Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 Accessory Correspondent  Standard Section 1.07 Appraisal Guidelines Section 1.07 Appraisal Guidelines Units Section 1.07 Agency Appraisal Analysis: Agency Loan Programs / Site Section of the Appraisal Report Appraisal Analysis: Agency Loan Programs / Site Section of the Appraisal Report Appraisal (LPA) Note: Below is an EXCERPT only of the LPA guidelines outlined in the above referenced section. All other currently Note: Below is an EXCERPT only of the LPA guidelines outlined in the above referenced section. All other currently Guidelines  Agency Plus published guidelines remain the same. published guidelines remain the same. (LPA) &  Home Freddie Mac LPA Freddie Mac LPA Possible® Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows: Correspondent Mortgage  Property Characteristics  Property Characteristics Section 2.01 (LPA)  The "Site" section of the appraisal report must accurately describe the physical characteristics of the  The "Site" section of the appraisal report must accurately describe the physical characteristics of the Agency Loan site, site improvements, site view and available utilities, and must fully analyze any locational factors site, site improvements, site view and available utilities, and must fully analyze any locational factors Programs- affecting the site. affecting the site. Guideline  Zoning  Zoning  The appraisal report must accurately state:  The appraisal report must accurately state:  The zoning classification  The zoning classification  A description of the zoning classification  A description of the zoning classification  Whether the use of the subject property represents a legal, legal non-conforming (commonly  Whether the land use of the subject property represents a legal, legal non-conforming referred to as grandfathered use), illegal use, or if there is no zoning (commonly referred to as grandfathered use), illegal use, or if there is no zoning  Eligible Zoning Classification  Eligible Zoning Classification  Freddie Mac does not limit mortgage purchases to mortgages secured by properties with  Freddie Mac does not limit mortgage purchases to mortgages secured by properties with specific zoning classifications. However, the subject property's zoning classification is an specific zoning classifications. However, the subject property's zoning classification is an important characteristic to consider when determining whether the property is eligible for important characteristic to consider when determining whether the mortgage is eligible for sale to Freddie Mac. For example, if a property is zoned for agricultural use, the lender must sale to Freddie Mac. For example, if a property is zoned for agricultural use, the lender must ensure that the property is residential in nature, its residential use is a permissible use under ensure that the property is residential in nature, its residential use is a permissible use under the zoning classification and its use does not primarily involve commercial activities such as the zoning classification and its use does not primarily involve commercial activities such as farming or ranching. farming or ranching.  Eligible Zoning Compliance  Eligible Zoning Compliance  The use of the mortgaged premises must conform to the jurisdiction's zoning and use  The mortgaged premises must conform to the jurisdiction's zoning and land use requirements and must be either legal non-conforming or legal conforming; however, requirements. The zoning compliance must be either legal non-conforming or legal properties located in jurisdictions with no zoning are acceptable. If the mortgaged premises conforming; however, if a property has an accessory unit that does not comply with the is a unit in an attached condominium project, a legal non-conforming use is acceptable only jurisdiction’s zoning and land use requirements (illegal zoning compliance), the mortgaged if the jurisdiction in which the mortgaged premises is located allows the rebuilding of the premises may be eligible if the “Property with an Accessory Unit” requirements, improvements to current density in the event of partial or full destruction. subsequently presented in the “Improvements Section of the Appraisal Report” section, are  For properties with land use that is legal non-conforming, the appraisal report must reflect met. Mortgaged premises that are located in jurisdictions with no zoning are acceptable. any adverse effect the non-conforming use has on the opinion of market value.  If the mortgaged premises is a unit in an attached condominium project, a legal non-  A mortgage is ineligible for sale to Freddie Mac if the mortgage is secured by property that is conforming use is acceptable only if the jurisdiction in which the mortgaged premises is subject to coastal tideland, wetland or setback laws and/or regulations that prevent the located allows the rebuilding of the improvements to current density in the event of partial rebuilding or maintenance of the property improvements if they are damaged or destroyed. or full destruction.  For mortgaged premises with a land use that is legal non-conforming, the appraisal report must reflect any adverse effect the non-conforming use has on the opinion of market value.  A mortgage is ineligible for sale to Freddie Mac if the mortgage is secured by property that is subject to coastal tideland, wetland or setback laws and/or regulations that prevent the rebuilding or maintenance of the property improvements if they are damaged or destroyed.

Last Revision Date: 11/17/2017 (Correspondent) Page 1 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017

Section 1.07 Appraisal Guidelines Section 1.07 Appraisal Guidelines Appraisal Analysis: Agency Loan Programs / Improvements Section of the Appraisal Report Appraisal Analysis: Agency Loan Programs / Improvements Section of the Appraisal Report

Freddie Mac LPA Freddie Mac LPA Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows:

Note: Below is an EXCERPT only of the LPA guidelines outlined in the above referenced section. All other currently Note: Below is an EXCERPT only of the LPA guidelines outlined in the above referenced section. All other currently published guidelines remain the same. published guidelines remain the same.

 Accessory Units  Property with an Accessory Unit  A 1-unit detached property may have an incidental accessory unit that is incidental to the overall value  Freddie Mac will purchase an eligible mortgage on a 1-unit attached or detached property that has only and appearance of the subject property. Examples of such properties include a dwelling with a unit one accessory unit. A mortgage is eligible if the accessory unit is either legal or legal non-conforming above a detached garage, a dwelling with a guest apartment, or a dwelling with a basement unit. The based on the zoning and land use requirements, and any applicable covenants or restrictions including appraiser must describe the accessory unit, and analyze any effect on the value or marketability of the condominium project or planned unit development (PUD) homeowners association (HOA) subject property. requirements. If the accessory unit is illegal based on the zoning and land use requirements, a mortgage is eligible according to the requirements below. A mortgage secured by a 2- to 4-unit property with one References: or more accessory units is not eligible for purchase by Freddie Mac.  See “Rental Income From the Subject 1-unit Primary Residence” in the “Rental Income” subtopic  The accessory unit must include a kitchen and bathroom. Examples of such properties include a within Section 2.01 Agency Loan Programs of the Correspondent Seller Guide for additional dwelling with a unit above a detached garage, a dwelling with an attached or detached guest guidance. apartment, or a dwelling with a basement unit. Some characteristics that may indicate a 2-unit property  See the “Rental Income from a One-Unit Primary Residence with an Accessory Unit” subtopic rather than a 1-unit property with an accessory unit include the zoning and land use requirements, within Section 2.01a: Fannie Mae HomeReady® and Freddie Mac Home Possible® Mortgages for covenants or HOA requirements, the existence of separate meters, separate ingress/egress or separate additional guidance for Home Possible mortgage loans. addresses for the units.  For a 1-unit property with an accessory unit (legal or illegal zoning compliance) the appraiser must describe the accessory unit and appraise the property based on its current use. Any effect the accessory unit has on the market value or marketability of the subject property must be analyzed and reported.  If the subject property accessory unit complies with the zoning and land use requirements (legal or legal non-conforming zoning compliance), the appraisal report must include at least one comparable sale with only one accessory unit. The accessory unit of the comparable sale must also comply with the zoning and land use requirements to demonstrate the conformity and marketability of the subject property to its market area.  If the subject property accessory unit does not comply with the zoning and land use requirements, the mortgage is eligible if:  The "Site" section of the appraisal report indicates that the accessory unit does not comply with zoning and land use requirements (illegal zoning compliance)  At least two comparable sales with each having only one accessory unit must be included in the appraisal report. The accessory unit of each comparable sale must also be non-compliant with the zoning and land use requirements to demonstrate the conformity and marketability of the subject property to its market area; and  The lender confirms that the existence of the accessory unit will not jeopardize future hazard insurance claims

References:  See “Rental Income from the Subject 1-unit Primary Residence” in the “Rental Income” subtopic within Section 2.01 Agency Loan Programs of the Correspondent Seller Guide for additional guidance.  See the Rental Income from a One-Unit Primary Residence with an Accessory Unit” subtopic within Section 2.01a: Fannie Mae HomeReady® and Freddie Mac Home Possible® Mortgages for additional

Last Revision Date: 11/17/2017 (Correspondent) Page 2 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 guidance for Home Possible mortgage loans.

Section 1.07 Appraisal Guidelines Section 1.07 Appraisal Guidelines Appraisal Analysis: Agency Loan Programs / Comparable Sales Appraisal Analysis: Agency Loan Programs / Comparable Sales

Freddie Mac LPA Freddie Mac LPA Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows:  Selection of Comparable Sales and Analysis  Selection of Comparable Sales and Analysis  The appraiser must report a minimum of three comparable sales as part of the sales comparison  The appraiser must report a minimum of three comparable sales as part of the sales comparison approach. The appraiser may submit more than three comparable sales to justify and support his or her approach. The appraiser may submit more than three comparable sales to justify and support his or her opinion of market value, as long as at least three are actual settled or closed sales. Generally, the opinion of market value, as long as at least three are actual settled or closed sales. Generally, the appraiser should use comparable sales that have been settled or closed within the last 12 months. appraiser should use comparable sales that have been settled or closed within the last 12 months. However, the appraiser may use older comparable sales as additional supporting data as long as the However, the appraiser may use older comparable sales as additional supporting data as long as the appraiser can justify and support such use in the appraisal report. The appraiser must comment on the appraiser can justify and support such use in the appraisal report. The appraiser must comment on the reasons for using any comparable sales that are more than six months old. In addition, if the appraiser reasons for using any comparable sales that are more than six months old. In addition, if the appraiser believes that it is appropriate, he or she also may use contract sales (pending sales) and current listings believes that it is appropriate, he or she also may use contract sales (pending sales) and current listings as additional supporting market data, as long as at least three comparable sales are actual settled or as additional supporting market data, as long as at least three comparable sales are actual settled or closed sales. closed dates.  Each comparable sale that is used in the sales comparison approach must be analyzed for differences  Each comparable sale that is used in the sales comparison approach must be analyzed for differences and similarities between it and the property that is being appraised. The appraiser must make and similarities between it and the property that is being appraised. The appraiser must make appropriate adjustments for location, terms and conditions of sale, date of sale, and the physical appropriate adjustments for location, terms and conditions of sale, date of sale, and the physical characteristics of the properties. The proper selection of comparable properties minimizes both the characteristics of the properties. The proper selection of comparable properties minimizes both the need for, and the size of, any price adjustments. need for, and the size of, any price adjustments.  Requirements for properties in established subdivisions, units in established Planned Unit  Requirements for properties in established subdivisions, units in established Planned Unit Developments (PUDs) or units in Established Condominium Projects Developments (PUDs) or units in Established Condominium Projects  For properties located in established subdivisions, units in established PUDs or units in Established  For properties located in established subdivisions, units in established PUDs or units in Established Condominium Projects, the appraiser should use comparable sales from within the subject Condominium Projects, the appraiser should use comparable sales from within the subject subdivision or project. subdivision or project.  Requirements for properties in new subdivisions, units in new PUDs or units in recently converted or  Requirements for properties in new subdivisions, units in new PUDs or units in recently converted or New Condominium Projects New Condominium Projects  For properties located in new subdivisions, units in new PUDs or units in recently converted or  For properties located in new subdivisions, units in new PUDs or units in recently converted or New Condominium Projects, the appraiser must use comparable sales from within the subject New Condominium Projects, the appraiser must use comparable sales from within the subject subdivision or project as well as comparable sales in other subdivisions or projects to help subdivision or project as well as comparable sales in other subdivisions or projects to help demonstrate the marketability of new developments or recently converted projects and the demonstrate the marketability of new developments or recently converted projects and the market value of the property. market value of the property.  The appraiser must use:  The appraiser must use:  One comparable sale from inside the subject subdivision or project  One comparable sale from inside the subject subdivision or project  One comparable sale from outside the subject subdivision or project, and  One comparable sale from outside the subject subdivision or project, and  One comparable sale from inside or outside the subject subdivision or project  One comparable sale from inside or outside the subject subdivision or project  If there are no settled or closed comparable sales from inside the subject subdivision or project,  If there are no settled or closed comparable sales from inside the subject subdivision or project, contract sales (pending sales) from inside the subject subdivision or project are acceptable, as long contract sales (pending sales) from inside the subject subdivision or project are acceptable, as long as three comparable sales are actual settled or closed sales. as three comparable sales are actual settled or closed sales.  The comparable sale from inside the subject subdivision or project can be a sale by the builder or  The comparable sale from inside the subject subdivision or project can be a sale by the builder or developer of the subject property. developer of the subject property.  Comparable sales that are resales from within the subject subdivision or project are preferable to  Comparable sales that are resales from within the subject subdivision or project are preferable to comparable sales from outside the subdivision or project provided the builder or developer of the comparable sales from outside the subdivision or project provided the builder or developer of the subject property is not involved in the sale transaction. At a minimum, at least two comparable sales subject property is not involved in the sale transaction. At a minimum, at least two comparable

Last Revision Date: 11/17/2017 (Correspondent) Page 3 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 must be outside the influence of the builder or developer of the subject property. sales must be outside the influence of the builder or developer of the subject property.  Additional Requirements for Condominium Units  Additional Requirements for Condominium Units  The appraiser must report the project name, the assessments, including special assessments and  The appraiser must report the project name, the assessments, including special assessments and the property rights for each comparable sale and must compare them to the subject project. The the property rights for each comparable sale and must compare them to the subject project. The appraiser must also identify the common elements including the amenities available to the unit appraiser must also identify the common elements including the amenities available to the unit owners, comment on their condition and analyze how they compare to the common elements and owners, comment on their condition and analyze how they compare to the common elements and amenities of competing projects. Comparable sales must be from condominium projects in the amenities of competing projects. same market, be similar to the subject project and compete for the same purchasers.  Comparable sales must be from condominium projects in the same market, be similar to the  Additional Requirements for Units in Detached Condominium Projects subject project and compete for the same purchasers.  The appraiser must use similar detached condominium comparable sales from the same project or  Additional Requirements for Units in Detached Condominium Projects from similar detached condominium projects in the same market area. The appraiser may use  The appraiser must use similar detached condominium comparable sales from the same project or detached comparable sales that are not located in a condominium project only if the appraiser from similar detached condominium projects in the same market area. The appraiser may use supports the use of such sales in the appraisal report and reflects any effect that the condominium detached comparable sales that are not located in a condominium project only if the appraiser form of ownership has on the market value and marketability of the subject property. supports the use of such sales in the appraisal report and reflects any effect that the condominium  Additional Requirements for 2- to 4-Unit Properties form of ownership has on the market value and marketability of the subject property.  In addition to the other requirements and guidelines set forth in this section, the following  Additional Requirements for 2- to 4-Unit Properties requirements and guidelines are applicable to completing Form 72, Small Residential Income  In addition to the other requirements and guidelines set forth in this section, the following Property Appraisal Report, for 2- to 4-unit properties. requirements and guidelines are applicable to completing Form 72, Small Residential Income  Comparable Rent Data for 2- to 4-unit Properties Property Appraisal Report, for 2- to 4-unit properties.  At least three rental comparables must be analyzed in the "comparable rental data"  Comparable Rent Data for 2- to 4-unit Properties section. These rental comparables must:  At least three rental comparables must be analyzed in the "comparable rental data"  Have current rental information section. These rental comparables must:  Be units similar to and located near the subject property  Have current rental information  The rental comparables are usually not the same comparable properties used in the  Be units similar to and located near the subject property sales comparison approach. The appraisal report should state that the units and  The rental comparables are usually not the same comparable properties used in the properties selected as rental comparables are comparable to the subject property sales comparison approach. The appraisal report should state that the units and (both the units and the overall property) and should accurately represent the rental properties selected as rental comparables are comparable to the subject property market for the subject property unless otherwise stated in the report. (both the units and the overall property) and should accurately represent the rental  The lender should be aware that there are varying conditions that characterize different types of market for the subject property unless otherwise stated in the report. locations. Conditions that are typical of certain locations may not be present in other locales. This does  Requirements for a 1-Unit Property with an Accessory Unit (Legal or Legal Non-Conforming Zoning not mean that the conditions are unacceptable, rather that they must be viewed in context with the Compliance) nature of the area in which the mortgaged premises is located.  The appraiser must include at least one comparable sale with only one accessory unit. The For example: accessory unit of the comparable sale must also comply with the zoning and land use  When the mortgaged premises is located in a suburban or urban area, the appraiser would most requirements to demonstrate the conformity and marketability of the subject property to its likely use comparable sales in the immediate vicinity of the property since suburban and urban market area. areas are usually more densely developed and comparable sales are typically available in the  Requirements for a 1-Unit Property with an Accessory Unit (Illegal Zoning Compliance) subject neighborhood.  The appraiser must include at least two comparable sales with each having only one accessory  Rural areas often have less real estate sales activity than more populated locations. Property unit. The accessory unit of each comparable sale must also be non-compliant with the zoning and sales in rural locations often involve a variety of property types, and may have relatively large land use requirements to demonstrate the conformity and marketability of the subject property to parcels as compared to other locations. Given the potential challenges with appraising properties its market area. in these market areas, the appraiser must be knowledgeable about the varying conditions that  The lender should be aware that there are varying conditions that characterize different types of characterize properties in a particular geographic area. In such cases, appraisers may have to use locations. Conditions that are typical of certain locations may not be present in other locales. This does older comparable sales, comparable sales that are located a considerable distance from the not mean that the conditions are unacceptable, rather that they must be viewed in context with the subject property or comparable sales that are not similar to the subject property. The appraiser nature of the area in which the mortgaged premises is located. must justify and support such use in the appraisal report. For example:  Mortgages secured by non-traditional types of properties are eligible for delivery to Freddie Mac. The  When the mortgaged premises is located in a suburban or urban area, the appraiser would most appraiser may use traditional homes as comparable sales for unique properties as long as the appraiser likely use comparable sales in the immediate vicinity of the property since suburban and urban determines and adjusts for any differences between the subject property and the comparable sales and areas are usually more densely developed and comparable sales are typically available in the Last Revision Date: 11/17/2017 (Correspondent) Page 4 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 can justify and support the use of the comparable sales in the appraisal report. Occasionally, there may subject neighborhood. be no similar or truly comparable sales for a particular property because of the uniqueness of the  Rural areas often have less real estate sales activity than more populated locations. Property sales property or other conditions. In such cases, the appraiser must use his or her knowledge and judgment in rural locations often involve a variety of property types, and may have relatively large parcels as to select comparable sales that represent the best indicators of value for the subject property to reflect compared to other locations. Given the potential challenges with appraising properties in these the actions of typical purchasers in the market. market areas, the appraiser must be knowledgeable about the varying conditions that characterize  In addition, comparable sales may be taken from a competing neighborhood if: properties in a particular geographic area. In such cases, appraisers may have to use older  The appraiser has established that the neighborhoods are comparable and compete for the same comparable sales, comparable sales that are located a considerable distance from the subject buyers, and property or comparable sales that are not similar to the subject property. The appraiser must  Comparable sales taken from the competing neighborhood are better indicators of current market justify and support such use in the appraisal report. trends in the subject neighborhood than the existing comparable sales available in the subject neighborhood.  Mortgages secured by non-traditional types of properties are eligible for delivery to Freddie Mac. The appraiser may use traditional homes as comparable sales for unique properties as long as the appraiser determines and adjusts for any differences between the subject property and the comparable sales and can justify and support the use of the comparable sales in the appraisal report. Occasionally, there may be no similar or truly comparable sales for a particular property because of the uniqueness of the property or other conditions. In such cases, the appraiser must use his or her knowledge and judgment to select comparable sales that represent the best indicators of value for the subject property to reflect the actions of typical purchasers in the market.  In addition, comparable sales may be taken from a competing neighborhood if:  The appraiser has established that the neighborhoods are comparable and compete for the same buyers, and  Comparable sales taken from the competing neighborhood are better indicators of current market trends in the subject neighborhood than the existing comparable sales available in the subject neighborhood.

Section 2.01 Agency Loan Programs-Guideline Section 2.01 Agency Loan Programs-Guideline Appraisal Requirements / General Property Eligibility Requirements Appraisal Requirements / General Property Eligibility Requirements

Freddie Mac LPA Freddie Mac LPA Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows:  Freddie Mac will purchase eligible mortgages secured by residential properties in urban, suburban and rural  Freddie Mac will purchase eligible mortgages secured by residential properties in urban, suburban and rural market areas as long as the mortgaged premises is adequate collateral for the mortgage transaction based on market areas as long as the mortgaged premises is adequate collateral for the mortgage transaction based on the value, condition and marketability of the property. the value, condition and marketability of the property.  The mortgaged premises must:  The mortgaged premises must:  Be primarily residential in nature based on the characteristics of the property and neighboring market  Be primarily residential in nature based on the characteristics of the property and neighboring market area area  Be an attached or detached dwelling unit(s) located on an individual lot, in a Planned Unit Development  Be an attached or detached dwelling unit(s) located on an individual lot, in a Planned Unit Development (PUD) or in a Condominium Project. or in a Condominium Project.  Be safe, sound and structurally secure  Be safe, sound and structurally secure  Be complete unless the requirements outlined in the “Postponed Improvements” subtopic are met  Be complete unless the requirements outlined in the “Postponed Improvements” subtopic are met  Represent the highest and best use of the property as improved (or as proposed per plans and  Represent the highest and best use of the property as improved (or as proposed per plans and specifications) specifications)  Have an eligible zoning compliance  Have a legal or legal non-conforming use  Have legal access (ingress and egress)  Have legal access (ingress and egress)  Be suitable for year-round occupancy regardless of the location  Be suitable for year-round occupancy regardless of the location  Have utilities that meet community standards  Have utilities that meet community standards  Have mechanical systems that meet community standards

Last Revision Date: 11/17/2017 (Correspondent) Page 5 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017  Have mechanical systems that meet community standards  Have property insurance coverage that meets the requirements and coverage for hazards specific to the  Have property insurance coverage that meets the requirements and coverage for hazards specific to the location of the property location of the property  Not be subject to a pending legal proceeding for condemnation in whole or in part  Not be subject to a pending legal proceeding for condemnation in whole or in part

Boarder Correspondent  Standard Income / Boarder Income Income / Boarder Income Income Section 2.01 Agency Agency Loan (LPA) Freddie Mac LPA Freddie Mac LPA Programs-  Agency Plus  Follow LPA requirements, which are as follows. The requirements apply for streamlined accept and standard See “Rental Income from the Borrower's 1-unit Primary Residence” in the “Rental Income” subtopic subsequently Guideline (LPA) documentation. outlined in this document for guidance.  Home  Rental income generated from a borrower's 1-unit primary residence may be used to qualify a borrower Possible® with a disability if the rental income is from a live-in aide. Typically, a live-in aide will receive room and Mortgage board payments through Medicaid waiver funds from which rental payments are made to the borrower. (LPA)  This income source may be considered stable monthly income if:  The borrower has received rental payments from a live-in aide for the past 12 months on a regular basis, and  The live-in aide plans to continue to reside with the borrower for the foreseeable future  The rental income may be considered in an amount up to 30% of the total gross income that is used to qualify the borrower for the mortgage.  Rental income generated from the borrower's second home or 1-unit primary residence other than as provided for above is not considered stable monthly income and may not be used to qualify the borrower.

Form 998, Correspondent  Standard Section 1.07 Appraisal Guidelines Section 1.07 Appraisal Guidelines Operating Section 1.07 Agency Overview / Guideline Summary Overview / Guideline Summary Income Appraisal (non-AUS, Note: Below is an EXCERPT only of the guidelines outlined in the above referenced section. All other currently Note: Below is an EXCERPT only of the guidelines outlined in the above referenced section. All other currently Statement / Guidelines DU & LPA) published guidelines remain the same. published guidelines remain the same. Form 1000,  Agency Plus Single Family & (DU & LPA)  All conventional and supplemental appraisal reports must meet Appraiser Independence Requirements.  All conventional and supplemental appraisal reports must meet Appraiser Independence Requirements. Comparable  Fannie Mae Rent Correspondent DU Refi Note: Supplemental appraisal reports include: Note: Supplemental appraisal reports include: Schedule Section 2.01 Plus™  1004D/442 Appraisal Update and/or Completion Report  1004D/442 Appraisal Update and/or Completion Report Agency Loan  1007/100 Single Family Comparable Rent Schedule  1007/1000 Single Family Comparable Rent Schedule Programs-  216/998 Operating Income Statement  216/998 Operating Income Statement Guideline  HUD 92051 Compliance Inspection Report  HUD 92051 Compliance Inspection Report

Section 1.07 Appraisal Guidelines Section 1.07 Appraisal Guidelines Appraisal Reports and Exhibits Appraisal Reports and Exhibits Operating Income Statement (Fannie Mae Form 216/Freddie Mac Form 98) AND Single-Family Comparable Rent Single-Family Comparable Rent Schedule (Fannie Mae Form 1007/Freddie Mac Form 1000) Schedule (Fannie Mae Form 1007) Agency Loan Programs  An Operating Income Statement (Fannie Mae Form 216/Freddie Mac Form 98) is required for investment  Non-AUS property, including a 2-4 unit in which the borrower occupies one unit as a principal residence, regardless of  A Single-Family Comparable Rent Schedule (Fannie Mae Form 1007) is required if the property is a one- whether the income is being used to qualify. unit investment property and the borrower is using rental income to qualify. Otherwise, Form 1007 is  The form may be prepared by the borrower or appraiser, provided the following: not required. (The lender may obtain this form for the purpose of reporting gross monthly rent at  When the borrower prepares the Operating Income Statement, the appraiser’s comments on the delivery.) reasonableness of the projected operating income must be included on the form. Last Revision Date: 11/17/2017 (Correspondent) Page 6 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017  When the appraiser prepares the Operating Income Statement, the borrower must supply the  Fannie Mae DU necessary expense related statements (mortgage insurance premiums, HOA dues, leasehold payments,  Follow DU requirements, which are the same as non-AUS guidelines. any subordinate financing payments, and any other pertinent information related to the property) for the appraiser.  Freddie Mac LPA  Follow LPA requirements, which are as follows:  A Single-Family Comparable Rent Schedule (Fannie Mae Form 1007) is required if the property is a single-  A Single-Family Comparable Rent Schedule (Freddie Mac Form 1000) is required if the property is a family investment property. one-unit investment property and the borrower is using rental income to qualify. Otherwise, Form  The lender must ensure that the appraiser has operating statements; expense statements related to 1000 is not required. (If there is no active lease for a unit, or the borrower rents the unit to a mortgage insurance premiums, homeowner’s association dues, leasehold payments, or subordinate financing family member, the lender may use Form 1000 for the purpose of reporting gross monthly rent at payments; and any other pertinent information related to the property. delivery.)

Non-Agency Loan Programs  An Operating Income Statement (Fannie Mae Form 216/Freddie Mac Form 98) is required for investment property, including a 2-4 unit in which the borrower occupies one unit as a principal residence, regardless of whether the income is being used to qualify.  The form may be prepared by the borrower or appraiser, provided the following:  When the borrower prepares the Operating Income Statement, the appraiser’s comments on the reasonableness of the projected operating income must be included on the form.  When the appraiser prepares the Operating Income Statement, the borrower must supply the necessary expense related statements (mortgage insurance premiums, HOA dues, leasehold payments, any subordinate financing payments, and any other pertinent information related to the property) for the appraiser.  A Single-Family Comparable Rent Schedule (Fannie Mae Form 1007) is required if the property is a single- family investment property.  The lender must ensure that the appraiser has operating statements; expense statements related to mortgage insurance premiums, homeowner’s association dues, leasehold payments, or subordinate financing payments; and any other pertinent information related to the property.

Section 2.01 Agency Loan Programs-Guideline Section 2.01 Agency Loan Programs-Guideline Appraisal Requirements Appraisal Requirements Fannie Mae Form 216/Freddie Mac Form 998 (Operating Income Statement) Fannie Mae Form 216/Freddie Mac Form 998 (Operating Income Statement)

The following table shows information on the Fannie Mae Form 216/Freddie Mac Form 998 (Operating Income Note: The above referenced subtopic is being removed in its entirety. Both forms have been retired by the GSEs. Statement).

Non-AUS  An Operating Income Statement is required for investment property, including a 2-4 unit in which the borrower occupies one unit as a principal residence, regardless of whether the income is being used to qualify.  The form may be prepared by the borrower or appraiser, provided the following:  When the borrower prepares the Operating Income Statement, the appraiser’s comments on the reasonableness of the projected operating income must be included on the form.  When the appraiser prepares the Operating Income Statement, the borrower must supply the necessary expense related statements (mortgage insurance premiums, HOA dues, leasehold payments, any subordinate financing payments, and any other pertinent information related to the property) for the appraiser.  Lenders must report the gross monthly rent at delivery for each non-owner occupied unit in 2-4 unit primary

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Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 residence and for each unit in a 1-4 unit investment property even when the borrower is NOT utilizing rental income to qualify. Lenders have the option of obtaining an Operating Income Statement (Fannie Mae Form 216/Freddie Mac Form 998) to meet this requirement.

Reference: See the Primary Residences and Investment Properties subtopics previously presented in the Occupancy/Property Types topic for additional information regarding gross monthly rent documentation requirements when rental income is NOT being used for qualification.

Fannie Mae DU For 2-4 unit primary residences and 1-4 unit investment properties, Form 216 is NOT required. However, since lenders must report the gross monthly rent at delivery for each non-owner occupied unit in 2-4 unit primary residence and for each unit in a 1-4 unit investment property even when the borrower is NOT utilizing rental income to qualify, lenders have the option of obtaining an Operating Income Statement (Fannie Mae Form 216) to meet this requirement.

Reference: See the Primary Residences and Investment Properties subtopics previously presented in the Occupancy/Property Types topic for additional information regarding gross monthly rent documentation requirements when rental income is NOT being used for qualification.

Freddie Mac LP Non-AUS guidelines apply.

Section 2.01 Agency Loan Programs-Guideline Section 2.01 Agency Loan Programs-Guideline Appraisal Requirements Appraisal Requirements Fannie Mae Form 1007(Single Family Comparable Rent Schedule) Fannie Mae Form 1007 / Freddie Mac Form 1000 (Single Family Comparable Rent Schedule)

Non-AUS Reference: See the Agency loan programs specific guidance outlined in the “Single-Family Comparable Rent  This form is used on one-unit investment properties. Schedule (Fannie Mae Form 1007/Freddie Mac Form 1000)” subtopic in the “Appraisal Reports and Exhibits” topic  It is not required if rental income on the subject property is not used to qualify the borrower. However, since within Section 1.07: Appraisal Guidelines for guidance. lenders must report the gross monthly rent at delivery even when the borrower is NOT utilizing rental income to qualify, lenders have the option of obtaining a Single Family Comparable Rent Schedule (Fannie Mae Form 1007) to meet this requirement.

Reference: See the Primary Residences and Investment Properties subtopics previously presented in the Occupancy/Property Types topic for additional information regarding gross monthly rent documentation requirements when rental income is NOT being used for qualification.

Fannie Mae DU Non-AUS guidelines apply.

Freddie Mac LP The Single-Family Comparable Rent Schedule is not required for a LP transaction.

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Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 Investment Correspondent  Standard Loan Terms / Agency Maximum LTV/TLTV/HTLTV Ratio Requirements Loan Terms / Agency Maximum LTV/TLTV/HTLTV Ratio Requirements Properties Section 2.01 Agency Agency Loan (LPA) Agency Agency Programs-  Agency Plus Investment Property – 3/1, 5/1, 7/1, and 10/1 LIBOR ARMs Investment Property – 3/1, 5/1, 7/1, and 10/1 LIBOR ARMs Terms 10-30 Years for 3/1, 5/1, and 7/1 ARMs; 15-30 Years for 10/1 ARMs Terms 10-30 Years for 3/1, 5/1, and 7/1 ARMs; 15-30 Years for 10/1 ARMs Guideline (LPA) Purpose # of LTV/TLTV/HTLTV LTV/TLTV/HTLTV LTV/TLTV/HTLTV for LPA Purpose # of LTV/TLTV/HTLTV LTV/TLTV/HTLTV LTV/TLTV/HTLTV 1,2 1,2 Units for Non-AUS Loans for DU Loans Loans Units for Non-AUS Loans for DU Loans for LPA Loans Purchase 1 85%/85%/85% 85%/85%/85% 85%/85%/85% Purchase 1 85%/85%/85% 85%/85%/85% 85%/85%/85% 2 75%/75%/75% 75%/75%/75% 75%/75%/75% 2 75%/75%/75% 75%/75%/75% 75%/75%/75% 3 75%/75%/75% 75%/75%/75% 75%/75%/75% 3 75%/75%/75% 75%/75%/75% 75%/75%/75% 4 75%/75%/75% 75%/75%/75% 75%/75%/75% 4 75%/75%/75% 75%/75%/75% 75%/75%/75%

Limited 1 75%/75%/75% 75%/75%/75% 85%/85%/85% Limited 1 75%/75%/75% 75%/75%/75% 85%/85%/85% Cash-Out 2 75%/75%/75% 75%/75%/75% 75%/75%/75% Cash-Out 2 75%/75%/75% 75%/75%/75% 75%/75%/75% Refinance 3 75%/75%/75% 75%/75%/75% 75%/75%/75% Refinance 3 75%/75%/75% 75%/75%/75% 75%/75%/75% (Rate/ 4 75%/75%/75% 75%/75%/75% 75%/75%/75% (Rate/ 4 75%/75%/75% 75%/75%/75% 75%/75%/75% Term) Term) Cash-Out 1 75%/75%/75% 75%/75%/75% 75%/75%/75% Cash-Out 1 75%/75%/75% 75%/75%/75% 75%/75%/75% Refinance 2 70%/70%/70% 70%/70%/70% 70%/70%/70% Refinance 2 70%/70%/70% 70%/70%/70% 70%/70%/70% 3 70%/70%/70% 70%/70%/70% 70%/70%/70% 3 70%/70%/70% 70%/70%/70% 70%/70%/70% 4 70%/70%/70% 70%/70%/70% 70%/70%/70% 4 70%/70%/70% 70%/70%/70% 70%/70%/70%

1.5/1 ARMs with 5/2/5 caps are not eligible for LPA loans. 1.5/1 ARMs with 5/2/5 caps are not eligible for LPA loans. 2 If borrower owns more than one investment property, the loan is not eligible for financing as an Agency 3/1 or 5/1 2 If borrower owns more than one financed investment property, the loan is not eligible for financing as an Agency 3/1 or ARM. 5/1 ARM.

Loan Terms / Agency Plus Maximum LTV/TLTV/HTLTV Ratio Requirements Loan Terms / Agency Plus Maximum LTV/TLTV/HTLTV Ratio Requirements

Agency Plus Agency Plus Investment Property - 5/1, 7/1 & 10/1 LIBOR ARMs Investment Property - 5/1, 7/1 & 10/1 LIBOR ARMs Terms 10-30 Years for 5/1 and 7/1 ARMs; 15-30 Years for 10/1 ARMs Terms 10-30 Years for 5/1 and 7/1 ARMs; 15-30 Years for 10/1 ARMs Purpose # of LTV/TLTV/HTLTV LTV/TLTV/HTLTV LTV/TLTV/HTLTV Purpose # of LTV/TLTV/HTLTV LTV/TLTV/HTLTV LTV/TLTV/HTLTV Units for Non-AUS Loans for DU Loans for LPA Loans1, 2 Units for Non-AUS Loans for DU Loans for LPA Loans1, 2 Purchase 1 Not Eligible 85%/85%/85% 85%/85%/85% Purchase 1 Not Eligible 85%/85%/85% 85%/85%/85% 2 Not Eligible 75%/75%/75% 75%/75%/75% 2 Not Eligible 75%/75%/75% 75%/75%/75% 3 Not Eligible 75%/75%/75% 75%/75%/75% 3 Not Eligible 75%/75%/75% 75%/75%/75% 4 Not Eligible 75%/75%/75% 75%/75%/75% 4 Not Eligible 75%/75%/75% 75%/75%/75% Limited 1 Not Eligible 75%/75%/75% 85%/85%/85% Limited 1 Not Eligible 75%/75%/75% 85%/85%/85% Cash-Out 2 Not Eligible 75%/75%/75% 75%/75%/75% Cash-Out 2 Not Eligible 75%/75%/75% 75%/75%/75% Refinance 3 Not Eligible 75%/75%/75% 75%/75%/75% Refinance 3 Not Eligible 75%/75%/75% 75%/75%/75% (Rate/ 4 Not Eligible 75%/75%/75% 75%/75%/75% (Rate/ 4 Not Eligible 75%/75%/75% 75%/75%/75% Term) Term) 1 Not Eligible 75%/75%/75% 75%/75%/75% 1 Not Eligible 75%/75%/75% 75%/75%/75% Cash-Out Cash-Out Refinance 2 Not Eligible 70%/70%/70% 70%/70%/70% Refinance 2 Not Eligible 70%/70%/70% 70%/70%/70% 3 Not Eligible 70%/70%/70% 70%/70%/70% 3 Not Eligible 70%/70%/70% 70%/70%/70% 4 Not Eligible 70%/70%/70% 70%/70%/70% 4 Not Eligible 70%/70%/70% 70%/70%/70% 1 5/1 ARMs with 5/2/5 caps are not eligible for LPA loans. 1 5/1 ARMs with 5/2/5 caps are not eligible for LPA loans. 2 If the borrower owns more than one investment property, the loan is not eligible for financing as a 5/1 ARM. 2 If the borrower owns more than one financed investment property, the loan is not eligible for financing as a 5/1 ARM.

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Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017

Occupancy/Property Types Occupancy/Property Types Investment Properties Investment Properties

Freddie Mac LP Freddie Mac LPA  Follow LP requirements, which are noted below: Follow LPA requirements, which are as follows:  For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or  For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or related to the builder, developer or property seller. related to the builder, developer, or property seller.  If the borrower owns more than one (1) investment property, the loan must be a fixed rate or 7/1 or  If the borrower owns more than one financed investment property, the loan must be a fixed rate or 7/1 or 10/1 ARM (3/1 and 5/1 ARMs are not eligible). 10/1 ARM (3/1 and 5/1 ARMs are not eligible).  The lender must deliver the ULDD Data Point Property Dwelling Unit Eligible Rent Amount for each 1-  The monthly housing expense related to the borrower's current primary residence must be used in unit investment property and each unit in a 2- to 4-unit investment property regardless of whether calculating the borrower's monthly housing expense-to-income ratio. rental income from the subject investment property is being used to qualify the borrower.  Regardless of whether rental income from the mortgaged premises is used in qualifying, the reserves  Enter the gross monthly rental income for each non-owner-occupied unit as indicated on the requirements outlined in the applicable first mortgage product description must be met. signed lease(s) for the mortgaged premises; or if there is no active lease for a unit, or the  Gift funds, gifts of equity or grants are not permitted. borrower rents the unit to a family member, enter the gross monthly rental income as estimated  Regardless of whether rental income from the subject investment property is being used to qualify the on the applicable appraisal report or addendum. borrower, the lender must deliver the ULDD Data Point Property Dwelling Unit Eligible Rent Amount for the subject 1-unit investment property and each unit in a subject 2- to -4 unit investment property.  Enter the gross monthly rental income for each unit as indicated on the signed lease(s) for the mortgaged premises. If there is no active lease for a unit, or the borrower rents the unit to a family member, enter the gross monthly rental income as estimated on the applicable appraisal report or addenda.

Reference: See the “Rental Income” subtopic subsequently presented in this document for requirements related to rental income.

Primary Correspondent  Standard Occupancy/Property Types Occupancy/Property Types Residences Section 2.01 Agency Primary Residences Primary Residences Agency Loan (LPA) Programs-  Agency Plus Freddie Mac LPA Freddie Mac LPA Guideline (LPA)  Follow LPA requirements, which are noted below: Follow LPA requirements, which are as follows:  Mortgaged premises purchased or refinanced by a borrower for an individual as described below will be  Mortgaged premises purchased or refinanced by a borrower for an individual as described below will be considered to be a primary residence for all purposes, subject to the following provisions: considered to be a primary residence for all purposes, subject to the following provisions:  The mortgage must comply with the provisions of one of the following:  The mortgage must comply with the provisions of one of the following:  the borrower is the parent(s), conservator or guardian of an individual with a physical  the borrower is the parent(s), conservator or guardian of an individual with a physical handicap or handicap or developmental disability or a person acting as attorney-in-fact pursuant to a developmental disability or a person acting as attorney-in-fact pursuant to a power granted by the power granted by the Individual and purchases or refinances the mortgaged premises as the Individual and purchases or refinances the mortgaged premises as the primary residence for such primary residence for such individual. The individual may be unable to work or may have individual. The individual may be unable to work or may have income that is not sufficient for income that is not sufficient for him/her to qualify for a mortgage on his/her own. him/her to qualify for a mortgage on his/her own.  For purchase money transactions, the individual need not be an applicant for the  For purchase money transactions, the individual need not be an applicant for the mortgage mortgage loan and need not sign the note. loan and need not sign the note.  For refinance transactions, at least one of the borrower(s) on the mortgage being  For refinance transactions, at least one of the borrower(s) on the mortgage being refinanced, or a person legally authorized to act and sign on that borrower’s behalf, refinanced, or a person legally authorized to act and sign on that borrower’s behalf, must must also be a borrower on the new refinance transaction secured by the subject also be a borrower on the new refinance transaction secured by the subject property. property.  Or, the borrower is the adult child (or children), conservator, or guardian of elderly individual(s) or  Or, the borrower is the adult child (or children), conservator, or guardian of elderly person acting as attorney-in-fact pursuant to a power of attorney granted by the elderly individual(s) or person acting as attorney-in-fact pursuant to a power of attorney granted by individual(s) and purchases or refinances the mortgaged premises as the primary residence for the elderly individual(s) and purchases or refinances the mortgaged premises as the primary such elderly individual(s). The elderly individual(s) may be unable to work or may have income

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Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 residence for such elderly individual(s). The elderly individual(s) may be unable to work or that is not sufficient for him/her to qualify for a mortgage on his/her own. may have income that is not sufficient for him/her to qualify for a mortgage on his/her own.  For purchase money transactions, the elderly individual(s) need not be an applicant for the  For purchase money transactions, the elderly individual(s) need not be an applicant for mortgage loan and need not sign the note. the mortgage loan and need not sign the note.  For refinance transactions, at least one of the borrower(s) on the mortgage being  For refinance transactions, at least one of the borrower(s) on the mortgage being refinanced, or a person legally authorized to act and sign on that borrower’s behalf, must refinanced, or a person legally authorized to act and sign on that borrower’s behalf, also be a borrower on the new refinance transaction secured by the subject property. must also be a borrower on the new refinance transaction secured by the subject  the mortgage must be secured by a 1‐unit property, property.  the mortgage must be included in the calculation of the number of financed properties that are owned  the mortgage must be secured by a 1‐unit property, by borrower,  the mortgage must be included in the calculation of the number of financed properties that  the borrower must not own more than one property that is considered a primary residence pursuant to are owned by borrower, the provisions of this section, and  the borrower must not own more than one property that is considered a primary residence  For SunTrust Internal Employees Only: Use SFC H32 to indicate primary residence purchased for child pursuant to the provisions of this section, and or parent.  For SunTrust Internal Employees Only: Use SFC H32 to indicate primary residence  Regardless of whether rental income is used in qualifying the borrower, the ULDD Data Point Property purchased for child or parent. Dwelling Unit Eligible Rent Amount for each non‐owner occupied unit in a 2‐ to 4‐unit primary residence must  Regardless of whether rental income is used in qualifying the borrower, the ULDD Data Point Property be delivered. Dwelling Unit Eligible Rent Amount for each non-owner occupied unit in a 2- to 4-unit primary residence  Enter the gross monthly rental income for each non‐owner‐occupied unit as indicated on the signed must be delivered. lease(s) for the mortgaged premises. If there is no active lease for a unit, or the borrower rents the unit  Enter the gross monthly rental income for each non-owner-occupied unit as indicated on the to a family member, enter the gross monthly rental income as estimated on the applicable appraisal signed lease(s) for the Mortgaged Premises; or if there is no active lease for a unit, or the report or addenda. borrower rents the unit to a family member, enter the gross monthly rental income as estimated on the applicable appraisal report or addendum.

Qualifying Correspondent  Standard Liabilities and Qualifying Ratios Liabilities and Qualifying Ratios Ratios Section 2.01 Agency Qualifying Ratios Qualifying Ratios Agency Loan (LPA) Programs-  Agency Plus Freddie Mac LPA Freddie Mac LPA Guideline (LPA) Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows:  Home  Monthly housing expense-to-income ratio  Monthly housing expense-to-income ratio Possible®  The monthly housing expense is the sum of the following monthly charges on the borrower's primary  The monthly housing expense is the sum of the following monthly charges on the borrower's primary Mortgage residence: residence: (LPA)  Principal and interest payments on the mortgage  Principal and interest payments on the mortgage  Property hazard insurance premiums  Property hazard insurance premiums  Real estate taxes  Real estate taxes  When applicable:  When applicable:  Mortgage insurance premiums  Mortgage insurance premiums  Leasehold payments  Leasehold payments  Homeowners association dues (excluding unit utility charges)  Homeowners association dues (excluding unit utility charges)  Payments on secondary financing  Payments on secondary financing

 Monthly debt payment-to-income ratio  Monthly debt payment-to-income ratio  The monthly debt payment is the sum of the monthly charges for the following liabilities:  The monthly debt payment is the sum of the monthly charges for the following liabilities:  Monthly housing expense  Monthly housing expense  Payments on all installment debts with more than 10 months of payments remaining, including  Payments on all installment debts with more than 10 months of payments remaining, including debts that are in a period of either deferment or forbearance. debts that are in a period of either deferment or forbearance.  Alimony, child support or maintenance payments with more than 10 months of payments  Alimony, child support or maintenance payments with more than 10 months of payments remaining remaining  Monthly payments on revolving or open-end accounts (regardless of the balance).  Monthly payments on revolving or open-end accounts (regardless of the balance).  Monthly lease payments, regardless of the number of payments remaining, with the exception of  Monthly lease payments, regardless of the number of payments remaining, with the exception of Last Revision Date: 11/17/2017 (Correspondent) Page 11 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 payments for solar panels subject to a lease agreement, power purchase agreement (PPA) or payments for solar panels subject to a lease agreement, power purchase agreement (PPA) or similar type of agreement that meets guideline requirements similar type of agreement that meets guideline requirements  Aggregate net rental loss from all investment properties owned  Monthly payment amounts for properties for which rental income is being considered for  Monthly payment amounts for other properties, including principal and interest on the First Lien qualification purposes and any secondary financing, taxes and insurance and, when applicable, mortgage insurance premiums, leasehold payments, homeowners association dues (excluding unit utility charges) References:  See the “Rental Income” subtopic previously presented in this document for requirements Note: For investment property mortgages, if rental income is not used for qualifying, the monthly with respect to treatment of debt when using rental income. payment amount (as described above) for the mortgaged premises plus operating expenses must  See the “Self-Employment Income” subtopic previously presented in this document for be used in calculating the monthly debt payment-to-income ratio. requirements with respect to treatment of debt when all rental income and expenses are reported on IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S  The borrower's liabilities must be reflected on the mortgage application (Form 65, Uniform Residential Corporation. Loan Application) and considered when qualifying the borrower. Lenders must review the mortgage application, credit report, borrower's paystubs (if provided) and other file documentation for borrower  Monthly payment amounts for other properties, including principal and interest on the first lien liabilities. All of the borrower's debts incurred through the note date must be considered when and any secondary financing, taxes and insurance and, when applicable, mortgage insurance qualifying the borrower. See the “Undisclosed Debts” subtopic subsequently presented in this topic for premiums, leasehold payments, homeowners association dues (excluding unit utility charges) additional guidance.  The borrower's liabilities must be reflected on the mortgage application (Form 65, Uniform Residential  When the borrower pays off or pays down an existing debt (including paying down the principal balance Loan Application) and considered when qualifying the borrower. Lenders must review the mortgage on the mortgage being refinanced) in order to qualify for the mortgage, the lender must document the application, credit report, borrower's paystubs (if provided) and other file documentation for borrower source of funds used to pay off or pay down the debt. The source of funds must be an eligible source as liabilities. All of the borrower's debts incurred through the note date must be considered when described in the “Assets” subtopic previously outlined in this document. qualifying the borrower. See the “Undisclosed Debts” subtopic subsequently presented in this topic for additional guidance.  The maximum DTI ratio is 50%.  When the borrower pays off or pays down an existing debt (including paying down the principal balance  For transactions with a non-occupant borrower, the lender is not required to calculate or evaluate the on the mortgage being refinanced) in order to qualify for the mortgage, the lender must document the occupant borrower’s monthly debt payment-to-income ratio separately. source of funds used to payoff or pay down the debt. The source of funds must be an eligible source as described in the “Cash Requirements” topic previously outlined in this document.

 The maximum DTI ratio is 50%.  For transactions with a non-occupant borrower, the lender is not required to calculate or evaluate the occupant borrower’s monthly debt payment-to-income ratio separately.

Rental Correspondent  Standard Section 2.01 Agency Loan Programs-Guideline Section 2.01 Agency Loan Programs-Guideline Income Section 2.01 Agency Income / Rental Income Income / Rental Income Agency Loan (LPA) Programs-  Agency Plus Freddie Mac LPA Freddie Mac LPA Guideline (LPA) Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows:  Home  Rental income may be used to qualify the borrower, provided the requirements of this section and the  General Eligibility Requirements & Possible® general income documentation requirements previously outlined in this topic are met. Rental income may be  Stable monthly rental income must be generated from acceptable and verifiable sources and must be Mortgage generated from: reasonably expected to continue for at least the next three years. For each income source used to Correspondent (LPA)  a subject 1-unit primary residence, qualify the borrower, the lender must determine that both the source and the amount of the income Section 2.01a  a subject 2- to 4-unit primary residence, are stable. See the “General Requirements for all Stable Monthly Income Qualification Sources” section Fannie Mae  a subject 1- to 4-unit investment property, outlined in the “General Income Information” subtopic previously presented in this document for HomeReady®  investment property owned by the borrower other than the subject property. additional information about income stability and continuance. and  Whenever rental income is to be used, reasonable adjustments to gross rental income must be made to Freddie Mac compensate for vacancies, operating, and maintenance expenses and rental income received for furniture.  Rental Income Eligibility Home  If the borrower owned a rental property during the previous tax year, the borrower’s federal individual  Rental income generated from the following property and occupancy types may be considered Possible® income tax returns must be obtained to determine the net rental income or loss for qualifying. In some when determining the stable monthly income: Mortgages instances, the income reported on the borrower's federal individual tax returns may not reflect the property's  1-unit primary residence (rental income is eligible from a live-in aide) current rental value (i.e., the tax returns show large one-time expenses or the property was under  Subject 2- to 4-unit primary residence (rental income is eligible from units that are not

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Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 renovation). In these instances, federal individual tax returns must be obtained; however, Form 998, occupied by the borrower) Operating Income Statement, may be used to determine rental income. The lender must explain the reasons  Subject 1- to 4-unit investment property for not using the income or loss from the federal individual tax returns to determine rental income, in the  Non-subject investment property owned by the borrower (not restricted to residential mortgage file. property [e.g., commercial permitted])

Topic Eligibility and Documentation Requirements  Accessory Units Rental Income From the See the “Boarder Income” subtopic for guidance  When determining stable monthly income, rental income generated from an accessory unit may Subject 1-unit Primary be considered for: Residence  Subject 1-unit investment property Rental Income From the  Rental income from unit(s) in the borrower's 2‐ to 4‐unit primary  Non-subject investment property Subject 2- to 4-unit residence that are not occupied by the borrower may be used to qualify  The rental income requirements in this subtopic must be met. Primary Residence the borrower.  If rental income from the subject 2‐ to 4‐unit primary residence is being References: used to qualify the borrower, the following requirements apply:  See the “Rental Income from the Borrower’s 1-unit Primary Residence” section outlined below for  The lender must obtain and use Form 998 unless the subject information relating to rental income eligibility for a 1-unit primary residence with an accessory property has been owned for at least one year and is reported on unit. Schedule E of the borrower's prior year federal individual income  See “Property with an Accessory Unit” in the “Improvements Section of the Appraisal Report” tax return. If income from the subject property is reported on the subtopic, outlined in the “Appraisal Analysis: Agency Loan Programs” topic, within Section 1.07: borrower's federal individual income tax returns the lender must Appraisal Guidelines for the property eligibility and appraisal requirements related to an accessory use Schedule E to determine the net rental income. unit for the subject property.  If Form 998 is used to determine rental income, it must be completed up to the Monthly Operating Income (MOI)  Second Homes reconciliation.  Rental income generated from the borrower's second home may not be used as stable monthly  The lender must substantiate the rental income using the income income. approach on the appraisal and copies of the present lease(s), if applicable, must support the rental income used to qualify the  Rental Income from the Borrower's 1-unit Primary Residence borrower.  The following chart contains requirements related to rental income from a borrower's 1-unit primary  The Form 998 is not required if rental income from the subject property residence: is not considered in qualifying the borrower.  Regardless of whether rental income is used in qualifying the borrower, 1-Unit Primary Residence Rental Income Eligibility Requirements the ULDD Data Point Property Dwelling Unit Eligible Rent Amount for Eligibility Rental income generated from the borrower's 1-unit primary residence, each non‐owner occupied unit in a 2‐ to 4‐unit primary residence must including rental income from an accessory unit, may be used to qualify a be delivered. See the “Primary Residences” subtopic in the borrower with a disability provided the rental income is from a live-in aide. “Occupancy/Property Types” topic previously outlined in this document Typically, a live-in aide will receive room and board payments through for additional guidance. Medicaid waiver funds from which rental payments are made to the  MOI from the Form 998 or net rental income from Schedule E is entered borrower. under "Gross Monthly Income" in Section V of the Form 65, Uniform Documentation Evidence that the borrower has received stable rental income from a live-in Residential Loan Application, and may be considered as stable monthly aide for the most recent 12 months income in qualifying the borrower, provided the borrower meets the Qualification The rental income may be considered in an amount up to 30% of the total reserve requirement. stable monthly income that is used to qualify the borrower for the mortgage  If MOI or net rental income from Schedule E is a negative number, it must be included as a liability for qualification purposes.  Rental income from the Borrower's Subject 2- to 4-unit Primary Residence, Subject 1- to 4-unit Investment Rental income from the  If the borrower qualifies with the full monthly payment amount (as Property and Non-subject Investment Property subject 1‐ to 4‐unit described in the “Qualifying Ratios” subtopic subsequently presented in  This section contains requirements and guidance for the history, documentation, analysis, calculation Investment Property this document) plus operating expenses for the subject investment and determination of stable monthly net rental income. property included in the borrower's monthly debt payment‐to‐income  Appraisal Form Documentation and Analysis ratio, no further evaluation or calculation of rental income from the  The following chart contains requirements related to appraisal form documentation and subject property is required and Form 998 is not required. analysis:  The lender must deliver the ULDD Data Point Property Dwelling Unit Last Revision Date: 11/17/2017 (Correspondent) Page 13 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 Eligible Rent Amount for each 1-unit investment property and each unit Appraisal Forms – Comparable Rent Data in a 2‐ to 4‐unit investment property regardless of whether rental Subject Subject 1-unit Investment Subject 2- to 4-unit Primary income from the subject investment property is being used to qualify the Properties Residences borrower. See the “Investment Properties” subtopic in the & “Occupancy/Property Types” topic previously outlined in this document Subject 2- to 4-unit Investment for additional guidance. Properties  If rental income from the subject investment property is to be Documentation Form 1000, Single Family Form 72, Small Residential considered in qualifying the borrower, the following requirements apply: Comparable Rent Schedule Income Property Appraisal Report  The lender must obtain and use Form 998 unless the subject Analysis The lender’s analysis of the rental information must include, at a property has been owned for at least one year and is reported on minimum, the following factors: the Schedule E of the borrower's prior year federal individual  Rental market viability and income producing potential for income tax return. If income from the subject property is reported subject property on the borrower's federal individual income tax returns, the lender  Whether the current market rents reasonably support the must use Schedule E to determine the net rental income. If Form gross rents reported on Schedule E or the gross monthly 998 is used, it must be completed up to the MOI reconciliation. lease income, if applicable.  The income approach on the appraisal and copies of the present leases, if applicable, must support the rental income used to qualify If the current market rents do not reasonably support the the borrower. gross rents reported on Schedule E or the gross monthly  If the Net Cash Flow shown on the Form 998 or net rental income from lease income, the lender must: Schedule E of the borrower's tax returns is a positive number, that figure  Determine if additional documentation is necessary to may be entered as rental income in the "Gross Monthly Income" section support income stability, and of Form 65 and may be considered stable monthly income.  Provide a written analysis explaining the discrepancy  If the Net Cash Flow shown on the Form 998 or net rental income from and justifying the determination that the rental Schedule E of the borrower's tax returns is a negative number, it must be income used to qualify the borrower is stable and included as a liability for qualification purposes. reasonably expected to continue Rental Income from  Rental income from investment properties that are owned by the Investment Property borrower, other than the subject property, must be shown in the  Documentation, History and Analysis Owned by the Borrower "Schedule of Real Estate Owned" in Section VI of Form 65.  The following charts contain requirements and guidance for documentation, history and Other than the Subject  When rental income from other investment properties owned by the analysis. Property borrower in the previous tax year is reported on the borrower's federal individual income tax returns, the lender must use Schedule E of the Subject Subject Property Purchase Subject Property Refinance borrower's tax returns to determine the net rental income. Signed Transaction Transaction OR Non-Subject leases may be used to determine the net rental income for an Investment Property investment property not owned during the previous tax year.  Property Purchased in the  Additionally, signed leases may be used to substantiate gross rents that Current Calendar Year, or are higher than the rental income documented on the tax returns;  Property Placed in Service however, no more than 75% of the gross rental income from the signed for Use as a Rental leases may be used, unless the prior two years federal individual income Property in the Current tax returns clearly support the use of a higher percentage. Calendar Year  The aggregate net rental loss must be considered a liability for Documentation  A lease, if available, must  Lease must be used to qualification purposes. and Analysis be used to determine the determine the net rental  Aggregate net rental income may be counted as stable monthly income, net rental income. The income provided the reliability of receipt is clearly supported by the (For lender must make  Purchase date or documentation in the loan file. Streamlined reasonable efforts to conversion date, as Accept and determine lease applicable, must be Standard availability, including documented Documentation review of the appraisal, Levels) comparable rent data, purchase contract, a Last Revision Date: 11/17/2017 (Correspondent) Page 14 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 discussion with the borrower and/or any other applicable and reasonable method OR  If a lease is not available, Forms 72 or 1000, as applicable, may be used to determine the net rental income  The rental income may not be used to qualify if the lender has knowledge, information or documentation that indicates that the borrower does not intend to utilize a lease with a minimum term of one-year for the rental income source Lease Leases must be current and fully executed, with a minimum original Requirements term of one year. If the lease is documented as assigned from the property seller to the borrower and is in the automatically renewable month-to-month phase of an original one-year (or longer) term lease, then a month-to-month term is acceptable. Investment  The borrower must have a minimum one-year history of Property investment property management experience occurring Management within the most recent 36 months. The management Experience and experience must be documented with at least the most recent Maximum year of complete federal income tax returns for which the Eligible investment property was in service. Amount of Net OR Rental Income  The net rental income, as described in this section, may only be considered in an amount up to 30% of the sum of the net rental income and all other stable monthly income (e.g., employment earnings) that is used to qualify the borrower for the mortgage

If there are multiple properties that are subject to the 30% requirement (e.g., a subject property purchase transaction and a non-subject investment property purchased in the current calendar year), the 30% requirement applies to the combined total of net rental income.

Examples of how to apply these calculations are shown in the following chart:

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Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017

Examples: Calculations of the maximum amount of net rental income that is eligible to be included in the stable monthly income Employment Net Sum of Net Calculation Eligible Earnings Rental Rental Net Income Income Plus Rental Employment Income Earnings

$5,000 $1,500 $6,500 $6,500 x $1,500 30% = $1,950 $2,500 $2,625 $5,125 $5,125 x $1,537.50 30% = $1,537.50

 The lender must review the following documentation options and determine which is the most appropriate to establish and support the stable monthly net rental income based on the individual transaction.

Option 1: One-Year Tax Return and Current Lease Subject  Subject Property: Refinance Transaction Owned in the Prior Calendar Year(s)  Non-Subject Investment Property: Owned in the Prior Calendar Year(s) Option 1 is for long-term rental income sources (e.g., lease with at least a one-year term). It requires a current lease, which lends support to income stability and continuance, so a shorter documented history (one-year tax return) is acceptable. Documentation  Complete federal individual income tax return (Internal Revenue Service (IRS) Form 1040), including Schedule E, for (For the most recent year, and Streamlined  Current, fully executed lease with an original minimum term Accept and of at least one-year. If the lease is in the automatically Standard renewable month-to-month phase of an original one-year (or Documentation longer) term lease, then a month-to-month term is Levels) acceptable.

 The lender may determine that the rental income is

stable without obtaining the current lease if:

 The fair rental days reported on Schedule E for the

most recent year document rental income

consistent with a long-term lease (e.g., 360 days)

 The tax returns are no more than six months old

based on the ending date of the last tax year, and

 No information is present that would contradict a

reasonable expectation of income stability,

continuance or current receipt of rental income

from a lease

Sufficient  If the lender determines that the information on Schedule E Last Revision Date: 11/17/2017 (Correspondent) Page 16 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 Historical Data contains sufficient historical data to analyze and determine on Schedule E stable net rental income and expenses, the Schedule E must be used to calculate the net rental income.  A 12-month history of income and expenses reported on Schedule E is generally required to establish a stable net rental income amount; however, the lender may determine that less than a 12-month history is sufficient based on the analysis of the historical data on Schedule E.

Insufficient If the lender determines that the information reported on Historical Data Schedule E does not contain sufficient historical data to analyze on Schedule E and determine the rental income and expenses, the lender may determine that the use of a lease is more appropriate to establish the income amount.  For example, the lender may determine that there is insufficient historical information on Schedule E when:  The rental property is documented as purchased later in the prior calendar year  A documented catastrophic event or major renovation occurred causing the property to be out of service for a portion of the year

 The source of the rental income changed from a source

without a lease (e.g., short-term rental income) to a

one-year term lease during the calendar year

 When the lease is used to determine net rental income:

 The gross monthly rent amount on the lease must be

consistent with the gross rents received on Schedule E

(based on the annualized amount of fair rental days

reported on Schedule E)

 The lender must provide a written analysis and

supporting documentation, if applicable, justifying the

use of the lease to determine the net rental income

Analysis When evaluating stability of net rental income, the lender must analyze:  The length of historical data for the rental income source and amount, expenses, and  Whether the gross rents on the lease, if present, are consistent with the rents received on Schedule E

Option 2: Two Year's Tax Returns Subject  Subject Property: Refinance Transaction Owned in the Prior Calendar Year(s)  Non-Subject Investment Property Owned in the Prior Calendar Year(s) Option 2 is for short-term rental income sources (e.g., rental income from a source where a lease is not utilized, lease with less than a one-year term). Short-term rental income sources may be more volatile than long-term rental income sources, so a longer documented history (two year's tax returns) is required to support income stability and continuance. Documentation  Complete federal individual income tax returns (IRS Form Last Revision Date: 11/17/2017 (Correspondent) Page 17 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 1040), including Schedule E, for the most recent two years (For  If the tax returns are more than six months old based on the Streamlined ending date of the last tax year: Accept and  A current year-to-date (YTD) gross rental income Standard statement from the independent third party (i.e., Documentation company that collects rents and disburses same to Levels) borrower), and year-end statement or IRS Form 1099-K, Payment Card and Third Party Network Transactions, if applicable, that supports the gross rental income and source reported on the tax returns is required OR  If a gross rental income statement is not provided to the borrower, other equivalent supporting documentation must be obtained to justify the stability of the rental income

Rental Income Reported on Schedule C: If short-term rental income is reported on Schedule C instead of Schedule E (e.g., due to tax rule interpretations), the lender may determine the rental income is stable if all requirements in this section are met. Length of  A 24-month history of income and expenses reported on History Schedule E is generally required to establish a stable net Requirement rental income amount  The same short-term source must have been producing the rental income and the property must have been used for the purposes of producing rental income for this period of time  IRS Form 4562, Depreciation and Amortization, is an example of documentation that may be used to determine the date the property was placed in service for use as a rental property for the purposes of producing rental income

Less than a 24-  In certain instances, the lender may determine that less than

month History a 24-month history of rental income and expenses from the

Reported on same source reported on the Schedule E is sufficient to

the Tax Returns determine a stable net rental income amount.

 The history reported on Schedule E for the most recent year

must not be less than 12 months. The overall documented

history of income and expenses, and length of time the

property has been used for the purposes of producing rental

income, must not be less than 18 months.

 The lender must provide a written analysis and supporting

documentation justifying a history of less than 24 months

reported on Schedule E.

 The following examples represent situations that may

support less than a 24-month history of income and expenses reported on the Schedule E:

 The borrower purchased and placed the rental property in service 20 months ago; however, the tax returns only reflect a 12-month history of income and expenses Last Revision Date: 11/17/2017 (Correspondent) Page 18 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 from the same source. The borrower receives a YTD gross rental income statement from an independent third party (i.e., a company that collects rents and disburses same to borrower) that supports the gross rental income and source reported on the tax returns and an overall 18-month history of income stability.  Documentation evidences: (a) a tax return extension has been filed for the most recent calendar year; however, the tax returns from prior years evidence a 15-month history of rental income and expenses from the same source, and (b) IRS Form 1099-K, Payment Card and Third Party Network Transactions, for the most recent calendar year and the YTD gross rental income statement (as described directly above) support the gross rental income and source reported on the tax returns, supporting continued income stability from the same source. Analysis  When evaluating stability of rental income, the lender must analyze the length of historical data for the rental income source, amount and expenses.  The analysis must include factors such as the potential for fluctuation and associated degree of volatility and/or irregularity within the rental income amount and source, and validation that the income is consistently derived from the same type of source, which includes a review of the fair rental days reported on Schedule E, year over year.

For Example:  If the year-over-year review of the fair rental days reported on Schedule E shows a decrease from 350 days (which may be indicative of a lease) to 150 days (potentially indicative of short-term rental income) further analysis would be required to: (i) validate that the income is consistently derived from the same type of source and (ii) support the stability of the rental income source.

 If a significant degree of volatility or irregularity is present, (e.g., year over year), additional analysis is required and additional documentation may be necessary to determine income stability.

 Net Rental Income Calculation Requirements

 The following chart contains requirements pertaining to net rental income calculation.

Net Rental Income

Rental Income Calculation Requirements

Source

Lease 75% of the gross monthly rent or gross monthly market rent. Last Revision Date: 11/17/2017 (Correspondent) Page 19 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 Forms 72 or 1000 The 25% adjustment is made to compensate for vacancies, operating and maintenance costs and any other unexpected expenses. Schedule E The net rental income for each individual property is determined based on the history of income and expenses reported on Schedule E. Calculate the net rental income from Schedule E using Form 92, Net Rental Income Calculations – Schedule E, or a similar alternative form, as follows:

Rents received - Less total expenses Add back the following expenses: + Insurance + Mortgage interest paid to banks, etc. + Taxes (real estate taxes only) + Depreciation and/or depletion + Homeowners association dues (if specifically reported as an expense) + One time losses (e.g., casualty loss due to documented catastrophic event);

Result: Net rental income (calculated to a monthly amount)

When calculating the net rental income for each individual property, the following expenses reported on Schedule E (and noted above) can only be added back if they are included in the payment amount being used to establish the debt payment-to-income ratio for that property: insurance, mortgage interest paid to banks, real estate taxes, homeowners association dues.

 Establishing the Debt Payment-to-Income Ratio  The following chart contains requirements pertaining to establishing the debt payment-to-income ("DTI") ratio.

Debt Ratio Using Net Rental Income Subject Requirements Net Rental Income When establishing the DTI ratio, refer to “Net Rental Income Amount and Usage Calculation Requirements” section immediately presented above, for the net rental income calculation requirements.

See “Documentation, History, and Analysis” in the section outlined above, for additional requirements about rental property management experience and maximum amount of eligible net rental income.

Subject 2- to 4-unit  The monthly housing expense (as described in the “Qualifying

Primary Residence Ratios” subtopic subsequently outlined in this document)

must be added as a liability

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Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017  The net rental income may be added to the stable monthly income Subject 1- to 4-unit Subtract the monthly payment amount (as described in the Investment Property “Qualifying Ratios” subtopic subsequently outlined in this document) from the net rental income:  If the result is positive, add it to the stable monthly income  If the result is negative, add it to the monthly liabilities Rental Income from Non- Subtract the monthly payment amount (as described in the Subject Investment “Qualifying Ratios” subtopic subsequently outlined in this

Property Owned by the document) from the net rental income: Borrower  If the result is positive, add it to the stable monthly income  If the result is negative, add it to the monthly liabilities

For multiple non-subject investment properties, apply the calculation above to each property, and:  If the combined result is positive, add it to the stable monthly income  If the combined result is negative, add it to the monthly liabilities

 IRS Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation  See the “Self-Employed Income” subtopic subsequently outlined in this document for guidance related to the treatment of all rental real estate income or loss reported on the IRS Form 8825, which reflects all income and expenses for the rental property and the IRS Schedule K-1, which reflects the borrower's proportionate share of the net rental income or loss. The requirements outlined in the “Self-Employed Income” subtopic are applicable regardless of the borrower's percentage of ownership interest in the partnership or S-corporation and regardless of whether the borrower is personally obligated on the note.

 Data Delivery Requirements for Rental Income

 Regardless of whether rental income from the subject investment property is being used to qualify the borrower, the lender must deliver the ULDD Data Point Property Dwelling Unit Eligible Rent Amount for:  Subject 1-unit investment property  Each non-owner occupied unit in a 2- to 4-unit primary residence  Each unit in a subject 2- to 4-unit investment property

Reference: See “Investment Properties” and “Primary Residences” in the “Occupancy/Property Types” subtopic previously outlined in this document for additional information.

Section 2.01a Fannie Mae HomeReady® and Freddie Mac Home Possible® Mortgages Section 2.01a Fannie Mae HomeReady® and Freddie Mac Home Possible® Mortgages Income / Boarder Income Income / Boarder Income

Freddie Mac LPA Freddie Mac LPA Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows:  Rental income from a 1-unit primary residence may be considered as stable monthly income provided it  Rental income from a 1-unit primary residence may be considered as stable monthly income provided it meets the boarder income guidelines outlined in Section 2.01: Agency Loan Programs or the following: meets the “Rental Income from the Borrower's 1-unit Primary Residence” guidelines outlined in the “Rental  Connection with Borrower. The person providing the rental income and the borrower: Income” subtopic within Section 2.01: Agency Loan Programs or the following: Last Revision Date: 11/17/2017 (Correspondent) Page 21 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017  Have resided together for at least one year  Connection with Borrower. The person providing the rental income and the borrower:  Will continue residing together in the new residence, and  Have resided together for at least one year  The person providing the rental income provides appropriate documentation to evidence  Will continue residing together in the new residence, and residency with the borrower (i.e., copy of a driver's license, bill, bank statement, etc., that shows  The person providing the rental income provides appropriate documentation to evidence the address of that person to be the same as the borrower's address) residency with the borrower (i.e., copy of a driver's license, bill, bank statement, etc., that shows  Rental Payment. Rental income from the person residing in the mortgaged premises: the address of that person to be the same as the borrower's address)  Has been paid to the borrower for the past 12 months on a regular basis  Rental Payment. Rental income from the person residing in the mortgaged premises:  Can be verified by the borrower with evidence showing receipt of regular payments of rental  Has been paid to the borrower for the past 12 months on a regular basis income to the borrower for the past 12 months (i.e., copies of cancelled checks)  Can be verified by the borrower with evidence showing receipt of regular payments of rental  Does not exceed 30% of total income used to qualify for the mortgage income to the borrower for the past 12 months (i.e., copies of cancelled checks)  The mortgage file must contain a written statement from the borrower affirming:  Does not exceed 30% of total income used to qualify for the mortgage  The source of the rental income  The mortgage file must contain a written statement from the borrower affirming:  The fact that the person providing the rental income has resided with the borrower for the past  The source of the rental income year and intends to continue residing with the borrower in the new residence for the foreseeable  The fact that the person providing the rental income has resided with the borrower for the past future year and intends to continue residing with the borrower in the new residence for the foreseeable future  Rental income that meets the above requirements may be generated from an accessory unit. In addition, see “Property with an Accessory Unit” in the “Improvements Section of the Appraisal Report” subtopic, outlined in the “Appraisal Analysis: Agency Loan Programs” topic, within Section 1.07: Appraisal Guidelines for the property eligibility and appraisal requirements.

Section 2.01a Fannie Mae HomeReady® and Freddie Mac Home Possible® Mortgages Section 2.01a Fannie Mae HomeReady® and Freddie Mac Home Possible® Mortgages Income / Rental Income from a One-Unit Primary Residence with an Accessory Unit Income / Rental Income from a One-Unit Primary Residence with an Accessory Unit

Non-AUS Non-AUS  Rental income from a one-unit primary residence with an accessory unit is permitted.  Rental income from a one-unit primary residence with an accessory unit is permitted.  See “Accessory Units” in the “Improvements Section of the Appraisal Report” subtopic, outlined in the  See “Documenting Rental Income from the Subject Property” and “Calculating Monthly Qualifying Rental “Appraisal Analysis: Agency Loan Programs” topic within Section 1.07: Appraisal Guidelines for additional Income (or Loss)” in the “Rental Income” subtopic within Section 2.01: Agency Loan Programs for calculation details related to acceptable accessory units. and documentation of rental income requirements for qualifying purposes.

Fannie Mae DU SunTrust Mortgage Note: SunTrust Mortgage provides the following GSE clarification: Follow DU requirements, which are the same as non-AUS guidelines.  If the borrower does not have a lease to document rental income, lenders may obtain a Fannie Mae Single-Family Comparable Rent Schedule (Form 1007) from the appraiser. Although the form applies to Freddie Mac LPA a single-family investment property, Fannie Mae will accept the use of this form with an explanation Follow LPA requirements, which are as follows: from the appraiser that the estimated market rent is for the rental of an accessory unit on a 1-unit,  Rental income from a one-unit primary residence with an accessory unit is permitted. All boarder income primary residence property, and that the information reported on the form is specific to the accessory guidelines, previously presented in this document, must be met. unit.  See “Accessory Units” in the “Improvements Section of the Appraisal Report” subtopic, outlined in the “Appraisal Analysis: Agency Loan Programs” topic within Section 1.07: Appraisal Guidelines for additional  See “Accessory Units” in the “Improvements Section of the Appraisal Report” subtopic, outlined in the details related to accessory units. “Appraisal Analysis: Agency Loan Programs” topic within Section 1.07: Appraisal Guidelines for additional details related to acceptable accessory units.

Fannie Mae DU Follow DU requirements, which are the same as non-AUS guidelines.

Freddie Mac LPA See the “Boarder Income” subtopic previously presented in this document for guidance.

Last Revision Date: 11/17/2017 (Correspondent) Page 22 of 23 Agency Guideline Revisions Note: SunTrust Mortgage specific overlays are underlined.

Impacted Impacted Revised Guidelines Topic Current Guidelines Document Products Effective for NEW Loan Applications ON OR AFTER November 17, 2017 Second Correspondent  Standard Occupancy/Property Types Occupancy/Property Types Homes Section 2.01 Agency Second Homes Second Homes Agency Loan (LPA) Programs-  Agency Plus Freddie Mac LPA Freddie Mac LPA Guideline (LPA)  Follow LPA requirements, which are as follows: Follow LPA requirements, which are as follows:  To be eligible, second home mortgages must:  To be eligible, second home mortgages must:  Be secured by a 1-unit property owned by an individual who is also the borrower, occupied by the  Be secured by a 1-unit property owned by an individual who is also the borrower, occupied by the borrower for some portion of the year and the property must be: borrower for some portion of the year and the property must be:  In such a location as to function reasonably as a second home  In such a location as to function reasonably as a second home  Suitable for year-round occupancy  Suitable for year-round occupancy  Available for the borrower's exclusive use and enjoyment  Available for the borrower's exclusive use and enjoyment  The property must not be:  The property must not be:  Subject to any timesharing or other shared ownership arrangement  Subject to any timesharing or other shared ownership arrangement  An ineligible property (e.g., a unit in a Condominium Hotel)  An ineligible property (e.g., a unit in a Condominium Hotel)  Subject to any rental pools or agreements that require the borrower to rent the property,  Subject to any rental pools or agreements that require the borrower to rent the property, give a give a management company control over the occupancy of the property, or involve revenue management company control over the occupancy of the property, or involve revenue sharing sharing between any owners and the developer or another party. between any owners and the developer or another party.  For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or  Freddie Mac's determination of whether a property is a second home is conclusive. A 2-unit property used as related to the builder, developer or property seller. a second home is considered an investment property and must meet all investment property requirements.  Rental income from the borrower’s second home may not be considered as stable monthly income in  For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or the credit qualification analysis. related to the builder, developer or property seller.  Freddie Mac's determination of whether a property is a second home is conclusive. A 2-unit property  Rental income from the borrower’s second home may not be considered as stable monthly income in the used as a second home is considered an Investment Property and must meet all investment property credit qualification analysis. requirements.  The monthly housing expense related to a borrower's current primary residence must be used in computing the borrower's monthly housing expense-to-income ratio.  The monthly payment amount (as described in the “Qualifying Ratios” subtopic subsequently presented in this document) on the second home must be considered in calculating the borrower's monthly debt payment-to-income ratio.  The reserves requirements outlined in the applicable first mortgage product description must be met.

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