AGENCY CONFORMING DU Multiple Financed Properties CONFORMING DU Multiple Financed Properties FINANCE TYPE PURCHASE & RATE/TERM REFINANCE DELAYED FINANCING CASH OUT REFINANCE OCCUPANCY SECOND HOME INVESTMENT PROPERTY SECOND HOME INVESTMENT PROPERTY TERM Fixed Rate ARM s Fixed Rate ARM s 1 Maximum LTV reduced by 5% LTV points when there is Secondary Financing (CLTV) FIXED ARM FIXED ARM 1 Unit 75 65 720 1 Unit 70 60 720 Cash-Out Refinance (only if within 6 months of purchase and all delayed financing exception requirements are met See B2-1.2-03, Cash-Out Refinance Transactions (05/28/2013) INVESTMENT PROPERTY Fixed Rate ARM s INVESTMENT PROPERTY Fixed Rate ARM s C/O Transaction - Properties listed for sale in the six months preceding the Application date of the new mortgage loan are limited to 70% LTV/CLTV or when the LTV/CLTV/HCLTV differs from the Process/Program selected, the more restrictive applies. FIXED ARM FIXED ARM 2-4 Unit 70 60 720 2-4 Unit 65 60 720 1 P age
AGENCY HIGH BALANCE DU Multiple Financed Properties HIGH BALANCE DU Multiple Financed Properties FINANCE TYPE PURCHASE & RATE/TERM REFINANCE DELAYED FINANCING CASH OUT REFINANCE OCCUPANCY SECOND HOME INVESTMENT PROPERTY SECOND HOME INVESTMENT PROPERTY TERM Fixed Rate ARM s Fixed Rate ARM s FIXED ARM FIXED ARM 1 Maximum LTV reduced by 5% LTV points when there is Secondary Financing (CLTV) 1 Unit 65 65 720 1 Unit N/A N/A N/A INVESTMENT PROPERTY INVESTMENT PROPERTY The CLTV ratio is calculated by adding the amount of HELOC in use to the first mortgage, HCLTV is calculated by adding the HELOC credit line limit to the first mortgage. Fixed Rate ARM s FIXED ARM Fixed Rate ARM s FIXED ARM 2-4 Unit 65 60 720 2-4 Unit N/A N/A N/A 2 P age
AGENCY REQUIREMENTS Traditional Product: Loans with the following characteristics DU ONLY - 5-10 Multiple Financed Properties FANNIE MAE & FREDDIE MAC DU- ONLY - Delayed Financing Cash-Out in combination with 5-10 Multiple Financed Properties DU / LP - Wage Earner W-2 Transcripts Only (must be straight wage earner, no rental income, 2106 expenses, commission income or self employed w/ W2 from business) DU / LP - Condo / HOA Exception Approval DU /LP - All Other Exception Loans For loans subject to the ATR/QM rule, CSL will only lend on loans that comply with the ATR/QM requirements. Ability To Repay and Qualified Mortgage Rule Note: Investment properties which are for business purposes (borrower does not intend to occupy for greater than 14 days in the year) are exempt from ATR/QM; however, such loans must meet agency eligibility requirements and are subject to the applicable points and fees threshold. Clear itemization of fees and application of all credits that indicate paid by/to will be required on all loans Adding/Removing Borrowers On Application Upon receipt of the application or loan file, we cannot remove/change the status of any of the existing co-applicants. Instead a new application must be resubmitted as a new transaction. (This policy applies to any transaction where a credit report is pulled and/or a loan number is assigned.) Additional borrowers may be added during the application process without the need to create a new transaction. Each transaction is limited to no more than (4) four applicants/borrowers. Age of Documents Must be dated within 90 days old on the note date, including credit reports and employment, income and asset documents. Preliminary Title Policies must be no more than 90 days old from the date of the document. Determined by AUS Findings. - Recert of values in accordance with CSL guidelines (90 days from date of original appraisal). Appraisals Loans secured by properties with unpermitted structural additions under the following conditions: The subject addition complies with all lender and agency guidelines; The quality of the work is described in the appraisal and deemed acceptable ( workmanlike quality ) by the appraiser; The addition does not result in a change in the number of units comprising the subject property (e.g. a 1 unit converted into a 2 unit). 3 P age
If the appraiser gives the unpermitted addition value, the appraiser must be able to demonstrate market acceptance by the use of comparable sales with similar additions and state the following in the appraisal: - Non-Permitted additions are typical for the market area and a typical buyer would consider the "unpermitted" additional square footage to be part of the overall square footage of the property. - The appraiser has no reason to believe the addition would not pass inspection for a permit. Follow Agency guidelines relative to funds to close. related policies, including, but not limited to the following: B3-4.4-01, Asset Verification Gift funds are allowed in accordance with Fannie Mae guidelines Assets 2 months account statements required, Originator must document the source of funds for any single deposit exceeding 25% of the total monthly qualifying income for the Mortgage. Originator must document a deposit of any amount if there is any indication that the funds are borrowed. If the source of funds can be clearly identified from the deposit information on the account statement (e.g., direct payroll deposits) or other documented income or asset source in the Mortgage file (e.g. tax refund amounts appearing on the tax returns in the file), the Originator is not required to obtain additional documentation. Direct account verification (i.e., verification of deposit - VOD), is not acceptable Must provide actual statements. Secured Borrowed Funds - Include CD, stocks, bonds, automobiles, real estate, and life insurance policies. Must verify the value, ownership of the secured asset, the terms of the loan and the fact that it is a secured loan. Desktop Underwriter with "Approve/Eligible" Findings is required. AUS Loan Prospector with "Accept" Recommendation is required. LP A Minus Offering is not allowed. Loan Prospector does not permit more than 1-4 financed properties. Manual UW is not permitted U.S. Citizens Permanent resident aliens, with proof of lawful permanent residence Borrower Eligibility Nonpermanent resident alien immigrants, with proof of lawful permanent residence Not Allowed - Borrowers that receive Government/Public Assistance Income (commonly known as Section 8). Properties vested in trusts are permitted for all occupancy types in accordance with Fannie Mae Trust guidelines. Investment properties to be vested in the name of the trust is acceptable. At least one borrower must have a minimum of one credit score to be eligible. Credit When not all borrowers have a usable Credit, all of the following requirements apply: - The transaction is a purchase or "no cash-out" refinance 4 P age
- The Mortgage is secured by a 1-unit property and all borrowers occupy the property as their Primary Residence - Borrowers with a usable Credit contribute more than 50% of the total monthly income - Borrowers without a Credit are not self-employed Note: Any debt not reported on the credit report must be documented as being repaid in a satisfactory manner. Credit report inquiries dated within the previous 120 days: a letter from the creditor, or if such letter is unobtainable, a signed statement from the borrower may be used to determine whether additional credit was obtained. Must payoff any existing judgments or tax liens. Derogatory Credit Derogatory Credit Bankruptcy, Foreclosure, Deed-in-Lieu of Foreclosure and Preforeclosure Mortgage Delinquencies Policy Applies to Multiple Financed Properties & Delayed Financing The borrower cannot have any history of bankruptcy or foreclosure within the past seven years. The borrower cannot have any delinquencies (30-day or greater) within the past 12 months on any mortgage loans. Determined by AUS Tax transcripts are required for each borrower whose income is utilized as a source of repayment. Documentation - Transcripts must be provided for the number of years of income used to qualify the borrower. Tax transcripts are required to support the income used to qualify the borrower. Wage Earner W-2 Transcripts may be eligible must be straight wage earner, no rental income, 2106 expenses, commission income or self employed w/ W2 from business) Generally, when the documentation used to verify income is from the same calendar period as the tax transcript, the information must match exactly. A 4506-T, signed at application and closing, is required for all transactions. Agency Fixed Rate: 10, 15, 20, 25 and 30 Year Agency Libor ARM: 3/1, 5/1, 7/1 and 10/1 Arm Eligible Mortgage Products Product Qualifying Rate 5 P age
3/1 & 5/1 LIBOR Higher of Note Rate + 2% or Fully Indexed Rate (Index + Margin) 7/1 & 10/1 LIBOR Higher of Fully Indexed Rate or Note Rate Eligible Mortgage Products Product LIBOR ARM Interest Rate Caps First Subsequent Life Margin 3/1 2% 2% 6% 2.250% 5/1 2% 2% 5% 2.250% 7/1 5% 2% 5% 2.250% 10/1 5% 2% 5% 2.250% First Adjustment Cap - At the first adjustment, the interest rate cannot be increased or decreased above or below the loan's initial interest more than the percentage listed in the table above. Subsequent Adjustment Cap - At each subsequent adjustment, the interest rate cannot be increased or decreased above or below the loan's interest rate for the preceding 12 months more than the percentage listed in the table above. Life Adjustment Cap - The maximum rate payable over the life of the loan is the loan's initial interest plus the percentage listed in the table above. Floor - The floor rate is the margin. Over the life of the loan, the interest rate can never be lower than the margin. High Cost / High Priced CSL will not purchase High Cost Loans or Higher Priced Mortgage Loans (HPML) 6 P age
Limits on the Number of Financed Properties If the mortgage is secured by the borrower s principal residence, there are no limitations on the number of properties that the borrower can currently be financing. If the mortgage is secured by a second home or an investment property, the borrower may own or be obligated on up to ten financed properties (including his or her principal residence). Fannie Mae's standard eligibility and underwriting policies apply if the borrower is financing a second home or investment property and will have one to four financed properties; however, if the borrower will have five to ten financed properties, the mortgage loan must comply with the eligibility and underwriting requirements described herein. The following table describes how to apply the limitations based on the type of property ownership: Type of Property Ownership Joint ownership of residential real estate. (This is considered to be the same as total ownership of an individual property.) Note: Other properties owned or financed jointly by the borrower and co-borrower are only counted once. Ownership of commercial real estate. Ownership of a multifamily property consisting of more than four dwelling units. Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner of the corporation and the financing is in the name of the corporation or S-corporation. Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner of the corporation; however, the financing is in the name of the borrower. Ownership in a timeshare. Obligation on a mortgage debt for a residential property (regardless of whether or not the borrower is an owner of the property). Ownership of a vacant (residential) lot. Joint or total ownership of a property that is held in the name of a limited liability company (LLC) or partnership. Ownership of a manufactured home and the land on which it is situated that is titled as real property. Ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home). Property Subject to Limitations? Yes No No No Yes No Yes No Yes Yes No Examples: - If the borrower owns two financed investment properties and the co-borrower owns three other financed investment properties, then jointly, the borrowers have five financed investment properties in addition to their principal residence(s), if applicable. - If the borrower is obligated on a mortgage for a residential property (though is not on title) and the co-borrower owns a second home and an investment property (both of which are financed), then jointly, the borrowers have three financed properties that must be 7 P age
included in the count in addition to their principal residence(s), if applicable. - If a borrower and a co-borrower are purchasing an investment property and they already own and/or are obligated on five other investment properties that they jointly own and/or are obligated on, the new property being purchased would be considered the borrowers' sixth investment property. If a borrower owns five properties individually and is 100% owner of a corporation that owns an additional five properties, of which two of those properties are secured by mortgages that are shown on the borrower s credit report, the borrower would be considered to have seven financed properties. A borrower may finance multiple properties if he or she is qualified and if the following requirements are met: Loan and Borrower Requirements The loan must comply with Fannie Mae s limitations on the maximum number of financed properties, including ownership interests in financed properties, as well as eligibility, underwriting, and reserve requirements. The borrower must have sufficient assets to close after calculating reserve requirements. For minimum reserve requirements, see B3-4.1-01, Minimum Reserve Requirements All other cash-out refinance eligibility requirements must be met and cash-out pricing is applied A Power of Attorney (POA) may not be utilized to sign a security instrument or note if the transaction is Cash Out Refinance At least one borrower is obligated on the new loan who was also a borrower obligated on the existing loan being refinanced Purchase Limited Cash-Out/Rate & Term Refinance - Proceeds can be used to Pay off a first mortgage regardless of age - Proceeds can be used to pay off any junior liens related to the purchase of the subject property - Pay related Closing Costs and Prepaid items Loan Purpose - Disburse cash out to the Borrower in an amount not to exceed 2% of the new Mortgage or $2,000, whichever is less. - Must meet all continuity of obligation requirements Cash Out - 6 months seasoning required; measured from settlement date to the disbursement date of the new loan, unless delayed financing is met. Fannie Mae s & Freddie Mac s delayed financing provision: Borrowers who purchased the subject property within the past (6) six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met. 8 P age
Requirements for a Delayed Financing Exception The original purchase transaction was an arms-length transaction. The original purchase transaction is documented by a HUD-1 Settlement Statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed [or similar alternative] confirming the amount paid by the grantee to trustee may be substituted for a HUD-1 if a HUD-1 was not provided to the purchaser at time of sale.) The preliminary title search or report must confirm that there are no existing liens on the subject property. The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property). If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the HUD-1 for the refinance transaction must reflect that all cash-out proceeds be used to pay down, if applicable, the loan (unsecured or secured by an asset other than the subject property) used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction. Note: Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. The new loan amount can be no 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 on the new mortgage loan (subject to the maximum LTV/CLTV/HCLTV ratios for the transaction). All other cash-out refinance eligibility requirements are met and cash-out pricing is applied. Note: Investor and second home borrowers with five to ten financed properties on cash-out refinance transactions must meet all of FNMA s the delayed financing exception requirements listed above.. Additional restrictions apply. See B2-2-03, Multiple Financed Properties for the Same Borrower. Reminder: More than 1-4 financed properties are not permitted for LP loans Delayed Financing Cash-Out may not be combined with 5-10 Multiple Financed Properties on Freddie Mac LP. Primary Residence - 1-4 units Occupancy Second Homes - 1-unit only Investment Properties 1-4 units 9 P age
Second Home Requirements Must be located a reasonable distance away from the borrower s principal residence. Must be occupied by the borrower for some portion of the year. Is restricted to one-unit dwellings. Must be suitable for year-round occupancy. The borrower must have exclusive control over the property. Must not be rental property or a timeshare arrangement. Points and Fees Originators may not charge borrowers points and fees (whether or not financed) in an amount that exceeds the greater of (i) 5 percent of the principal amount of the mortgage loan, or (ii) $1,000. Points and fees must be adequately disclosed in accordance with applicable law and regulation. Single Family Detached Single Unit Single Family Attached Single Unit 2 4 Unit Attached & Detached Property; Eligible Types PUDs Low-rise and High-rise Condominiums (must be Fannie Mae / Freddie Mac eligible) Rural Properties (in accordance with Agency Guidelines, loans must be residential in nature) Leaseholds Property; Maximum Number of Financed Properties The loan must comply with Fannie Mae's limitations on the maximum number of financed properties, including ownership interest in financed properties. - Fannie Mae has imposed LTV/CLTV, minimum credit score, transaction type, reserves and other miscellaneous requirements that may not be assessed by DU. Refer to the Fannie Mae Seller Guide, section B2-2-03 (Borrower Eligibility, Multiple Financed Properties for the Same Borrower) for details https://www.fanniemae.com/content/tool/selling-guide-quick-links.pdf - owner-occupied: unlimited - second home: four - non-owner occupied: four 10 P age
second home and non-owner occupied: 5 10 (Fannie Mae Only) Property Flipping Policy Properties that involve a re-sale that have a Non-Arms Length or At Interest relationship between the Buyer and Seller or Broker are subject to restrictions. Additional review for those loans in which the appraised value is believed to be excessive or where the value of the property has experienced significant appreciation in a short time period since the prior sale. Due to layered risk associated with excessive values and/or rapid appreciation is by receiving accurate appraisals from knowledgeable, experienced appraisers. An additional appraisal review value product required to support the subject appraised value in instances of greater than 20% appreciation. A Non-Arms Length or At Interest relationship between the Buyer and Seller or Broker not allowed on Investment transactions. The Maximum DTI is 50% with a DU Approve /Eligible Ratios Loans with DTI exceeding 50% regardless of AUS decision are ineligible. Delayed financing exception additional restrictions apply to DTI exceeding 43% - Residual Income requirements must be met. No Cash-Out Transaction - The subject property must not be currently listed for sale. It must be taken off the market at minimum 1 day before the date of Application. Borrowers must confirm their intent to occupy the subject property (for principal residence transactions). Recently Listed Properties Cash-Out Transaction - Properties listed for sale in the six months preceding the Application date of the new mortgage loan are limited to 70% LTV/CLTV or when the LTV/CLTV/HCLTV differs from the Process/Program selected, the more restrictive applies. Properties that were listed for sale must be taken off the market at minimum 1 day before the the date of Application of the new mortgage loan. When the borrower has a history of owning rental property, net rental income or loss is calculated by: The lesser of the gross rent (minus a 25% expense factor) or the market rent established by the appraiser for properties not reflected on the borrower's tax returns. Rental Income Calculation When the property is reflected on the borrower's tax returns, analyze the borrower s cash flow and calculate the net rental income (or loss), making sure that depreciation or any interest, taxes, or insurance expenses were added back in the borrower s cash flow analysis. The full PITI for the rental property must be factored into the amount of the net rental income or loss. When the borrower does not have a history of owning rental property, follow the Fannie Mae requirements. Rental income on the subject investment property must be fully documented in accordance with B3-3.1-01, General Income Information, and B3-3.1-08, Rental Income. Rental income from other properties owned by the borrower must be supported by the most recent signed federal income tax return. If rental income has not yet been reported on tax returns because the properties were acquired subsequent to the last tax filing, leases may be used to document rental income. 11 P age
Primary Residence - Follow AUS findings. However, follow Fannie Mae requirements when the borrower's current principal residence is pending sale or converting to a second home or investment property: For a mortgage loan secured by the borrower s principal residence, the minimum reserve requirements are determined as follows: If the percentage of equity in the current principal residence is Then additional reserves (in addition to those required by DU are 30% or more Less than 30% 2 months on subject property and 2 months on current principal residence 6 months on subject property and 6 months on current principal residence Reserves Second Home or Investment Property - Follow AUS findings. If the borrower owns other financed properties, the following additional reserves must be calculated and documented. The required reserves for a financed property are based on the qualifying payment amount of the financed property. However if the borrower owns additional financed second homes or investment properties, provide: For a mortgage loan secured by a second home or an investment property, the minimum reserve requirements are determined as follows: If the total number of financed properties is Then additional reserves (in addition to those required by DU are 1 to 4 financed properties (including subject) 2 months for each second home or investment property 5 to 10 financed properties (including subject) 6 months for each second home or investment property PITIA - monthly payments of principal, interest, taxes, insurance and assessments or dues Acceptable Sources of Reserves - Examples of liquid financial assets that can be used for reserves include: - Checking or savings accounts, - Investments in stocks, bonds, mutual funds, the cash value of a vested life insurance policy and Other Securities: o Otherwise reserves should be calculated using 70% (60% for retirement accounts) of the current market value unless the redeemable value can be determined and verified. For loans decisioned via DU, system output will be followed - 100% of Certificates of Deposit, less any early withdrawal penalties that should be deducted, 12 P age
DU is not able to determine the exact number of financed properties the borrower owns or is obligated on, but does issue a message on second home and investment property transactions when the borrower appears to have other financed properties. The lender will apply the eligibility and underwriting requirements manually to investment property and second home transactions that are underwritten through DU, as applicable. For additional policy considerations, see B3-3.1-08, Rental Income, B3-4.1-01, Minimum Reserve Requirements, and B3-6-05, Monthly Debt Obligations Loan Prospector with "Accept" Recommendation is required. LP A Minus Offering is not allowed. Loan Prospector does not permit more than 1-4 financed properties. Manual UW is not permitted LP follows the 1-4 Financed Properties policies to determine what reserves are required. LP is not able to determine the exact number of financed properties the borrower owns. The underwriter must manually apply the Multiple Property and Departure Property reserve requirement policies. For additional policy considerations, see Reserves (Guide Section 26.5) and Freddie Mac Rental Income Matrix http://www.freddiemac.com/learn/pdfs/uw/rental.pdf Residual Income : Qualified Gross Monthly Income less the Gross Monthly Debt (use the combined income on 1008 if multiple borrowers) Residual income requirements must be met on Delayed Financing Cash-out for borrowers with Multiple Financed Properties Occupancy DTI Ratios Residual Income Reserve Requirements $1300 + Follow AUS Residual Income Primary Residence > 43% $800 - $1299 Greater of 3 month reserves or AUS Up to $799 Greater of 6 months reserves or AUS $1500 + Follow AUS Second Home or Investment > 43% $1000 - $1499 Greater of 6 months reserves or AUS Up to $999 Greater of 9 months reserves or AUS Seasoning Please refer to Agency requirements for Seasoned Loan Policy may have and loan-level price adjustments 13 P age