Catalina

Underwriting Guidelines

As of 01/07/03

Link to Underwriting Options

Borrower Eligibility

title requirements

• Mortgages must be made to natural persons only

• If the borrowers are another type of legal entity (such as a corporation, S corporation, non-revocable Inter Vivos trust, life estate, general partnership, or real estate syndication), the mortgage is ineligible

• Title to the property must be in the name of individual borrowers only.

Inter Vivos Trusts

• Some programs allow ownership by Inter Vivos trusts

• The Inter Vivos revocable trust, also called a family trust, living trust, or revocable living trust, can be used as an alternative form of property ownership.

• The trust must be revocable and must contain specific language within the document giving the right to revoke.

• Legal title to the property must be held in the name of the trustee(s), on behalf of the inter vivos trust.

• The title insurance policy must ensure full title protection, and must indicate that title to the subject property is vested in the name of the trustee(s). The policy may not list any exceptions with regard to the trust or the trustee(s).

• Whenever possible, the underwriter must obtain copies of the entire recorded trust document. The copies must be certified by an attorney or the grantor/trustor/settlor.

• The title company must also be supplied with copies of the trust.

• Some borrowers may be reluctant to provide full copies of a trust document if the trust includes significantly more assets than the subject property. In such cases, the borrower must supply all portions of the trust, as required by the title company, clearly designating:

• The identities of the grantor/trustor/settlor, beneficiaries, and trustee

• The powers of the trustee

• That the property is held as part of the trust

• Revocability of the trust

• That the trust was created and became effective during the lifetime of the original grantor/trustor/settlor

residency

Permanent Resident Aliens

Non-U.S. citizens who are lawful, permanent residents of the United States are eligible under the same terms available to U.S. citizens. Permanent resident aliens must have any of the following:

• An Alien Registration Card (also called a green card) with a 10-year expiration date on the front, but no expiration date on the back

• An Alien Registration Receipt Card (I-551) with an expiration date and must be accompanied by a copy of an unexpired INS Form 1-751

• Unexpired foreign passport that contains an unexpired stamp reading "Processed for I-551." Temporary Evidence of Lawful Admission for Permanent Residence. Valid until (mm-dd-yy). Employment authorized."

• Any other evidence of permanent residency issued by the INS

Non-Permanent Resident Aliens

• Non-permanent resident aliens are non-United States citizens who have no valid evidence of permanent residency, but have valid visas

• If all the borrowers on a loan are non-permanent resident aliens and they do not have the required two-year credit, employment or residency history, the loan must be originated and closed under the Foreign Nationals programs

• Acceptable visas are H-1, H-2A, H-2B, H-3, L-1, E-1, and G series

• The following additional requirements apply on non-conforming and nonconforming expanded criteria loan programs when ALL the borrowers are non-permanent resident aliens:

(1) Loans for non-permanent resident aliens who do not have the required 2-year credit, employment or residency history must be originated and closed under the Foreign National programs.

Foreign Nationals

Non-United States citizens, who are not permanent or non-permanent resident aliens, and do not have full or partial diplomatic immunity must meet the standard requirements of an eligible borrower.  Foreign Nationals must provide:

• Residency visa to visit or live in US for limited amount of time

• Eligible Visas are: B-1, B-2, E-1, E-2, G1 through G5, I, J-1, J-2 and K-1.

• Copy of unexpired passport.

• Social Security Number or Certificate of Foreign Status form W-8.

ineligible borrowers

• Living Trust Corporation

• S Corporation

• Non-revocable

multiple loans to one borrower

The number of loans the investor will extend to one borrower is limited to no more than four (4).  For example:

• One owner-occupied primary residence

• One second home

• Two investment properties

Exception

The number of loans Investor will extend to one borrower may be increased up to eight (8) provided the transaction meets the following criteria:

number of properties owned

• The occupancy of the property being financed will determine the limitations on how many other financed one-to-four family properties the borrower may own.

• For all loans, the borrower's primary residence, subject property and any properties owned separately by a Co-borrower must be included in the total.  Joint ownership in residential property is considered the same as total ownership for limitation purposes.

• Ownership in multi-family (5+units), commercial real estate or unimproved land is excluded from these limitations.

• The following lists the maximum number of financed properties a borrower may have including the subject property.

Note: Some loan programs may be more restrictive. Refer to the individual loan program guidelines.

1) Borrower may not be affiliated with the builder, developer, or seller of the subject property.

non-occupant co-borrowers

• Allowed on all conforming conventional loan programs with an LTV of 90% or less

• Non-occupant co-borrowers are also allowed under some non-conforming loan programs

• When allowed, the non-occupant co-borrower does not need to be a family member

• There should be, however, an established relationship and motivation not including an equity participation for profit

• If there is a non-occupant co-borrower, the owner-occupant must have 5% of the purchase price in their own funds, unless 20% of the down payment is provided from a gift or grant

• If there is a non-occupant co-borrower, the owner-occupants must qualify at 35%/43% ratio, regardless of the LTV

• If the LTV is greater than 80%, the owner-occupant must have 5% of the purchase price in own funds

non-arm's length transaction

Non-arm’s length transactions with non-family members will only be considered if it is a bona fide sales transaction and the borrowers will occupy the property as their primary residence.

• A non-arm's length transaction occurs when a personal or business relationship exists between the borrowers and the builder or seller.

• These transactions include:

• Family sales or transfers

• Corporate sales or transfers

• Mortgagors employed in the real estate or construction trades who are involved in the construction, financing, or sale of the subject property

• Some transactions involving principals or a seller or other vendor (such as an appraiser, settlement agent, title company, etc.) who is involved in the lending process of the subject property

• Non-arm's length transactions may require additional documentation depending on underwriter's assessment of risk.

• Non-arm's length transactions with a family member are generally acceptable if:

• The family member or relative is the borrower's spouse, child, parent, or any other individual related to the borrowers by blood, adoption, or legal guardianship.

• An executed purchase or sales agreement between the purchaser and the family member is in the loan file.

• The source and ownership of funds for the down payment, closing costs, and reserves is well documented in the loan file.

• The appraised value of the property is well supported, particularly for gifts of equity or gifts of more than 20% of the LTV.

• Gifts are not allowed for second home and investment properties.

• Gifts are allowed for owner-occupied transactions if they meet the normal gifting guidelines as follows:

• The borrowers must have 5% of their own funds as a down payment.

• However if the LTV is less than or equal to 80% then the entire down payment may be a gift.

• Gifts of equity are acceptable if verified by an appraisal and gift letter.

• A signed gift letter and verification of the receipt of the funds are provided.

• Non-arm's length transactions are not allowed on loans using the No Income/No Asset or Investor Fast & Easy documentation type.

occupancy

Primary Residence

• A one- to four-family property that is the borrower's primary residence

• At least one of the borrowers must occupy and hold title to the property, and also execute the Note and mortgage

• The borrower must occupy the subject property within 30 days of close of escrow.

Second Home

• Property that the borrower occupies in addition to the primary residence

• The property must be located in an area that can reasonably function as a second home and must be suitable for year-round occupancy.

• Cannot be a 2-unit property

Investment Property

• The full amount of the mortgage payment for the rental property (PITI) is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation.

• Reasonable adjustments to gross rental income must be made to compensate for vacancies, operating and maintenance expenses, and rental income received for furniture.

• A one- to four-family property that the borrower does not occupy. This definition is used whether or not the property produces income

• Investment properties are subject to the following requirements:

• Conforming loans only: The borrower must have a two-year history of managing rental properties. Verification must be provided through the most current two years of tax returns.

• The property must have a minimum coverage of six-months' rent loss insurance to cover rental losses that may be incurred during any period that a property is being rehabilitated following a casualty.

Exception (Conforming loans only): The two-year history managing rental properties and six- months' rent loss insurance coverage requirements may be waived if the borrower qualifies for the mortgage based on the full payment (PITI) for the subject property without having to rely on the rental income.

• On Refinances of 2-4 unit properties, an occupancy inspection to verify owner occupancy must be completed on loans for 2-4 unit properties prior to closing the loan.

• The inspections may be performed by the appraiser or a property inspection company.

• An executed Occupancy Declaration must be included in the loan file at the time the loan is delivered.

non-purchasing spouse

• Spouse must sign the security instrument and any other applicable documentation to confirm they are relinquishing all rights to the property.

• Purchasing spouse's lien position must be superior to that of the non-purchasing spouse

purchasing from builder

If borrowers are purchasing a property from a builder who is purchasing the borrower's existing residence, it is considered a non-arm's length transaction and is not permitted

Credit Requirements

credit history

When evaluating the borrower's credit history, the following factors should be considered to determine if the borrower's Credit is acceptable:

• The type and amount of outstanding credit

• Age of the borrower's credit history

• Balance-to-account-limit ratios

• Recent changes in the number of open accounts or overall amount of credit outstanding.  Payment history of all accounts

• Any recent inquiries shown on the credit report

• Any public record or collection item

A borrower whose income or assets are used for qualification must have at least the following for:

• Conforming Loans

• The minimum necessary number of trade lines to obtain a credit score

• Non-Conforming Loans

• 3 trade lines or as specified in the individual loan program

• At least one trade line must be currently open and not be a collection or charge-off.

• At least one trade line must have had activity in the last 6 months

• 4 non-credit payment references, OR

• A total of 4 trade lines and non-credit payment references.

• A documented savings history of at least 12 months may be included as one of the non-credit payment references if the history shows periodic deposits, at least quarterly, resulting in a growing balance.

• Multiple borrowers

• Acceptable credit for one borrower cannot be used to offset the unacceptable credit of another.

• The credit worthiness of all borrowers who will appear on the Note will be considered, including each borrower's income, assets and debt.

• Non-Permanent Resident Aliens

• Borrowers who are non-permanent resident aliens must have established a credit history in the US for at least the most recent 2 years.

minimum credit score

See Product Matrices

age of report

• All standard credit documentation used to determine the borrower's eligibility must be no more than 120 days old on the date the Note is signed.

• If the property is a new construction, the documents may be up to 180 days old.

Representative credit score

A single, representative credit score can be selected for each borrower. A representative score is then designated for the borrower and the loan, as follows:

Borrower Representative Score:

• If a total of 3 scores are obtained for a borrower, the designated score for that borrower shall be the middle score.

• If a total of 2 scores are obtained, the lower score will be the designated score for that borrower.

Loan Representative Score:

• If there are co-borrowers on the loan, the credit score applicable to the loan itself will be the lowest of the respective borrowers scores. Note: If the borrower's incomes are equal, the lowest score, or lowest middle score of all the borrowers should be used.

• If only one score is available from all three repositories, the one score will be designated as the loan score

Equity Loans

• Full/Alt Documentation - Use the primary borrower's middle score (highest wage earner). If two scores are used, the primary borrower's lowest score should be used.

Note: If the borrowers' incomes are equal, the lowest score, or lowest middle score of all the borrowers should be used.

• Reduced Documentation - Use the lowest middle credit score among all borrowers.

Note: Some non-conforming loan programs may have more restrictive guidelines for determination of the credit score. Refer to the appropriate loan program for information.

Usable Credit Scores

For a credit score to be considered valid and usable, it must be based on a minimum amount of information. Generally, a usable credit score is based partially upon a minimum number of trade lines that have been open for a minimum length of time. The following standard guidelines should be used when reviewing the borrowers credit history. Refer to the appropriate loan program guidelines for specific credit score requirements.

Credit Score Not Available

If a credit score is not available or if the credit score is not usable, the borrower may not be eligible, depending on the loan program.

Non-traditional MCR

• A Non-traditional Mortgage Credit Report (MCR) must be used as a substitute for, or as a supplement to, a traditional credit report that has an insufficient number of credit references

• The Non-traditional Mortgage Credit Report must be developed by a credit reporting agency after ensuring that all 3 of the major credit repositories were checked in the initial attempt to verify the borrowers credit history.

• A Non-traditional MCR should include a 12-month credit history with at least 4 different credit sources

• Three credit sources are acceptable provided that the borrower's utilities are included in the verified rent payment

• The report should be evaluated following the same standards as a traditional credit history, and should not be used to offset derogatory traditional credit references.

• Non-traditional mortgage credit reports are only allowed for conforming loan programs, and are not acceptable for non-conforming, expanded criteria, equity, or sub-prime programs

Exception: The Foreign National Program allows the use of a non-traditional mortgage credit report.

• A non-traditional mortgage credit report should not be used if a credit score can be obtained for the borrower despite his or her limited use of credit.

Credit Score Review

Credit scores should be used to assist in determining the borrower's willingness to repay a mortgage. During the underwriting process, the following chart should be used to determine the level of review required for the loan:

Basic

The loan should be underwritten to confirm the borrower's willingness to repay the mortgage as agreed.

Comprehensive

All aspects of the borrower's credit history should be underwritten to establish the borrower's willingness to repay the mortgage as agreed

Cautious

• A particularly detailed review of all aspects of the borrowers credit history should be performed to ensure that the borrower's willingness to repay the mortgage as agreed has been satisfactorily established

• Unless there are extenuating circumstances or major factors related to Credit that offset the risk indicated, a credit score in this range should be viewed as a strong indication that the borrower does not show sufficient willingness to repay the debt.

business credit reports

• Under some Reduced Documentation loan programs, self-employed borrowers who own their business as a corporation, an S corporation, or a partnership must obtain a business credit report to supplement the individual credit report

• The same requirements that apply to individual credit reports apply to business credit reports

bankruptcy

• If the credit history reflects a bankruptcy or a foreclosure or deed in lieu of foreclosure within the last 7 years, the derogatory information is significant and must be attributed to extenuating circumstances

• A signed, written letter of explanation, consistent with all other information in the loan file, should be requested from the borrowers.

• If a bankruptcy was disclosed on the borrower's credit report was determined to be acceptable due to extenuating circumstances, the following documentation must be included in the loan file, in addition to all the documentation required for extenuating circumstances:

• Copies of the bankruptcy petition, schedule of debts, and discharge showing the discharge

• Evidence to indicate that all debts not satisfied by the bankruptcy have been paid or are being paid

• Any other evidence necessary to support the Seller's determination that factors outside the borrower's control caused the bankruptcy, and that the borrower has re-established an acceptable credit reputation.

foreclosure

• A previous foreclosure or conveyance of a deed-in-lieu of foreclosure, disclosed on the borrower's credit report must always be considered significant derogatory information

• The foreclosure or deed-in-lieu must be attributable to outside events beyond the borrower's control.

• Additionally in all cases, including mortgages underwritten with credit scores, the borrower must have experienced extenuating circumstances, and the Seller must meet the documentation requirements for determining that the Borrower now has an acceptable credit reputation.

judgments/collection/tax liens/adverse credit

• The credit history for the last 7 years should be reviewed to determine whether there are any major indications of derogatory credit, such as undischarged debts, judgments, bankruptcy, etc.

• Any litigation involving the borrower including bankruptcy, foreclosure, deed-in-lieu, short sale, judgments, tax liens, collection accounts and charge-offs must be evaluated separately and meet the specific loan program guidelines.

• When evaluating borrowers with adverse credit information, more weight should be given to derogatory credit information or late payments occurring within the past 2 years

• However, the following factors should still be considered:

• The number, timing and extent of the delinquency

• Eventual repayment of delinquent obligations

• Any previous bankruptcy, mortgage foreclosures or deed-in-lieu of foreclosure within the past 7 years

• Whether other characteristics of the borrower's credit profile, such as age of credit, use of outstanding credit, and inquiries, make any significant difference in the derogatory credit information

When reviewing derogatory credit, the following general guidelines apply.

Conforming and Non-Conforming Loans:

Any outstanding judgments and/or tax liens, as well as any other derogatory items appearing in the title policy (e.g., delinquent taxes, tax liens, mechanics’ liens, and collections) must be paid/released to the satisfaction of the title company.

Conforming Loans Only:

• In certain cases, collection and charge-off accounts will be reflected in amounts that have no material effect on the priority of the lien.

• Therefore, collection or charge-off accounts do not have to be paid off at or before loan closing if they are less than $250 per individual account or $1,000 in total.

• An explanation in writing should be obtained from the borrower and included in the loan file delivered for purchase by Investor.

Refer to the individual loan program for more restrictive requirements.

Financial Mismanagement

• It is not easy to substantiate that borrower whose derogatory or adverse credit information is due to financial mismanagement presents an acceptable credit risk

• This generally takes a longer, and more convincing, credit re-establishment period

• When financial mismanagement is determined, use the following guidelines:

• Determine that the borrower's credit reputation is acceptable.

• Develop criteria supporting the determination that the financial mismanagement is unlikely to recur; and

• Include in the loan a file an analysis detailing the reasons for considering the borrower to be credit-worthy.

payoff debt to qualify

Revolving Debt

If any portions of the loan proceeds are being used to pay off debts for qualification purposes, the underwriter must count a minimum $10 per month payment for revolving debts and include these debts in the total debt ratio.

Installment Debt

• Installment debts being paid off do not need to be included in the total debt ratio.

• Verification that the debt has been paid must be provided by one of the following:

• A copy of the HUD-1

• A supplemental credit report

• Verification from the creditor

Note: Student loans with more than three (3) years' deferment do not have to be included in the calculation of the borrower’s liabilities.

divorce

See "Financial Mismanagement" section above

credit counseling

Active Participant

Only sub-prime loans with an LTV less than or equal to 90% are eligible for purchase by Investor when borrowers are currently participating in a credit counseling program. All other loan programs are not eligible.

Previous Participant

When a borrower's credit report reflects they have been in credit counseling, there must be a minimum of 12 months' seasoning on credit re-established since the credit counseling was terminated. The re-established credit may not include accounts paid through credit counseling.

Note: Credit bureaus generally do not actively track credit counseling history in the borrower's credit file. If a completion date is not shown on the credit report, the borrower must submit verification from the counseling agency establishing the date of completion.

upgrading credit

Not available

Alternative credit

When verifying non-credit payment references, sufficient information must be obtained to establish:

• To whom payments were made

• Nature of the obligation, such as utilities, payment for purchases, insurance, etc

• When account was opened

• Amount of the payment required or made

• When payments are due

• A payment history

• Any outstanding balances

• The historical status of the account in a format indicating the number of times and duration of times past due

• General reference letters without the above information are not sufficient documentation

• If a savings history is used, the loan file must contain documentation, preferably bank statements meeting the above requirements, showing a minimum of 12 months' history of periodic deposits and a growing account balance.

Income Requirements

acceptable income

• Salaried (W-2)

• Self-employment

• Military income

• Public Assistance

• Worker's Comp

• Disability

• Alimony/Child Support

• Retirement/Pension

• Passive, or Unearned Income

unacceptable income

Any income or compensation for qualifying borrowers whose source of income cannot be verified by the Seller is not allowed.

Employed by relatives

• If borrowers are employed by a relative, domestic partner, fiance/fiancee or family business, signed copies of the borrower’s most recent 2 years federal tax returns must be obtained, in addition to the Form 1005.

• The underwriter must verify the income was paid in the form of wages, and that it was accurately reflected on the Form 1005.

employment history

• Borrower's employment history for the most recent 2 years must be verified

• If there are multiple borrowers, only the income used for qualification must be verified

documentation type

Full Doc

• The use of verification forms, mailed directly to and received directly from the borrower's employer, bank, mortgage company or landlord, to document the borrower's income, employment, available funds, and mortgage payment history

• When full documentation is used, no additional documentation (such as bank statements or pay stubs) is required

• Electronic, Faxed, or Computer-Generated Documentation:

• Verification documentation that is faxed, computer-generated, or downloaded from the Internet, including on-line bank and investment statements is allowed.

• Documentation must meet all of the following requirements:

• The source of the information must be clearly identified (i.e., information from the Internet or fax banner at the top of the document).

• The documents must clearly identify the name of the depository investment institution, or borrower's employer

• The documents must include all the essential information as the hard-copy original documents including account owners name, full account number, borrower's employment, income, assets, and funds for closing (as applicable).

Note: Documents must be legible and free of any alterations, erasures, white-outs, or similar indications that changes have been made.

Alt Doc

Alternative Documentation is available for owner-occupied primary residences, second homes and investment properties. Refer to the individual loan program guidelines for eligibility.  General requirements are:

• Single family properties only, including eligible condos and PUDs.

• Salaried and hourly paid borrowers only. Commissioned or self-employed borrowers are not eligible for Alternative documentation.

• Documentation requirements are identical for conforming and nonconforming loan programs.

• When Alternative documentation requirements are stricter than the individual loan program guidelines, the more restrictive guidelines must be used.

• A 3-Repository Merged In-File Credit Report or Residential Mortgage Credit Report is required.

• The verification of income and payment history must be completed no more than 120 days before the date of the Note. The most recent bank statement to verify the source of funds must be dated no more than 45 days earlier than the date of the loan application, and not more than 120 days earlier than the date of the Note.

Reduced Doc

• Self-employed borrowers

• Documentation must show borrower has been in same business and same location for minimum of 2 years

• Two months' certified copies of bank statements or VOD reflecting balances commensurate with stated income is required

Non Conforming Loan Programs

• Salaried borrowers (with the following restrictions)

• Must have 2 years' of employment verified by same employer or in same line of work. Any employment change must be deemed a career advancement.

• Must have an acceptable verbal VOE, verifying employment that contains all the information covered in a VOE with the exception that no income may be disclosed. The verbal VOE must cover a full two-year period.

Non Conforming Expanded Criteria and Expanded Criteria Conforming Balance Loan Programs

• Salaried or commissioned co-borrowers are allowed on Non-Conforming Loan programs with the following restrictions:

• Must apply with a self-employed primary borrower

• If their income is used for qualifying, both employment and income must be verified using Full or Alternative documentation

• Primary source of income must be verified on all employment types

• Amount of income, although disclosed, is not verified

• Employment must be disclosed on 1003

• Ratios are calculated and borrower must still qualify for the loan

Passive or Unearned Income

If the primary source of income is unearned or passive income, then the source must be verified. An income amount must be stated and the file must contain reasonable documentation that the income exists. Verification may be obtained verbally and should be obtained from a third party source, such as a CPA, attorney, or trust administrator. Examples of passive or unearned income include:

• Retirement Income (Pension/Social Security/Disability)

• The income must be stated on the application and verified by a third party source, such as a social security or retirement award letter

• The income should be expected to continue for at least 3 years

• Verification of the receipt of the income is not required

• Interest Dividend or Annuity Income

• Assets generating the income must be verified by obtaining 2 months most recent account statements or by a verification of deposit (VOD) and must be deemed a reasonable rate of return on the asset.

• Child Support, Alimony, or Separate Maintenance

• The divorce decree indicating the borrower is eligible to receive the child support and/or alimony must be obtained and should indicate that the income is expected to continue for at least 3 years

• Verification of the receipt of income is not required.

• Notes Receivable and Installment Sales

• A copy of the Note must be provided indicating the borrower is eligible to receive Note income.

• The income should be expected to continue for at least 3 years.

• Verification of receipt of the income is not required.

• Trust Income

• A letter from the executor of the trust must be obtained and indicate that the income should be expected to continue for at least 3 years

• Verification of the receipt of the income is not required

• If the borrower is the executor, a copy of the trust must be obtained.

• Rental Income

• A schedule of real estate must be completed listing all properties owned by the borrower

• Lease/rental agreements are not required; however, the rent must be deemed reasonable.

Verification of Assets

Assets must be disclosed and verified through Full or Alternative documentation subject to the following requirements:

• The assets must be the borrower's own funds.

• Acceptable sources include checking and/or savings accounts, certificates of deposits, brokerage or mutual funds, and publicly traded stocks.

• Assets that would not be acceptable are accounts in the name of the corporation or partnership, or other party, and stock in a closely held corporation.

• A minimum 2 months' most recent bank statements of VOD

• These must show an average balance that is deemed reasonable and consistent with borrower's stated income

• These must not show any reference to income, such as Direct Deposit of income

Stated Income

Income is disclosed on 1003

Stated Income/Stated Asset

Both income and assets are disclosed, but not verified, under the Stated Income Stated Asset documentation type

No Ratio

The No Ratio Documentation requires that the borrowers source of income be verified, but the amount of income received is not disclosed nor verified. Verification documentation includes:

Salaried Borrowers (includes borrowers receiving commissioned or bonus income) .

A full two (2) year history with the same employer or

in the same line of work must be documented by a verbal Verification of Employment (VOE), however, income may not be disclosed. The VOE must include:

• Current employment and job title.

• Term of employment and probability of continued employment.

• Name and title of the person providing the information.

• Date and signature of the person verifying the information.

Self-Employed Borrowers

Two (2) years self-employment in the same line of work must be documented through:

• A copy of a valid business license

Or

• A neutral third party, such as a CPA, regulatory agency, or professional organization.

Unearned, or Passive Income

Employment must be documented as being received for two (2) years, and reasonable documentation that this income exists must be obtained through a third party such as a trust administrator, CPA or an attorney

No Income/No Asset

The borrower's employment, income, or assets are not disclosed or verified

No Doc

Not available

Fast & Easy documentation

• Allows the borrower’s employment, income and assets to be stated on the loan application, but may not require verification.

• Income and employment information, while not verified, must be disclosed on the loan application. Stated income must be deemed reasonable and consistent with the borrower’s occupation or income source.

• Borrowers whose primary source of income is unearned or passive are eligible (i.e., retired borrowers). However, the reasonableness of the stated income must be evaluated.

• Non-conforming loans require verbal verification of the income source, which for unearned or passive income may be obtained through a third party, such as a CPA, attorney, or trust administrator.

self-employed

• Sellers may use the Reduced Documentation enhancement for self-employed borrowers only, under non-conforming loan programs that allow Reduced Documentation.

• For self-employed individuals, the underwriter must develop a history of stable and durable income for the previous 2 years

• A written income analysis should be prepared and included in the loan file.

• Maximum financing for self-employed borrowers is generally not appropriate if the business has been in operation less than 2 years.

• Generally, a 2-year history of self-employment is required to develop and document a qualifying income that is stable and durable

• A person who has been self-employed for less than 2 years must have had at least 2 years' of previous successful employment in the same occupation or related field in order to be eligible for financing

• Less than 2 years' self-employment history may be acceptable, however, if the borrowers can document a reasonable probability of success (based on feasibility studies or pro forma financial statements) and has a history of successful employment in the same or related field.

• In addition, if the borrowers have been employed less than 2 years but were previously in school or in the military, the Seller must obtain a copy of a diploma or discharge papers.

• To arrive at the qualifying income, an average must be taken of the borrower's previous 2 years' income as reported on the federal tax returns.

• The annualized year-to-date profit and loss must be averaged with the income from the tax returns unless the statement reflects a large, unsubstantiated increase over the previous year

• Only the income reported on the federal tax returns can be used unless changes in business practices that would result in increased profits can be substantiated.

• Non cash items (such as depreciation and amortization), casualty losses, and loss carryovers from previous tax years may be added back to the adjusted gross income when determining qualifying income.

Documentation Requirements

• The documentation required for self-employed borrowers is determined by the business type and loan program requirements as outlined in the following table. Note: If the business has been audited, copies of the audited statements should be included.

• Click here for Documentation Tables

  Business Type	Income Documentation	Conforming & Expanded Criteria Conforming Loan Balance programs	Non-Conforming & Expanded Criteria programs
  Sole Proprietorship	IRS 1040 (Individual) w/ all schedules 1	2 years' most recent tax returns 2, 3	2 years' most recent tax returns   The following may be requested on a case-by-case basis: --Year-to-date profit and loss statement if application is dated more than 120 days after the year end, and only if not a service business, and  --Year-to-date profit and loss statement and balance sheets matching the tax return dates, and only if not a service business.

  1) IRS-issued transcripts are acceptable in lieu of tax returns provided they contain information from all of the applicable schedules.

  2) If a tax return for the most recent fiscal year is not included due to preparation constraints, a 12-month profit and loss statement for that period is required.

  3) Exception: The following exception is for Conforming loans only: A balance sheet or year-to-date profit & loss statement is generally not required. Only necessary to obtain if needed to determine the continuance or stability of the borrower's income.

   

  Business Type	Income Documentation	Conforming & Expanded Criteria Conforming Loan Balance programs	Non-Conforming & Expanded Criteria programs
  Corporation	IRS 1040 w/ all schedules 1 and IRS 1120 w/ all schedules 1	--2 years' most recent tax returns (1040 and 1120) 2, 3,4, and --Signed and dated IRS 4506 or 8821	2 years' most recent tax returns.     The following may be requested on a case-by-case basis: --Year-to-date profit and loss statement if application is dated more than 120 days after the fiscal year end.

  1) IRS-issued transcripts are acceptable in lieu of tax returns provided they contain information from all of the applicable schedules.

  2) If a tax return for the most recent fiscal year is not included due to preparation

  constraints, a 12-month profit and loss statement for that period is required.

  Exceptions: The following exceptions are eligible for Conforming loans only:

  3) A balance sheet or year-to-date profit & loss statement is generally not required, but may be necessary to obtain if needed to determine the continuance or stability of the borrower's income.

  4) Business tax returns may be waived if the borrower meets all of the following requirements:

  • Self-employed in the same business for at least five (5) years.

  • Borrower's individual returns show an increase in self-employment income over the last two (2) years.

  • Borrower is paying the down payment and closing costs from own funds, and not from the business account.

   

   

  Business Type	Income Documentation	Conforming & Expanded Criteria Conforming Loan Balance programs	Non-Conforming & Expanded Criteria programs
  S Corporation	IRS 1040 w/ all schedules 1 and IRS 1120S w/ all schedules 1, and W-2	--2 years' most recent tax returns (1040 and 1120S) 2, 3,4, and --Two years' most recent W-2's from the corporation	2 years' most recent tax returns. The following may be requested on a case-by-case basis: --Two years' most recent W-2's from the S Corporation --Year-to-date profit and loss statement if application is dated more than 120 days after the fiscal year end.

  1) IRS-issued transcripts are acceptable in lieu of tax returns provided they contain information from all of the applicable schedules.

  2) If a tax return for the most recent fiscal year is not included due to preparation constraints, a 12-month profit and loss statement for that period is required.

  Exceptions: The following exceptions are eligible for Conforming loans only:

  3) W-2s are not required. A balance sheet or year-to-date profit & loss statement is generally not required, but may be necessary to obtain if needed to determine the continuance or stability of the borrower's income.

  4) Business tax returns may be waived if the borrower meets all of the following requirements:

  • Self-employed in the same business for at least five (5) years.

  • Borrower's individual returns show an increase in self-employment income over the last two (2) years.

  • Borrower is paying the down payment and closing costs from own funds, and not from the business account.

   

   

  Business Type	Income Documentation	Conforming & Expanded Criteria Conforming Loan Balance programs	Non-Conforming & Expanded Criteria programs
  General & Limited Partnership	--IRS 1040 w/ all schedules 1 and --IRS 1065 w/ all schedules 1, and --Partner's Share of Income (K-1)	--2 years' most recent tax returns (1040 and K-1) 2, 3,4, and --Two years' most recent K-1's and W-2's.	--2 years' most recent tax returns.   --2 years' most recent K-1's The following may be requested on a case-by-case basis: --Year-to-date profit and loss statement if application is dated more than 120 days after the fiscal year end.

  1) IRS-issued transcripts are acceptable in lieu of tax returns provided they contain information from all of the applicable schedules.

  2) If a tax return for the most recent fiscal year is not included due to preparation

  constraints, a 12-month profit and loss statement for that period is required.

  Exceptions: The following exceptions are eligible for Conforming loans only:

  3) W-2s are not required. A balance sheet or year-to-date profit & loss statement is generally not required, but may be necessary to obtain if needed to determine the continuance or stability of the borrowers income.

  4) Partnership tax returns may be waived if the borrower meets all of the following requirements:

  • Self-employed in the same business for at least five (5) years.

  • Borrowers individual returns show an increase in self-employment income over the last two (2) years.

  • Borrower is paying the down payment and closing costs from own funds, and not from the business account.

tax returns

Standard FNMA/FHLMC guidelines

IRS form 4506

• Required at closing, for self-employed borrowers. Must be signed by borrower(s).

• Required for Non-conforming Reduced Doc loans only. The form is not required with Non-Conforming Expanded Criteria loans.

• Not required for No Ratio and NINA documentation loan types

fixed income

Social Security

• Benefits that have a defined expiration date must have a remaining term of at least 3 years to be considered

• Acceptable verification for Social Security benefits includes a copy of the Social Security Administration's award letter or copies of the borrower's last 12 bank statements to confirm regular deposit of the payment.

Grossing up

• If it has been determined and documented that tax exempt income (such as military allowances, worker's compensation benefits, disability retirement payments, etc.) is likely to continue and remain untaxed, the underwriter may gross up the income and use it when determining Capacity.

• To gross up the income, the underwriter may add 25% to the income amount OR

• Use the current federal income tax withholding tables to determine an appropriate adjustment amount

• The method used must be documented in the loan file.

Rental Income

Generally, rent from boarders in a single-family property that is also the borrower's primary residence or second home may not be considered acceptable income. However, rent received for other properties is acceptable, even when the borrowers occupy one of the units of a multiple-unit property.  Rental income may be acceptable in certain Affordable Housing Programs.  Refer to individual programs for guidelines.  Investor requires

• Copies of the borrower's federal income tax return (Schedule E, Supplemental Income Schedule) as evidence of the receipt of rental income.

• If a property is not listed on Schedule E, Investor will accept a copy of the lease as evidence of the rental income.

• Depreciation should be added back to the net income or loss shown on Schedule E.

• Unallowed losses should be deducted from the net income that is shown on Schedule E and any loss carryovers from previous years should be added to the net income.

Monthly Operating Income

Monthly operating income may be considered stable income only if the borrowers have sufficient remaining reserves after closing that could be used to pay monthly housing expenses for at least six (6) months, or make necessary regular and emergency repairs to the property.

No Rental Income History

When the rental income relates to the security property and the borrower has no history of receiving rental income from the property,

• the rental income must be documented by obtaining an appraiser’s opinion of market rent, and

• if applicable, copies of the current lease agreements.

The gross rental income from the property will be equal to the lesser of the market rent established by the appraiser or the current rent based on the existing lease agreements.

Calculation of Rental Income

There is no restriction as to the length of time the income has been received.  A monthly average income should be developed from the Net Rental Income from Schedule E of the borrower’s most recent two (2) years tax returns.  Appropriate adjustments include:

• Add any depreciation shown to the income or loss shown in the schedule.

• Add back any loss carry-overs from previous years.

• Add back any significant one-time expenses that are properly documented (new roof, heating system, etc.).

• Subtract any unallowed losses.

If the property does not appear on the tax returns due to a current purchase or a recent purchase, then gross income may be calculated from a fully executed lease by multiplying the gross monthly rent on each of the leases by 75%. The sum is the average monthly income that should be included as income in the calculation of debt ratios.  If there is no executed lease, use the income shown on the Operating Income Statement (Fannie Mae Form 216),

Income From Owner-Occupied 2-4 Unit Property

In cases where the borrower occupies one unit of the 2-4 unit property, do not include income or expenses from the owner-occupied unit. In addition, anticipated income from any units that are not occupied by the borrowers must be verified. A copy of the prior year’s Schedule E or current lease must be obtained and included in the loan file. Generally, 2-4 unit properties present a greater default risk. Sellers should perform more conservative underwriting for these properties.

Income from Investment Properties

• The full amount of the mortgage payment for the rental property (PITI) is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation.

• Reasonable adjustments to gross rental income must be made to compensate for vacancies, operating and maintenance expenses, and rental income received for furniture.

• The following applies to Conforming loans only:

• The borrower must have a two year history of managing rental properties if the income is to be used to qualify the borrower.

• Verification must be provided through the most current two years of tax returns.

• Exception: The two year history of managing rental properties and six months’ rent loss insurance coverage requirements, may be waived if the borrower qualifies for the mortgage based on the full payment (PITI) for the subject property without having to rely on the rental income.

Boarder Income

Rent from boarders in a single family property that is also the borrower’s primary resident or second home may not be considered as income as this is not a typical situation. The only exception may be in certain Affordable Housing programs. Refer to individual programs for eligibility.

TRAILING SPOUSE INCOME

Standard FNMA/FHLMC Guidelines

alimony/child support

• Spousal or child support must continue at least 3 years after the date of the original mortgage loan application to be considered.

• Investor will accept a copy of the divorce decree as verification of the award of spousal and/or child support

• The decree must specify the amount of the award and the period of time over which it will be received

• The borrowers must provide evidence that the funds have been received for the last 12 months.

• Acceptable evidence would be deposit slips, canceled checks, court records, or Federal income tax returns

• A 6-to=12 month documented history of receipt of income is acceptable providing the income does not exceed 30% of the total gross qualifying income

• Conforming loans may provide a 3-month documented history of receipt of income, but only if the AUS certificate provides an Accept recommendation.

non-traditional income

Seasonal Employment and Frequent Job Changes

• Borrowers who frequently change their jobs do not necessarily pose a greater credit risk. If the job changes are for advancement or higher wages, these changes should be viewed favorably.

• In addition, frequent job changes and seasonal employment are considered normal in some lines of work (i.e., farm workers and construction workers).

• When evaluating borrowers who change jobs frequently, focus should be placed on whether the changes have, in the past, affected the borrowers’ ability to meet their monthly obligations or maintain a stable income.

• For example, an unstable employment history may be offset by the borrowers’ overall financial strength, including a continual ability to meet financial obligations.

Part Time

• Income must be verified as having been uninterrupted for the previous 2 years, with a strong likelihood of continuation

• Verification must be on a Verification of Employment (Form 1005) and must be supported by W-2 forms and a recent pay stub.

Foster Care

• Income received for foster care may be used if received on a regular basis for at least 2 years and is properly documented

• Acceptable documentation can be a letter from the organization providing the income, award letters, bank statements or deposit slips

• The documentation provided must clearly show the number of foster children involved, their ages and length of care.

Adoption

Not allowable

Worker's Comp

Allowable, with proof it will continue

Asset Requirements

acceptable assets

Unacceptable assets

The following are unacceptable sources of funds:

• Signature loans

• Overdraft protection on checking accounts

• Sweat equity

• Cash on hand for all loan programs except House America

• In addition, real estate commission earned by the borrowers for the sale of the subject property is not acceptable as down payment if the borrower is a  Realtor, sales associate, or broker involved in the sales transaction

• Accounts in the name of the corporation or partnership, or other party, and stock in a closely held corporation.

Eligible Sources of funds

Depending on the type of funds received, eligible sources include:

• Borrower’s employer

• Church

• Interested party: Person or entity who benefits from the completion of the property sales transaction and may be the property seller, builder, developer, real estate agent,or lender.

• Municipality

• Non-profit organization

• Relative: Borrower's spouse, child or dependent, or any other individual related to the borrowers by blood, marriage, adoption, or legal guardianship.

• Domestic partner

• Fiance/fiancee

Some loan programs may have stricter criteria or different guidelines on eligible sources of funds. Refer to the individual program guidelines for complete details.

down payment requirements

• Generally, the borrowers must have a minimum down payment of 5% of the purchase price in their own funds.

• In addition, they need the funds to cover any prepaid items, and 2 months PITI and Mortgage insurance reserves,  if applicable.

Gift Funds:

• The borrower may receive funds provided by gifts or grants to satisfy down payment, closing costs and/or reserves requirements.

• Individual loan programs may have additional restrictions on eligibility and requirements. Always refer to the individual loan program guidelines for details.

Gift Funds: Conforming Loans

Gift funds may be used for down payment with the following restrictions:

• The down payment requirement of 5% of the borrower's own funds may be waived provided:

• If the LTV is 80% or less, then the entire down payment may be a gift.

• Acceptable donors include a Relative (borrower’s spouse, child or other dependent, or any individual related by blood, marriage, adoption or legal guardianship), domestic partner, fiance/fiancee, church, municipality, or non-profit organization.

• The relative providing the gift has lived with the borrowers for the last 12 months, will continue to do so, and all borrowers will be on title.

• Gifts are allowed on investment property loans only under the following conditions:

• Secured by a one-unit property, and

• Has a LTV of 70% or less, and

• Has a down payment of 30% with at least 20% representing the borrower's own funds.

Gift Funds: Non-Conforming and Non-Conforming Expanded Criteria Loans, and Non-Conforming Expanded Criteria Conforming Loan Balance Loans:

Generally 5% of the sales price is required as a minimum cash investment from the borrower, with the following exceptions:

• If the LTV is 80% or less, then the entire down payment may be a gift.

• Acceptable donors are limited to relatives (borrower’s spouse, child or other dependent, or any individual related by blood, marriage, adoption or legal guardianship)

• Not allowed on Investment property loans

Note:

Individual programs may have additional restrictions. Refer to the individual program guidelines for details.

Donor's Statement for Gift Funds

Gift funds must be documented by a letter signed by the donor stating the following:

• Gift Funds from a Relative:

• The dollar amount of the gift and the date funds were transferred.

• The donor's name, address, telephone number, and relationship to the borrowers.

• State that no repayment is expected or required.

• Identify the subject property being purchased.

• Conforming loans only allow borrowers to pool their funds with funds received from a relative, extended family member, domestic partner or fiance/fiancee who has lived with the borrower for at least 12 months.

• The borrower and the donor must both reside in the home that is being purchased and

• all borrowers must go on title.

• The donor must provide appropriate documentation to demonstrate a history of shared residence (i.e., copy of driver’s license, bill, bank statement or voters registration).

Gift Funds from a Municipality or Non-profit Community Organization:

• Funds were provided by a municipality or non-profit community organization.

• The donor’s mailing address.

• State that no repayment is required.

• Funds were received by the borrower or the property seller on the borrower’s behalf.

Secured Loans/Borrowed Funds

• Borrowed funds that are secured by an asset represent a return of equity and may be used for the transaction.

• Assets that may be used include certificates of deposit, stocks, bonds, automobiles, real estate, and life insurance policies.

• The lender must verify the terms of the loan and the fact that it is a secured loan.

• Monthly payments on this loan must be included in the total debt ratio.

• When the loan does not require monthly payments, the lender should calculate an equivalent amount and consider it as a debt.

• Some loans may not require inclusion in the debt ratio. Exceptions are:

• Conforming Loans: Loans secured by 401(k) accounts, certificates of deposit, savings accounts, stocks, bonds, life insurance policies, and other assets with a monetary value easily converted to cash.

• Non-Conforming, Non-Conforming Expanded Criteria, and Non- Conforming Expanded Criteria Conforming Loan Balance: Loans secured by 401(k) account accounts, savings accounts, certificates of deposit, and life insurance policies.

• A copy of the loan document showing the asset as collateral must be provided.

Trade Equity

• The property seller may take the borrower's existing property, or an asset other than real estate, in trade as part of the down payment, as long as the borrowers have made a 5% cash payment and their equity contribution for the traded property is a true value consideration that is supported by a current, full appraisal

• This is determined by subtracting the outstanding loan balance of the property that is being traded, plus any transfer costs, from the lesser of that property's appraised value or its trade-in value (as agreed by both parties).

• Investor requires a separate written appraisal for the property that is being taken in trade

• For real property, land records must be searched to verify ownership and to determine if there are existing liens on the property.

• Credit in excess of the appraised value is considered a Seller concession and must be deducted from the subject sales price when calculating the LTV.

Sweat Equity

Not acceptable

1031 Exchange

• A 1031 tax deferred exchange provides an additional means for obtaining down payment funds

• The tax deferred exchange allows the borrower to exchange the like-kind investment property as long as the acquired property is of equal or greater value to the relinquished property

• A qualified intermediary must be used to facilitate the exchange If the property being relinquished was acquired through a 1031 exchange, the borrower must have owned the property for a minimum of 24 months prior to the exchange.

• If the property being relinquished was not acquired through a 1031 exchange, the borrower must have owned the property for a minimum of 12 months prior to the exchange.

• The 1031 exchange cannot be an exchange of a partnership or limited liability corporation interest.

• The name of the taxpayer on the sale of the relinquished property must be the same as the acquirer of the exchanged property.

• The relinquished property must close before or simultaneously with the property being acquired, also referred to as the subject property.

• Non-arm's length transactions are not permitted.

Lease Option Rent Credits

• Only the portion of the rental payment that exceeds the market rent can be applied to the down payment or closing costs

• The file must contain a copy of the rental/purchase agreement

• The appraiser must develop a market rent figure in these cases

• Rent credit in excess of this figure is considered a Seller concession and this amount must be deducted from the subject sales price.

Subsidy Programs

• Grants provided by the borrower's employer, a church, municipality, or non-profit organization must be documented by:

• A copy of the letter awarding the grant

• A copy of the legal agreement establishing the terms and conditions under which the funds are granted, OR

• Evidence of the transfer of funds

• The documentation must specify the amount of the gift, how the funds will be transferred, and that no repayment is expected.

reserve requirements

• The borrower is required to have a predetermined amount of liquid cash reserves available after the down payment, closing costs and prepaid expenses are paid

• The reserves are equal to the proposed monthly housing principal, interest, taxes and insurance (PITI)

• This requirement assures that the borrower has a financial cushion available should an unforeseen financial problem arise (unexpected expenses, temporary loss of income, etc.) that might impede the borrower's ability to make the mortgage payments in a timely fashion.

• 401(k) or other IRS-approved employer retirement account statements must identify the employer, account owner, stock, securities, and/or specific type of assets held, the vested balance or percent of vesting, ending balance as of the date of the statement, period covered, and outstanding loans. In addition, the requirements under which funds may be withdrawn or borrowed must be indicated.

Click here for further guidelines.

Contributions

Seller Contributions

• For conforming loans, the total of all contributions, as a percentage of sales price or appraised value, whichever is less, is limited to the following values shown in the table below.  Refer to individual loan programs for more restrictive requirements.

• For non-conforming loans, seller contributions are acceptable for closing costs and prepaid items

• Maximum contributions may not exceed the values shown in the following table:

Other Contributions

Contributions made by a non-participant to the sales transaction, such as the borrower's employer or a family member, have no limitations

Transaction Type

Purchase

• Purchase money transactions (purchases) are when the  proceeds are used to finance the purchase of the subject property, as defined in a sale and purchase agreement executed by the borrower and property seller.

• The LTV/CLTV is based on the lesser of the sales price or appraised value.

• A purchase money transaction may also include loans where the proceeds are used to:

• Pay off an outstanding balance on a land contract including any documented costs the borrower incurred for rehabilitation, renovation, or energy conservation improvements provided the land contract was executed within 12 months of the application date for the new loan.

• Create a new mortgage by modifying an interim construction loan or term note into permanent financing, as long as the borrower receives no cash back from the transaction.

Rate and Term

Lien Seasoning: Conforming Loans Only.

• The pay off of any subordinate lien (which includes closed-end seconds, HELOCs and home improvement seconds) that was not used solely to purchase the subject property will be considered a cash-out transaction.

• HELOCs that were not fully drawn at the time of purchase will be considered cash-out if the current balance is greater than the initial draw amount.

• Conforming rate and term refinances (or "limited cash-out") now include:

• The pay off of the outstanding principal balance of an existing first lien,

• The pay off of the outstanding principal balance of an existing second lien that was used entirely to purchase the subject property,

• The financing of closing costs, including prepaid expenses, and

• Cash proceeds in an amount no more than the lesser of 2% of the balance of the new loan amount or $2,000.

• To be considered a rate and term refinance, the subordinate financing included in payoff must be documented to have been a purchase money second.

• A copy of the final HUD-1 from the purchase or the title report is acceptable documentation, and must be included in the loan file when it is delivered to Countrywide for purchase.

Texas Rate and Term Refinances

• For refinances of a primary residence in Texas, the new loan amount must not exceed the amount necessary to pay off the existing loan plus reasonable and necessary closing costs, which cannot exceed the lesser of 5% of the loan amount or $5,000. Prepaids are not included in the limit.

• The borrowers are not allowed to receive cash at the closing table

Installment Land Contract Refinances

• An installment land contract may be refinanced when the amount of the new loan is used to pay off an outstanding installment land contract and any costs the borrowers incurred for rehabilitation, renovation, or energy conservation improvements that exceed the sum of the land contract.

• The land contract does not have to be recorded, but a copy of the land contract is required with the loan file.

• See below for additional information on Land Contracts

Cash Out

Lien Seasoning

• For Conforming loans,

• No minimum seasoning requirement

• The LTV/CLTV is based on the current appraised value.

• For Non-Conforming and Non-Conforming Expanded Criteria:

• A minimum of 12 months' seasoning is required

• Twelve months' seasoning is required on second liens, unless the lien is a purchase-money second. Otherwise, if the seasoning requirement is not met, the loan will be considered a cash out refinance

• If the property has been owned less than 12 months, the LTV is based on the lesser of the current appraised value or the original sales price plus any documented home improvements

• If the property has been owned at least 12 months, the LTV is based on the current appraised value.

• For HELOC and Closed-End Seconds:

• If the property has been owned less than 12 months, the CLTV is based on the lesser of the current appraised value or the original sales price plus any documented home improvements

• If the property has been owned at least 12 months, the CLTV is based on the current appraised value.

Equity Take Out Refinance

For an equity take-out refinance transaction for a seasoned mortgage, the LTV ratio is determined by comparing the mortgage balance to the current appraised value of the property.

Existing Subordinate Financing

• When a mortgage is subject to subordinate financing, the combined loan to value (CLTV) ratio is determined by combining the unpaid balances of the first mortgage and all subordinate mortgages, then dividing that sum by the sales price or appraised value, whichever is lower.

• The CLTV calculation must be taken out to two (2) decimal places and always rounded upward to the next whole number.

• For example, 80.01% becomes 81%

• The CLTV ratio cannot exceed the maximum loan amounts.

• The subordinate financing must have a fixed payment if the primary financing is an ARM, graduated payment mortgage (GPM), subject to a buydown, or has some type of variable repayment plan

• Additionally, an equity line of credit is acceptable as subordinate financing when the CLTV is 80% or less.

• When subordinate liens remain outstanding, they must be clearly subordinate to the new refinance loan.

• Additionally, the new refinance loan must meet the subordinate financing criteria.

• A loan’s classification as a rate and term refinance transaction will not be affected when there is existing secondary financing that will be subordinated.

lease option

Standard FNMA/FHLMC Guidelines

land contract

Click here for guidelines

Construction-to-permanent

Involves the granting of a long-term mortgage to a borrower to replace interim construction financing used for the construction of a new home.

Purchase

• The transaction must occur within 180 days after completion of the construction,

• the borrower may not receive cash out, and

• the acquisition cost is documented.

• the borrower may hold title to the land as follows:

• Borrower may or may not own the land.

• Ownership is deeded to the builder/contractor in lieu of the down payment as reflected in the construction statement/agreement.

• A minimum five (5) percent down payment is required.

Note: The borrower may use the cash investment in the land, provided it was acquired at least 12 months prior to the date of the application for construction financing. Acceptable documentation includes the final HUD-1, a copy of the warranty deed showing no liens, or a copy of a release of the lien.

• No loan proceeds may be disbursed to the borrower unless the proceeds are used to reimburse the borrower for documented costs paid outside of closing.

If the purpose of the long-term mortgage is to allow the borrower to make a single disbursement to a builder/contractor for the purpose of a completed property, then the transaction must be considered a purchase.

LTV Determination for purchase

The LTV for purchase transactions is determined based on how long the borrower has owned the land.

Refinance

• The borrower may or may not receive cash out.

• A refinance transaction has no time limitation. However, if the transaction occurs more than 180 days after the completion of the construction, then it must be considered a refinance.

• The borrower must hold title to the land.

• Cash proceeds may be disbursed within the cash out limitations of the loan program. Refer to the individual program in the Seller Guide for restrictions.

LTV Determination for refinance

The LTV for Conforming loan refinance transactions is based on the requirements in the following table:

Borrower Requirements

To be considered a construction-to-permanent financing transaction, the following borrower conditions must be met:

All construction to permanent loans must adhere to these requirements:

• The maximum term is 30 years from the date the first monthly installment of principal and interest is due.

• The property must be complete at the time of the permanent financing funding.

• A final Certificate of Completion must be obtained.

• Photographs of the completed property are required.

• Credit documents may not be more than 180 days old on the Note date, with the following exception for conforming loans:

Conforming Loans only .

• Documentation may be up to 225 days old on the Note date if all of the following requirements are met:

• The loan is a purchase transaction of a 1-unit owner-occupied primary residence.

• The borrower has six (6) months' reserves at closing.

• The LTV does not exceed 90%.

• Loan has received an acceptable AUS recommendation (loan may not be manually underwritten).

• Prior to the final construction disbursement, a new single in-file credit report must be obtained and the employment of all borrowers must be verbally re-verified and documented accordingly.

Land Acquisition

The cost of the land acquisition is determined by a certified copy of the closing statement (HUD-1) from the purchase of the land.

• If the land was purchased more than 2 years prior to the loan, the current land value may be used if substantiated by a separate land appraisal.

• If the land was a gift and the value has appreciated, the value based on a current land appraisal may be used as the borrower's down payment.

Calculation of Acquisition Cost

The total acquisition cost will be based on:

• With Sales 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 Sales Contract:

• Current appraised value of the land, 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 fience/fiancee of the builder, the builder's profit is not considered an allowable cost, and may not be included in the acquisition cost.

Construction Costs Not Included

Labor performed by the buyer, also referred to as sweat equity, or the trade of any labor or goods from the buyer to the builder cannot be included in the construction costs.

Using a General Contractor

If the borrower employs a general contractor, the following documentation is required to verify the cost of construction:

• Signed construction contract

• Sealed copy of the improvement plans and complete breakdown of construction costs and specification.

• Copies of canceled checks and receipts of bills for payment of any supplied, materials, labor, or funds paid directly to subcontractors by the borrower.

General Contractor is Not Used

If a general contractor is not used to construct the building, the construction costs must be documented with copies of receipts or invoices and cancelled checks for materials, supplies and/or labor.

LTV Calculation for Conforming Loans

The LTV for Conforming loan refinance transactions is based on the requirements in the following table:

Construction Modification

• The program is basically a one-time closing that eliminates the need for two complete closings, using instead a modification of the construction loan to convert to permanent financing. This modification process can save the costs involved in a typical refinance transaction.

• This enhancement is specifically designed for borrowers who own their own lot and choose to have a builder/contractor construct a single family detached dwelling on the lot.

• The construction loan is originated by an experienced construction lender. When the construction period has ended and the property is complete, the construction loan is then modified to permanent financing. The permanent loan may be sold to Investor.

Program Options

The Seller may originate the construction modification with one of the following options:

• The term of the one-time modification may be no more than 30 years from the first principal and interest payment made on the loan. The construction note will typically have interest only for 6 months to one year.

OR

• The term is no more than 30 years from the inception of the construction Note.

Note: This option would provide for less than 30 years' of permanent financing.

Documentation

The following documents must be used when originating a construction loan that will be modified:

• Construction loan rider

• Construction lender's certification

• Corporation assignment of mortgage

• Mortgagor's estoppel afidavit

• Note and security instrument modification agreement

• Original signed construction mortgage and note endorsed to Investor

Spot relocation

A spot relocation mortgage is a mortgage that meets the all of the following requirements:

• It is made to a transferred employee of a corporation to finance the purchase of a primary residence at a new job location.

• It is made pursuant to a corporate employee relocation program administered by the corporate employer or its agent.

• It involves a significant employer contribution to mortgage financing.

Trailing and/or Secondary Wage Earner

A trailing and/or secondary wage earner is:

• A relative who is the primary wage earner’s spouse, child, or other dependent or any other individual who is related to the primary wage earner by blood, marriage, adoption, or legal guardianship, or

• A domestic partner who is an unrelated individual who shares a committed relationship with the primary wage earner, currently resides in the same household with the primary wage earner, and intends to reside with the primary wage earner at the new location, or  

• A fiancée/fiancé of the primary wage earner. The fiancée/fiancé does not have to currently reside in the same household with the primary wage earner.

Note: Self-employed borrowers are not eligible under the spot relocation enhancement.

• It is not unusual for a household that consists of two wage earners to relocate to another area because one of the wage earners is transferred by his or her employer, or finds a different job in a new location.

• Often these individuals will find a home in the new location that they want to purchase before the other wage earner finds a new job. This means that the primary wage earner who is being relocated generally must be able to qualify for a mortgage based solely on his or her income. The fact that the secondary wage earner has worked in the past and plans to do so in the future, may serve as a compensating factor to justify the use of higher qualifying ratios.

• Some or all of the trailing secondary wage earner’s anticipated income (a percentage of the income earned prior to the relocation) may be used to qualify for the mortgage.

Refer to the individual loan program for eligibility.

Note: Spot relocation mortgages are not eligible for Expanded Criteria or Equity loan programs.

Eligible Finance Types

Purchase transactions only.

Lien Type

First mortgage only.

Documentation Type

Full and Alternative documentation only.

Occupancy

Owner occupied primary residence only.

Eligible Properties

One unit SFRs, PUDs and condos only.

Eligible Borrowers

Conforming: Existing employee transfers and new hires.

Non-Conforming: Existing employee transfers.

Property Location Conforming:

• LTV greater than 80%: The new residence must be at least 100 miles from the prior principal residence.

• LTV less than or equal to 80%: There are no distance requirements.

Non-Conforming: The borrower's commute to work must increase by at least 35 miles.

Maximum Loan Amount

Conforming: Conforming loan limits apply.

Refer to Seller guide for any additional requirements for  Loan Amounts, Ratios and Eligible Transactions.

Non-Conforming: $1,000,000.

Minimum Non-Conforming Loan Amount:

The minimum loan amount for non-conforming loans is $322,701, unless specifically modified in the individual loan program guidelines.

Maximum LTV Conforming:

The lesser of 90% or the maximum LTV as shown in the individual loan program.

Maximum LTV Non-Conforming:

• Fixed Rate, One-Year Treasury ARMs, and Six-Month LIBOR ARMs: The lesser of 95% or the maximum LTV as shown in the individual loan program.

• Fixed Period ARMs: The lesser of 80% or the maximum LTV as shown in the individual loan program.

Reserves

Conforming: Borrowers must have cash reserves after closing of at least:

• Six (6) months principal, interest, tax and insurance payments for the mortgage;

Or

• Three (3) months principal, interest, tax and insurance payments for the mortgage with strong compensating factors, such as:

• Significantly lower debt-to-income ratios

• Significantly lower LTVs

• Significantly higher credit scores

Non-Conforming: Borrowers must have cash reserves after closing of at least six (6) months principal, interest, tax and insurance payments for the mortgage. No exceptions will be allowed.

Buydowns

• Conforming: Allowed.

• Non-Conforming: Not allowed.

Qualifying Ratios

28% / 36%*.

* Conforming only - Higher qualifying ratios may be used when strong compensating factors exist, in addition to the potential use of trailing wage earner’s income.

Exceptions to Qualifying Ratios

Conforming:

To omit the PITI or bridge loan payments from the qualifying ratios, document using one of the following two options:

• 1) Executed buyout agreement indicating that the employer/relocation

company takes responsibility of the outstanding mortgage

Or

• 2) All of the following are required:

• Executed purchase/sales contract for current primary residence.

• Lender’s loan commitment to buyer of current primary residence or the relocation contract stating a cash sale.

• Six (6) months PITI reserves on current primary residence and bridge loan payment (if applicable).

Non-Conforming: Not allowed.

Contributions

Contributions in connection with an employer’s relocation program may include:

• Coverage of moving expenses, closing costs on the new primary residence, and selling expenses on the previous primary residence.

• The equivalent amount equal to the lower of:

• $5,000, or

• 10% of the borrower's gross salary, or

• 3% of the mortgage amount consisting of one or more of the following:

• A buydown or subsidy of the interest rate.

• Payment of the borrowers’ non-recurring closing costs, including discount points and origination fees on the new or previous residence.

• Funding of a below-market rate or no-interest bridge loan.

• Payment of the difference between property tax and/or mortgage interest rate obligation on the employee’s previous or new primary residence.

Non-Conforming Loans: Verification of employee’s relocation sponsorship is required for fixed rate loans.

Trailing Wage Earner Income

The Seller must document that the trailing wage earner was a salaried, hourly wage, or commissioned employee in the same profession for the previous 2 years. Self-employed may not be considered “trailing wage earners.”

Income

Conforming Loans  

LTVs of 80.01% to 90.00%

Up to 100% of the trailing wage earner’s anticipated income may be used to qualify for the loan, providing the trailing wage earner’s income used does not exceed 40% of the total income of both wage earners needed to qualify.

Example:

Trailing wage earner: $1,500 @ 100%

Primary wage earner: + 2,000

Total income to qualify: $3,500

$3,500 ÷ $1,500 = 42.86% (over 40%)

$3,500 x 40% = $1,400 = allowable trailing income

$1,400

+2,000

$3,400 = allowable total qualifying income

LTVs of 80.00% or less

Up to 50% of the trailing wage earner’s anticipated income may be used to qualify for the loan.

Example:

Trailing wage earner: $1,500 @ 100%

Primary wage earner: +2,000

Total income to qualify: $3,500

$1,500 x 50% = $750 = allowable trailing income

$ 750

+2,000

$2,750 = allowable total qualifying income

OR

Up to 100% of the trailing wage earner’s anticipated income may be used to qualify for the loan, providing the trailing wage earner’s income used does not exceed 40% of the total income of both wage earners needed to qualify.

Example: Refer to the example above for LTVs of 80.01% to 90.00%.

Note: The loan file should be documented showing a reasonable employment market for positions that are the same or similar to the trailing wage earner’s previous employment. This may include:

• Copies of newspaper ads, or

• Documented telephone calls to employment agencies, or

• Contacting unions, trade organizations, etc.

Non-Conforming Loans

The percentage of trailing wage earner’s income earned in the previous location is limited by  LTV and may be used to qualify on the following loan product types, as indicated:

• Fixed Rate, One-Year Treasury ARMs, and

• Six-Month LIBOR ARMs:

The maximum anticipated income that may be utilized is as follows:

• LTVs greater than 90%: 75%

• LTVs less than or equal to 90%: 100%

Fixed-Period ARMs:

The maximum anticipated income that may be utilized is as follows:

• LTVs between 75.01% to 80%: 50%

• LTVs less than or equal to 75%: 75%

Additional Documentation

The following additional documentation is required in loans submitted for purchase:

• Written proof that the relocation is in connection with a corporate relocation program offered by the primary wage earner’s employer’s relocation contract.

• A statement of intent to obtain employment in the new location provided by the trailing wage earner.

• The Transmittal Summary (1008) must document that the borrower meets the eligibility requirements of a relocation loan. This includes the trailing wage earner’s income as calculated above.

Non-Conforming: Verification of employer relocation sponsorship is required on fixed rate loans only.

Underwriter Responsibilities

• The underwriter must be able to verify income from the trailing spouse’s previous job, and state in writing that employment and salary opportunities in the new location are as good as the current location. Refer to Trailing spouse income above.

• Additionally, the underwriter must analyze each spot relocation mortgage and document that the borrower meets the requirements of a relocation loan on the Transmittal Summary (1008). This includes the required calculations in determining the eligibility of the trailing spouse's income, and documentation of all compensating factors, if any.

Financed Single Premium Mortgage Insurance

• Investor will purchase loans with financed single premium mortgage insurance (FSPMI).

• Under this program, borrowers may elect to purchase and finance a life-of-loan policy, instead of making monthly mortgage insurance payments.

• LTV Calculations Requirements:

The use of financed single premium mortgage insurance (FSPMI) requires two different calculations of the loan-to-value (LTV) ratio.

• The LTV is initially calculated, based on the base loan amount prior to the addition of the FSPMI, to determine how much mortgage insurance coverage is required.

• The LTV is then calculated, based on the loan amount after the addition of the FSPMI, to determine the final LTV and pricing for mortgage eligibility. This LTV must not exceed the program maximum.

• Loan program restrictions on the use of FSPMI is per investor.

• Sellers must ensure program LTV limitations are considered when MI is financed

Property Eligibility

Allowable States

Please Click here for the Allowable States page

geographic restrictions

Please Click here for the Geographic Restrictions page

Acceptable properties

• SFR Detached or Attached, on an individual lot

• Condominium (Classes A thru F)-see below for High-Rise guidelines

• PUD

• Cooperatives (Co-ops)

• Available only in New York and New Jersey.

• Please refer to the Geographic Restrictions for complete details.

• 1-4 units

• Leaseholds

• Factory Built Housing including:

• Manufactured Housing

• Modular

• Panelized

• Prefabricated

Note: 3-4 unit properties in California are not eligible for purchase unless the loans are being delivered under the expanded criteria investment property or sub-prime underwriting guidelines.

unacceptable properties

• 2-unit Second Homes

• Own-your-own properties

• Timeshare or segmented ownership properties.

• Houseboats

• Geodesic Domes

• Mobile Homes

• Working farms, ranches, orchards, and/or commercial operations

• Unimproved land

• Multi-dwelling condominiums

• Non-conforming zoning projects

• Projects with pending litigation

• Properties with deed restrictions that limit transferability of title, or contain a first right of refusal provision, unless approved by Investor prior to purchase

• Live-Work loft-style condominiums

appraiser requirements

• It is in the best interest of the Seller to have an independent, disinterested examination and valuation of property to accurately determine the borrowers Collateral

• The appraiser must remain free of any outside influence in the valuation process, and the estimated value must be based on the appraisers professional conclusion, market data, logical analysis, and judgment.

• Sellers should continually evaluate the quality of the appraisers work through normal underwriting review of all appraisal reports

• Investor recommends that these evaluations become part of the Sellers quality control efforts.

• The quality control efforts should also provide for a field review of, at minimum, the first 5 appraisals completed by a new appraiser.

• Investor does not approve specific appraisers

• Sellers are responsible for the selection of appraisers and are solely accountable for their performance

• In addition, Sellers are expected to take appropriate steps to ensure that an appraiser is qualified for the particular type of property and the purpose of the appraisal (original or review).

• When evaluating an appraisers qualifications,a Seller should review the appraisers education, experience, and sample appraisal reports

• The appraiser must not have any interest, direct or indirect, in the real estate, or on any loan securing that property

• In addition, the appraiser may not receive any compensation that is affected by the approval or denial of the loan securing the property.

• Investor does not require professional appraisal designations

• However, they are sometimes helpful in evaluating an appraisers qualifications.

appraisal requirements

Note: Black and white photos, produced by photography or electronic imaging, are acceptable provided the appraiser notes in the report and information not apparent in the photos that may adversely affect the market value of the property. All photographs must be appropriately identified, and must be originals produced by photography or electronic imaging

Electronically Transmitted Appraisals

Investor  will only accept electronically transmitted appraisals (sent via fax machines and Internet connections) if the appraisal report meets all of the following conditions:

• The appraiser is adequately identified.

• The appraisal report includes a reproduced signature of the appraiser whose name appears on the report.

• The report is full, complete, and unaltered.

• All photographs are clear and meet standard requirements

Otherwise, standard FNMA/FHLMC guidelines with the exception of the following:

• The AUS certificate may indicate that a 2075 property inspection report can be waived. If this waiver is exercised, no inspection report or appraisal is needed, however a fee will be assessed. Only allowed with Investor AUSand FNMA DU appraisal waivers

• 2055 Interior/Exterior: Limited appraisal used for single family properties and units in condominium and PUD projects. May be used interchangeably with URAR Form 1004 for 1-unit owner-occupied and second home transactions if indicated as eligible by the AUS certificate. The AUS certificate will also indicate the eligibility of external-only inspections.

Appraisal Requirements for Factory Built Homes

The appraiser must address the following items in the appraisal report:

• If the unit is a manufactured home, ,that the unit has been built under and meets the Federal Home Construction and Safety Standards that were established by HUD in June, 1976, as evidenced by a “certification label” that is permanently affixed to each transportable section of the unit.

• That the unit is permanently attached to the foundation.

• If the unit had wheels, axles, trailer hitches, and license plates, that they have been removed from both the unit and the premises.

• The local demand, marketability of the property, supply of manufactured housing in the area and its appeal in the marketplace. This should be supported by at least two (2) acceptable comparables of similar construction and the marketing time must not exceed 6 months.

• The manufacturer’s name, the model name, the year of manufacture, and the serial number(s) for the subject property must be included in the appraisal.

Comparable Sales Requirements

• The process of selecting comparable sales for factory-built housing is generally the same as that for comparable sales of site-built housing and should be used to support marketability.

• Modular homes should be compared to modular, panelized to panelized, etc. A minimum of two (2) similar factory-built comparables should be used.

• The comparables sales used for manufactured homes have additional requirements. Refer to Manufactured Homes in this section for details.

Review Requirements

• If the original appraisal is performed by a Investor-approved company, no review appraisal will be required unless specifically required by program guidelines

• In addition, if a review appraisal from any of the companies approved by Investor is done, Investor will not charge for a second review appraisal.

Age of Appraisal

• The property must have been appraised within the 12 months that precede the date of the note and mortgage or deed of trust

• If the appraisal is more than 120 days old as of the date of the note and mortgage or deed of trust, a re-certification of value is required.

condo requirements

Investor follows standard FNMA/FHLMC guidelines

Required Documentation

Investor follows standard FNMA/FHLMC guidelines

Non-Warrantable Condos

• Non-warrantable condominiums are eligible only under select non-conforming fixed rate expanded criteria loan programs

• Cash out refinances are not allowed for non-warrantable condominiums

• An eligible project must meet the conditions outlined in this section, Type/Class Requirements; for Condos and PUD Projects, in addition to the following restrictions:

• Minimum pre-sale requirement is 33% of a legal phase.

• 50% of the total number of units must be complete.

• 50% of the common area and facilities within the project must be completed.

• Investors may own no more than:

• 70% of the units sold if the LTV is 80% or below.

• 40% of the units sold if the LTV is above 80%.

• No one entity may own more than 25% of the total number of units in the project.

Occupancy Ratios

At least 60% of the total number of units within the project must have been conveyed to purchasers who are occupying the units as a primary residence or second home.

Exception: There is no owner occupancy requirement if the loan is a:

• Purchase or rate and term refinance of a primary residence or second home with a CLTV less than or equal to 90%, OR

• Cash out refinance of a primary residence or second home with a CLTV less than or equal to 75%

Condotels

• A Condotel, or condo hotel, is a fee simple or leasehold property that may include one or more of the following features:

• Front desk or resident manager

• Maid service

• Commercial space is limited to 15% of the project, and is defined as those enterprises which produce revenue, i.e., shops, boutiques, and offices

• Rental pools

• Refer to the individual program for specific loan eligibility.

• Cash out refinances are not allowed for condotels.

• Rental income for the subject unit cannot be used to qualify the borrower.

• Condotels must be underwritten to investment property guidelines.

• The appraisal must specify that Condotels are common to the area, that resale marketing time is not over 6 months, and that the market supports strong rental activity.

• Low rise and high rise condominium projects are acceptable when supported by the appraisal.

• Project must be completed and in operation for at least 2 years and have a minimum of 20 units.

• The project must carry a minimum of $1,000,000 liability insurance policy.

• All units in the project must have separately metered utilities.

• Construction must be specific to residential use; however, 15% of the project may be devoted to commercial purposes.

• Voluntary pools are acceptable only for second homes and investment properties.

• Properties originally constructed for use as hotels or motels are not acceptable.

• The following requirements apply:

• The Condotel must not have mandatory rental requirements.

• Rental income from the Condotel may not be used in calculating DTI.

• Condotels must be common for the area.

• 75% of the units must be sold and closed or under contract for sale.

• The Condotel unit must have a minimum of 600 square feet.

• Cash out refinances are not allowed for Condotels.

Cooperatives

If the restrictions shown here differ from what is stated in the individual loan program, the more restrictive of the guidelines apply.

High-Rise Condominiums

• High rise condominiums are 5 or more stories high

• These types of projects are restricted to market areas where the appraisal validates that high-rise condos are common to the area and acceptable to buyers.

• The following loan program guidelines are applicable for high-rise condominiums:

Two-to-Four Unit Condominium Projects

• Small projects must be typical to the market area in which they are located and this must be supported by the appraisal report.

• Owner-occupancy requirements (conveyed or under contract to be sold) are:

• No single entity may own more than one unit.

• The unit owners must have the sole ownership interest in, and rights to, the use of the projects facilities; common elements; and limited common elements; when control of the owners association is turned over to them.

Project Requirements

• The project must be covered by all applicable insurance. Homeowners association must be incorporated.

• All units, common areas, and facilities within the project, including those that are part of any master association, must be 100% complete.

• The project must be well-managed. If managed by a professional organization, the management service contract must be for a reasonable term, and may not require the payment of any penalty or advance notice of more than 90 days to discontinue management service to the project.

• The projects operating budget must be consistent with the nature of the project, and must provide for adequate replacement reserves based on the age and expected life of the project, and, considering the quality and replacement cost of major common element components.

• A new construction or new conversion project must be acceptable under either a Phase I or Phase II environmental hazard assessment.

MANUFACTURED HOMES (See factory built housing)

Factory Built Housing

• Factory-built housing is different from site-built housing as it is constructed in a factory, rather than on-site.

• At the site, the units are completed and attached to a permanent foundation.

• Factory-built housing may be classified as the following property types, each with their own characteristics and loan eligibility:

• Manufactured

• Mobile

• Modular

• Panelized

• Prefabricated

• Refer to the individual loan program for eligibility by classification type.

• For lending purposes, modular, panelized and prefabricated homes are considered the same as a Single Family Residence (SFR) and eligible for the same appraisal review and LTV requirements as a single family residence.

• Manufactured housing is subject to additional LTV, loan amount and appraisal requirements. Always refer to the individual loan program for additional restrictions.

All Factory-Built Housing must meet the criteria listed in the following table:

NOTE: Please refer to Texas Refinance Requirements in the Geographic Restrictions for additional requirements.

Manufactured Homes

• Manufactured Housing is characterized by being:

• One Family Dwelling Unit

• Characteristic of site-built housing

• Legally classified as real property

• Built and installed under the Federal Manufactured Home Construction and Safety Standards (HUD Code) established June 15, 1976.

• Manufactured homes must be classified as a double-wide unit, at minimum.

Note: Only a manufactured home will have a HUD factory tag that includes manufacturer model, year built, and serial number information.

• Investor will not purchase loans secured by mobile home type manufactured housing that was built prior to June, 1976.

• A structure that is factory-built with a steel undercarriage that includes the wheel assembly necessary to transport the structure to a permanent or semi-permanent site.

• The wheel assembly can be removed when the residential structure is placed on a permanent foundation.

• The steel undercarriage remains intact as a necessary structural component, and therefore limits this manufactured home type to single story construction only.

Note: The presence of a steel undercarriage is the primary distinguishing feature of this type of factory-built housing.

Note: Only a manufactured home will have a HUD factory tag that includes manufacturer model, year built, and serial number information.

• The property must have all of the following additional characteristics:

• A minimum living area of 960 square feet.

• A minimum of 2 bedrooms.

• Interior walls of drywall or sheet rock.

• An adequate roof pitch of 4 in 12.

• Overhang/eaves extending a minimum of 12 inches.

• Roof of shake, composite or tile .

• Poured parking slab and permanent carport or garage if reasonable and customary to the area.

• Permanent steps and stoops for all external doors.

 Note: Manufactured homes are not eligible for Non-Conforming loan programs.

Comparable Sales Requirements

The comparable sales used for manufactured homes must meet the following

additional requirements:

• The comparable sales used must be similar to the subject property. For example, double-wide units should be compared to double-wide units, prefab units to prefab, etc. If there is a preference for site-built housing in the subject’s market area, the appraiser must adjust site-built comparable sales to reflect the market’s reaction to manufactured housing.

• The comparables used must be based on actual sales of improved properties (i.e., land plus home) to a third party purchaser. Comparables based solely on the purchase price of the land plus the purchase price of the manufactured home which do not include a sale to a third party are not acceptable.

• Three (3) comparable sales of the same types of manufactured homes should be provided; however, at least two (2) comparable sales of similar types are required.

• The appraiser should analyze and report a sufficient number of comparable sales (more than three, in some cases) to support the opinion of value.

• If the appraiser is unable to locate manufactured home sales that are truly comparable to the subject property, the appraiser may use older sales of similar types of manufactured homes, or sales of similar types of manufactured homes that are located in a competing market to establish a baseline for the “sales comparison analysis” and to determine sound adjustments that will reflect the differences between the comparable sales that are available and the subject property.

• When only two (2) comparable sales of similar types of manufactured homes are available, the appraiser must:

• Explain why site-built housing or a different type of factory-built housing is being used as one of the comparable sales, and

• Make (and support) appropriate adjustments in the appraisal report.

• If the appraiser is unable to develop a reliable appraisal based on at least two (2) comparable sales of similar types of manufactured homes, the loan is not eligible for purchase by Investor.

Documentation Requirements

• Manufactured housing loans submitted for purchase by Investor must include a copy of the Title Elimination (or its equivalent) removing the status of the dwelling as personal property or chattel and converting it to real property.

• This form must meet the following requirements:

• Have been filed with the appropriate state or local agency.

• Establish that the subject property is to be recognized and taxed as real property either before or simultaneous with the loan transaction.

Note: A notice of intent to file a Title Elimination is not sufficient.

• A copy of the Title Elimination (or its equivalent) must be contained in the Specific Closing Instructions to the Closing Agent and the closing agent must acknowledge compliance with this instruction prior to the closing of the loan transaction.

Mobile Home

• Mobile Homes are characterized by being:

• Built prior to June 15, 1976 before the HUD code went into effect.

• Supported by a chassis and is not permanently attached to the site.

• Ineligible for purchase by Investor.

Modular Home

Modular Homes are characterized by being:

• Composed of factory-built modules that are transported to the home site and assembled.

• The structure is composed of units that fully contain all elements of construction, including interior and exterior finish, plumbing, wiring, and mechanical systems.

• The self-contained units , are transported to the property site to be joined together on a permanent foundation. The final home may be more than one or more stories.

• Built to the state building code requirements of the state in which it is to be installed.

• Modular homes must meet all applicable state building codes, industrialized housing building codes, Building Officials and Code Administrators (BOCA) and local zoning requirements.

Panelized Home

Panelized Homes are characterized by being:

• A Building in which panels, such as a whole wall with windows, doors, wiring and outside siding, are factory-built, and then are transported to the site and assembled.

• The construction may be prefabricated, panelized, or a combination.

• Panelized homes are partially constructed at the factory. Entire walls, including plumbing, electrical interior and exterior finishing are built.

• The walls (panels) are delivered to the site, joined together, and set on a permanent foundation. If the panelized home is delivered on an undercarriage, the undercarriage is removed prior to attaching to the foundation.

• Panelized housing units must be built and conform to all local building codes in the jurisdiction in which they are permanently located.

Prefabricated Home (Pre-Cut)

Prefabricated Homes are characterized by:

• Building materials are factory-cut to design specifications, transported to the site, and assembled.

• The construction may be prefabricated, panelized, or a combination.

• The components of prefabricated homes are pre-cut or manufactured to design specifications at the factory. This material is delivered to the property site unassembled.

• Prefabricated  housing units must be built and  conform to all local building codes in the jurisdiction in which they are permanently located.

• Note: A Log Home is a unique example of prefabricated (pre-cut) factory-built housing

• Is defined as a partially prefabricated dwelling, constructed using a log wall system of solid wood walls, four inches or more thick, sold as a Home Kit either with or without all materials to fully enclose the structure, having conventionally framed interior walls, rafter or truss system roofs, and conventionally built floor decks.

• Kits generally include pre-cut materials necessary to construct the dwelling as defined, as well as plans and specifications for construction.

• Materials are not always pre-cut to exact design specifications; minor modifications may be required at the time of on-site construction.

rural property

Rural area properties are eligible only under some loan programs, and must meet the following criteria:

• The mortgage must be secured by a property that is residential in nature, based on the description of the subject property, zoning and present land use

• Be an owner-occupied primary residence or second home.

• Have a high degree of marketability.

• Loan amount may not exceed $1,000,000.

• The appraisal must indicate a marketing time of 6 months or less to ensure values are stable or appreciating.

• The area must be a minimum of 25% developed.

• All comparable sales must be located within 5 miles of subject property.

• Be accessible by roads that meet local standards.

• Have adequate sewage, water, and utilities available and in service.

• Lot size must be less than or equal to 10 acres

acreage/square footage

• Properties with a lot size greater than 10 acres are not eligible under the non-conforming and non-conforming expanded criteria loan programs

• Residential properties with a lot size less than or equal to 10 acres may be allowed under certain non-conforming and non-conforming expanded criteria programs. Refer to the individual loan program for eligibility.

• The property must be an owner-occupied primary residence

• Working farms, ranches, orchards and/or commercial operations of any type are not permitted.

• The appraisal must show that such land/acreage is typical and readily marketable for the area

• In addition, the site improvements must represent at least 70% of the market value after the deduction of the value of the outbuildings (outbuildings include barns, stables, machinery storage facilities and other agricultural related structures) from the appraiser's final estimate of market value

• If the site improvements represent less than 70% of the market value after the education of the value of outbuildings, the LTV must be reduced as follows

unique properties

Mortgages on properties that have special types of housing design or construction are allowable. These may include the following:

• Log houses

• Earth houses

• Geodesic domes, etc.

The appraiser must be able to determine that an active, viable market exists for housing of the same property type. The following information, and the facts supporting the appraisers conclusion, must be included in their report:

• The property has good or average appeal and marketability and is compatible with the neighborhood.

• All comparables are the same special character as the subject property.

• The property meets all local building codes and zoning ordinances.

• The property and the appraisal meet Investors standard property and appraisal requirements.

properties listed for sale

• Refinances on properties listed for sale are not permitted

• A property that was previously listed must have a minimum of 6 months seasoning prior to the loan being purchased

• A copy of the canceled listing should be placed in the file and a current Multiple Listing Service search should be done to verify that the property is not currently listed by a different agency

• Exceptions may be approved provided there is an adequate reason and it can be documented

mixed use properties

• A mixed use property is a property that has a business use in addition to its residential use and the appraiser must specify that the property is being used for that purpose

• Mixed used properties are allowed only under conforming loan programs with the following restrictions:

• Must be single family detached owner-occupied dwelling.

• Must represent a legal, permissible use of the property under the local zoning requirements.

• Borrower must be both the owner and the operator of the business.

• Property must be primarily residential in nature.

• There may not be any structural changes which affect the marketability of the property.

• Market value of the property must be primarily a function of its residential characteristics rather than the business use of any special-use modifications that were made.

Note: Mixed use properties in urban areas where the business is at street level and the living quarters are either upstairs or behind the business are also acceptable.

• The appraisal should illustrate through use of similar and approximate comparable sales that this type of residential/business use is common to the area.

agricultural/commercial zoning

Investor does not purchase loans on agricultural properties, such as farms, ranches, orchards, undeveloped land, or on land-development-type properties.

leaseholds

• Leasehold estates are acceptable in areas with market acceptance of that type of ownership

• The mortgage must cover the improvements and the mortgagors leasehold interest in the land

• A leasehold and leasehold estate must comply with the specific guidelines outlined in this chapter to be eligible for purchase

• A completed FHLMC Ground Lease Analysis (Form 461) must be included in the loan file for all leasehold mortgages

• The lease term must have a remaining term 5 years past the maturity date of the loan

• The leasehold mortgage must constitute an interest in real estate

• For sub-leasehold mortgages, the sublease payments should be at least equal to the amount of the lease payments

• The lease and any sublease must be recorded in the appropriate public land records, and the lease must be in full force and effect

• The lease must be a lease or sublease of the fee, executed by both the fee owner and the sub lessor

• The leasehold estate and the improvements must be insured by an ALTA Leasehold Loan Policy.

Note: For properties located in the FNMA Western Region (Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington and Wyoming), a CLTA 107.5 endorsement, or its equivalent, is also required. It must state that the property improvements are insured in the same manner as the land.

• The lease and any sublease, including all amendments, must be recorded in the appropriate public land records.

• The use of a leasehold or ground rents must be an acceptable practice in the area, and properties with these provisions must be readily marketable and documented as such in the appraisal.

• In addition, the instrument creating the lease, sublease, or conveyance reserving ground rents is in a form commonly acceptable to private institutional mortgage investors in the area where the property is located

• An increase in lease or sublease payments during the term of the mortgage is permitted if the increase is a certain amount at a specific time period, or the increase is based on an index or reappraisal, and the increase has a stated limitation.

• Increases must be subject to maximum limitations, and the sublease payments cannot be due less frequently than the lease payments

• The lease should not contain provisions for termination in the event of damage to or destruction of the premises as long as the leasehold mortgage exists

• The original term of the lease should not terminate earlier than 5 years after the maturity date of the mortgage.

• The Seller must include specific provisions in the lease documentation

• Also, the Seller must warrant to Investor that the provisions have been met.

Note: The underwriter must analyze any foreseeable increase in lease payments to determine the impact on the borrowers ability to repay the mortgage.

• The lease must permit the following:

• Mortgaging of the estate

• Assignments of the leasehold estate without the lessors consent

• Release of an assigning lessee or sublessee

• The lease will provide for the leasehold mortgagees right to acquire the lease in their own name, or in the name of a nominee, upon foreclosure or assignment in lieu of foreclosure.

Escrow Holdbacks

• Escrow holdbacks are used to hold a portion of a loan in an escrow account until an additional requirement is completed. This borrower accommodation allows the loan to close and the borrower to occupy the property while incidental work is finished.

• Investor will allow escrow holdbacks under the following conditions:

• Property repairs that cannot be completed within 120days of the loan close date. If the repairs cannot be completed within the specified time, an extension may be allowed and Investor will follow up as needed.

• If required by Massachusetts Title V legislation.

• The maximum amount allowed for a holdback for completion of the construction and/or repair is based on a percentage of the property's value and the percentage of the cost needed to complete the work The value is the lesser of the purchase price or appraised value.

The following are the limits for mortgages with an escrow holdback:

Conforming Loans:

• For weather & Non-weather related holdbacks,

• The maximum percentage of property value is 10% and

• The minimum holdback percentage of cost to complete is 120%

• For Swimming Pool holdbacks:

• The maximum percentage of property value is none and

• The minimum holdback percentage of cost to complete is 150%

Non-Conforming, Non-Conforming Expanded Criteria, and Non-Conforming Expanded Criteria Conforming Loan Balance Loans:

• For weather & Non-weather related holdbacks,

• The maximum percentage of property value is 10% and

• The minimum holdback percentage of cost to complete is 120%

• For Swimming Pool holdbacks:

• The maximum percentage of property value is none and

• The minimum holdback percentage of cost to complete is 150%

declining values

• Any area considered a soft market area should be treated conservatively

• For loans in an identified soft market area, the maximum LTV must be reduced by 5%

• For example, a 30-year fixed rate product would be reduced from 95% to 90%

• An ARM product from 90% to 85%, and a second home from 90% to 85%.

• Underwriters must reduce the value or LTV ratio when determining that the property is in a soft market area.

• In addition to the 3 comparables normally required, at least one, or preferably 2, comparable pending sales are required to validate the value.

inspection reports

Security Bars

The appraiser must comment with respect to the use of burglar or security bars. There must be an emergency release latch for at least one window in each room where the security bars are located, unless local or municipal codes state otherwise.

These are general underwriting guidelines only. Please refer to the product description for guidelines specific to that product.