FHA Standard and High Balance Fixed Wholesale Business Channel T year Fixed and T year Fixed T100 HC 30 year Fixed High Balance loans

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1 This product guide provides Product High Lights Only. Please refer to applicable HUD Handbooks, Mortgagee Letters, Federal Register Updates and HUD Notices for specific criteria. In addition, your local FHA Homeownership Center (HOC) may be consulted. See Reference Tool section at the end of the matrix for specific links. Continental US Standard FHA Maximum Loan Amounts 1 Unit $417,000 2 Unit $533,850 3 Unit $645,300 4 Unit $801,950 Loan amounts exceeding this table must follow High Balance loan criteria. Note: Any reference made to loans within this matrix is referring to the base loan amount (prior to adding UFMIP). The FHA loan limits will vary by state, county and property as published on HUD s website at: (Select 2014 drop down box off website for 2014 loan limits) FHA Standard & Hi Balance Revision 01/03/2013 Page 1

2 Appraisal Requirements Topic T100 T101 T100HC State Certified Appraiser Requirement: As of October 1, 2009, all FHA loans requiring an appraisal must be from state certified appraisers. Please refer to HUD ML for complete details. o The appraiser assignment field within the Case # assignment screen in FHA Connection must be input with an appraiser listed as either certified residential or certified general on the FHA Roster for the state in which the property is located Market Conditions Addendum (FNMA form 1004MC): Market Conditions Addendum (FNMA form 1004MC) required for all appraisals of properties insured by FHA. Please refer to HUD ML for additional details. SECOND Appraisal Requirements for case # s assigned on or after February 15, 2010: o Second FHA appraisal for loan amounts > $417,000 or Cash out Refi > $417,000 will no longer require a full second FHA appraisal report. o A Desk Review from the approved national appraisal list will be required to substantiate the FHA appraisal. The use of Landsafe is no longer required. If the Desk Review indicates a valuation difference >5% lower, the Desk Review value must be used instead of the original appraisal value. Appraisal independence: Enactment of ML addressing Appraiser independence was delayed until February 15, Originally planned for a January 1, 2010 implementation, this ML has two parts: a) prohibition of mortgage brokers and commission based lender staff from the appraisal process, and b) appraiser selection in FHA Connection. The requirement for inputting the appraiser ID and the appraisal assignment date in the FHA Connection case number assignment screen is removed, and instead, the requirement will be to enter all appraisal data, including the appraiser ID, in the Appraisal Update Screen once the completed appraisal is received by the lender and prior to closing the loan. Appraisal Update and/or Completion Report: Enactment of ML Adoption of the Appraisal Update and/or Completion Report, originally planned with effective date of January 1, 2010 has been extended as applicable to all case numbers assigned on or after February 15, Appraisal validity period: ML reduces the validity period for all FHA appraisals to 120 days. Requirement applies regardless of the property s construction stage (existing, new, under construction, or proposed) effective for case # s assigned on or after Appraisal Portability: HUD Mortgagee Letter addresses the Portability of Appraisals from One Lender to Another. o Corp. Exceptions for FHA appraisal assignment to SPM from another lender on FHA loans with case # s on or after February 15, 2010 longer required. DE UW must ensure appraisal report is in the Assigning Lender s name in addition to following criteria stated below. o A copy of the assigning Lender s appraisal ordering policy is required for the Underwriter s review. o FHA loans with case numbers assigned prior to February 15 th may follow the normal process. o Per HUD ML, for transactions where a borrower has switched lenders, the first lender must transfer the case to the second lender, including the appraisal report. FHA will permit a second lender to order a new appraisal, only under limited circumstances: The DE Underwriter for the second lender found material defects with the original appraisal. The original appraiser is on the second lender s exclusionary list The first lender failed to provide a copy of the appraisal in a timely manner, which causes potential harm to the borrower for events outside of the borrower s control. The events include rate lock expiration, purchase contract deadlines, and foreclosure proceedings. Please refer to HUD ML for specifics related to FHA Case Number and FHA Roster Appraiser Assignments. For Streamline refinance transactions, please refer to Streamline topic. FHA Standard & Hi Balance Revision 01/03/2013 Page 2

3 Topic T100 T101 T100HC Automated Underwriting Rec. DU certificate is required in the loan file for all loans except streamline refinances. Maximum DTI ratio for TOTAL Scorecard Approve/Eligible is 50% Maximum DTI ratio for TOTAL Scorecard Refer is 45% please refer to Manual UW section for further requirements. DU: Approve/Eligible or Refer. Transactions with AUS Refer findings may still be eligible with Underwriter s review and documented ability to overcome the referral issues, loan is in full compliance with HUD requirements, including but not limited to the Total Mortgage Scorecard User Guide. (Refer to Credit section). Reminder: A down grade from Approve to Refer is required under certain circumstances as stated in Total Scorecard. Approve/Ineligible findings that contain the following condition may be acceptable if determined to be eligible for SPM and FHA by the Underwriter: "The lender must determine that the reason for ineligibility is one that can be resolved in compliance with FHA requirements, and must document the circumstances in the remarks section of the FHA Loan Underwriting and Transmittal Summary (LT)." All loans with Total Scorecard Refers that are manually underwritten must follow the SPM Verbal Verification requirements and utilize the SPM Verbal Verification of Employment form. ALL criteria for the VVOE must be adhered to, except that it must be completed by SPM personnel three days prior to loan funding. Borrower Eligibility CASH OUT Cash Reserves Contributions by Others Co Signers Collections/ Judgments U.S. Citizens, Permanent Resident Aliens and Non Permanent Resident Aliens Partnerships or Corporations are not allowed Must have valid Social Security Number Reminder: Non profit organizations are not eligible borrowers. Maximum Cash Out limited to $250,000 defined as cash in hand proceeds to borrower Applies only to Purchase Money Transactions (not Refinances) 1 2 Units: None required. 3 4 Units: 3 months PITI available after closing Reserves cannot come from Gift Funds must be borrower own funds. Maximum 6% toward buyer s actual closing costs, pre aids, discount points and other financing concessions. SPM does not allow Co signers. Note: A Co signer is NOT the same as a Non Occupant Co borrower. There is no restriction/overlay for Non Occupant Co borrowers, and HUD guidelines may be utilized. Effective with all Case Number Assigned on or after October 15, 2013 Borrower(s) must provide LOE w/ supporting documentation for each outstanding collection/judgment (Manual UW) If Collection Account > $2000 & All Judgment (regardless of dollar amount), a capacity analysis must be performed (Both AUS & Manual UW) Capacity Analysis includes collections & judgments of a non purchasing spouse in Community Property States Capacity Analysis includes any of the following: At time of closing or prior to, payment in full of the collection and/or judgment Borrower makes payment arrangement with creditor minimum 3 month payment history (although longer could be required at discretion of DE Underwriter) and payment included in DTI Complete copy of Payment Agreement and evidence payments were made on time Borrower(s) are not allowed to prepay scheduled payments in order to meet the required minimum month payments If evidence of collection payment is not available, the lender must include 5% of the outstanding balance of each collection in DTI ratios All judgments not in a repayment plan must be paid off in full Excluded Medical collection and charge offs. FHA Standard & Hi Balance Revision 01/03/2013 Page 3

4 Topic T100 T101 T100HC Condo Approval ML clarifies, expands, consolidates and replaces ML , b and Please refer to ML and its attachments for condo approval process requirements. HUD ML contains further updates/revisions/clarifications. o The hazard insurance policy for a 2 4 unit condo project MUST be issued under the name of the Home Owner s Association. Insurance policies issued under the Borrower s name will not be acceptable. Reminders: o Condo projects with existing HRAP approval are eligible for financing (E.G. those HRAP approvals other lenders obtained from HUD). SPM will not assume the responsibility for acquiring/recertifying/maintaining HRAP condo project approvals directly from HUD. o Lender Certification for Individual Unit Financing form is required for each loan with case # s assigned on or after Dec. 7, Responsibilities associated with the loan documentation review and consequent certification cannot be waived. o HO 6 Ins. Coverage: If master policy does not include interior unit coverage, (incl. replacement of interior improvements and betterment coverage to insure improvements made to the unit), the borrower must obtain a walls in coverage policy (HO 6). o Site Condo: Condo project approval is not required for Site Condominiums. These are defined as single family totally detached dwellings* (no shared garages or any other attached buildings) encumbered by a declaration of condo covenants or condo form of ownership. Site Condominiums that do not meet this definition will require project approval. In addition, the previous guidance requiring the use of appraisal form 1073 is no longer required and form 1004 can also be used as an alternative. There may NOT be any kind of attachments connecting any part of any building including decorative arches or other types of architectural elements. HUD has stated that even a piece of wood or metal connecting the buildings would render the project to be in eligible for a site condo. For FAQ s, please refer to: Credit DU Certificate is required in the loan file. See Automated Underwriting Section. Credit report is required on all transactions, including Streamline refinance transactions Min. Credit Score is 640 (regardless of AUS findings) refer to Streamline Refi section for specific criteria when a higher FICO may be required. Non traditional credit is not acceptable. All borrowers must have a traditional credit history and meet credit score requirements as stated. NO 30 days or greater mortgage lates are permitted in the most recent 12 months on any refinance loan transaction. This includes ALL refinance transactions regardless of Total Scorecard findings, and includes any 30 day mortgage late on Borrower s credit report during the past 12 mos. Authorized User Accounts: UW is responsible to determine impact of Authorized User accounts. If primary account holder is another applicant in transaction, no further action is required. However, if there is a significant difference in credit use, late payments and/or credit limits between Authorized User accounts and primary credit lines, the following applies: o Relationship of between the applicant and primary account holder must be that of a relative (spouse, parent or individual related to the applicant by blood, marriage, adoption or legal guardianship). o Accept/Eligible: LOE from applicant explaining relationship AND 3 months recently cancelled checks documenting applicant(s) have been making payments on time o Refer findings: LOE from applicant explaining relationship AND 12 months recently cancelled checks documenting applicant(s) have been making payments on time Inquiries: Regardless of AUS decision, a review and evaluation of the inquiry section of the credit report must be reviewed and evaluated to determine undisclosed debts within the last 90 days of credit report date. o A detailed fully executed explanation letter from Borrower is required specifically addressing both the purpose and outcome of each inquiry. o Generic letters are not acceptable Continued on following page In addition to credit criteria stated for standard loan amounts, the following applies to Jumbo loan amount: o 660 FICO (non Streamline) o Refer to Streamline Refi section for specific criteria when a FICO score lower than 660 maybe applicable. For Cash Out refinance transactions: o Foreclosure or Bankruptcy not allowed within most recent 7 years FHA Standard & Hi Balance Revision 01/03/2013 Page 4

5 Credit Topic T100 T101 T100HC Continued from previous page Requirements for DU Refer findings: o Effective immediately, for all loan transactions not yet approved with Refer findings, minimum trade line requirements apply as follows: Three trade lines open or closed with a min. of at least 12 months history for each For joint credit reports, the 3 trade line requirement can be combined/totaled (E.G. min. of 3 is not required for each Borrower) The following types of accounts are not considered traditional references: Collections (open or closed), Charge offs, Foreclosures, Repossessions, Disputed Accounts or Authorized User accounts. o For DU Refer rental/housing payments may NOT include 30 day lates during past 12 months. o FHA Comprehensive Risk Assessment Worksheet for Manual UW (printed out of OPS) must be fully completed by DE UW and retained in loan file. o Maximum DTI ratio of 45% o Effective with loan applications dated 01/10/ nd level review and approval required from Regional Ops Mgr as evidenced on both the Loan Approval and 92900LT Pay off demand: All Refinance transactions MUST BE CURRENT as evidenced by the pay off demand retained in the loan file in addition to documentation supporting mortgage history. o Borrower must be current on the mortgage being refinanced for the month due prior to the month in which they close the refinancing and for the month in which they close. Example: Loan is closing on April 8. The Borrower must have paid the March payment within the month of March and the April payment must be made by closing. Borrower has the option to make the April payment at the beginning of the month, or may include the April payment in the payoff amount at closing. QC credit reports: SPM policy requires Q.C. credit reports for all loan transactions, including Streamline Refinances. Please refer to FHA Streamline Refi sections for specific details. See Above FHA Standard & Hi Balance Revision 01/03/2013 Page 5

6 DAP (Down payment Assistance Programs) SPM will consider DAPS eligible sources of down payment for Standard loans, providing all of the following criteria is met: DAP may contain Deed Restriction Refer to the Section on Deed Restrictions for eligibility requirements. All applicable SPM guidelines and HUD Chapter 5 requirements must be met Our first lien may be subject to any terms or conditions of a State bond program. Refer to the Section on Deed Restrictions for eligibility requirements. The transferring of servicing rights for our first lien may NOT be restricted. o Prior notification or approval from the sponsoring authority in the event of the transfer of the first mortgage s servicing rights may NOT be required Specific CHDAP procedures apply: o Code T100CD must be used to ensure proper document tracking o Other specific procedures will be posted on the intranet and branch personnel must understand and be familiar with the process. Branches are solely responsible to understand and be familiar with any and all DAP program eligibility requirements. This includes, but is not limited to: documentation review and acceptability, property and borrower eligibility requirements as well as funding availability for applicable DAPs. o DAP specific program questions must be directed to the applicable agency s DAP contact person. o DE UW is responsible to: Properly populate the DAP field in OPS Ensure SPM and HUD requirements are met in addition to specific DAP eligibility and documentation criteria. This includes, but is not limited to obtaining a copy of Borrower DAP eligibility cert or other eligibility affirmation and/or all other specific documentation. Condition that Borrower may NOT receive cash back at closing: all DAP funds must be utilized towards down payment and/or closing costs. On purchase transactions, the combined amount of the First and Second mortgages may NOT exceed 100% of the LESSER of the property s value or sales price +normal closing costs, prepaid expenses and discount points. The monthly payment under the first and second mortgage or lien, plus other housing expenses and recurring charges, cannot exceed the borrower s reasonable ability to pay. The source, amount, and repayment terms must be disclosed in the mortgage application, and the borrowers must acknowledge that they understand and agree to the terms Pursuant to Mortgage Letter Minimum Cash Investment, each loan file to have documentation via a letter from CALFHA stating CALHFA has incurred a LEGALLY ENFORCEABLE OBLIGATION TO PROVIDE THE FUNDS TOWARDS THE BORROWER S MINIMUM CASH INVESTEMENT. o Closer/Funder is responsible to: Ensure all UW conditions and File documentation requirements are received and properly signed by Borrowers including but not limited to: copies of Security Instrument, Note, and any other documentation required to be signed by the Borrower for specific DAP program HUD 1 must be closely reviewed to ensure compliance to UW condition that all DAP funds are to be used for down/payment/closing cost requirement. FHA Standard & Hi Balance Revision 01/03/2013 Page 6

7 Topic T100 T101 T100HC Declining Market Deed Restriction A reduction in maximum LTV/CLTV is NOT required for FHA loans in declining markets for any of the FHA programs. Reference Mortgagee Letter Restrictions to Transferability HUD long standing policy that a property with HUD insured mortgage shall be free of restriction that prevent the borrower from freely transferring the property. This rule uses the term legal restrictions on conveyance to describe such restrictions and is broadly defined to include provision in any kind of legal instrument that would cause a conveyance by the borrower to: Be void or voidable by a 3 rd party Be the basis of contractual liability of the borrower Terminate, or subject to termination, the borrower s interest in the property Be subject to consent of a 3 rd party Be subject to limits on the amount of sales proceeds a borrower can retain Be grounds for accelerating the insured mortgage Be grounds for increasing the interest of the insured mortgage. If a conveyance could cause any of the above these to occur, the property is usually ineligible for HUD insured mortgage, HOWEVER there are circumstances when the restrictions do not make the property ineligible. They are: Restrictions that are part of an eligible program for low moderate income housing (referred to as an Affordable Housing Program. An eligible program must be operated pursuant to a Federal program, or operated by a State or local government. Restrictions related to tax exempt revenue bond financing. (I.E. State Bond Programs such as CALFHA, Virginia Bond, etc) Restrictions for housing the elderly are allowed if consistent with Federal, State, and local laws and marketability is not duly affected Limitations on Restrictions Affordable Housing Programs. All restriction relating to affordable housing programs that are otherwise allowed by HUD policy must automatically and permanently terminate upon foreclosure, deed in lieu, or assignment of the insure mortgage to HUD. The relevant legal documents must have language that accomplished this result. Merely subordinating the restrictions to the insure mortgage is not sufficient. The restrictions cannot come back into force upon subsequent resale by the lender or HUD. Restrictions may not be enforced by any of the following: Voiding a conveyance by the borrower. Terminating the borrower s interest in the property Accelerating the insured mortgage Increasing the interest rate for the insured mortgage Subjecting the borrower to contractual liability. Affordable Housing Program must be designed to serve borrowers with a household income not to exceed 115% of the median are income, unless the local HUD office has approved a higher income in writing. Currently the only area with an approved higher income limit is Hawaii, with a limit of 140% Specific Restrictions allowed for Affordable Housing include: Limits to the resale price of the property or recaptures of equity First Right of Refusal upon borrower s sale of home if the rights are held by a governmental body, is exercised within 45 days, and any option price allows the borrower to recover the investment plus a reasonable share of appreciation as defined in detail in Mtgee Ltr Income Limits First Time Homebuyers FHA Standard & Hi Balance Revision 01/03/2013 Page 7

8 DTI Ratios EEM Electronic Signature Eligible Sources of Funds TOTAL Scorecard Approve/Eligible Maximum DTI Ratio 50% Loans downgraded to a Manual Underwrite Maximum DTI Ratio 45% TOTAL Scorecard Refer/Eligible Maximum DIT Ratio 45% Effective with all loan applications dated January 10, 2014 and after, all Manual underwrites require Regional Ops Mgr review and approval as noted on both the Loan Approval and 92900LT Effective immediately, EEM s are no longer permitted. HUD ML addressing the acceptance of Electronic signatures for Third Party Documents permitted as stated in P&P. (E.G. previous restriction not allowing such has been removed) Can be from own funds* or collaterized loan Gifts acceptable from family members, church, employers, municipality, FHA approved charitable/non profit agency. (Note: Outright gifts do NOT require specific recordation of liens, memorandums, etc. and are not the same as a Down Payment Assistance Program for which specific requirements are expected and recorded in the form of Agreements and/or 2 nd liens). *Note: Business funds are NOT eligible sources for down payment or reserve requirements except as stated in the SPM P&P. FHA Standard & Hi Balance Revision 01/03/2013 Page 8

9 Escrow Hold back HUD REO Repair Escrow Now eligible Flood Insurance Escrow Hold backs will be permitted and funds may be withheld in escrow only if adverse weather conditions prevent completion of new construction items (i. e, landscaping, grading etc.). The following conditions must be met: o The items that need to be completed do not affect the livability of the house and are minor and uncomplicated. o The dwelling is habitable, safe and essentially complete. o The deferred work cannot be acceptably completed prior to the loan closing, but will be completed within 90 days of closing. o All other conditions for approval of the loan have been met. o All other conditions of the appraisal have been satisfied by a Compliance Inspection (HUD 92051) o The escrow funds withheld must be the 1½ times the cost to cure o The total cost of the repair plus the appropriate amount held back for unforeseen contingencies plus the amount to pay for the inspection fee must be less than $5,000. o Escrow Holdback Agreement must be signed at close of escrow. o Rate Lock extended through the date of completion of all repairs and FHA appraiser inspected, cleared by issuing the 1004D Work Completed Upon completion of the work and prior to the 90 day deadline, the branch must provide the Compliance Inspection Report Form completed and signed off by the HUD inspector to evidence that all the work has been completed. The DE Underwriter must ensure that all HUD requirements for Escrow holdbacks are met as per Chapter 4.6 D HUD REO Repair Escrow: Transactions subject to the follow: 1. Rate lock extended through the date of completion of all repairs and FHA appraiser inspected and cleared by issuing the 1004D. 2. Maximum of 10 business days for completion of repairs. 3. Holdback cannot be for any repair considered Health & Safety, or that affects the ability of borrower to occupy the residence. 4. Minimum 2 bids from licensed contractors. Need copy of bid & license, & verified to show active and in good standing with State. (Regardless of who actually completes the repair) 5. Withhold 150% of the higher bid amount, to a maximum of $5000. (Net amount of repairs cannot exceed $3333) D required from FHA appraiser for satisfactory completion of all repairs 7. Fully Executed Escrow Withhold Agreement (form found on the Intranet) 8. Escrow Officer to provide Amended HUD 1 showing funds disbursed directly to the contractor for completed work. 9. Any excess funds to be applied to principal reduction no refund of excess funds to the borrower 10. REMINDER FHA appraiser to comment that all utilities and mechanical systems are on and functioning must be from the appraiser on the appraisal or 1004D. Reminder: Flood zone determination and Flood insurance requirements must be met in accordance to ML For additional information, you may use this link: FHA Standard & Hi Balance Revision 01/03/2013 Page 9

10 Topic T100 T101 T100HC Flipping Policy *****Please note: Pursuant to 24 CFR Part 203, The HUD temporary waiver scheduled to expire on Dec. 31, 2012 have been extended through Dec Reminder: Corp. Exception approval for flipping waivers is still required****** HUD s ancmt. Jan. 15, 2010 regarding a temporary 1 year waiver of the 90 day flipping rule can be followed effective April 1, SPM will allow the 90 day waiver for properties owned 90 days or less, subject to all of the following requirements: Subject to Corporate Exception approval. (Please note: due to investor restrictions, DE UW may not approve at branch level) The 90 days is calculated from the Seller s acquisition date to the date of execution of the sales contract by the buyer. Any increase of sales price over seller acquisition costs must be documented, and must be less than 20%. The increase in sales price over the seller acquisition cost may not equal or exceed 20%, (E.G. must be maxed at 19%) even if documented. The purchase contract may NOT be amended to reduce the sales price to meet the max 19% cap. The only price reduction permitted on flipped properties must be attributed to the appraiser s value not supporting the purchase price. The acquisition cost/price is defined as the first transfer price (noted on the HUD 1 from Seller acquisition) to new transfer price (noted on the HUD 1 of subject transaction). We will not allow inclusion of any cost of repairs and/or closing costs to be added as acquisition cost. Transaction must be a bona fide sale, fully arms length without any identity of interest relationships between Buyer, Seller, or Third parties. Seller must hold title to the property: No pattern or previous flipping activities indicated on loan file (multiple title transfers within 12 months) HUD has clarified that the list of regulatory exemptions is still valid: therefore exempt sales do not have limitations or documentation requirements based on the sales price increase over seller's acquisition cost. The following exemptions are not restricted to the less than 20% increase in value: o FHA REO properties sold by FHA. o Re sales of properties purchased by an employer or relocation (relo) agency in connection with an employee relo. What FHA intends to exempt is bona fide relocation agencies that contract with employers to handle relo s of their employees. A relo agency DOES NOT include individual real estate agents that advertise themselves as relo experts and who purchase properties from persons who are relocating from the area. o Property inherited by the seller. The seller will not be required to hold title to that property for 90 days before he/she can sell it with FHA insured financing. The seller must still be the owner of record but the 90 day ownership period will not be required. Since there was no previous sale of the property because it was inherited, there is no previous sales price that might trigger the second appraisal requirement set forth in the flipping rules. The UW must include the documentation evidencing the inheritance in the case binder when submitting the case for insurance. o Sales by other U.S. Government Agencies of single family properties pursuant to programs operated by these agencies. o Sales of properties by nonprofits approved to purchase HUD owned single family properties at a discount with resale restrictions. o Sales of properties by state and federally charted financial institutions and Government Sponsored Enterprises (e.g. Fannie Mae and Freddie Mac). (Note: Mortgage Insurance (MI) companies are not considered a state or federally charted financial institution and are not qualified as a government sponsored enterprise.) o Sales of properties by local and state government agencies. o Sales of properties within Presidentially Declared Disaster Areas (upon FHA's announcement of eligibility in a mortgagee letter specific to said disaster). o Sales of properties acquired by foreclosure by state licensed mortgage lenders and/or servicing lenders, whether sold directly by the mortgage lender or their subsidiaries; or by vendors to whom they have transferred titles to properties for the purpose of effectuating sales of those properties. (Note: This temporary exemption applies to loans for which the sales agreements were signed by the seller and buyer prior to 5/10/2010.) Please refer to HUD guidelines Chapter 4.7 for complete details on flipping. FHA Standard & Hi Balance Revision 01/03/2013 Page 10

11 Topic T100 T101 T100HC Geographic Restriction Hawaiian Homelands HPML (High Price Mortgage Loans) Geographic restrictions may apply. Please refer to the Geographic Restriction Table posted on the web s Underwriting Guideline section. 2 4 units not available in the State of New Jersey Hawaiian Homeland loans are not eligible. These loans are owner occupied loan transactions to native Hawaiians and subject to the approval of the Dept. of Hawaiian Home Lands. FHA Conforming Loan Amount are eligible FHA Hi Balance Loan Amount ARE NOW ELIGIBLE Purchase/Rate & Term / Cash Out Refinance Only Streamline Refinances ARE NOT ELIGIBLE TOTAL Scorecard AUS Approved/Eligible MAX DTI 50% Total Scorecard Refer / Manual Underwrites Maximum DTI 45% + 2 nd review for Loan Applications dates on or after 01/10/2014 Full Credit, Asset, and Income Documentation No doc relief from AUS to include but not limited to: Verification of Previous Housing (VOR) for previous 12 months or if living rent free LOE from parent providing validation of terms of living arrangement (live rent free, does chores in exchange for free rent, etc) with full contact information C.2.b Most recent 2 months bank statements Verification of Employment for full 2 years (gaps > 30 day require written explain) Paystubs reflecting most recent 30 day period (YTD) Self Employed Individual & Business Federal Returns for the most recent 2 years + YTD P&L/Balance Sheet Commissioned /Employed by Family Member Individual Federal Returns for the most recent 2 years Please refer to the for further detail FHA Standard & Hi Balance Revision 01/03/2013 Page 11

12 HUD REO Purchase Transaction IRS #4506 T HUD REO purchases are also referred to as Property Disposition sales. Management and Marketing (M&M) Contractors market and manage single family properties owned by HUD. To locate the appropriate M&M Contractor for a given state go to the following website: Additional Sales Incentives: From time to time, for particular properties or particular areas, HUD may authorize additional sales incentives. Where those incentives are authorized, they will be noted in writing on either the HUD Sales Contract or accompanying cover letter with sales contract. o HUD offers various incentives in conjunction with HUD properties acquired through foreclosure. The incentives for HUD REO properties may include, but are not limited to the following: o FHA financing using $ down payment o The FHA Good Neighbor Next Door program is not allowed Standard FHA underwriting guidelines apply. o HUD REO LTV revision: For all $ down payment REO loan transactions the total loan amount including UFMIP will be limited to 100% of the as is appraisal value from the initial HUD REO appraisal report that set the listing price for the subject property. This revision is applicable w/ case # s assigned on or after April 28, Each loan transaction must be evaluated for eligibility/ability to finance the UFMIP in the total loan amount. It will not be possible to finance part of the UFMIP to 100% LTV and the remaining in cash. UFMIP must be either totally financed into the loan amount or totally paid in cash. Appraisal reports: The appraisal report from the M&M contractor must be present in the loan file o Per HUD ML : All appraisals utilized to establish the listing price on an REO property owned by HUD with an effective date on or after April 1, 2010 will be valid for a period of 120 days from the date of the appraisal. The HUD REO sales contract must be ratified within 120 days of the appraisal effective date or a new appraisal or an appraisal update in accordance to HUD ML must be ordered. The appraisal utilized in determining the list price will remain effective for purposes of obtaining the FHA insured mortgage. A second appraisal may not be ordered to support a purchase price higher than the value on the current appraisal. A second appraisal may only be ordered if the current appraisal will not be valid on the date of contract ratification or if there are material deficiencies with the current appraisal. Please refer to HUD ML for specific details. Eligible FHA program and insurable without repairs must both be checked on the fully executed purchase contract. Occupancy: HUD REOs are available for owner occupied properties only! Non Owner HUD REO properties are not eligible. o Any time the purchase price on a HUD REO property exceeds the appraised value, the Borrower must pay the difference (even if purchased under the $ down payment program). This scenario may be typical in areas where bidding wars occur due to high demand. The file should be documented that such situation is applicable to this transaction. Please refer to HUD ML00 27 and HUD Handbook # for further details. To access additional HUD lending parameters and available incentives, use this link: Properties eligible for these special incentives are identified by HUD incentives stated within the terms of the purchase contract. These special incentives are offered to reduce the number of available REO properties and are NOT special products located within the FHA guidelines. For reference purposes, you may access The Good Neighbor Next Door program through the following link: REMINDER; For ALL credit qualifying FHA loan transactions (including credit qualifying Streamlines) the #4506 T is still required. Most recent 2 years complete T transcripts are required FHA Standard & Hi Balance Revision 01/03/2013 Page 12

13 Loan Amount & Max. LTV Calcu Lations (Non Streamline) PURCHASE LOAN TRANSACTIONS: Follow HUD guidelines REFINANCE LOAN TRANSACTIONS: Reminder A.1.h. Skipped payments: Lenders are not permitted to allow borrowers to skip payments. The borrower must either make the payment when it is due, or bring the monthly mortgage payment check to settlement. The new mortgage loan amount: FHA does not permit inclusion of any mortgage payments skipped by the borrower in the new mortgage amount. Also refer to pay off demand in credit topic. Occupancy of Former Investment Property (per HUD ML ): must be seasoned 12 months or more prior to application date for max. financing same as owner occupant. If less than 12 months: Rate/Term only (no Streamline) with max 85% LTV. FHA loans are limited to owner occupied transactions only Limited Rate/Term Refinance o For properties owned less than one year prior to loan application, the lower of the acquisition cost or appraised value must be used. o No cash back to borrower allowed, except for minor adjustments at closing, not exceeding $ o Junior liens being paid off that are not purchase money Seconds must be at least 1 year old unless for documented home improvements. o For Equity Line junior lien requirements, please refer to HUD Handbook o For case # s assigned on or after as stated in HUD ML , Limited Rate/Term Refinance transactions with new or existing subordinate liens are capped at 97.75% LTV/CLTV. o Limited Rate/Term refinance transactions are available in the state of Texas as long as the transaction is NOT a Texas (a)(6) loan. Reminder: Borrower may NOT receive ANY incidental cash back at closing! Please refer to Streamline Refinance section Loan Amount & Max. LTV Calculations Cash Out Refinance Cash Out Refinances for Standard Loan amounts Owner occupied residence only. Cash out refi s are addressed in ML o If property has been borrower s principal residence less than 12 months*, use the lesser of the following: 85% of the appraised value. 85% of the original sales price. *This does not apply if subj. property was inherited and is or will become the heir s principal residence. o FOR CASE NUMBER ASSIGNMENTS 04/01/09 OR LATER: (Per HUD ML dated 03/12/09 for Cash Out Refinance restrictions for case number assignments on or after April 1, 2009) Effective , the maximum allowable CLTV for any Cash Out Refinance transaction is limited to 85% CLTV. This applies to new, as well as existing subordinate financing. Re Subordinate Financing (existing or modified) may remain in place provided that Borrower qualifies with payment on all liens. Co borrowers added to the note or currently on the note must occupy the property securing the new FHA insured mortgage. Non occupant coborrowers may not be added to the note to meet credit underwriting guidelines. If encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months. Full 12 month history is required. Payment must be current for the month due. o Reminder Texas (a)(6) loans are NOT eligible for financing! Per FHA Announcement ML , Underwriter is responsible for calculating the mortgage amount in accordance with existing FHA statutory requirements and documenting that calculation in the loan origination file. Detailed information regarding Cash Out and No Cash Out requirements may be found in HUD Handbook , HUD Mortgagee Letters and For Hi Balance Loan Amounts Same Cash Out criteria applies as Standard loan amounts in addition to: See credit requirements Cash Out refinances are not eligible on 3 4 unit properties Also refer to 2 nd appraisal requirements FHA Standard & Hi Balance Revision 01/03/2013 Page 13

14 Topic T100 T101 T100HC ** These Streamline requirements must be met exactly as stated below and apply to both Standard and Jumbo/High Balance loan amounts** Stream 30 Year allowed 15 Year allowed ONLY 30 year allowed line Term Stream STREAMLINE REFINANCES Except for requirements below, all other HUD guidelines in the must be met. line FHA loans are limited to owner occupied transactions only. Refi All requirements for Streamline Refinance transactions must be met exactly as stated. There are no Corporate Exceptions available application must be completed in entirity Section IV of the URLA, which consists of the Borrower's employment information (i.e. employer's name, address, number of years on the job number of years in the same line of work, business phone#, and the position/title) must continue to be completed in order to perform VVOE requirements. UW is no longer required to certify employment and income at time of application. REMINDER Min Credit Score 640 LTV/CLTV < 115% Min Credit Score 660 LTV/CLTV > 115% Removal of Borrower: removal of Borrower(s) from the original loan is now permitted provided the loan is credit qualified and the Borrower(s) being removed do not occupy the subject property. Borrower must be re qualified with full credit package and loan is a manual underwrite Do not run through Total Scorecard. Reminder Maximum CLTV 125% per C.2.f Policy on Subordinate Financing on Streamline Refinances Property Requirements: o Properties located in the states of Arkansas or Massachusetts are ineligible. o 2 4 unit properties (attached or detached) are now eligible o Condo projects (unit and/or project) in monetary litigation are now eligible o Condo project no longer need current FHA project approval. Streamline Market Valuation Action Step requirements. In addition to the FHA streamline loan calculation, the new TOTAL loan amount will require a specific validation of the property s current market value to be manually performed. The following action steps must be followed regardless of CoreLogic s PASS findings. Step #1: Calculate the total FHA Streamline loan amount following standard HUD requirements Step #2: Pull the Core Logic Geo Core AVM report and review the Corelogic AVM Report Page 2: Summary / "Estimated Value" Core Logic Geo AVE used to derive current market value, LTV/CLTV + FSD (Forecast Standard Deviation) cannot exceed 129% regardless of the value of the individual LTV/CLTV and FSD components OR An appraisal form 1004/1073 or 2055/1075 may be substituted in place of a Core Logic Geo AVM. If a form 1004/1073 or 2055E/1075 appraisal is used, an LTV of up to 129% is acceptable. AND Minimum Fico Score of 640 for LTV/CLTV < 115% Minimum Fico Score of 660 for LTV/CLTV >115%. FHA Standard & Hi Balance Revision 01/03/2013 Page 14

15 Stream Line Refinance Note: If Core Logic is unable to provide an AVM (common in some areas) the #2055, 1075 or 1025 with market rents on 2 4 unit properties will be required. The following appraisal report requirements are applicable: A 1004 or 2055 exterior only or 1073 or 1075 exterior only Condo appraisal or 1025 with market rents on 2 4 unit properties The maximum LTV/CLTV is based off the applicable #1004/2055 or 1073/1075 appraisal report and cannot exceed 129% LTV/CLTV. FHA Standard & Hi Balance Revision 01/03/2013 Page 15

16 Streamline Refi Total Score card: streamline loans may not be run through Total Scorecard. If TOTAL Scorecard is accidentally used, the loan must be manually underwritten (the underwriter must sign and state their DE number on the LT form and 92900a pg. 3) and meet FHA Streamline eligibility requirements. ZFHA must not be used as the UW in FHA Connection. Seasoning At time of loan application, at least 6 payments must have been made on the FHA insured mortgage being refinanced. Note: FHA Connect will NOT assign a case number for a Streamline Refinance until the full six month loan seasoning period has elapsed (212 days). Mortgage Payment History Requirements. The following requirements must be met without exception: o Loans with a 12 month payment history: 0x30 lates in the previous 12 months. o Mortgages with less than 12 months payment history: the borrower must have made all payments within the month payment is due. Employment/Income verification. o Retired and/or Social Security income require the most recent Bank Statement or award letter. Borrowers deriving income from other passive sources such as Alimony, rents, royalties, etc. can provide the front page of their tax returns to meet documentation requirements. o The verbal VOE is required must meet all of the SPM requirements stated in the P&P and must be completed 10 business days prior to Note date. 3 rd party verifications for self employed borrowers are needed. If there is no business license, CPA letter, business phone listing or other acceptable third party verification available, the loan is not eligible for a Streamline. Note: VVOE is required for all salaried employees and self employed. VVOE requirement does not apply to Borrowers with passive income sources. SPM processed #4506T transcripts are no longer required for self employed borrowers or any other borrowers. Signed #4506T must NOT be obtained at closing for ANY borrowers, and should NOT be retained in the loan files for any non credit qualifying Streamline refi. Net Tangible Benefit (NTB) Requirements: Effective immediately, in accordance to HUD ML the net tangible benefit definition for the Borrower has been changed to base the calculation of the net tangible benefit on the principal and interest (P&I) and Mortgage Insurance Premium (MIP). The new total mortgage payment must be 5% lower than the PRINCIPAL & INTEREST + annual MIP (monthly). o Please refer to HUD ML for specific criteria o Reducing the term of the mortgage alone is NOT a net tangible benefit. o FHA NET Tangible worksheet must be completed for all FHA Streamline Refi s by UW and retained in loan file Assets: Assets needed to close (regardless of amount) must be verified and documented accordingly. Discounts Points: Discount Points may no longer be included in existing loan o If borrower has agreed to pay discount points, verification of borrower s assets documenting available funds must be contained in the loan file. Streamline Refinances WITHOUT an Appraisal The following requirements must be met for Streamline Refinances without an Appraisal: o All applicable Streamline Market Valuation requirements must be met and LTV/CLTV limitations must meet criteria stated above. o Maximum insurable mortgage cannot exceed the outstanding principal balance from the existing loan minus applicable refund of the UFMIP plus the new UFMIP that will be charged on the refinance. o The outstanding principal balance may include interest charged when the payoff will not be received on the first day of the month but may not include delinquent interest, late charges, monthly MIP or escrow shortage. o All properties located within a FEMA declared disaster area will require an exterior inspection performed by an FHA approved inspector to ensure the property has not been damaged. Streamline Refinances WITH an Appraisal FHA no longer allows streamline refinances with an appraisal to obtain a higher loan amount. You must follow the same rules for streamline without an appraisal. See HUD ML Reminders: Be sure to include the pay off statement in the loan file See Pay off demand in credit topic for specific requirements. Also, FHA Secure Loans are NOT eligible for Streamline Refinances. These loans are coded FHAC on FHA Connection. FHA Standard & Hi Balance Revision 01/03/2013 Page 16

17 Loan Term Nonstreamline Manual UW Max.# RE owned Min/Max. Loan amount Min Property Standards Mortgage Ins. Premium (MIP) 30, 25,or 20 Year Fixed See Streamline topic 15 or 10 Year Fixed See Streamline topic 30 Year Fixed/30 Year Fixed See Streamline topic Loans downgraded to a Manual Underwrite Maximum DTI Ratio 45% TOTAL Scorecard Refer/Eligible Maximum DIT Ratio 45% Ratios exceeding FHA 31/43 will require compensating factors documented to support >43% DTI which include: Current Housing > Proposed Mortgage paid 0x30 past mths Down Payment > 10% or more Accumulated Savings and Conservative attitude toward using credit Compensation or Income not reflected in effective income Minimal Housing Expense increase Substantial Cash Reserves (at least 3 months) Substantial Non Taxable Income Potential for Increased Earnings Effective with all loan applications dated January 10, 2014 and after, all Manual underwrites require Regional Ops Mgr review and approval as noted on both the Loan Approval and 92900LT Follow Standard FHA guidelines. There is no minimum loan amount established. Maximum loan amount may not exceed FHA statutory guidelines as posted on page 1. Min loan amount is $1 over standard loan amount table posted on page 1. The max loan amount may not exceed applicable county limits. Minimum property standards must be met. All properties must be habitable and all appliances, plumbing, electrical, etc, must be functional and in good working order. The definition of a functional kitchen is defined as having kitchen cabinets and a working sink. Mortgage insurance is required on all loans. Mortgage requirements: May be paid Up front (UFMIP) OR MIP may be financed 100% Monthly MIP is required in addition to the UFMIP. Note: UFMIP may NOT be partially financed. The following HUD bulletins reference the Upfront and Annual MIP based on the case number date assigned and the terms of the loan. o HUD ML , the FHA Upfront and Annual MIP (AMIP) will change for case numbers assigned on or after June 11, 2012 for streamline refinances that were endorsed on or before May 31, The endorsement date is on the Case Query Screen in FHA Connection. o HUD ML , the Annual MIP (AMIP) will change for case numbers assigned on or after June 11, 2012 for when the base loan amount exceeds $625,500 Note: The changes contained in the above bulletins have various different implementation dates. The OPS system has incorporated applicable changes in compliance with this mortgagee letter. Please refer to the mortgagee letter for specific details. Reminder: The OPS system is already programmed to calculate the monthly MI amount in accordance to HUD requirements. The correct methodology for those calculations are as follows: o Every month s unpaid principal balance is taken for the first 12 months, multiplied by the monthly factor and divided by 12. o The OPS system then takes all of those monthly amounts and averages them. o HUD completes the same routine every 12 months. Occupancy Owner occupied only. See Streamline Refinance criteria in Transaction Type of matrix FHA Standard & Hi Balance Revision 01/03/2013 Page 17