase price, verified borrower paid rehab amounts expended to date, and customary borrower paid arms-length closing costs/ fees, including broker commissions, title, escrow, other closing costs and the amount of taxes, HOA dues, fees, assessments, and liens paid by the borrower or its affiliates in connection with the acquisition to date. Loan to "As Repaired" Value: Maximum loan amount (inclusive of any rehab and other escrows and the maximum amount permitted to be funded in respect of future rehab draws) divided by "as repaired" appraised value. Purchase: The property was purchased by the borrower or an affiliate within three months prior to the loan origination date as reflected on the executed note or is a delayed financing as described under "Cash Out" below. V

6 Refinance: The property was purchased by the borrower or an affiliate more than three months prior to origination of the subject transaction. Cash Out: In the event that the borrower is refinancing existing debt on the property, the borrower receives net proceeds (excluding third party expenses reflected on the HUD) from the refinancing that exceed 2% of the original loan amount. Non Cash Out: A refinance that is not a Cash Out Refinance. Notice FundLoans reserves the right to evaluate any part of these Loan Purchase Guidelines on a case-bycase basis. THIS GUIDELINE IS NOT AN OFFER OR COMMITMENT TO LEND MONEY OR TO PURCHASE ANY LOAN. It is a statement of the terms and conditions upon which FundLoans, the Fund or any affiliated entity may be prepared to purchase loans. As such it does not create a binding obligation to purchase or consider for purchase any particular loan. Such purchase shall occur, if at all, only subject to a separate written agreement between FundLoans the Fund or any affiliated entity and the seller. Terms and conditions set forth in this Guideline are subject to change any time in the sole discretion of FundLoans, the Fund or any affiliated entity, without any obligation to notify or advise any recipient of these Guidelines of such changes V

7 200 General Policy The following guidelines outline the FundLoans loan acquisition criteria for residential bridge loans. This document is intended to serve only as a guideline and reflects current loan acquisition requirements. FundLoans reserves the right to waive any requirement or add additional requirements at any time and without prior notice Management Philosophy All mortgage loans underwritten and closed must conform to FundLoans' current product specifications, matrices, and guidelines. These underwriting guidelines address the underwriting of the Borrowers and the property securing the loan for all Mortgage products. Although the guidelines are comprehensive, it is not possible to cover every subject and situation. Please note that due to the likely complex financial condition and history of the prospective Borrower, FundLoans will take a holistic underwriting approach that may include alternative income and asset sources not included in traditional underwriting. FundLoans will revise, update, and, amend these guidelines from time to time on an as needed basis. The purpose of credit and property underwriting is to ensure that each loan meets FundLoans' quality standards. A loan must meet FundLoans' underwriting quality standards with respect to credit, character, capacity, and collateral criteria that are consistent with the program under which the loan has been closed. The likelihood of a timely repayment is expected to be commensurate with the credit quality of the program and represented value of mortgaged premises is expected to accurately reflect its market value. On a case by case basis, FundLoans may grant exceptions for loans considered to fall outside of FundLoans' published program/product guideline eligibility standards. The underwriter must make a sound underwriting judgment, and the loan file must clearly document the reasons for the loan approval. 300 Regulatory Compliance Loan Purpose FundLoans does not acquire consumer loans under this program. Originators are required to ensure that all loans are not made for personal, family or household purposes. Borrowers are required to sign business purpose affidavits or similar document which confirms that the loan purpose complies with this paragraph. See Exhibit A for more information Bank Secrecy and USA PATRIOT Acts The Bank Secrecy Act (BSA) requires financial institutions to assist US government agencies to detect and prevent money laundering. Originators must have implemented anti-money laundering policies and V

8 procedures to comply with applicable federal law. As a part of this policy, originators must screen all borrowers and guarantors against the list of specially designated nationals maintained by the US Department of the Treasury and OFAC pursuant to the USA PATRIOT Act, amendments to the Bank Secrecy Act and its implementing regulation and investigate name matches as required by law. FundLoans does not acquire loans which are made to borrowers or guarantors which are specially designated nationals State Law Originators must comply with applicable state law governing lending practices and are required to maintain applicable state lending licenses to the extent required. 400 Borrower Eligibility Borrower's Age: FundLoans requires that all Borrowers must have reached the age at which the mortgage note can be legally enforced in the jurisdiction where the property is located. There is no maximum age limit for the Borrowers Non-Borrowing Spouse: To perfect a mortgage lien under the governing state law when a married applicant finances a property without involving their spouse, FundLoans requires the non-borrowing spouse to sign the security instrument and any other applicable documentation to confirm they are subordinating or relinquishing all rights to the property. As required by state jurisdiction, FundLoans will accept different documentation provided FundLoans is guaranteed a first lien position that is superior to that of the non-borrowing spouse Social Security Number: All Borrowers must have a valid social security number or a valid Federal Identification Number. Exceptions will be determined on a case-by-case basis Residency and Immigration Status: FundLoans will generally lend to United States Citizens, Permanent Resident Aliens, and Non- Permanent Resident Aliens. Loans to Foreign Diplomats are not eligible for financing. Loans to Foreign Nationals are acceptable on a case-by-case basis. Appendix C for more information US Citizens: A United States citizen is a native or naturalized person entitled person entitled to all rights and privileges of the United States. Unless otherwise noted, loan program requirements are based on the assumption that the Borrower is a US Citizen Permanent Resident Aliens: Loans to Permanent Resident Aliens are eligible for financing under the same terms and conditions as loans to U.S. citizens. Evidence of resident alien status may be supported by the following documents: Alien Registration Receipt Card (INS Form also known as a "green card") indicating at least 12 months remaining status. V

9 Unexpired foreign passport that contains an unexpired stamp reading employment authorized". Borrower must be employed in U.S. for the last 24 months Non-Permanent Resident Alien: A Non-Permanent Resident Alien is eligible for financing under the same terms and conditions offered to U.S. citizens and permanent resident aliens. The Borrower must be employed in the U.S. In addition, income and residency in the U.S. must be likely to continue for at least three years. Borrowers with diplomatic immunity are not eligible for financing. All files must contain evidence that the Borrower(s) is lawfully permitted to reside in the United States. Acceptable evidence consists of one of the following: A completed Certification of Residency, certifying the Borrower's alien registration information has been reviewed and indicating that the Borrower is a lawful temporary resident alien; or Borrowers with one of the following Visa status are generally considered lawful nonpermanent resident aliens: H-1; H-2A; H-3; L-1; E-1 and G series. A copy of Borrower's identification should be included in the loan file Foreign National Foreign Nationals that possess a valid visa to live or visit the U.S. maybe eligible under FundLoans Foreign National Loan Program, are acceptable on a case-by-case basis and are subject to LTV adjustments. See Appendix C for more information regarding the Foreign National Program Inter Vivos Trust (Living Trust): Trusts are acceptable on a case-by case basis only. Please inquire Business Entities: Loans can be made to qualified corporations, partnerships, and limited liability companies. Personal guaranties are required for all principals with ownership > 49%. At least 50% ownership must sign a guaranty. Other guarantors may be required to qualify. See Appendix B for guidelines and documentation requirements on business entity borrowers Occupancy: Investment Properties are eligible. Properties occupied by tenants are acceptable on a case-by-case basis after review of occupancy terms. Primary residences and second homes are eligible on a caseby-case basis for loans made for business purpose. See Appendix A Investment Property: Investment property is a dwelling that is vacant or occupied by someone other than the Borrower and is intended to generate income prior to expenses Number of Loans Per Borrower: When there are multiple loans to one Borrower/ or Guarantor, the aggregate total of loans financed with FundLoans may not exceed $10,000,000. We reserve the right to require cross collateralization of multiple loans. When a single loan is being delivered to FundLoans, the guidelines determine the maximum loan. When a Borrower is financing multiple properties with FundLoans, he or she may not be affiliated with the originator, builder, developer, or property seller of the property that secures any of the Mortgage Loans that are delivered to FundLoans. V

10 FundLoans reserves the right to limit the number of properties purchased within one project, within one neighborhood and/or to one Borrower. The Borrower must reflect the ability to manage the properties owned. V

11 500 Eligible Transactions Purchase Transactions: A purchase transaction is a loan for which the proceeds are used to finance the purchase of the subject property as defined in a sale and purchase agreement executed by the Borrower and property seller. FundLoans will also consider as a purchase money transaction a mortgage transaction in which all of the proceeds are used to pay off an outstanding balance on a recorded installment land contract including any documented costs the Borrower incurred for the rehabilitation, renovation or energy conservation improvements. The creation of a new mortgage by modifying an interim construction loan or term note into permanent financing may be considered a purchase as long as the Borrower received no cash out proceeds from the settlement Refinance Transactions: A refinance transaction is: A loan where the purpose is to pay off existing liens on a property. The Borrowers on the subject loan must be the same as the Borrowers on the loan to be refinanced. Loans where the property owner is obtaining a mortgage on a property currently owned free and clear or where the proceeds are used to pay off an outstanding balance on a recorded land contract including any documented costs the Borrower incurred for rehabilitation, renovation, or energy conservation improvements can be considered refinances provided the land contract was recorded. A loan to create a new mortgage by modifying an interim construction loan or term note into permanent financing Limited Cash-Out Rate/Term Refinances: A limited cash-out /rate and term refinance transaction will include those loans which involve: The payoff of the outstanding principal balance of an existing first mortgage. The payoff of the outstanding principal balance of any existing subordinate mortgage that is more than one year old as of the date of the new refinance mortgage. The financing of closing costs (including prepaid expenses). Cash back to the Borrower in an amount no more than 2% of the loan balance of the new refinance mortgage or $25,000, whichever is less. Recouping cash from a property purchased within the last ninety days. Recouping cash from documented home improvements. The payoff of any subordinate financing, which was acquired at the time of purchase. (Must be evidenced with the final closing statement or final HUD-1 form). All other refinance transactions with loan balances which exceed the cash-back limits and do not conform to the above definition will be considered a cash-out refinance Cash-Out Refinance Transaction: Cash out refinance transactions are allowed up to the loan to value requirements as indicated in the Guidelines. Cash out refinances allow for payoff of all the items listed above (Section 500.3) as well as any other debts and/or investments. Reserves cannot come from the proceeds of any loan Construction to Permanent Loans: A construction-to-permanent loan can be handled in two different ways, either as a purchase or as a refinance. The entire loan file, however, must be consistent in the documentation for the chosen transaction type. Purchase loan transactions must meet the following conditions: The Borrower may not receive cash back. V

12 The loan to value will be based on the lower of the following: o Appraisal value as improved. o Builder contract price plus the cost of the land. o Builder contract price plus the market value of the land if owned for greater than 12 months. o Construction/acquisition costs (with documentation) plus the cost of the land. Refinance loan transactions must meet the following conditions: A rate and term transaction must have the loan to value based on the appraised value of the property at the time that the permanent loan is closed. The construction loan must be paid off as a part of the closing. Cash-out refinances are allowed provided that the acquisitions costs are fully documented. Cash-out will be limited to the dollar amount of the property improvements that have been paid in excess of the construction contract. The cost of construction must be documented by adding the amount shown on the construction contract plus amounts shown on any receipts for Borrower paid items. The overall cost must be supported by the final appraisal report. Appraiser will confirm all additional improvements made outside of the construction contract New Construction Loans: New Construction loans are reserved for Experienced Borrowers only and are subject to all requirements of the Moderate Rehab Loan Business Purpose Loans: All loan must be qualified as a Business Purpose Loan. See Appendix A and B Subordinate Financing: Subordinate financing is permitted on a case-by-case basis only. When permitted, the subject loan and the subordinate financing must meet the following requirements: The loan to value and combined loan to value against subject property and the total amount of all loans may not exceed the maximum loan to value and loan amount for the occupancy type, purpose, and property type. If the subordinate financing is a home equity line, the maximum line amount must be used to calculate the combined loan to value. The seller, builder, or realtor may not be the subordinate lender. Other private party subordinate financing from a party unrelated to the subject transaction will be considered on a case-by-case basis. The subordinate lien must be recorded in a clearly subordinate lien position. If an existing loan or line is to be subordinated to the new loan, a completed and signed subordination agreement is required and must be recorded. If the subordinate loan is an ARM (other than home equity lines, the monthly payment must remain constant for 12 month periods throughout the loan term and payment increases cannot exceed an amount equal to a 1% increase in the interest rate. The Note must require payments equal to at least the interest due. Negative amortization is not allowed. The Note may not require payment of a prepayment penalty, early termination, and/or early closure fee during the term of the loan If a DTI ratio is calculated on a particular loan, the payment for the loan must be included in the Borrower's housing expense and the housing ratio is subject to the normal stated limits V

13 described in the guidelines. The combined loan to value determines the housing ratio that applies. If the subordinate loan is an ARM, the Borrower must be qualified using the maximum payment that could be in effect during the second year of the loan. Home equity lines are not permitted as subordinate financing for purchases of second homes or investment properties. Any subordinate balloon loans or call option loans must have maturity or call dates that are at least five years after the closing date. HELOC' s must use note amount in calculation. Copy of second lien note is required on all packages. V

14 600 Documentation Age of Documents: Credit documentation may not be dated over sixty (60) days prior to the Note date. Appraisals must be dated within 120 days of the Note date. Re-certification of value is acceptable on an exception basis only. Any changes to property status, such as subsequent repairs, must be re-verified Employment/Experience Documentation: Borrowers must provide the following documentation supporting their real estate experience: List of projects and track record Contractor s license and Bond, if applicable The originator must review the investment real estate property track record history for the borrower/guarantor for sales which have been completed within three years of the loan origination date for accuracy utilizing public records, and provide the following public records data for each prior transaction (sampling may be permitted in FundLoans' discretion for large numbers of transactions): Purchase price Purchase date Rehab or construction amount Sale price Sale date Profit calculation Chain of ownership from the investor to the current owner Asset Documentation: Proof of funds or other sources of liquidity (asset sales, personal income, etc.) are needed to determine the borrower's ability to cover: Down payment and closing costs (if the property is being purchased at the time of loan origination). 3 months of debt service (scheduled principal and interest only). Any required borrower equity requirements to complete the property rehab (ie any amounts in excess of amounts to be funded through the rehab escrow or future loan fundings). Checking and Savings Accounts: The two (2) most recent, consecutive months statements for each account are requiredpersonal and business. Large deposits inconsistent with monthly income or other deposits must be verified. Marketable Securities: Two (2) most recent, consecutive months stock/securities account statements are required. 70% of stock accounts can be considered in the calculation of assets for closing and reserves. Non vested or restricted stock accounts are not eligible for use as down payment or reserves. Earnest Money Deposit (EMD): Earnest money deposit (EMD) must be sourced and verified on all loans. V

15 600.4 Borrower Entity Documentation Borrower entity documents are required as on Appendix B Document Submission All files should be submitted in the following document stacking orders. Pre-Qualification Phase 1) Pre-Qualification Form (form to be provided by FundLoans) Underwriting Phase 1) 1003 Application or Business Loan Application and FNMA 3.2 export, or FundLoans required data export 2) Lender s letter of intent or loan Term Sheet 3) Credit report 4) Borrower fraud check report 5) Borrower Personal Financial Statement 6) Tax returns, as requested at NewOak s discretion 7) Proof of Liquidity 8) Proof of Experience 9) Scope of work / Project plan 10) Borrower Entity documents (See Appendix B) 11) Personal identification of borrower (driver's license, passport or other government issued photo identification) 12) Pictures of Subject Property front and Back 13) Rent roll and copy of all leases if applicable 14) Proforma (upon completion of rehab) property net cash flow statement (if multifamily/ mixed use) 15) Proposed Rehab/construction Draw Schedule, timeline 16) Exit Strategy Statement and Pro-forma profit calculation 17) Originator debt yield calculation (if multifamily/ mixed use) 18) Preliminary title commitment 19) Signed disclosures, borrower identification Conditional Approval Phase 20) Appraisal or BPO 21) Property inspections: structural, environmental, termite, radon, well, septic, roof, etc. as applicable 22) Condominium documentation; other required collateral documentation, as applicable 23) Final Title work 24) Flood cert 25) Construction draw agreement if repairs are escrowed 26) Insurance binders 27) Loan Closing Documents Closing Phase 28) Collateral assignment documents 29) Assignment of DOT or Mortgage 30) Allonge V

16 700 Borrower's Credit Profile The extent of credit review will relate to each Borrowers loan type, experience level, and exit strategy. For a mostly asset-based loans such as a fix and flip or new construction loans, you will verify that the Borrower has a history of paying their debts, has no liabilities that could affect title or performance on the loan and has the ability to execute the business plan. For loans where refinance is the method of loan pay off, a more in depth review must be performed to judge the likelihood of achieving that end. This include full document underwriting with calculation of a debt-to-income ratio Credit Report: A credit report is required for each applicant executing a Note and guarantors. The credit report should provide merged credit information from at least three national credit repositories. The credit report should include verification of all credit references provided on the loan application and must certify the results of public record searches for each city where the applicants has resided in the last two years. Accounts that are not verified on the credit report must be verified with a written direct verification acceptable to FNMA/FHLMC alternative documentation. Either a three-bureau merged report or a Residential Mortgage Credit Report (RMCR) should be provided. Persons without U.S. credit will be considered on a case-by-case basis Fraud Check: A Fraud Verification Report is required for each Borrower/Guarantor which should include public records search, media search, judgments and liens search. Caution is taken with any borrower with a felony or misdemeanor involving fraud, embezzlement or similar crimes Credit Standards: An established credit history is defined as a minimum of three (3) open traditional rated credit references that have been opened for at least twenty-four (24) months. For Borrowers who do not use the conventional credit system, alternative credit histories may be used, as follows: A minimum of three alternative sources should be verified directly with the creditor, or with twenty-four (24) months cancelled checks showing no late payments over the past twentyfour (24) months. Alternative credit history is eligible on a case-by-case basis. Alternative sources include housing payments, utility payments, bank references, and non-u.s. lender recommendations. We reserve the right to request any applicable foreign credit report. Alternative sources that are payroll-deducted are not acceptable Credit Scoring: Credit scores analyze the Borrower's credit patterns, including any derogatory credit items to predict the probability of risk. The credit scores assist in evaluating the Borrower's consumer credit. The representative score of the primary Borrower who earns >50% of the qualifying income will be used on all full doc loans. Credit Report containing two (2) credit scores - use lower score. Credit Report containing three (3) credit scores - use middle score. When a Credit Report contains three (3) scores and two of them are identical, one of the identical scores is considered the middle score. The credit report must include at least two credit scores for each Borrower on each mortgage loan. In cases where the primary Borrower can t be determined, FundLoans reserves the right to use the 1 See Appendix C, Foreign National Program. V

17 lowest credit score among all selected Borrowers. The scores must be obtained from Experian, TransUnion, and/or Equifax Evaluation of Credit: The review of an applicant's credit history reveals a great deal in determining the likelihood of debt repayment. Although credit reports may contain seven or more years of credit history, the most recent credit use patterns are the most predictive of repayment ability. Generally, an acceptable credit history will include at least two or three years of credit use. A shorter credit history may indicate increased risk, but all credit factors must be considered. The underwriter should also consider the number of accounts, outstanding debt, delinquency, derogatory credit and all inquiries in the past ninety days. Recent credit inquiries may require a satisfactory letter of explanation. Generally, a combination of factors, rather than a single credit usage factor, establishes whether or not the overall pattern of credit use is acceptable Housing Payment History: Current housing payments must be verified for all Borrowers for the previous 12 months, except as qualified below. Mortgage payments may be verified by the credit report, a Verification of Mortgage, 12 consecutive months of cancelled checks, or 12 consecutive months of bank statements verifying debit of full payment. Rental payment histories may be verified by a Verification of Rent (VOR) or 12 months of cancelled checks or 12 consecutive months of bank statements. A verification of Mortgage/Rental is required on all loans. Current balance, current status and payment amount must be verified. In case of a recent refinance or account transfer, a combination of payment performance from multiple lenders for the same collateral may be used to complete the twelve-month (12) history requirement. For a recent purchase, a combination of payment performance from a prior property or rental payments may be used to complete the twelve-month (12) history. A gap in mortgage/ rental payment history of up to 6 months is allowed by obtaining the most recent eighteenmonth (18) history. Mortgage History: A twelve-month (12) rating stated on the RMCR or merged in-file report. Standard Verification of Mortgage completed by the holder of the Mortgage. Copies (front & back) of twelve (12) months consecutive (one (1) payment per month) mortgage payment canceled checks. Bank statements or direct payment records showing one (1) payment per month. Mortgage Lates: FundLoans allows 1x30 mortgage late in the last 12-months. For the avoidance of doubt, no rolling lates are allowed. Mortgage loans must be current at the time of closing. Exceptions will be considered on a case-by-case basis. Rental History: Standard Verification of Rent completed by the non-related landlord. A rental letter written by the non-related landlord which includes the rental amount, payment history, and length of payment history. The letter must also include the name, address and telephone number of the landlord. V

18 Copies (front & back) of twelve (12) months consecutive (one (1) payment per month) rental payment canceled checks. This is the only form of acceptable verification if the landlord is a relative Real Estate Mortgages: The Borrower must have verified cash reserves equal to three (3) months PITI for each investor property Derogatory Credit Items: Any serious derogatory items in the credit report must be explained in writing and signed by the Borrower. Serious derogatory items include judgments, suits, tax or other liens, bankruptcy, legal actions against the Borrower, garnishments, charge-offs, and collections. The amount of judgments, suits, tax or other liens, bankruptcy, legal action, charge-offs, and collections greater than $1,000 individually or $2,000 in aggregate amount must be paid. In general, unpaid charge-offs, and collections must be paid in full prior to closing. If Borrower does not want to pay the accounts, the explanation and supporting documentation should indicate the accounts are in dispute or are not the responsibility of the Borrower Late Payments: A written explanation from the Borrower is required for recent late payments or an excessive number of aged late payments. Minor late payments on one or two accounts do not need to be explained if all other accounts are paid as agreed. All the open accounts must be current before the mortgage is closed, unless the account is in dispute and the explanation of the dispute is supported by appropriate documentation Liens, Judgments, & Garnishments: These derogatory items are considered to be a more serious category of credit impairment. Any liens, judgments, or garnishments appearing in the credit report generally must have been satisfied for more than 24 months. Liens, judgments, and garnishments that were filed or satisfied less than 24 months before closing may be considered on a case-by-case basis at FundLoans' discretion under the following circumstances: The Borrower must provide documentation to confirm that the obligation is in dispute. The documentation may be in the form of a letter from an attorney or court documents. The obligation must not have any adverse affect on the lien position of the subject mortgage Prior Bankruptcy: Bankruptcies must have been discharged for at least four years. The Borrower must submit a signed explanation letter detailing the complete circumstances surrounding the bankruptcy and provide a copy of the bankruptcy petition, Schedule of debts, and final discharge document reflecting the debts that were discharged. Any bankruptcy discharged within the prior four years will be considered on a case-by-case basis. The Borrower's credit report must demonstrate that new or continuing credit has been established since the bankruptcy and payments on all obligations have consistently paid as agreed since the discharge. The Borrower must provide a written explanation of the circumstances surrounding the bankruptcy. The bankruptcy must have resulted from extenuating circumstances that were beyond the Borrower's control and that are not likely to recur, such as excessive medical bills from major illness or an accident or death of a principal income earner. If there are any minor derogatory accounts after a bankruptcy and at least three re-established credit trade lines, this decision may be at the Underwriter's discretion to make the final decision whether credit worthiness has been met. V

19 Consumer Credit Counseling will be treated like a previous bankruptcy Prior Foreclosure: Borrowers who have experienced prior mortgage foreclosures, a short sale, or been given a deed in lieu of foreclosure may be considered for financing on a case by case basis. The Borrower's entire financial profile, including cash reserves, down payment, savings history, and credit profile since the foreclosure action must be carefully evaluated Undisclosed Debts: With an exception of minor omissions, undisclosed debts that appear on the credit report must be explained in writing by the Borrower. Failure to disclose major debt may be grounds for denial of the loan Installment Accounts: All installment accounts must be verified on the credit report or with a Verification Loan form. The verification must include the current balance, re-payment terms, and payment history. Installment accounts with ten or more months remaining must be included in the Borrower's total monthly debt ratios. In some cases, debts with fewer than ten months payments remaining must be included in the ratio calculation. Carefully consider the Borrower's overall credit history, cash reserves, and residual income in determining his/her ability to carry the obligation in addition to the new mortgage payment. Installment accounts may be paid off at or before closing to reduce the Borrower's debt ratio provided Borrower has sufficient assets to pay the debts in addition to the down payment, closing costs, and prepaid items. Proceeds from a cash-out refinance may be used to payoff debts. Deferred student loans may be excluded from the long-term obligations provided there is documented evidence that payments will be deferred for at least twelve months from the time the subject mortgage loan is closed Revolving Accounts: Payments for all revolving accounts with balances must be included in the long-term obligations, regardless of the number of payments remaining. If the required monthly payment is not stated on the credit report or verification, the payment will be calculated at 5% of the outstanding balance or $10, whichever is greater. Payoff of revolving debt to reduce the qualifying ratio is generally not acceptable. If the Borrower can clearly prove that the debt was incurred for a one-time purchase, such as a major appliance, the debt may be considered comparable to an installment loan. Under those circumstances, payoff of the debt and exclusion from ratios may be considered on a case-bycase basis Alimony, Child Support, and Separate Maintenance: Obligations to pay alimony, child support and separate maintenance should be included in the Borrower s monthly debt unless there are less than ten payments remaining. The amount of the obligation must be verified by court documents Obligations Paid by Third Parties: If the Borrower is a co-signor for a loan to a third party or if an obligation is paid by a third party and not the Borrower, the payment must be included in the Borrower's long-term obligations, unless the Borrower can provide proof that the payments have been made on time by the third party for the last twelve months. The proof of payment must be in the form of cancelled checks from the third party or other documentation that clearly reflects the third party made the payments Other Real Estate: Debt for investment properties that is not offset by calculation of net rental income will be counted as monthly debt. V

20 If a property is owned free and clear, the current real estate taxes, hazard insurance premiums and HOA fees must be included in the applicant's monthly expenses. The applicant must supply a copy of the homeowners insurance policy declarations page to evidence the property is free and clear Bridge Loans: Bridge loans are permitted on a case-by-case basis. The payment on the bridge loan will be included in the Borrower s total debt calculation unless all of the following conditions are met: The Borrower's prior residence was the Borrower's owner occupied primary residence. A valid, unexpired multiple listing agreement with a licensed Realtor on the prior residence with a remaining term of at least 3 months must be submitted. The Borrower's prior residence must currently be under contract to be sold. A copy of the sales contract must be submitted with Borrower's loan application. In case of employer-assisted transaction where the employer pledges to pay or reimburse the applicant for payments on the bridge loan, above three items should be met. If these are not met, the underwriter must analyze the terms of the employer's agreement to determine whether the bridge loan payment may be excluded from the applicant's total monthly debt. OTHER DEBTS: There are several other debts that may not appear on a standard credit report, but should be included in total debts for qualification. These debts may include the following: Secured Loans through payroll deductions other than 401k loans, Business Debt, which has been personally guaranteed by the Borrower, Co-Signed Obligations, Student Loans, unless deferred for at least 12 months, Wage Garnishments. Documentation to verify these debts should be obtained. If the payments are to be excluded, documentation to support the exclusion must be in the file Automobile Leases: All automobiles leases must be included in long-term obligations, regardless of the number of payments remaining, unless the Borrower can provide evidence of the intent and sufficient liquid assets to buy out the lease at the end of the term. V

21 800 Underwriting the Property FundLoans may require the following data before determining the final valuation for each property: Full appraisal ordered from an appraisal management company (AMC). This will contain an as-is value and after repaired value. Interior broker price opinion (BPO). This will contain an as-is value and after repaired value. Property acquisition price as verified via a purchase and sale contract. Rehab or construction budget. Depending on the scope of work, an independent evaluation may be required. Property inspections, as applicable. Adjustments to value may be made based on current listing and sales timelines, location and type of property Appraiser Qualifications: FundLoans reserves the right to approve or disapprove of specific appraisers and brokers Appraisal Report Forms: All appraisals must meet the following: Bear the original dated signature of the appraiser and supervisory appraiser (if applicable). Include the appraiser's license/certification number, the state in which the license certificate was issued and the expiration date of such license/certificate, and; Be typewritten or computer generated on current, standard Fannie Mae/Freddie Mac forms as follows: Single Family- Residential Appraisal Report (Fannie Mae-1004/Freddie Mac-70). Two-four family-small Residential Income Property (Fannie Mae 1025/Freddie Mac-72). Condominium projects and PUDS-Individual Condominium or PUD Unit (Fannie Mae-1073/Freddie Mac-465). For loans secured by Investment Properties, FundLoans also requires additional Appraisal Documents - Investment SFR (Fannie Mae 1007) and Operating Income Statement (Fannie Mae 216). All appraisals must include an "as is" value and, if the loan allows for future funding or the release of escrowed rehab reserves, an "as repaired" value which is based upon the budget and scope of work submitted by the borrower and includes an itemization of all improvements.. If a Field Review is required, the Field Review must meet the following: Field Review (Fannie Mae 2000). All Field Reviews must be conducted by an FundLoans approved appraiser. All appraisals must be a standard URAR (or equivalent approved form). Any other form of appraisal is acceptable only on a case-by-case basis. All appraisals must be performed by an independent licensed/certified appraiser with experience appropriate to the property type and value. Employees of the seller who order the appraisal and/or select the appraiser must be independent of loan production staff. All appraisals must be ordered through an Appraisal Management Company (AMC) or other vendor pre-approved by FundLoans. V

22 800.3 Appraisal/BPO Requirement: One appraisal with interior photos. Second valuation as requested at NewOak s discretion. Second valuation may consist of an appraisal or BPO BPO Requirements: All BPOs must be interior reviews and include an "as is" value and, if the loan allows for future funding or the release of escrowed rehab reserves, and an "as repaired" value which is based upon the budget and scope of work submitted by the borrower and includes an itemization of all improvements. All BPOs must be ordered through an Appraisal Management Company (AMC) or other vendor pre-approved by FundLoans Appraisal Review Process: FundLoans conducts a regular program of post-funding spot reviews to ensure the continued quality of appraisal reports by FundLoans approved Appraisers Age of Appraisals/BPO s and Certifications: No appraisal or BPO may be utilized for lending whose date of valuation does not fall within 120- days of the Note date. Re-certification of value is acceptable on an exception basis. If the subject property is under active renovation or the status has changed since the valuation, then an update to within 1 week of the closing may be required Sales Concessions: The appraiser must address the impact of financing contributions or sales concessions on the value of the property and adequately explain the rationale for any adjustments. A sales concession is defined as any inducements to purchase offered by interested parties and/or the amount of contributions that exceed the allowable limits. The amount of permissible seller/builder contributions varies per product. In the event that sales concessions were not disclosed on the original sales contract, at the underwriter s discretion, a review by the original appraiser may be requested Non-Arms-Length Transaction: A non-arms length transaction exists whenever the Borrower(s) have a personal or business relationship with the seller, builder, developer, real estate agent, appraiser, lender providing the financing, title company, escrow company, or any other interested party. These relationships may influence the transaction and are generally not eligible for financing. Non-Arms Length Relationships of other parties to the transaction will be reviewed on a case-by-case basis. However, on a case-by-case basis, a transaction will be considered as long as all of the following conditions have been met: 1. Relationships are disclosed with the initial submission. 2. Full income and asset documentation is provided. 3. Additional risk factors are not present. (Examples: distressed sale, high amount of seller contributions and selling assets for down payment.) 4. Real Estate Agents may not use commission monies towards down payment or closing costs towards the subject transaction. Non-Arms length transactions include, but are not limited to affiliates of the applicant(s) who are: 1. Family Members related by blood or marriage to seller(s). 2. Owners, employees or family members of originating lender. V