Homeready Mortgage

Chapter 3 Mortgage Loan Products and Product Matrix

Contents Fixed-Rate Mortgage Loans ...... 2 CONVENTIONAL CONFORMING LOANS ...... 2 Construction to Permanent Loans ...... 3 Manufactured Housing ...... 4 MANUFACTURED HOUSING-FANNIE MAE ...... 4 MANUFACTURED HOUSING-FREDDIE MAC ...... 5 Manufactured Housing Land & Home Ownership Requirements ...... 6 Rural Development Guaranteed Loans ...... 6 Rural Development (RD) Program ...... 7 Fannie Mae Only ...... 9 DU Refi Plus-Fannie Mae Only ...... 9 Fannie Mae High LTV Refinance Option ...... 9 Fannie Mae High LTV Refinance Option ...... 9 HomeReady Mortgage ...... 10 HomeReady ™ Mortgage ...... 10 HomeStyle Energy Mortgage Matrix ...... 11 Freddie Mac Only ...... 12 Adjustable Rate Mortgage Loans (ARM) ...... 12 Open Access – Freddie Mac Relief Refinance ...... 13 Freddie Mac Enhanced Relief Refinance ...... 13 Freddie Mac Enhanced Relief Refinance ...... 13 Home Possible ...... 14 HOME POSSIBLE® PROGRAM ...... 14

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 1

Chapter 3 Mortgage Loan Products and Product Matrix Fixed-Rate Mortgage Loans Features Fannie Mae and Freddie Mac purchase a variety of fixed-rate mortgages (new originations and seasoned loans) for borrowers who want a stable monthly payment over the life of their loan. Fixed- rate mortgages protect borrowers from interest rate increases and provide a predictable payment and amortization schedule. Available from a 10-year amortization up to a 30-year amortization, it gives the borrower the option of a 10- 15- or 20-year mortgage to build equity more quickly or take advantage of the lower monthly payment with a 30-year mortgage.

CONVENTIONAL CONFORMING LOANS Excludes HARP loans, manufactured, Home Possible, and HomeReady FANNIE MAE FREDDIE MAC 10 - 30 YEAR FIXED, Approve/Eligible 10 – 30 YEAR FIXED, Accept (LP) (DU)

$484,350 - 1 unit $484,350 - 1 unit $620,200 - 2 unit $620,200 - 2 unit LOAN LIMITS $749,650 - 3 unit $749,650 - 3 unit $931,600 - 4 unit $931,600 - 4 unit PRIMARY RESIDENCE

1 UNIT Owner occupied only HOME ONE MORTGAGE nd 95.01-97% LTV/CLTV/HCLTV Effective with DU version 9.2 97%LTV/105%CLTV (105% CLTV if Affordable 2 ) 12/13/14 97% PURCHASE & st Fixed-rate only • At least 1 borrower must be a 1 -time buyer LIMITED CASH OUT (DU) • 1 UNIT Owner occupied only • Refi of existing Fannie Mae loans only • NO CASH OUT (LPA) (Restrictions NO MANUFACTURED HOMES • Loan must be fixed-rate only • apply) Income must not exceed 100% of area median income limits • No minimum borrower contribution required • Homeownership education required if all borrowers are first time • MANUFACTURED HOMES- See MH Advantage home buyers (Purchase only) Matrix • No income limits • Must be approve/eligible in DO/DU 1 UNIT 1 UNIT 95% LTV/CLTV/HCLTV PURCHASE & 95% LTV/CLTV/HCLTV 2 UNIT 2-4 UNIT LIMITED CASH OUT (DU) 85% LTV/CLTV/HCLTV 80% LTV/CLTV/HCLTV NO CASH OUT (LPA) 3-4 UNIT

75% CLTV / HCLTV 1 UNIT 1 UNIT 80% LTV/CLTV/HCLTV 80% LTV/CLTV/HCLTV CASH OUT REFINANCE 2-4 UNITS 2-4 UNITS 75% LTV/CLTV/HCLTV 75% LTV/CLTV/HCLTV SECOND HOME **1 UNIT ONLY** PURCHASE & 90% LTV/CLTV/HCLTV 1 UNIT ONLY 85% LTV/CLTV/HCLTV 1 UNIT ONLY LIMITED/NO CASH OUT CASH OUT REFINANCE 75% LTV / 75% CLTV / HCLTV 1 UNIT ONLY 75% LTV/CLTV/HCLTV 1 UNIT ONLY INVESTMENT PROPERTY 1 UNIT PURCHASE 1 UNIT PURCHASE 85%LTV/85% CLTV / HCLTV 85%LTV/CLTV/HCLTV PURCHASE 2-4 UNIT PURCHASE 2 UNIT 75% LTV/75% CLTV / HCLTV 75% LTV/CLTV/HCLTV LIMITED/NO CASH-OUT & 1-4 UNIT 1-4 UNIT NO-CASH OUT 75%LTV/ 75% CLTV / HCLTV 75%LTV/CLTV/HCLTV 1 UNIT 1 UNIT 75% LTV / 75% CLTV / HCLTV 75% LTV/CLTV/HCLTV CASH OUT REFINANCE 2-4 UNITS 2-4 UNITS 70% LTV / 70% CLTV 2-4 units 70% LTV/CLTV/HCLTV ALL LOANS CONDOS, PUDS Must meet Specific Condo Project Consideration Must meet FHLMC project guidelines Note: FL condos – Please refer to guidelines Geographic Specific condo project [email protected]

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 2

Chapter 3 Mortgage Loan Products and Product Matrix >20 yrs ≤20 yrs >20 yrs ≤20 yrs STANDARD MORTGAGE INSURANCE >95.01-97% 35% >95 35% >90.00≤95% 30% 25% >90.00≤95% 30% 25% COVERAGE >85.00≤90% 25% 12% >85.00≤90% 25% 12% >80.00≤85% 12% 6% >80.00≤85% 12% 6% U.S. Citizens U.S. Citizens ELIGIBLE BORROWERS Permanent Resident Aliens Permanent Resident Aliens Non-Permanent Resident Aliens Non-Permanent Resident Aliens LOAN LEVEL PRICE ADJUSTMENTS (LLPA) CUMULATIVE See Chapter 4 of the online manual See Chapter 4 of the online manual ALL PRODUCTS PURCHASE ESSENTIALS LTV < 80% = 0% MINIMUM BORROWER 5% of the sales price is required if LTV is > 80% and LTV > 80: CONTRIBUTION property is a 2 unit primary residence or 2nd home. 0% of the sales price (1 unit primary residence) 5% of the sales price (2 unit primary residence and 2nd homes) INTERESTED PARTY/SELLER Can cover closing costs and/or prepaid subject to Fannie Can cover closing costs and/or prepaid subject to CONTRIBUTION Limits FHLMC limits

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Fannie Selling Guide and Freddie Seller Servicer Guide for detailed information.

Construction to Permanent Loans Two-Closing Transactions

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Fannie Selling Guide and Freddie Seller Servicer Guide for detailed information.

Two-closing construction to permanent mortgage transactions utilize two separate loan closings. The first closing is for the construction financing which is originated, disbursed, and held at the originating bank; and the second is the end loan used to pay off the interim construction loan. The permanent financing can be closed as a limited cash-out or a cash-out refinance transaction. The end loan will be serviced by Merchants. The borrower must have held title to the lot for at least six months prior to the closing of the permanent mortgage for cash-out transactions.

• Mortgages must be submitted as “construction-permanent” through Desktop Underwriter and receive an “Approve/Eligible” recommendation, or through LPA as a no cash-out or cash-out and receive an “Accept/Eligible”. • The appraised value will be used to determine the LTV. • The subject property should be listed in the REO section of the application and should show “refi of current residence” for primary residences or “subject of the loan” for a second home. • Verification documents are good for 120 days. • The construction of the subject property must be completed prior to delivery of the mortgage. • A copy of the construction CD should be provided with the end loan to verify all short-term financing guidelines have been met.

Ineligible loans: *Manufactured Homes *Condominiums *Investment Properties *One-time closing transactions See Construction Examples and Tips in the Manuals tab on the Merchant Bank landing page.

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 3

Chapter 3 Mortgage Loan Products and Product Matrix Manufactured Housing A manufactured home is defined as any dwelling unit built on a permanent chassis and attached to a permanent foundation system, to include connection to a septic tank, sewage system or public sewer and other utilities in accordance with local, state, and federal requirements.

MANUFACTURED HOUSING-FANNIE MAE

STANDARD MANUFACTURED HOUSING MH ADVANTAGE FANNIE MAE FANNIE MAE

LOAN LIMITS Conforming loan limits Conforming loan limits Fannie Mae defines a “manufactured home” as a dwelling of at least 600 square feet and at least 12 feet wide, constructed to the “HUD Code” for manufactured housing that is built on a permanent chassis, installed on a permanent foundation system, and titled as real estate.

NOTE: The sales price of a new manufactured home may include bona fide and documented costs associated with transportation, site preparation, and dwelling installation at the site. MH Advantage is manufactured housing that meets the DEFINITION AND definition above and is designed to meet certain construction, PROPERTY ELIGIBILITY architectural design, and energy efficiency standards that are more consistent with site-built homes.

To be eligible for MH Advantage financing, the home must have an MH Advantage sticker applied by the home’s manufacturer pursuant to an agreement with Fannie Mae (see MH Advantage Appraisal Requirements summary). PRIMARY RESIDENCE 1 UNIT ONLY! 1 UNIT ONLY! PURCHASE & 95 % LTV/ 95% CLTV - 30 Years 97% LTV/CLTV (MAX LTV for ARMS is 95%) LIMITED CASH OUT 97%/105% with eligible Community Seconds® financing only CASH OUT REFINANCE 1 UNIT ONLY! 65% LTV ≤ 20 years MINIMUM BORROWER 0% borrower’s own funds if primary residence INVESTMENT SECOND HOME 1 UNIT ONLY! PURCHASE & 90 % LTV/ 90% CLTV LIMITED CASH OUT 5% from borrower’s own funds ALL LOANS Desktop Underwriter® (DU®) only UNDERWRITING Select Manufactured Home or Manufactured Home: Select MH Advantage in the Subject Property Type field (even Condo/PUD/Co-op in the Subject Property Type field if the property is located in a project) LOAN LEVEL PRICE See Chapter 4 of the online manual ADJUSTMENTS (LLPA) MAXIMUM DTI RATIO/RESERVE Determined by DU REQUIREMENTS MISCELLANEOUS MISCELLANEOUS Additional legal description, lien perfection and title insurance requirements. See manual for details. INFORMATION HOMEREADY ELIGIBLE Yes Minimum of 2 similar MH comparable sales; third comparable may be site-built or modular home. The Manufactured Home Appraisal Report (1004C) or Appraisal APPRAISALS Completion Report (1004D) must include photos of the MH Advantage Sticker, HUD Data Plate, HUD Certification Labels, and the site showing all driveways, sidewalks, and detached structures located on the site. MISC. Cash out transactions for second homes are ineligible, Investment properties not permitted and 2-4 Units Ineligible REQUIREMENTS MORTGAGE INSURANCE LTV Range All terms, FRM and ARM LTV Range FRM only, term ≤20 yrs FRM only, term ≥20 yrs Refer to the Selling Guide B7-1-02 80.01–85.00% 12% 80.01–85.00% 6% 12% for MI + LLPA option details, 85.01–90.00% 25% 85.01–90.00% 12% 25% coverage requirements for MH 90.01–95.00% 30% 90.01–95.00% 25% 30% HomeReady, and other info. 95.01–97.00% 35% 35%

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 4

Chapter 3 Mortgage Loan Products and Product Matrix

MANUFACTURED HOUSING-FREDDIE MAC

MANUFACTURED HOME LOANS Freddie Mac

LOAN LIMITS Conforming loan limits

PRIMARY RESIDENCE

1 UNIT ONLY! PURCHASE & NO CASH OUT 95 % LTV/ 95% CLTV - 30 Years

1 UNIT ONLY! CASH OUT REFINANCE 65% LTV ≤ 20 years

Minimum Borrower Investment 0% from borrower’s own funds if primary residence

SECOND HOME

1 UNIT ONLY! PURCHASE & NO CASH OUT 85 % LTV/ 85% CLTV - 30 years

CASH OUT REFINANCE NOT PERMITTED

INVESTMENT PROPERTY

PURCHASE & NOT PERMITTED LIMITED/NO CASH OUT

CASH OUT REFINANCE NOT PERMITTED ALL LOANS CONDOS, PUDS Must meet Freddie Guidelines

LOAN LEVEL PRICE ADJUSTMENTS (LLPA) See Chapter 4 of the online manual

MAXIMUM DTI RATIO RESERVE REQUIREMENTS Determined by LP

MISCELLANEOUS MISCELLANEOUS Additional legal description, lien perfection and title insurance requirements. See manual for INFORMATION details. APPRAISALS 1004C appraisal MISCELLANEOUS 2-4 Units Ineligible REQUIREMENTS

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 5

Chapter 3 Mortgage Loan Products and Product Matrix

Manufactured Housing Land & Home Ownership Requirements

Cash-Out In order to do a cash-out on a manufactured home, the borrower must have owned the land and the home for at least 12 months. If they do not meet both of these conditions, the loan is not eligible.

Limited Cash-Out When doing a limited cash-out and the borrowers have owned the home and the land for 12 months, the appraised value will be used in determining the LTV. If the borrowers have not owned both the home and the land for 12 months, the lender will need to document the acquisition costs. The lower of the acquisition costs or the appraised value will be used in determining the LTV.

Purchase or Limited Cash- When doing a purchase or limited cash-out and the borrower Out without 12 months of has not owned both the home and the land for 12 months, the Ownership lender will need to provide the appraiser with a copy of the executed Purchase Agreement for the manufactured home and land. If the home and the land are being purchased separately, the appraiser will need both Purchase Agreements. The lender must provide the appraiser with a copy of the dealer invoice if the manufactured home is new. The appraiser must analyze the purchase contract(s) and summarize his/her analysis in the appraisal report.

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Fannie Selling Guide and Freddie Seller Servicer Guide for detailed information.

Rural Development Guaranteed Loans

Merchants Bank is a Rural Development nationally approved lender.

Rural Development helps low- and moderate-income people living in rural areas purchase adequate, modest, decent, and safe homes by providing guarantees for qualified loans that a lender would not make without a guarantee. The program’s loan terms and conditions, which are

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 6

Chapter 3 Mortgage Loan Products and Product Matrix described below, are designed to ensure that the loans are used to acquire modest homes and that the property will provide adequate security for the loan.

Rural Development (RD) Program

RD FIXED RATE PROGRAM 30 YEAR LOAN

MINIMUM LOAN NOT APPLICABLE AMOUNTS

ELIGIBLE Owner-occupied (1unit) principal dwellings (detached Condo/PUD, Manufactured Home) PROPERTIES

FEES Upfront Guarantee Fee as of 10/1/16 Annual Fee as of 10/1/16 1.00% 0.35%

Purchases – 100%, * Non-Streamlined Refinance-The maximum loan amount may not exceed the new appraised value, with the exception of the upfront guarantee fee. The following items are eligible to be financed up to the new appraised value: the principal and interest balance of the existing loan, reasonable and customary closing costs, and funds necessary to establish MAXIMUM LTV a new tax and insurance escrow account. RATIOS Streamlined Refinance– Maximum loan amounts cannot exceed the original loan amount at the time of purchase ( Merchants Bank must be current servicer) Streamlined-Assist Refinance-The maximum loan amount may include the principal and interest balance of the existing loan, eligible loan closing costs, funds necessary to establish a new tax and insurance escrow account, and the upfront guarantee fee. ( Merchants Bank must be current servicer) MAXIMUM CLTV Seconds allowed with no limit however, USDA will only guarantee the maximum LTV as provided in 3555.103. RATIOS

DTI REQUIREMENTS PITIA Ratio Total Debt Ratio 29%** 41%**

This document does not reflect all of the product information and requirements. Please refer to the RD 3555 Handbook for additional requirements. Must meet RD income limits and property eligibility https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do *The LTV of the loan can exceed 100 percent of the market value of the property when the guarantee fee is financed. Loans may exceed 100 percent LTV only to the extent that the excess represents a financed guarantee fee. **Unless higher approved by GUS

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See RD’s handbook 3555 (HB-1-3555) for detailed information (RD guidelines) and http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1 (income and property eligibility)

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 7

Chapter 3 Mortgage Loan Products and Product Matrix Rural Development has made some changes to their process and how lenders submit files to them.

RD approved lenders can submit the files to Merchants Bank for underwriting by providing the required documents as shown on the Rural Development Underwriting Package Submission Form which is located in the Documents tab on Merchants Bank’s landing page. You would submit your file through the Rural Development Government Underwriting System (GUS), gather the applicable documentation, and send the underwriting package to Merchants Bank. We will underwrite the package submitted, condition the file for the RD Conditional Commitment (as well as any other necessary conditions) and approve the loan once all conditions and the conditional commitment are received. You would be responsible for submitting your package to RD, remitting the guarantee fee and obtaining the loan note guarantee.

Lenders who are not currently an RD approved lender have three options for file submission. Merchants Bank offers a “Rural Development Lender Agent GUS” submission option, “Rural Development GUS only” submission option, or a “Rural Development Processing” option.

There is a contract that needs to be signed for each of the processing options and there is a fee associated with each option as well. The fees are as follows: Rural Development Lender Agent GUS - $150, Rural Development GUS only - $250, Rural Development Processing - $485. Please contact your Account Executive for additional information.

• Rural Development Lender Agent GUS Option – You would process the file as you normally would and also submit your file to GUS. Once the file has been underwritten and the only condition is to obtain the Conditional Commitment you would contact Merchants Bank to Request the Final GUS submission and Conditional Commitment. Once the loan is closed Merchants Bank would remit the Guarantee fee and obtain the Loan Note Guarantee (LNG). You would follow the Rural Development Lender Agent GUS Procedures document that is located on the Merchants Bank landing page under the Manual tab.

• Rural Development GUS Only option – You would process the file as you normally would, and Merchants Bank will submit your file to GUS, obtain the conditional commitment, remit the guarantee fee and obtain the note guarantee. You would follow the Rural Development GUS Only Procedures document that is located on the Merchants Bank landing page under the Manual tab. • Rural Development Processing option (Only available to Correspondents who utilize the Full Document Processing service for all files) – this includes processing of your file in addition to submission to GUS, obtaining the conditional commitment, remitting the guarantee fee and obtaining the note guarantee. You would follow the Rural Development Processing Procedures document that is located on the Merchants Bank landing page under the Manual tab. You would remain responsible for your disclosures and your final closing documents regardless of which option is utilized.

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 8

Chapter 3 Mortgage Loan Products and Product Matrix Fannie Mae Only

DU Refi Plus-Fannie Mae Only

Du Refi Plus is a refinance of an existing Fannie Mae loan by any lender using Desktop Originator (DO) or Desktop Underwriter (DU) for underwriting. This program expires September 30, 2019. Applications taken after December 31, 2018 are not eligible.

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Fannie Selling Guide for detailed information.

Fannie Mae High LTV Refinance Option The high LTV refinance option is available for refinance applications received on or after Nov. 1, 2018. It replaces DU Refi Plus™ (and Refi Plus™ with manual underwriting), which will be retired in accordance with the Home Affordable Refinance Program® (HARP®) end date of Dec. 31, 2018.

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Fannie Selling Guide for detailed information.

Fannie Mae High LTV Refinance Option

Eligible Transactions Limited Cash-Out Refinance, Fixed Rate

Standard Eligibility- Desktop Underwriter and Manual Underwriting Transaction Type No. of Units Min LTV Max LTV Min Credit Score Max DTI 1-unit 97.01% Principal Residence 2-unit 85.01% 3-4 unit 75.01% Fixed: No Limit No Minimum No Maximum Second Home 1-unit 90.01% Investment Property 1-4-unit 75.01%

• Effective for mortgages with application received dates on or after November 1, 2018. • A conventional 15-, 20-, or 30-year fixed-rate mortgage. • No program expiration date. • All occupancy types are eligible. Eligible Mortgages • LTV ratios that exceed that exceed maximum LTV ration Limits for Fannie Standard Limited Cash-out refinance. • Lenders are not required to comply with standard waiting periods and re-establishment times for derogatory events (e.g., bankruptcy, foreclosure).

Ineligible Mortgages • Existing mortgages originated as part of the DU Refi Plus and Refi Plus mortgages.

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 9

Chapter 3 Mortgage Loan Products and Product Matrix • The existing mortgage must be seasoned at least 15 months (that is, at least 15 months must have passed between the note date of the mortgage being refinanced and the note date of the Seasoning High LTV Refinance Mortgage). • Note date of the note being refinanced has to be on or after 10/1/17. • New mortgage amount limited to the payoff of the unpaid principal balance, accrued interest, the financing of the closing costs not to exceed $5,000 and cash disbursed to the borrower not Use of Mortgage Proceeds to exceed $250. • Excess proceeds must be applied as a principal curtailment on the new mortgage.

• The mortgage has not been 30-days delinquent in the most recent six months; and Mortgage Payment History • Has not been 30-days delinquent more than once in the most recent 12 months

See Chapter B5-7, High Loan-to-Value Refinance Option for additional eligibility requirements.

HomeReady Mortgage The HomeReady mortgage is a conventional community lending mortgage that offers underwriting flexibilities to qualified borrowers who meet specific income criteria.

HomeReady serves low- to moderate-income borrowers, with expanded eligibility for financing homes in designated low-income, minority, and disaster-impacted communities.

HomeReady ™ Mortgage *Fully-Amortizing fixed-rate mortgage with terms up to 30 years*

FANNIE MAE

$484,350 - 1 unit $620,200 - 2 unit LOAN LIMITS $749,650 - 3 unit $931,600 - 4 unit 1-Unit 2-to-4 Units

Purchase or Limited Cash-out Refinance (LCOR) Loan Purpose Cash Out Refinance Not Permitted

Purchase: DU Only – LTV > 95% to 97% (FRM) DU and manual underwriting to 95% (FRM and Purchase or LCOR: ARM) Maximum LTV Ratios 2-unit: 85% (FRM or ARM) LCOR: 3- to 4-unit: 75% (FRM or ARM) DU Only – LTV > 95% to 97% (FRM) for loans owned or securitized by Fannie Mae. DU and manual underwriting to 95% (FRM and ARM)

1-unit principal residence, including eligible condos, 2- to 4-unit principal residence (no condos, co-ops, or Occupancy Type co-ops, PUDs, and manufactured housing manufactured housing)

In accordance with standard MH guidelines (Desktop Underwriter® [DU®] required; max 95% Manufactured Housing Not applicable LTV/CLTV; FRMs or 7/1 and 10/1 ARMs only; no buydowns) SECOND HOME & INVESTMENT PROPERTY

NOT PERMITTED

ALL LOANS

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 10

Chapter 3 Mortgage Loan Products and Product Matrix Standard MI coverage for LTV’s of 90% or less MORTGAGE INSURANCE COVERAGE LTV’s of > 90% < 97% = 25%

BORROWERS OCCUPANCY Required Non-Occupant Borrowers permitted to maximum 95% LTV in DU, 90% LTV on manual underwrite with max NON-OCCUPANT BORROWERS 43% DTI for occupying borrower. Income considered as part of qualifying income and subject to income limits. LOAN LEVEL PRICE ADJUSTMENTS See Chapter 4 of the online manual (LLPA) Determined by DU. Or, if Manual UW: CASH RESERVES See Eligibility Matrix for additional reserve requirements at fanniemae.com $0 for LTV/CLTV/HCLTV of 80% or less; $0 MINIMUM BORROWER CONTRIBUTION 3% for LTV /CLTV/HCLTV > 80% 3% required if sweat equity is being used At least one borrower on each HomeReady purchase transaction must complete the Framework® online HOMEBUYER EDUCATION education program. Refer to fanniemae.com/homeready for more information.

Income Limits: *No income limits in low-income census tracts *100% of area median income (AMI) for other properties.

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Fannie Mae Selling Guide for complete details. • Helpful Links: Area Median Income (AMI) is used to determine income eligibility. AMI’s are available on Fannie’s site at https://www.fanniemae.com/singlefamily/originating- underwriting.

HomeStyle Energy Mortgage Matrix

The HomeStyle Energy mortgage loan is designed to support borrowers in their efforts to increase home energy efficiency and reduce utility costs. Borrowers can finance energy-efficient upgrades when purchasing or refinancing a home. HomeStyle Energy may be a more affordable financing solution than a subordinate lien, home equity line of credit, Property Assessed Clean Energy (PACE)1 loan, or unsecured loan.

See Fannie Mae’s Product Matrix for more information. Refer to Selling Guide section B5-3.3-01, which discusses Fannie Mae’s restrictions on PACE loans.

*Merchants Bank does not participate in the HomeStyle Renovation program.

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 11

Chapter 3 Mortgage Loan Products and Product Matrix Freddie Mac Only

Adjustable Rate Mortgage Loans (ARM)

Features This product is for borrowers who understand their rate may increase after the initial period but want the benefit of a lower initial rate and monthly payment because they don’t anticipate holding on to the property for the full term of the mortgage and/or they expect their income to increase within the next couple of years.

3/1, 5/1, 7/1,& 10/1 CONFORMING ARMs FREDDIE MAC (LP) ONLY 5/1, 7/1,& 10/1 TREASURY INDEX 2/2/5 3/1 Treasury Index 2/2/6

$484,350 - 1 unit $620,200 - 2 unit LOAN LIMITS $749,650 - 3 unit $931,600 - 4 unit

PURCHASE & 95% LTV / 95% CLTV 1 unit LIMITED / NO CASH OUT – PRIMARY RESIDENCE 80% LTV / 80% CLTV 2-4 units

80% LTV / 80% CLTV 1 unit CASH OUT REFINANCE - PRIMARY RESIDENCE 75% LTV / 75% CLTV 2-4 units

PURCHASE & NO CASH OUT – 2nd Home 85% LTV / 85% CLTV

CASH OUT REFINANCE – 2nd Home 75% LTV / 75% CLTV

85%LTV/ 85% CLTV 1Unit PURCHASE PURCHASE & NO CASH OUT – Investment Property 75% LTV/75% CLTV 1 Unit - No Cash Out 75%LTV/75% CLTV 2-4 units (Purchase or no-cash-out)

75% LTV / 75% CLTV 1 unit CASH OUT REFINANCE – Investment Property 70% LTV / 70% CLTV 2-4 units CONDOS, PUDS Note: FL condos – Please refer to Must meet FHLMC guidelines Geographic Specific condo project consideration @fanniemae.com MANUFACTURED HOMES Only 7/1 and 10/1 ARMS allowed STANDARD >90.00≤95% 30% MORTGAGE >85.00≤90% 25% INSURANCE >80.00≤85% 12% COVERAGE

ELIGIBLE U.S. Citizens Permanent Resident Aliens BORROWERS Non-Permanent Resident Aliens

LOAN LEVEL PRICE ADJUSTMENTS (LLPA) CUMULATIVE See Chapter 4 of the online manual ALL PRODUCTS

MINIMUM BORROWER 0% of the sales price 5% for Second Home if LTV over 80% CONTRIBUTION INTERESTED PARTY/SELLER Can cover closing costs and/or prepaids subject to FHLMC limits CONTRIBUTION

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Freddie Seller Servicer guide for detailed information.

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 12

Chapter 3 Mortgage Loan Products and Product Matrix

Open Access – Freddie Mac Relief Refinance

Freddie Mac Relief Refinance – Open Access is a refinance of an existing Freddie Mac loan by any lender using Freddie’s automated underwriting system Loan Prospector (LPA). This program expires September 30, 2019. Applications taken after December 31, 2018 are not eligible.

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Freddie Seller Servicer guide for detailed information.

Freddie Mac Enhanced Relief Refinance The Freddie Mac Enhanced Relief RefinanceSM Mortgage provides opportunities to borrowers with existing Freddie Mac mortgages who are making timely payments, but are unable to take advantage of the standard Freddie Mac "no cash-out" refinance offering because the new mortgage exceeds maximum loan-to-value (LTV) limits.

Freddie Mac Enhanced Relief Refinance Minimum LTV Ratios Occupancy Number of Units Minimum LTV Ratio Primary Residence 1-unit (including MH homes) 97.01% 2-unit 85.01% 3-and 4-unit 80.01% Second Home 1-unit (including MH homes) 90.01% Investment Property 1-unit 85.01%

2-to 4-unit 75.01%

• For adjustable-rate mortgages, the maximum LTV ratio is 105%. Maximum LTV Ratios • For fixed-rate mortgages, there is no maximum LTV ratio. • Effective for mortgages with application received dates on or after November 1, 2018. • A conventional 15-, 20-, or 30-year fixed-rate mortgage. • A conventional 5-year, 5/1, 7/1 or 10/1 ARM, provided the Mortgage being refinanced is an ARM, and except that a Mortgage secured by a Manufactured Home must not be a 5-year or a 5/1 ARM. • No program expiration date. Eligible Mortgages • All occupancy types are eligible. • LTV ratios that exceed the maximum LTV ratio limits for Freddie Mac standard “no cash-out” refinance mortgage (Note: due to the implementation of the Enhanced Relief Refinance offering, special requirements for “no cash-out” refinances owned or securitized by Freddie Mac, including the special LTV, TLTV and HTLTV limits will be retired at a later date). • Lenders are not required to comply with standard waiting periods and re-establishment times for derogatory events (e.g., bankruptcy, foreclosure). • Existing mortgages originated as part of the Home Affordable Refinance Program (HARP) – Ineligible Mortgages Relief Refinance Mortgages (Same Servicer and Open Access).

• Reduction in the interest rate of their First Lien Mortgage. • Replacing an ARM with a FRM. Borrower Benefit • Reduction in amortization term of the First Lien Mortgage. • Reduction in the monthly principal and interest payment of the First Lien Mortgage. • The existing mortgage must be seasoned at least 15 months (that is, at least 15 months must have passed between the note date of the mortgage being refinanced and the note Seasoning date of the Enhanced Relief Refinance Mortgage). • Note date of the note being refinanced has to be on or after 10/1/17.

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 13

Chapter 3 Mortgage Loan Products and Product Matrix • New mortgage amount limited to the payoff of the unpaid principal balance, accrued interest, the financing of the closing costs not to exceed $5,000 and cash disbursed to the Use of Mortgage Proceeds borrower not to exceed $250. • Excess proceeds must be applied as a principal curtailment on the new mortgage. • The mortgage has not been 30-days delinquent in the most recent six months; and Mortgage Payment History • Has not been 30-days delinquent more than once in the most recent 12 months.

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Freddie Seller Servicer guide for complete details

Home Possible Freddie Mac Home Possible Mortgages offer flexibility and opportunities to meet the home financing needs of low- and moderate-income borrowers looking for low down payments and flexible sources of funds.

 All Loan Level Price Adjustments may be found in Chapter 4, LTV and LLPA charts.  See Freddie Seller Servicer guide for complete details.

HOME POSSIBLE® PROGRAM

HOME POSSIBLE FREDDIE MAC

LOAN LIMITS $453,100 – 1 - 4 units Primary Residence

FIXED RATE: . 1-unit: 97% LTV/105% CLTV if 2nd is a fixed “affordable 2nd mortgage product”1 Unit . 2- to 4-unit:-95% LTV/CLTV . Manufactured Home: 95% LTV/95% CLTV PURCHASE & NO CASH OUT REFINANCE ARMs: . 1- and 2-unit:-95% LTV/CLTV . 3- and 4-unit- 75% LTV/CLTV

CASH OUT REFINANCE NOT PERMITTED

SECOND HOME & INVESTMENT PROPERTY

NOT PERMITTED NOT PERMITTED

ALL LOANS For < 20 Yr Fixed rate only >20Yr Fixed, Arm, & Manufactured MORTGAGE >80%≤85% = 6% >80%<85% = 12% INSURANCE >85%≤90% = 12% >85%-97% = 25% COVERAGE >90% <97% = 25% (MANUFACTURED HOMES LIMITED TO 95% LTV)

At least one borrower must occupy the property. BORROWERS OCCUPANCY Additional requirements apply when using non-occupying borrowers. - See Guide Section 4501.7(b).

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 14

Chapter 3 Mortgage Loan Products and Product Matrix

LOAN LEVEL PRICE ADJUSTMENTS See Chapter 4 of the online manual (LLPA) LLPA'S are cumulative

QUALIFYING RATIOS Determined by LP or if Manual UW, Max DTI 45% Determined by LP, Or, if manual UW: CASH RESERVES No Reserves for 1 Unit primary residence LTV 2 months Reserve Required for 2-4 units None for 1 Unit and manufactured homes MINIMUM BORROWER CONTRIBUTION 3% for 2-4 Units LTV/TLTV/HTLTV >80%<95%

HOMEBUYER EDUCATION REQUIRED FOR 1ST-TIME HOMEBUYERS

EARLY DELINQUENCY COUNSELING REQUIRED

LANDLORD COUNSELING REQUIRED for 2-4 Units, purchase transactions

Income Limits: Total income cannot exceed 100% of the Area Median Income Limit except in certain areas as outlined in product description. No income limits apply if the mortgaged premises is located in an Low-Income Census Tract. Home Possible Income and Property Eligibility tool: http://www.freddiemac.com/homepossible/eligibility.html Automated Underwriting: Automated underwriting through LPA is allowed for Accept/Accept recommendations.

Investor guidelines and related bulletins supersedes information contained in this document. Revised 1/12/19 15