Conforming Loan Program Guidelines

Transcription

1 The following guidelines apply to all DIRECTORS MORTGAGE s Conforming loan programs. All loans must adhere to the criteria of these guidelines or the individual loan programs. While DIRECTORS MORTGAGE makes every attempt to include all guidelines, the user may also consult the FNMA SELLING GUIDE which can be found at: Please note, however, that DIRECTORS MORTGAGE Conforming Guides will supersede any conflict with the FNMA SELLING GUIDE. DIRECTORS MORTGAGE may, at its discretion allow exceptions to the guidelines. Exceptions must be requested by a Loan Officer or Processor. Any exception granted will have a price adjustment. DIRECTORS MORTGAGE s philosophy is to consider all the risk factors inherent in the loan file. Consideration is given to each individual transaction, applicant profile, documentation provided, and collateral. Because each loan is unique, underwriters are expected and encouraged to use professional judgment in making a lending decision based on the entire profile presented and the relative risk for DIRECTORS MORTGAGE. Our commitment to fairness and equal opportunity is clear. In keeping with that, all transactions/borrowers will be treated in a consistent and fair manner. And all customers/clients should receive the HIGHEST level of customer service. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 1

2 Table of Contents Appraisal 4 Borrower Eligibility 4 Condos 5 Conversion of current residence 6 Credit 7 Construction to Perm 9 Continuity of obligation 9 Documentation 10 Down Payment/Funds to Close 10 Escrows 11 High Cost Area Loan Limits 12 Income Documentation 12 Interest only 13 Investment Properties 14 Leaseholds 14 Liabilities 14 Loan Terms 14 Mortgage Insurance 14 Non-ARMs Length 15 Non Occupant Co-Borrowers 15 Number of Properties Owned 15 Occupancy 15 Power of Attorney 16 DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 2

3 Property Eligibility 16 Ratios 17 Recently Listed Properties 17 Refinances 18 Reserves 19 Seller contributions 20 Subordinate Financing 20 Title 20 Trust closing in the name of 20 Underwriting 21 Utilities 21 Conforming Eligibility 22 High Balance Eligibility Matrix 23 DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 3

4 Appraisal General Guidelines As determined by AUS. Property waivers are only acceptable for DU Refi Plus. Limited appraisals are acceptable on loans with an 80% or less LTV and AUS recommendation. Age of appraisal: DIRECTORS MORTGAGE will not accept appraisals dated more than 6 months prior to the note date. An Appraisal Update is required on all appraisals dated more than 120 days prior to the note date. Forms: An operating income statement (216) is always required when the subject property is a 2-4 unit owner occupied property or a 1-4 unit investment property. A comparable rent schedule (1007) is always required on an investment property Previously sold within the past 12 months: If the appraisal indicates that the subject property was previously sold within the last 12 months, the underwriter is required to determine the change in value. If the value has increased, the lender must document improvements that support the increase and/or the appraiser must document rapid increases in value within the market. Comps All appraisals must contain 2 comparable sales within the past 90 days, as well as 1 current listing. All comps used must contain information on how many days they were on the market. Any additional appraisal review documentation required by the underwriter must be agreed upon by the loan officer and all costs for review will be the responsibility of the loan officer. Property Flipping see Property eligibility section. Borrower Eligibility Eligible: Individuals only. Social security number required. A Tax I.D. Number will not be acceptable. Permanent Resident Aliens: As long as the borrower holds a Green Card (an Alien Registration Receipt Card, INS Form I- 551), the loan is eligible under the same guidelines/terms as a loan made to a U.S. citizen. A copy of the front and back of the Green Card must be included in the file. An approved Green Card application will not be acceptable. Non-Permanent Resident Aliens: Temporary residents granted the right to live and/or work in the U.S. for a specified period of time. One of the following valid, unexpired, Visas are required: H-1B, Temporary Worker. L-1, Intra-Company Transferee. E-1, Treaty Trader. G series (G-1, G-2, G-3, G-4). TN or TC NAFTA VISA - Used by Canadian or Mexican citizens. The loan file must contain a copy of the front and back of the eligible Visa. The approved application for one of the visas listed above will not be acceptable and a copy of the actual visa must be obtained. All Non-Permanent Resident Aliens must have a minimum 2 year history of residency, credit and employment and currently reside and work in the U.S. Income should be expected to continue for at least 3 years. If tax returns are required, they must be US Federal returns. If income is in foreign currency, 75% of the exchange value must be used for qualifying the borrower. Funds for closing must be in U.S. bank accounts. If funds were transferred from a foreign Depository, the borrower must provide evidence that they owned the funds prior to the DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 4

5 Transfer. Expiring Visas: If the authorization for temporary residency status will expire within one year and a prior history of residency status renewals exist, continuation may be assumed. If there are no prior renewals, the likelihood of renewal must be determined by the underwriter with appropriate documentation. The loan file must contain a copy of the front and back of the eligible Visa. The approved application for one of the visas listed above will not be acceptable and a copy of the actual visa must be obtained. All Non-Permanent Resident Aliens must have a minimum 2 year history of residency, credit and employment and currently reside and work in the U.S. Income should be expected to continue for at least 3 years. If tax returns are required, Tax returns must be U.S. federal returns. If income is in foreign currency, 75% of the currency exchange value may be used for qualifying the borrower. Funds for closing must be in U.S. bank accounts. If funds were transferred from a foreign Depository, the borrower must provide evidence that they owned the funds prior to the Transfer. Condo/PUD s Ineligible: Foreign nationals. Borrowers with diplomatic immunity. Borrowers without social security numbers. All condominiums and attached PUD s require the completion of a condo or PUD questionnaire to be reviewed and approved by an Underwriter. Condos in resort/vacation areas such as the beach or Sun river: if an internet search reveals that short term rentals are available in the project than the project is ineligible. All units, common elements, and facilities within the project must be 100% complete, and the project cannot be subject to additional phasing or annexation. Max LTV 95%. At least 51 percent of the total units in the project must have been conveyed to owner-occupant principal residence or second home purchasers. However, this requirement shall not apply when a lender delivers a mortgage to us that is an owneroccupant principal residence or second home. At least 90% of the total units in the project must have been conveyed to the unit purchasers, Control of the HOA must have been turned over to the unit owners. Lenders must review the homeowners' association actual budget to determine that it is adequate (i.e., it includes allocations for line items pertinent to the type of condominium), provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 10 percent of the budget), and provides adequate funding for insurance deductible amounts. No more than 15 percent of condominium/association fee payments can be more than one month delinquent. No single entity (the same individual, investor group, partnership, or corporation) may own more than 10 percent of the total units in the project. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 5

6 No more than 20 percent of the total square footage of the project can be used for nonresidential purposes. All facilities related to the project must be owned by the unit owners or the homeowners' association. The developer may not retain any ownership interest in any of these facilities. In addition, the amenities and facilities including parking and recreational facilities may not be subject to a lease between the unit owners or the homeowners' association and another party. The individual units should be separately metered. If they are not, the project's plans should provide for the ready adoption of unit metering. New and recently converted projects: same as above except as listed below: At least 70% of units must have been conveyed or under bona fine contract for purchase to a owner occupant principle residence or second home. No single entity other than the developer during the initial marketing period may own more than 10% of the total units. Additional requirements for projects consisting of 2-4 units: No single entity may own more than 1 unit. All but one unit in the project must have been conveyed to owner-occupant principle residence or second home purchase. Eligible review options for Primary Residence and Second Home are: Fannie Mae Condo Project Manager (CPM). Fannie Mae form 1028 project approval letter. Project Type Code Q R S Description Limited review of established projects (only allowed on O/O 80% or less with AUS recommendation for limited review. CPM - new projects CPM established projects Continuity of Obligation Conversion of current residence to second home/investment property See Refinance section. In order to ensure that borrowers have sufficient equity and/or reserves to support both the existing financing and the new mortgage being originated, we are updating the policies for qualifying borrowers purchasing a new principal residence and converting their existing principal residence to a second home or investment property. Conversion of Current Residence to a Second Home: DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 6

7 Both the current and the proposed mortgage payments including Principal, interest, taxes, insurance and HOA dues, must be used to qualify the borrower for the new transaction; and 6 months of PITI for both properties is required to be in reserves. DIRECTORS MORTGAGE may consider reduced reserves of no less than 2 months for both properties if there is documented equity of at least 30 percent in the existing property (derived from a full appraisal, minus outstanding liens) Conversion of Current Residence to an Investment Property: DIRECTORS MORTGAGE will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (derived from a full appraisal, minus outstanding liens). The rental income must be documented with: A copy of the fully executed lease agreement (leases with family members are not acceptable), and The receipt of a security deposit from the tenant and deposit into the borrower s account. If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment. Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and 6 months of PITI for both properties is required to be in reserves. Credit History Acceptable Individual Credit Reports: Residential Mortgage Credit Report Merged in-file credit report with information pulled from at least two (2) national Credit repositories. Individual in-file credit reports from at least two (2) national credit repositories. Minimum Trade lines required for each borrower: Applicants must have 3 trade lines active within the past 12 months. These may be opened or closed. Or Applicants must have 5 accounts paid as agreed with a 24 month overall credit rating history. Exceptions will be considered with DU approval and compensating factors for applicants who meet the minimum credit score requirement but not the minimum trade line requirements. Compensating factors (with 12 month history) o Verification of rent o Phone bill o Car insurance o Medical bills In all circumstances, applicants must have a demonstrated willingness to pay on time. Credit Score Determination: DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 7

8 Use FNMA/FHLMC qualifying score criteria: lower of two (2), middle of three (3). The lowest middle score of all borrowers on the loan will be used. Credit Score Requirements: All borrowers must have a minimum 620 credit score. Please refer to eligibility matrix at the end of the guidelines for specific score requirements. Mortgage lates: None in the most recent 12 months. Bankruptcy: For all bankruptcy actions, the elapsed time period to reestablish credit will be measured from the bankruptcy discharge or dismissal date. The following table outlines DIRECTORS MORTGAGE s current policies for loans related to the time period that must elapse before borrowers can demonstrate they have reestablished an acceptable credit history after the occurrence of the bankruptcy or foreclosure. Chapter 7 & 11: Require a four year waiting period from discharge or dismissal date. Chapter 13: Require a 3-year elapsed time period which from the discharge or dismissal date. An underwriter may allow for between 2 and 4 years on all types if a review of the file supports the bankruptcy was caused by extenuating circumstances outside of the borrowers control and not likely to reoccur. Extenuating circumstances include but are not limited to events such as death of a primary wage earner, major medical expenses or loss of job due to companywide layoffs or closure. Divorce is not considered an extenuating circumstance nor is financial mismanagement. Multiple Bankruptcy Filings : 5-year time period from most recent dismissal or discharge date required for borrowers with more than one bankruptcy filing within the past 7 years. Foreclosure: Financial mismanagement requires 7-year time period from completion date. Extenuating circumstances, with supporting documentation, will be allow between 3 and 7 years time period from completion date with the following restrictions: o O/O only. Purchase of a second home or investment property is not permitted. o Purchase and limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at the time. No C/O allowed. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 8

9 Deed-in-Lieu of Foreclosure and Pre foreclosure/short Sale loans: A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. A pre foreclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer. The following waiting period requirements apply: 2-4 years allowed up to a maximum 80% LTV/CLTV. 4-7 years up to a maximum 90% LTV/CLTV. 7 years follow LTV/CLTVs per the eligibility matrix. Note: No exceptions are permitted to the 2-year time period due to extenuating circumstances. Restructured loans and/or modified; require 2 years elapsed time. A restructured loan for purposes of this policy is a mortgage loan in which the terms of the original transaction have been changed resulting in either absolute forgiveness of debt or a restructure of debt through either a modification of the original loan or origination of a new loan that results in any of the following: Forgiveness of a portion of the 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 simulate principal forgives; 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 secured to unsecured. Mortgage loans that have previously been restructured (as defined above) are not eligible for delivery to Directors Mortgage Borrowers who have had a restructured loan that is not on our subject property follow the Deed-in-lieu guidelines above. Construction to Perm Financing Provides long term financing to pay off a construction loan. To be considered a construction-to-permanent financing transaction, the following conditions must be met: The borrower is the primary obligor on the construction financing which is obtained through a legitimate financial institution AND The borrower is the owner of the lot on which the residence is constructed. Eligible with: Rate/term and Cash out allowed. 90% maximum LTV. (See eligibility matrix for LTV restrictions). O/O and second homes. Detached, SFR, 1-unit properties. Ineligible items: DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 9

10 Investment properties. Interest only. No sweat equity. Builder bailouts. Borrower has owned the land for 12 months or more, prior to construction application date LTV is based on: Current appraised value. Borrower has owned the land less than 12 months, prior to construction application date, or the land was gifted LTV is based on the lesser of: Current appraised value or Sales price of the land plus documented improvement costs. The total acquisition cost is based on: With a Construction Contract: Appraised value of the land, if not included in the contract price and Paid receipts and cancelled checks for costs that exceed the contract price. Without a Construction Contract: Current appraised value or sales price of the land, depending on time owned, and Contractor s construction cost breakdown, and Paid receipts and cancelled checks for costs that exceed interim financing. NOTE: If the borrower is also the builder, or an employee, relative, domestic partner or fiancé/fiancée of the builder, the builders profit is not considered an allowable cost, and may not be included in the acquisition. Sweat Equity : is not an acceptable source of funds. Documentation AGE OF DOCUMENTATION Credit documentation may not be dated more than 90 days prior to the Note date. Please refer to Appraisal section for requirements regarding age of appraisal. Down Payment /Funds to Close The following minimum down payment requirements apply: A minimum down payment of 5% of value for Owner-Occupied properties must be paid from the borrower s own funds. The balance may be paid from cash, other equity, gift or secondary financing. A down payment of 100% gift funds is allowed at LTV s/cltvs less than or equal to 80%. In this instance, closing costs may also be in the form of a gift. Gift funds are not allowed for investment property transactions. Asset documentation requirements Most recent bank/brokerage statements covering a full month and showing the prior balance. Large deposits: DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 10

11 Any large deposit that is not consistent with the applicant s employment, earning and savings profile must be explained and sourced. Even if the deposit in question is not required for cash to close or reserves. A large deposit can be a single deposit or multiple deposits over a period of time that in aggregate results in a large deposit. If the aggregate total of deposits during any calendar month, other than deposits for regular earnings exceeds 15% of the applicant s gross qualifying monthly income, then the deposits must be sources and seasoned from an acceptable source. Any deposits less than 15% may require further investigation and documentation if deemed necessary by the underwriter. If the funds are deemed unacceptable or cannot be fully documented they may be able to be backed out of the account balance with an acceptable letter regarding the source of the funds, signed at dated by the borrower. If the funds are backed out they would not be considered for funds to close or reserves. This decision is based on underwriter discretion after thoroughly reviewing assets and explanation. Recently opened bank accounts: Any bank account opened within 90 days of the application date need to be sourced and documented. Earnest Money Deposit: 2% or greater must be documented. Gift Requirements: Gift funds are acceptable with following requirements: Donor must be family member, a fiancé, fiancée or domestic partner. Gift letter is obtained indicating the amount of the gift, date gift will be given, donor s name and address, relationship to borrower, and that no repayment is expected. Borrower makes required contribution toward down payment from own savings funds. The funds are verified in either the borrower or donor s account. Document transfer of funds from donor to borrower. Gifts funds may be used for the full down payment when the LTV/CLTV is 80% or less Gift funds are unacceptable for all investment property transactions. Gift of Equity. A Gift of Equity occurs when the property owner (Seller) gifts a portion of their equity to the proposed Borrower (Purchaser). Transactions involving a Gift of Equity must meet all of the following parameters: The gift must come from a relative, domestic partner, fiancé, or fiancée. Must be for a primary residence only. Borrower must have minimum 5% into transaction from own funds if LTV is >80% (if the gift of equity is less than 20%). The Gift of Equity transaction must be evidenced by an executed gift letter that is signed by the donor. The letter must: Specify the property being purchased, Include the donor's statement that no repayment is expected, and Indicate the donor's name, address, phone number, and relationship to the borrower. The application must be completed with the following information: Source of down payment" and "Assets" sections must reflect that a gift is a source, DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 11

12 Donor's name, address, phone number, relationship, & amount must be represented. The gift of equity must appear on the HUD-1 Settlement Statement and show transfer of ownership. Unacceptable sources of down payment include: Escrow/ Escrow Holdbacks High Cost Area Loan Limits Sweat Equity, Cash on Hand, proceeds from unsecured loans or personal loans, Salary/bonus advances received against future earnings, and cash advances from a credit card or other revolving account. Escrows are required if LTV is > 80%. Escrows can be waived if LTV is <=80%, but pricing hits will apply. Escrow holdbacks are NOT allowed. High-balance mortgage loans are loans with original principal balances that exceed the general loan limits, but meet the high-cost area loan limits that were authorized by the Housing and Economic Recovery Act of Please refer to the High-Balance eligibility matrix at the end of the guidelines for specific LTV/CLTV/credit score information. Income documentation 4506-T is required to be executed by all borrowers on all loans. Two years tax returns required for all borrowers. Tax Returns two most recent years required for all borrowers. When the most recent tax filing date has past and the borrowers filed an extension the following is required: Two years most recent returns that have been filed. A copy of the filed extension request. A tax transcript reflecting No record of return filed for the most recent tax period. Evidence that any taxes owned have been paid. A Current P&L will also be required for self- employed borrowers. Employment History: Both salaried and self-employed borrowers must have a consecutive 2 year history of employment. Any job gaps greater than 30 days must be explained by the borrower, and they must be back at the same position for a minimum of 6 months. Newly Employed: A borrower who has less than a two-year employment history: that borrower s income may be considered on a case by case basis as qualifying income if the borrower was either attending college or in a training program immediately prior to their current employment. Supporting documentation must be provided. Re-entering the workforce: For a borrower who is re-entering the work force after a six month or great gap and has less than a current two year employment history, the borrower s income may be allowed as qualifying income if the file contains documentation to support that the borrower has been at their current employer for a minimum of six months and evidence of a previous employment history to cover a two years. Variable Pay: DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 12

13 Variable compensation such as bonus and overtime is paid in addition to an employee's straight salary or hourly wage. Bonus or overtime will be accepted if it has been received for at least two consecutive years; however income that has been received for 12 to 24 months may be considered as acceptable income, as long as there are demonstrated positive factors that reasonably justify the use of the shorter income history. There must be documented justification with a written analysis to mitigate the use of the shorter history. If the borrower has recently changed positions with his or her employer, determine the effect of the change on the borrower's eligibility and opportunity to receive bonus or overtime pay in the new position. Documentation from the employer is required to determine if the bonus or overtime will continue at least the same or greater level. A WVOE will always be required to break out variable type of earnings. Salaried Borrowers: Income must be documented as follows: Per AUS Findings Income calculations for qualifying income sources must be documented on the Notice of Extensions: If tax returns are required and the tax-filing deadline has passed without the borrower's filing, we must obtain a properly executed notice of extension for our review and loan file. All non-taxable income sources used for qualifying must be grossed up by 25% and be fully documented as being a non-taxable source. Some examples of non-taxable income sources include, but are not limited to: child support, municipal bond interest, foster care income, rail road retirement, and some civil service annuities. Self-employed Borrowers: Defined as owning 25% or more interest in the business. Borrowers who own 25% or more of their business must be analyzed to ensure the reasonableness and recurring income stream from the business. All borrowers MUST be aware that a 4506-T will be required at closing, and could be processed at any time for quality control or support of stated income as the underwriter may elect. If the income is not as stated, borrowers are subject to implications of misrepresentation of income and/or note being called due immediately. Rental Income: Required documentation when using rental income on the subject property: Copies of the borrowers most recent filed 1040 s on refinances or The operating income statement (216) and current lease is acquired since the last filing date and on purchases. Form 1007 (provided by the appraiser with the appraisal; required even if no rental income is being used). Required documentation when using rental income on other property: Copies of the borrowers most recent filed 1040 s or Current lease is acquired since the last filing date and on purchases. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 13

14 Interest only O/O and second home only. Not allowed on investment properties. 1 unit only. Maximum LTV 70%. 720 credit score required. 24 months PITI required. Qualify at the fully index or note rate whichever is higher. Gifts Not allowed Investment Non Arms length transactions not allowed. MI is not available for Investment properties Properties History of managing rental properties required per AUS findings Borrower must have been the owner of record for minimum of 6 months for refinance transactions. Refer to converting current home to investment property for further restrictions. Leaseholds Leasehold Estates are not allowed Liabilities Revolving charges. If no payment is showing, use 5% of the outstanding balance. Paying off revolving debt solely to qualify must be carefully evaluated and considered in the overall loan analysis. The underwriter will review the borrower s history of credit use should be a factor in determining whether the appropriate approach is to include or exclude debt for qualification if allowed to pay off the account would need to be closed. 30 day accounts such as AMEX do not require a payment however the borrower must have sufficient assets documented to cover the unpaid balance, over and above what is required to close the transaction. AMEX accounts that are paid monthly require a minimum payment of 5% of existing balance unless monthly payment has been verified and documented in the file. Lease payments are always included regardless of # of payments remaining. Real Estate loans. Installment debts with >10 months remaining. Automobile leases (must be included in the DTI even if fewer than 10 payments are remaining.) Net rental losses from real estate owned. Student Loans qualify with 2% of the balance unless the actual payment is documented. Deferred loans must always be included in the DTI. Alimony, child support or maintenance payments with 10 or more remaining payments. Divorced and separated borrower s joint obligations will be considered in accordance with co-signed and divorce debt guidelines. Business Debt: Debts paid by the business will not be considered in the borrower s ratios if 12 months of canceled checks drawn on the business account are provided. Co-Signed Debt: If a borrower is a co-signer or guarantor on any loans, those liabilities must be indicated on the loan application. The payments for these loans will be included in the borrower s total monthly debt unless satisfactory documentation is provided to prove that the primary debtor has been making the payments on a regular basis (12 Months canceled checks will be required.) The person making the payment must also be obligated on the debt being excluded. Loan Terms 10, 15, 20, 25, 30, 40 year fixed rate 3/1, 5/1, 7/1, and 10/1 ARMs allowed. 30 yr amortizations only. 3/1 & 5/1 ARMs must be qualified at the greater of note rate+2% or fully indexed rate. Interest only allowed with restrictions to LTV, occupancy and score requirements. See Matrix at the end of these guidelines for more details. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 14

15 Mortgage Insurance Borrower paid, Split premium, Single Premium paid at close and LPMI allowed. Financed Single Premium MI is not allowed. LTV and loan purpose restrictions apply. Standard monthly coverage percentage as conditioned for by AUS is required. Monthly coverage percentage is as follows: 80.01% to 85% required 12% 85.01% to 90% requires 25% 90.01% to 95% requires 30% 95.01% to 97% requires 35% Non ARMS s Length Non Arm s length transactions: A non-arm s length transaction exists when the borrower has a direct relationship with the builder, developer or property seller. Extra diligence should be exercised when there are other interested parties to the transaction such as the broker, loan officer etc. Allowed only on primary residences and must be fully amortizing. These transactions are not intended to bail out a family member or current owner from an existing delinquent mortgage. When individuals wish to purchase or refinance property currently or recently owned by an individual with whom they have an established relationship, the title commitment may not evidence foreclosure proceedings or notice of default. When the seller is a corporation, partnership, or any other business entity, we will need to document that the borrower is not an Non Occupant Co-Borrowers owner of the business entity selling the subject property. Allowed with the following restrictions: Non-Occupant Co-Borrower must be immediate family member. Max 95% LTV. If LTV is greater than 80% the occupying borrower contribute at least 5% of the down payment (if purchase) or must show 5% of their own funds saved, even if not used in transaction. Ratios should not exceed 35/43 for occupying borrower. Exceptions allowed for LP loans only Case by Case basis ONLY. Occupying borrower must be able to make monthly housing payment based on their own income/funds. Number of Properties owned/financed Owner Occupied transactions no limit on properties owned/financed. Second Home & Non-owner-Occupied transactions limit 4 properties financed. For borrowers with between 5 & 10 properties will be considered on a case by case basis, when all of the following are met: o 1 & 2 units only (3& 4 units not acceptable). o 75% maximum LTV for purchase of 1-unit 2 nd home or N/O/O; otherwise 70% maximum LTV. o Purchase or rate and term only, no cash out refinances. o 720 minimum credit score o 6 months PITI on all other second home and investment properties. o 45% Maximum DTI. DIRECTORS MORTGAGE will not do more than 4 loans per borrower. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 15

16 Occupancy Owner occupied, second home and investment property transactions allowed. Borrowers that have purchased or refinanced an owner occupied property within 12 months preceding the application date for another owner occupied property will only be allowed for borrowers that have relocated from another state or extenuating circumstances are present. If neither of those apply, the new loan would be considered a second home or an investment property. Power of Attorney Allowed for Purchases and Rate/term refinances. C/O refinances possible with an exception. Must be property specific and approved by underwriting. Property Eligibility ELIGIBLE PROPERTY TYPES: 1-4 units PUD, Detached or Attached: Condos - Warrantable only see Condo Section for details Unique properties allowed with exception only. ACREAGE: Lot size in excess of 10 acres must be carefully reviewed by the underwriter with the following being met: Maximum LTV 80%. Must be typical for the area, comps must support this. Must be residential in natural with no more than 20% of land value being used for income producing. Land to value ratio should not exceed 35%. Highest and best use must be a residential. Outbuildings: Minimal outbuildings: Small barns or stables that are of relatively insignificant value in relation to the total appraised value of the subject property are acceptable providing they are typical of other residential properties on the subject s area. Significant outbuildings: The presence of the outbuildings such as silos, large barns, storage areas, or facilities for farm-type animals, may indicate that the property is agriculture in nature, and therefore would be unacceptable.. PROPERTY FLIPS: RESOLD WITHIN 90 DAYS: On any sale transactions where the home was acquired less than 90 days ago we will: Require a Field review appraisal (paid for by the LO or the Borrower) to make sure the appraised value conclusion is supported; and Not allow any of these transactions among related parties; and No multiple flips within 12 months; and Require one of the following circumstances be met: a. The property was acquired by an Employer or Relocation Co. in connection with the relocation of an employee. b. Resale is by the lender when the property is obtained in foreclosure. c. Resale of the property is through an Inheritance or as part of a divorce settlement. d. The property was acquired for the purpose of rehab and upgrading DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 16

17 Mixed-Use properties: A mixed-used property must meet the following criteria: The property must be a one-unit property. Borrower must occupy the property as their primary residence. The borrower must be both the occupant and operator of the business. The property must be primarily residential in nature, located in a residential neighborhood, and be typical for properties in the market area. The use must represent a legal permissible use of the property under local zoning laws. The dwelling may not be modified in a manner that has an adverse impact on its marketability as a residence. The commercial use must not have an adverse effect on the habitability and safety of the property or site. Any commercial use of the property may not be more than 20% of the total square footage of the dwelling and or land size. INELIGIBLE PROPERTY TYPES: Properties with more than 20 acres. Properties with multiple flipping in the preceding 12 months. Purchase transactions of Properties sold at auction by the builder, developer or construction lender. Properties purchased from a builder who is purchasing the borrower s existing residence. Houseboats. Vacant land. Coops or Condo-Hotels. Timeshares, syndicated units or segmented ownership projects. Properties located in a coastal barrier resource system, federally declared wetlands or other federally protected areas. Properties which represent an illegal use under zoning regulations, or subject to hazard, noxious odors, etc. Properties on Native American Reservations. Manufactured Homes and other Factory Built Housing. Property that is landlocked, without full utilities and/or not accessible year round. Non-Warrantable Condo. Working farm, hobby farm, ranch or orchard. Adult Foster care. Assignment of Purchase Contract: Transactions where the purchase contract is in the name of the borrower and/or assignees, seller and/or assignees, or borrower and/or nominees or has been assigned to the borrower or seller are NOT acceptable. Purchase Money Transactions: The purchase contract for all purchase money transactions must be provided to the appraiser so that sales contributions or concessions can be accounted for in the valuation Purchases where seller has owned property less than 90 days: See property flip section above. Ratios The lessor of 50% or AUS findings. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 17

18 Recently Listed Properties Refinances Allowed for O/O, SFR properties only. Property listing must be canceled with MLS at least one day prior to the loan application being taken. Rate/Term Refinance = normal LTV/CLTV limits apply. Cash-Out Refinance = Max 70% LTV/CLTV. Seasoning Requirement: If the property was purchased by the borrower within the 6 months preceding the application for new financing, the borrower is ineligible for a cash-out refinance transaction. Delayed financing an exception is possible for borrowers that paid cash for a property and is wanting to refinance within 6 months of the purchase when the following can be met: The new loan amount is not more than the actual documented amount of the borrower s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV, CLTV, and HCLTV ratios for the transaction). The purchase transaction was an arms-length transaction. The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property. The preliminary title search or report must also confirm no liens on the subject property. The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property). Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1. All other cash-out refinance eligibility requirements are met and cash-out pricing is applied. LTV is based on the lower of acquisition or current appraised value. Short-term Refinance: A short-term refinance mortgage that combines a first mortgage and a non-purchase money subordinate mortgage into a new first mortgage that is temporarily held by the lender and then is immediately refinanced again will be viewed as a cash-out transaction. A short-term refinance mortgage loan that combines a first mortgage and a non-purchase money subordinate mortgage into a new first mortgage is considered a cash-out transaction. Any refinance of that loan within 6 months will also be considered a cash-out transaction. Continuity of Obligation: Continuity of obligation is met when one of the following is met: (assuming that there is an outstanding lien against the property). There is at least one borrower obligated on the new loan who was also a borrower obligated on the existing loan being refinanced. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 18

19 The borrower has been on title and residing in the property for at least 12 months and has either paid the mortgage for the last 12 months or can demonstrate a relationship (relative, domestic partner, etc.) with the current obligor. The existing loan being refinanced and the title have been held in the name of a natural person or an LLC as long as the borrower is 100% member of the LLC prior to transfer. Transfer of ownership from a corporation to an individual does not meet the continuity of obligation requirement. The borrower has recently inherited or was legally awarded the property (divorce, separation). Loans with an acceptable continuity of obligation may be underwritten, priced, and delivered as either a limited cashout refinance or a cash-out. Payoffs of Installment Land Contracts remain in place and are unaffected by these changes. If the borrower is currently on title but is unable to demonstrate an acceptable continuity of obligation, or there is no outstanding lien against the property, the loan is still eligible for delivery but with additional restrictions. The loans must be underwritten, priced, and delivered as a cash-out refinance transaction with these additional restrictions: No outstanding liens (e.g. purchased for cash, previous mortgage loans have been paid off, etc): If the property was purchased within the 6 to 12 month period prior to the application date for new financing, the LTV ratios will be based on the lesser of the original sales price/acquisition cost (documented by the HUD- 1 Settlement Statement), or the current appraised value. If the property was purchased more than 12 months prior to the application date for new financing, the current appraised value may be used to calculate the LTV ratios. No outstanding liens (e.g. purchased for cash, previous mortgage loans have been paid off, etc): If the borrower has been on title for at least 6 months but continuity of obligation does not exist, the maximum LTV ratios will be limited to 50% based on current appraised value. Reserves As determined by AUS. Second home and investment property transactions: Two months reserves are required for each additional financed second home or investment property that the borrower owns and/or is obligated on regardless of the DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 19

20 AUS decision. See converting current home to rental section for special consideration. Unacceptable sources of reserves: o Cash proceeds from cash out refinances. o Personal unsecured loans. o Stock held in an unlisted corporation. o Stock options and non-vested restricted stocks. o Funds that have not been vested. o Funds that cannot be withdrawn under circumstances other than the account owners retirement, employment termination or death. Seller Contributions Owner Occupied & Second Home: LTVs/CLTVs > %: 3% LTVs/CLTVs %: 6% LTVs/CLTVs < 75% : 9% Non Owner Occupied: 2% regardless of LTV Subordinate Financing The total financing, including any secondary or subordinate financing, cannot exceed the allowable combined LTV/CLTV ratios. Seller Carry-Backs are NOT permitted; financing must be from an institutional lender. Subordinate/Secondary financing is allowed provided the FNMA criteria are met. Monthly Payment Calculation on HELOC: If the HELOC is secured by the subject property, a payment of 1% of the total line amount will be used to calculate DTI. However, if the HELOC is secured by a property other than the subject, the payment amount on the credit report will be used to calculate DTI. If the payment amount is not shown on the credit report, then a payment of 1% of the total line amount will be used to generate a payment for DTI calculations. Title Reports Trust A 24 month chain of title will be required for all transactions. Your title commitment/preliminary title report must show an acceptable history or the underwriter must pull it from another acceptable source. Judgment/lien search required on all borrowers/title holders. Closing in the name of a Trust: An exception is required to closing in a trust and it must be an intro vivos Trust Eligible for 1-4 unit properties and be owner occupied, and one-unit second homes. The following documentation is required: DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 20

21 OREGON STATE: (In lieu of the Attorney's Opinion letter) copies of trust documents the title company Trust Certification is acceptable. All other states we lend in an Attorney s opinion letter from the borrowers attorney verifying all of the following: a) The trust was validly created and is duly existing under applicable law, b) It is a revocable trust, and c) The borrower is the settlor and the beneficiary of the trust, and d) The assets of the rust may be used as assets of the loan, and e) The trustee is: I. Duly qualified under applicable law to serve as trustee and II. Is fully authorized under the trust documents and applicable law to pledge or otherwise encumber the trust assets. Ineligible features of trust include but are not limited to the following: Non-owner occupied properties. Mixed vesting. Not allowed to be vested in 2 or more trusts Loans that involve power of attorneys. Underwriting Conforming loan programs require: DU Findings with Approve recommendation. No Level approvals allowed. LP will be consider in cases where one of the following apply: 1. The borrower has a disputed credit account. And/or 2. There is a non-occupying co-borrower Manual underwriting is not allowed. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 21

22 ELIGIBILITY MATRIX- DIRECTORS MORTGAGE CONFORMING Primary Residence # of Transaction Type units Max LTV/CLTV/HLTV Min Credit Score Purchase & LTD C/O Refi /97/97* /95/ /95/95 680/700 condos 1 (I/O)** 70/70/ /80/ /75/ Cash Out Refi 1 85/85/ /75/ Secondary Residence # of Transaction Type units Max LTV/CLTV/HLTV Min Credit Score Purch & Ltd Cash Out Refi 1 80/90/ /90/ (I/O) 70/70/ Cash Out Refi 1 75/75/ Investment Residence # of Transaction Type units Max LTV/CLTV/HLTV Min Credit Score Purchase 1 80/80/ Ltd Cash Out Refi 1 75/75/ Purch & Ltd Cash Out Refi /75/ Cash Out Refi 1 75/75/ /70/ * ; 1 unit, O/O SFR only, no condos allowed **interest only is not allowed on investment properties. 24 months PITI required. ** Mortgage insurance is required on all loans with an LTV > 80%. Mortgage Insurance guidelines will apply and require higher credit scores and lower DTI s. See MI snapshot for more details. ARM PRODUCTS MAX LTV/CLTV 90%. FOR ALL OTHER REDUCE LTV/CLTV S ABOVE BY 10% DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 22

23 ELIGIBILITY MATRIX- DIRECTORS MORTGAGE HIGH BAL. CONFORMING Primary Residence # of Transaction Type units Max LTV/CLTV/HLTV* Min Credit Score Purchase /90/ Purch & Ltd Cash Out Refi 1 80/90/ /75/ /75/ Cash Out Refi 1 60/60/ Secondary Residence # of Transaction Type units Max LTV/CLTV/HLTV Min Credit Score Purch & Ltd Cash Out Refi 1 65/65/ Investment Residence # of Transaction Type units Max LTV/CLTV/HLTV Min Credit Score Purch & Ltd Cash Out Refi 1 65/65/ /65/ * Mortgage insurance is required on all loans with an LTV > 80%. Mortgage Insurance guidelines will apply * Declining market guidelines may impact available maximum LTV. ARM PRODUCTS REDUCE THE ABOVE LTV/CLTV S BY 10%. DIRECTORS MORTGAGE Conforming Guidelines Last Updated 08/09/2013 Page 23